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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 1998
REGISTRATION NO. 333-46983
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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L-3 COMMUNICATIONS HYGIENETICS ENVIRONMENTAL L-3 COMMUNICATIONS SOUTHERN CALIFORNIA
CORPORATION SERVICES, INC. ILEX SYSTEMS, INC. MICROWAVE, INC.
(Exact name of registrant (Exact name of registrant (Exact name of registrant (Exact name of registrant
as specified in its charter) as specified in its charter) as specified in its charter) as specified in its charter)
DELAWARE DELAWARE DELAWARE CALIFORNIA
(State of incorporation) (State of incorporation) (State of incorporation) (State of incorporation)
3812, 3663, 3679 3812, 3663, 3679 3812, 3663, 3679 3812, 3663, 3679
(Primary Standard Industrial (Primary Standard Industrial (Primary Standard Industrial (Primary Standard Industrial
Classification Code Number) Classification Code Number) Classification Code Number) Classification Code Number)
13-3937436 13-3992505 13-3992952
13-0478540
(I.R.S. Employer (I.R.S. Employer (I.R.S. Employer (I.R.S. Employer
Identification Number) Identification Number) Identification Number) Identification Number)
600 THIRD AVENUE 600 THIRD AVENUE 600 THIRD AVENUE 600 THIRD AVENUE
NEW YORK, NEW YORK 10016 NEW YORK, NEW YORK 10016 NEW YORK, NEW YORK 10016 NEW YORK, NEW YORK 10016
(212) 697-1111 (212) 697-1111 (212) 697-1111 (212) 697-1111
(Address, including zip code, (Address, including zip code, (Address, including zip code, (Address,including zip code,
and telephone number, and telephone number, and telephone number, and telephone number,
including area code, of including area code, of including area code, of including area code, of
registrant's principal registrant's principal registrant's principal registrant's principal
executive offices) executive offices) executive offices) executive offices)
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CHRISTOPHER C. CAMBRIA
L-3 COMMUNICATIONS CORPORATION
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
(212) 697-1111
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
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Copies to:
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Vincent Pagano Jr. Kirk A. Davenport
Simpson Thacher & Bartlett Latham & Watkins
425 Lexington Avenue 885 Third Avenue
New York, New York 10017 New York, New York 10022
(212) 455-2000 (212) 906-1200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
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If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. |B^
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |B^
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |B^
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |B^
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |B^
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED NOTE PRICE(1) FEE(2)
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Senior Subordinated Notes due
2008.............................. $150,000,000 100% $150,000,000 $44.250
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Guarantees relating to Notes(3) ... (--) (--) (--) None
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) The registration fee of $44.250 was paid on February 27, 1998.
(3) No separate consideration will be received for the Guarantees.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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EXPLANATORY NOTE
THIS REGISTRATION STATEMENT COVERS THE REGISTRATION OF $150,000,000
AGGREGATE PRINCIPAL AMOUNT OF % SENIOR SUBORDINATED NOTES DUE 2008 (THE
"NOTES") OF L-3 COMMUNICATIONS CORPORATION AND THE GUARANTEE OF THE PAYMENT
OBLIGATIONS UNDER THE NOTES BY THE GUARANTORS. THIS REGISTRATION STATEMENT
ALSO COVERS THE REGISTRATION OF THE NOTES AND THE GUARANTEES FOR RESALE BY
LEHMAN BROTHERS INC. IN MARKET-MAKING TRANSACTIONS. THE COMPLETE PROSPECTUS
RELATING TO THE OFFER (THE "PROSPECTUS") FOLLOWS IMMEDIATELY AFTER THIS
EXPLANATORY NOTE. FOLLOWING THE PROSPECTUS ARE CERTAIN PAGES OF THE PROSPECTUS
RELATING SOLELY TO SUCH MARKET-MAKING TRANSACTIONS (THE "MARKET-MAKING
PROSPECTUS"), INCLUDING ALTERNATE FRONT AND BACK COVER PAGES, AND ALTERNATE
SECTIONS ENTITLED "PROSPECTUS SUMMARY--THE NOTES OFFERING", "USE OF PROCEEDS"
AND "UNDERWRITING". IN ADDITION, THE MARKET-MAKING PROSPECTUS WILL NOT INCLUDE
THE FOLLOWING CAPTIONS (OR THE INFORMATION SET FORTH UNDER SUCH CAPTIONS) IN
THE PROSPECTUS: "PROSPECTUS SUMMARY--CONCURRENT COMMON STOCK OFFERING" AND
"CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS". ALL OTHER SECTIONS OF THE
PROSPECTUS WILL BE INCLUDED IN THE MARKET-MAKING PROSPECTUS.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
Subject to Completion, dated April 3, 1998
PROSPECTUS
$150,000,000
L-3 COMMUNICATIONS CORPORATION LOGO
L-3 COMMUNICATIONS CORPORATION
% SENIOR SUBORDINATED NOTES DUE 2008
INTEREST PAYABLE AND
The % Senior Subordinated Notes due 2008 (the "Notes") are being
offered (the "Notes Offering") by L-3 Communications Corporation ("L-3
Communications"), a wholly-owned subsidiary of L-3 Communications Holdings,
Inc. ("Holdings"). The payment of principal, premium, if any, and interest on
the Notes will be guaranteed (the "Guarantees") on a senior subordinated basis
by all of L-3 Communications' Restricted Subsidiaries, including Hygienetics
Environmental Services, Inc., L-3 Communications ILEX Systems, Inc. and
Southern California Microwave, Inc. (the "Guarantors"), other than Foreign
Subsidiaries. Interest on the Notes will be payable semi-annually on and
of each year, commencing , 1998. The Notes will be redeemable at
the option of L-3 Communications, in whole or in part, at any time on or after
, 2003, at the redemption prices set forth herein, plus accrued and unpaid
interest, if any, to the date of redemption. In addition, prior to , 2001,
L-3 Communications may redeem up to 35% of the aggregate principal amount of
Notes at the redemption price set forth herein plus accrued and unpaid
interest, if any, through the redemption date with the net cash proceeds of
one or more Equity Offerings (as defined). The Notes will not be subject to
any mandatory sinking fund.
In the event of a Change of Control, each holder of Notes will have the
right, at the holder's option, to require L-3 Communications to purchase such
holder's Notes at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase.
See "Description of the Notes".
The Notes will be general unsecured obligations of L-3 Communications,
subordinate in right of payment to all existing and future Senior Debt of L-3
Communications. As of December 31, 1997, after giving pro forma effect to the
1998 Acquisitions and the Offerings, and application of the net proceeds
therefrom, L-3 Communications would have had approximately $433.6 million of
indebtedness outstanding, of which $58.6 million would have been Senior Debt
(excluding letters of credit). See "Capitalization".
Concurrently with the Notes Offering, Holdings is publicly offering in the
United States and internationally shares of its Common Stock, par
value $.01 per share (the "Common Stock"). The closing of the Notes Offering
is conditioned upon the closing of the offering of Common Stock (the "Common
Stock Offering" and, together with the Notes Offering, the "Offerings").
Prior to the consummation of the Common Stock Offering, affiliates of Lehman
Brothers Inc. own 49.0% of the outstanding capital stock of Holdings. See
"Ownership of Capital Stock".
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE NOTES, SEE "RISK FACTORS" BEGINNING ON
PAGE 10.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
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Per Note..... $ $ $
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Total ....... $ $ $
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(1) Plus accrued interest, if any, from the date of issuance to the date of
delivery.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(3) Before deducting expenses payable by the Company estimated at $ .
The Notes are offered, subject to prior sale, when, as and if issued to
and accepted by the Underwriters and subject to certain conditions. It is
expected that delivery of the Notes will be made in book-entry form through
the facilities of The Depository Trust Company, on or about , 1998,
against payment therefor in immediately available funds.
Lehman Brothers BancAmerica Robertson Stephens
, 1998
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[PHOTOGRAPHS OF SELECTED PRODUCTS OF THE COMPANY]
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES OFFERED
HEREBY AT LEVELS WHICH MIGHT NOT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING". IN ADDITION, LEHMAN BROTHERS INC.'S
ABILITY TO MAKE A MARKET IN THE NOTES WILL BE SUBJECT TO THE AVAILABILITY OF
A CURRENT MARKET-MAKING PROSPECTUS.
AVAILABLE INFORMATION
L-3 Communications and the Guarantors have filed with the Commission a
Registration Statement on Form S-1 (together with all amendments, exhibits,
schedules and supplements thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Notes and Guarantees being offered hereby. This Prospectus, which forms
a part of the Registration Statement, does not contain all of the information
set forth in the Registration Statement. For further information with respect
to the Company, the Guarantors, the Notes and Guarantees, reference is made to
the Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete, and,
where such contract or other document is an exhibit to the Registration
Statement, each such statement is qualified by the provisions in such exhibit,
to which reference is hereby made. L-3 Communications is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, files reports and other
information with the Securities and Exchange Commission (the "Commission").
The Registration Statement, such reports and other information can be inspected
and copied at the Public Reference Section of the Commission located at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549 and at
regional public reference facilities maintained by the Commission located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material, including copies of all or any portion of the Registration
Statement, can be obtained from the Public Reference Section of the Commission
at prescribed rates. Such material may also be accessed electronically by means
of the Commission's home page on the Internet (http://www.sec.gov).
So long as L-3 Communications is subject to the periodic reporting
requirements of the Exchange Act, it is required to furnish the information
required to be filed with the Commission to the Trustee and the holders of
the Notes. L-3 Communications has agreed that, even if it is not required
under the Exchange Act to furnish such information to the Commission, it will
nonetheless continue to furnish information that would be required to be
furnished by L-3 Communications by Section 13 of the Exchange Act to the
Trustee and the holders of the Notes as if it were subject to such periodic
reporting requirements.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
As used in this Prospectus, unless the context requires otherwise: (i)
"Holdings" means L-3 Communications Holdings, Inc., (ii) "L-3" or the
"Company" means Holdings, its wholly-owned operating subsidiary, L-3
Communications Corporation, their predecessors, and the businesses acquired
in the 1998 Acquisitions, (iii) "L-3 Communications" means L-3
Communications Corporation, (iv) "L-3 Acquisition" means the purchase of the
Company from Lockheed Martin Corporation in April 1997 described under
"--History", (v) "1998 Acquisitions" means the recently completed acquisition
of STS and the pending acquisitions of ILEX and Ocean Systems described under
"--Recent Developments" and (vi) unless otherwise indicated, "pro forma"
financial data reflect the L-3 Acquisition, the 1998 Acquisitions and the
Offerings as if such transactions had occurred in the beginning of the period
indicated.
THE COMPANY
L-3 is a leading merchant supplier of sophisticated secure communication
systems and specialized communication products including secure, high data
rate communication systems, microwave components, avionics and ocean systems,
and telemetry, instrumentation and space products. These systems and products
are critical elements of virtually all major communication, command and
control, intelligence gathering and space systems. The Company's systems and
specialized products are used to connect a variety of airborne, space,
groundand sea-based communication systems and are incorporated into the
transmission, processing, recording, monitoring and dissemination functions
of these communication systems. The Company's customers include the U.S.
Department of Defense (the "DoD"), selected U.S. government (the
"Government") intelligence agencies, major aerospace/defense prime
contractors, foreign governments and commercial customers. In 1997, L-3 had
pro forma sales of $894.0 million and pro forma EBITDA (as defined in
footnote 5 under "Selected Financial Information") of $95.1 million. The
Company's pro forma funded backlog as of December 31, 1997 was $638.1
million. These results reflect internal growth as well as the execution of
the Company's strategy of acquiring businesses that complement or extend
L-3's product lines.
The Company's business areas enjoy proprietary technologies and
capabilities and have leading positions in their respective primary markets.
Management has organized the Company's operations into two primary business
areas: Secure Communication Systems and Specialized Communication Products.
In 1997, the Secure Communication Systems and Specialized Communication
Products business areas generated approximately $456.0 million and $438.0
million of pro forma sales, respectively, and $52.3 million and $42.8 million
of pro forma EBITDA, respectively. In addition, the Company is seeking to
expand its products and technologies in commercial markets. See "--Emerging
Commercial Products" below.
SECURE COMMUNICATION SYSTEMS. L-3 is the established leader in secure,
high data rate communications in support of military and other national
agency reconnaissance and surveillance applications. The Company's Secure
Communication Systems operations are located in Salt Lake City, Utah, Camden,
New Jersey and Shrewsbury, New Jersey. These operations are predominantly
cost plus, sole source contractors supporting long-term programs for the U.S.
Armed Forces and classified customers. The Company's major secure
communication programs and systems include: secure data links for airborne,
satellite, ground-and sea-based information collection and transmission;
strategic and tactical signal intelligence systems that detect, collect,
identify, analyze and disseminate information and related support contracts
for military and national agency intelligence efforts; as well as secure
telephone and network equipment. The Company believes that it has developed
virtually every high bandwidth data link used by the military for
surveillance and reconnaissance in operation today. L-3 is also a leading
supplier of communication software support services to military and related
government intelligence markets. In addition to these
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core Government programs, L-3 is leveraging its technology base by expanding
into related commercial communication equipment markets, including applying
its high data rate communications and archiving technology to the medical
image archiving market and its wireless communication expertise to develop
local wireless loop telecommunications equipment.
SPECIALIZED COMMUNICATION PRODUCTS. This business area includes (i)
Microwave Components, (ii) Avionics and Ocean Systems and (iii) Telemetry,
Instrumentation and Space Products operations of the Company.
Microwave Components. L-3 is the preeminent worldwide supplier of
commercial off-the-shelf, high performance microwave components and frequency
monitoring equipment. L-3's microwave products are sold under the
industry-recognized Narda brand name through a standard catalog to wireless,
industrial and military communication markets. L-3 also provides
state-of-the-art communication components including channel amplifiers and
frequency filters for the commercial communications satellite market.
Approximately 76% of Microwave Components sales is made to commercial
customers, including Loral Space & Communications, Ltd., Motorola, Inc.
("Motorola"), Lucent Technologies Inc. ("Lucent"), AT&T Corp. ("AT&T") and
Lockheed Martin Corporation ("Lockheed Martin").
Avionics and Ocean Systems. Avionics and Ocean Systems include the
Company's Aviation Recorders, Display Systems, Antenna Systems and Acoustic
Undersea Warfare Systems operations. L-3 is the world's leading manufacturer
of commercial cockpit voice and flight data recorders ("black boxes"). These
recorders are sold under the Fairchild brand name both on an original
equipment manufacturer ("OEM") basis to aircraft manufacturers as well as
directly to the world's major airlines for their existing fleets of aircraft.
L-3's aviation recorders are also installed on military transport aircraft
throughout the world. L-3 provides military and high-end commercial displays
for use on a number of DoD programs including the F-14, V-22, F-117 and E-2C.
Further, L-3 manufactures high performance surveillance antennas and related
equipment for U.S. Air Force, U.S. Army and U.S. Navy aircraft including the
F-15, F-16, AWACS, E-2C and B-2, as well as the U.K.'s maritime patrol
aircraft. L-3 is also one of the world's leading product suppliers of
acoustic undersea warfare systems and airborne dipping sonar systems to the
U.S. and over 20 foreign navies.
Telemetry, Instrumentation and Space Products. The Company's Telemetry,
Instrumentation and Space Products operations develop and manufacture
commercial off-the-shelf, real-time data collection and transmission products
and components for missile, aircraft and space-based electronic systems.
These products are used to gather flight parameter data and other critical
information and transmit it from air or space to the ground. Telemetry
products are also used for range safety and training applications to simulate
battlefield situations. L-3 is also a leading global satellite communications
systems and services provider offering systems and services used in satellite
transmission of voice, video and data.
EMERGING COMMERCIAL PRODUCTS. Building upon its core technical expertise
and capabilities, the Company is seeking to expand into several closely
aligned commercial business areas and applications. Emerging Commercial
Products currently include the following three niche markets: (i) medical
archiving and simulation systems; (ii) local wireless loop telecommunications
equipment; and (iii) airport security equipment. These commercial products
were developed based on technology used in the Company's military businesses
with relatively small incremental financial investments. The Company is
applying its technical capabilities in high data rate communications and
archiving technology developed in its Secure Communication Systems business
area to the medical image archiving market jointly with the General Electric
Company's ("GE") medical systems business ("GE Medical Systems"). Based on
secure, high data rate communication technology also developed in its Secure
Communication Systems business area, the Company has developed local wireless
loop telecommunications equipment that is primarily designed for emerging
market countries and rural areas where voice and data communication
infrastructure is inadequate or non-existent. L-3 has completed the development
phase for the local wireless loop telecommunications equipment and made its
initial shipment in January 1998. In addition, the Federal Aviation
Administration (the "FAA") has awarded
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the Company a development contract for next generation airport security
equipment for explosive detection. L-3 has shipped two prototype test units
and FAA certification testing commenced in the first quarter of 1998. To
date, revenues generated from L-3's Emerging Commercial Products have not
been, in the aggregate, material to the Company.
INDUSTRY OVERVIEW
The defense industry has recently undergone significant changes
precipitated by ongoing federal budget pressures and new roles and missions
to reflect changing strategic and tactical threats. Since the mid-1980's, the
overall U.S. defense budget has declined in real dollars. In response, the
DoD has focused its resources on enhancing its military readiness, joint
operations and digital command and control communications by incorporating
advanced electronics to improve the performance, reduce operating cost and
extend the life expectancy of its existing and future platforms. The emphasis
on system interoperability, force multipliers and providing battlefield
commanders with real-time data is increasing the electronics content of
nearly all of the major military procurement and research programs. As a
result, the DoD's budget for communications and defense electronics is
expected to grow. According to Federal Sources, an independent private
consulting group, the defense budget for command, control, communications and
intelligence ("C(3)I") is expected to increase from $31.0 billion in the
fiscal year ended September 30, 1997 to $42.0 billion in the fiscal year
ended September 30, 2002, a compound annual growth rate of 6.3%.
The industry has also undergone dramatic consolidation resulting in the
emergence of three dominant prime system contractors (The Boeing Company
("Boeing"), Lockheed Martin and Raytheon Company ("Raytheon")). One outgrowth
of this consolidation among the remaining major prime contractors is their
desire to limit purchases of products and sub-systems from one another.
However, there are numerous essential products, components and systems that
are not economical for the major prime contractors to design, develop or
manufacture for their own internal use which creates opportunities for
merchant suppliers such as L-3. As the prime contractors continue to evaluate
their core competencies and competitive position, focusing their resources on
larger programs and platforms, the Company expects the prime contractors to
continue to exit non-strategic business areas and procure these needed
elements on more favorable terms from independent, commercially oriented
merchant suppliers. Recent examples of this trend include divestitures of
certain non-core businesses by AlliedSignal Inc. ("AlliedSignal"), Ceridian
Corporation ("Ceridian"), Lockheed Martin and Raytheon.
The prime contractors' focus on cost control is also driving increased use
of commercial off-the-shelf products for upgrades of existing systems and in
new systems. The Company believes the prime contractors will continue to be
under pressure to reduce their costs and will increasingly seek to focus
their resources and capabilities on major systems, turning to commercially
oriented merchant suppliers to produce sub-systems, components and products.
Going forward, successful merchant suppliers will use their resources to
complement and support, rather than compete with the prime contractors. L-3
anticipates the relationship between the major prime contractors and their
primary suppliers will, as in the automotive and commercial aircraft
industry, develop into critical partnerships encompassing increasingly
greater outsourcing of non-core products and systems by the prime contractors
to their key merchant suppliers and increasing supplier participation in the
development of future programs. Early involvement in the upgrading of
existing systems and the design and engineering of new systems incorporating
these outsourced products will provide merchant suppliers, including the
Company, with a competitive advantage in securing new business and provide
the prime contractors with significant cost reduction opportunities through
coordination of the design, development and manufacturing processes.
BUSINESS STRATEGY
In 1997, management successfully integrated the business units of Lockheed
Martin it acquired in the L-3 Acquisition and enhanced the Company's
operating efficiency through reduced overhead expenses and facility
rationalization. These efforts resulted in improvements in sales,
profitability and competitive
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contract award win rates. Going forward, L-3 intends to leverage its market
position, diverse program base and favorable mix of cost plus to fixed price
contracts to enhance its profitability and to establish itself as the premier
merchant supplier of communication systems and products to the major prime
contractors in the aerospace/defense industry as well as the Government. The
Company's strategy to continue to achieve its objectives includes:
o EXPAND MERCHANT SUPPLIER RELATIONSHIPS. Management has developed
strong relationships with virtually all of the prime contractors, the DoD
and other major government agencies, enabling L-3 to identify business
opportunities and anticipate customer needs. As an independent merchant
supplier, the Company anticipates its growth will be driven by expanding
its share of existing programs and by participating in new programs.
Management identifies opportunities where it believes it will be able to
use its strong relationships to increase its business presence and allow
its customers to reduce their costs. The Company also expects to benefit
from increased outsourcing by prime contractors who in the past may have
limited their purchases to captive suppliers and who are now expected to
view L-3's capabilities on a more favorable basis given its status as an
independent company. L-3's independent status positions it to be the
desired merchant supplier to multiple bidders on prime contract bids. As
an example of the Company's merchant supplier strategy, L-3 equipment is
included in all three prime contractor bids for the Airborne Standoff
Radar ("ASTOR") program in the United Kingdom and both prime contractor
bids for the DoD's Joint Air Surface Standoff Missile ("JASSM") program.
o SUPPORT CUSTOMER REQUIREMENTS. A significant portion of L-3's sales
are derived from high-priority, long-term programs and from programs for
which the Company has been the incumbent supplier, and in many cases acted
as the sole provider, over many years. Approximately 65% of the Company's
total pro forma 1997 sales were generated from sole source contracts.
L-3's customer satisfaction and excellent performance record are evidenced
by its performance-based award fees exceeding 90% on average over the past
two years. Management believes prime contractors will increasingly award
long-term, sole source, outsourcing contracts to the merchant supplier
they believe is most capable on the basis of quality, responsiveness,
design, engineering and program management support as well as cost.
Reflecting L-3's strong competitive position, the Company (excluding the
1998 Acquisitions) has experienced a contract award win rate in 1997 in
excess of 60% on new competitive contracts for which it competes and in
excess of 90% on contracts for which it is the incumbent. The Company
intends to continue to align its research and development, manufacturing
and new business efforts to complement its customers' requirements and
provide state-of-the-art products.
o ENHANCE OPERATING MARGINS. Since the L-3 Acquisition in April 1997,
management has reduced corporate administrative and facilities expenses,
increased sales and improved competitive contract award win rates.
Enhancement of operating margins was primarily due to efficient management
and elimination of significant corporate expense allocations which existed
prior to the L-3 Acquisition. Pro forma EBITDA (excluding the 1998
Acquisitions) as a percentage of sales improved from 12.5% in 1996 to
13.4% in 1997. Management intends to continue to enhance its operating
performance by reducing overhead expenses, continuing consolidation and
increasing productivity.
o LEVERAGE TECHNICAL AND MARKET LEADERSHIP POSITIONS. L-3 has developed
strong, proprietary technical capabilities that have enabled it to capture
a number one or two market position in most of its key business areas,
including secure, high data rate communications systems, solid state
aviation recorders, telemetry, instrumentation and space products,
advanced antenna systems and high performance microwave components. Over
the past three years, the Company, on a pro forma basis, has invested over
$150.0 million in Company-sponsored independent research and development,
including bid and proposal costs, in addition to making substantial
investments in its technical and manufacturing resources. Further, the
Company has a highly skilled workforce including approximately 2,000
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engineers. Management is applying the Company's technical expertise and
capabilities into several closely aligned commercial business areas and
applications, such as medical imaging archive management, wireless
telephony and airport security equipment and will continue to explore
other similar commercial opportunities.
o MAINTAIN DIVERSIFIED BUSINESS MIX. The Company enjoys a diverse
business mix with a limited program exposure, a favorable balance of cost
plus and fixed price contracts, a significant sole source follow-on
business and an attractive customer profile. The Company's largest
program, representing 13% of 1997 pro forma sales, is a long-term, sole
source, cost plus contract for the U-2 Program. No other program
represented more than 7% of pro forma 1997 sales. Further, the Company's
pro forma sales mix of contracts in 1997 was 36% cost plus and 64% fixed
price, providing the Company with a favorable mix of predictable
profitability (cost plus) and higher margin (fixed price) business. L-3
also enjoys an attractive customer mix of defense and commercial business,
with DoD related sales accounting for 62% and commercial and federal
(non-DoD) sales accounting for 38% of 1997 pro forma sales. The Company
intends to leverage this favorable business profile to expand its merchant
supplier business base.
o CAPITALIZE ON STRATEGIC ACQUISITION OPPORTUNITIES. Recent industry
consolidation has essentially eliminated traditional middle-tier
aerospace/defense companies. This level of consolidation is now beginning
to draw the concern of the DoD and federal anti-trust regulators. In 1997,
a number of mezzanine companies were sold: Computing Devices International
division of Ceridian to General Dynamics Corp. ("General Dynamics"), Kaman
Sciences Corp. ("Kaman Sciences") to ITT Industries, Inc. ("ITT"), BDM
International, Inc. ("BDM") to TRW Inc. ("TRW") and TASC Inc., a
subsidiary of Primark Corporation, to Litton Industries, Inc. ("Litton").
As a result, the Company anticipates that the consolidation of the smaller
participants in the defense industry will create attractive complementary
acquisition candidates for L-3 in the future as these companies continue
to evaluate their core competencies and competitive position. L-3 intends
to vertically enhance its product base through internal research and
development efforts as well as selective acquisitions and horizontally add
to its product base through acquisitions in areas synergistic with L-3's
present technology. The Company seeks to acquire potential targets with
the following criteria: (i) significant market position in its business
area, (ii) product offerings which complement and/or extend those of L-3
and (iii) positive future growth and earnings prospects.
RECENT DEVELOPMENTS
Since the formation of the Company in April 1997, the Company has actively
pursued its acquisition strategy. The Company recently purchased the assets
and liabilities of three businesses described below which collectively
comprise the "1998 Acquisitions". The combined purchase price for the 1998
Acquisitions was $146.4 million of cash, subject to certain post-closing
adjustments, and in one case certain additional consideration based on
post-closing performance. The Company has financed these acquisitions through
the use of its existing cash balances as well as through borrowings under the
$375.0 million Senior Credit Facilities (as defined). See "Description of
Certain Indebtedness -- Senior Credit Facilities". These three businesses
complement and extend L-3's product offerings.
Ocean Systems
On March 30, 1998, L-3 Communications purchased the assets of the Ocean
Systems business ("Ocean Systems") of AlliedSignal for $67.5 million in cash.
In 1997, Ocean Systems had sales of $73.0 million. Ocean Systems is one of
the world's leading products suppliers of acoustic undersea warfare systems,
having designed, manufactured and supported a broad range of compact,
lightweight, high performance acoustic systems for navies around the world
for over 40 years. Ocean Systems is the leading products supplier of airborne
dipping sonar systems in the world with substantial market share of the
sector and systems in service with the U.S. and 20 foreign navies. Ocean
Systems also produces several sea systems products including towed array
sonar, integrated side-looking sonar, acoustic jammers, mine
5
<PAGE>
detection and torpedo defense systems and supplies commercial navigation and
hydrographic survey systems worldwide. Ocean Systems is further supported by
its ELAC Nautik GmbH ("ELAC") operations located in Kiel, Germany. ELAC
manufactures a broad range of naval defense products including submarine,
torpedo and navigation sonars as well as survey and navigation systems for
the commercial nautical products industry. Ocean Systems expands L-3's
leading products and capabilities into the undersea and anti-submarine
warfare market place.
ILEX Systems
On March 4, 1998, L-3 Communications purchased the assets of ILEX Systems
("ILEX") for $51.9 million in cash, subject to adjustment based on closing
net assets, plus additional consideration based on post-closing performance
of ILEX, which could include the issuance of up to 540,000 shares of Common
Stock over the next three years. In 1997, ILEX had sales of $63.5 million.
ILEX is a leading supplier of communication software support services to
military and related government intelligence markets. ILEX also provides
environmental consulting, software and systems engineering services and
complementary products to several commercial markets. ILEX complements L-3's
Secure Communication Systems business area by adding software expertise in
critical C(3)I programs and increasing the number of the Company's skilled
workforce by adding approximately 500 software system engineers and
scientists.
Satellite Transmission Systems
On February 5, 1998, L-3 Communications purchased the assets of the
Satellite Transmission Systems division ("STS") of California Microwave, Inc.
for $27.0 million, subject to adjustment based on closing net assets. For the
fiscal year ended June 30, 1997, STS had sales of $68.0 million. STS is a
leading global satellite communications systems and services provider. Its
customers include foreign post, telephone and telegraph administrations,
domestic and international prime communications infrastructure contractors,
telecommunications and satellite service providers, broadcasters and
media-related companies, government agencies and large corporations. STS
expands L-3's ability to apply its products and provides networking
capability to L-3's wireless communications products business. STS also opens
new opportunities in broader, international markets.
The Company considers and executes strategic acquisitions on an ongoing
basis and may be evaluating acquisitions or engaged in acquisition
negotiations at any given time. As of the date hereof, the Company has
completed, has reached agreement on or is in discussions regarding certain
acquisitions, in addition to the 1998 Acquisitions, that are either
individually or in the aggregate not material to the financial condition or
results of operations of the Company.
HISTORY
Holdings and L-3 Communications were formed in April 1997 by Mr. Frank C.
Lanza, the former President and Chief Operating Officer of Loral Corporation
("Loral"), Mr. Robert V. LaPenta, the former Senior Vice President and
Controller of Loral (collectively, "Senior Management"), Lehman Brothers
Capital Partners III, L.P. and its affiliates (the "Lehman Partnership") and
Lockheed Martin to acquire (the "L-3 Acquisition") substantially all of the
assets and certain liabilities of (i) nine business units previously
purchased by Lockheed Martin as part of its acquisition of Loral in April
1996 (the "Loral Acquired Businesses") and (ii) one business unit,
Communication Systems -- East (formerly known as Communication Systems --
Camden), purchased by Lockheed Martin as part of its acquisition of the
aerospace business of GE ("GE Aerospace") in April 1993 (collectively, the
"Businesses"). L-3 Communications is a wholly-owned subsidiary of Holdings.
At March 31, 1998, Messrs. Lanza and LaPenta and certain other members of
management collectively owned 17.8%; the Lehman Partnership owned 49.0%; and
Lockheed Martin owned 33.2% of the outstanding capital stock of Holdings.
6
<PAGE>
THE NOTES OFFERING
Capitalized terms used under this heading "The Notes Offering" have been
defined under the heading "Description of the Notes -- Certain Definitions."
Securities Offered ............ $150,000,000 aggregate principal amount of
% Senior Subordinated Notes due 2008 (the
"Notes").
Maturity ...................... , 2008.
Interest Payment Dates ........ and , commencing , 1998.
Guarantees .................... The Notes will be unconditionally guaranteed
on a senior subordinated basis by each
Restricted Subsidiary (as defined), other
than Foreign Subsidiaries (as defined). The
Guarantees will be unsecured senior
subordinated obligations of the Guarantors,
and will be subordinated in right of payment
to all existing and future Guarantor Senior
Debt (as defined) and will rank pari passu
with any senior subordinated Indebtedness of
the Guarantors and senior in right of
payment to all subordinated obligations of
the Guarantors.
Optional Redemption ........... The Notes may be redeemed at the option of
L-3 Communications, in whole or in part, on
or after , 2003, at the redemption
prices set forth herein, plus accrued and
unpaid interest, if any, to the date of
redemption.
In addition, prior to , 2001, L-3
Communications may redeem up to an aggregate
of 35% of the Notes originally issued at a
redemption price of % of the principal
amount thereof, plus accrued and unpaid
interest, if any, to the date of redemption,
with the net cash proceeds of one or more
Equity Offerings (as defined); provided,
however, that at least 65% in aggregate
principal amount of the Notes originally
issued remain outstanding following such
redemption.
Change of Control ............. In the event of a Change of Control (as
defined), the holders of the Notes will have
the right to require L-3 Communications to
purchase their Notes at a price equal to
101% of the aggregate principal amount
thereof, plus accrued and unpaid interest,
if any, to the date of purchase.
Ranking ....................... The Notes will be general unsecured
obligations of L-3 Communications,
subordinate in right of payment to all
current and future Senior Debt including all
obligations of L-3 Communications and its
subsidiaries under the Senior Credit
Facilities (as defined). At December 31,
1997, on a pro forma basis after giving
effect to the L-3 Acquisition, the 1998
Acquisitions and the Offerings, L-3
Communications would have had $433.6 million
of indebtedness outstanding, of which $58.6
million would have been Senior Debt
(excluding letters of credit). Borrowings
under the Senior Credit Facilities will be
7
<PAGE>
secured by substantially all of the assets
of L-3 Communications as well as the capital
stock of L-3 Communications and its
subsidiaries. See "Risk Factors --
Substantial Leverage" and "--Subordination".
Covenants ..................... The Indenture pursuant to which the Notes
will be issued (the "Indenture") will
contain certain covenants that, among other
things, limit the ability of L-3
Communications and its Restricted
Subsidiaries to incur additional
Indebtedness and issue preferred stock, pay
dividends or make other distributions,
repurchase Equity Interests (as defined) or
subordinated Indebtedness, create certain
liens, enter into certain transactions with
affiliates, sell assets of L-3
Communications or its Restricted
Subsidiaries, issue or sell Equity Interests
of L-3 Communications' Restricted
Subsidiaries or enter into certain mergers
and consolidations. In addition, under
certain circumstances, L-3 Communications
will be required to offer to purchase Notes
at a price equal to 100% of the principal
amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase,
with the proceeds of certain Asset Sales (as
defined). See "Description of the Notes".
Taxation ...................... For a discussion relating to tax
consequences of investment in the Notes, see
"United States Federal Tax Considerations".
Use of Proceeds ............... The Company intends to use the net proceeds
from the Notes Offering, together with the
net proceeds from the Common Stock Offering
contributed to L-3 Communications, to repay
a substantial portion of its existing
indebtedness under the Senior Credit
Facilities and for general corporate
purposes, including potential acquisitions.
See "Use of Proceeds".
For a discussion of certain risk factors that should be considered in
connection with an investment in the Notes, see "Risk Factors".
CONCURRENT COMMON STOCK OFFERING
Common Stock Offering ......... L-3 Communications' parent company,
Holdings, is concurrently offering to the
public shares of its Common Stock
(excluding underwriters' over-allotment
option). The closing of the Notes Offering
is conditioned upon the closing of the
Common Stock Offering.
8
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA AND HISTORICAL FINANCIAL DATA
The summary unaudited pro forma data as of December 31, 1997 and for the
year then ended have been derived from, and should be read in conjunction
with, the unaudited pro forma condensed consolidated financial statements
included elsewhere herein. The unaudited pro forma statement of operations
and other data reflect the L-3 Acquisition, the 1998 Acquisitions and the
Offerings as if such transactions had occurred on January 1, 1997 for the
statement of operations and other data. The balance sheet data reflect the
1998 Acquisitions and the Offerings as if such transactions had occurred on
December 31, 1997.
The summary consolidated (combined) financial data have been derived from
the audited financial statements for the respective periods.
These selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated (Combined) Financial Statements of the
Company (Predecessor Company) and the Combined Financial Statements of the
Loral Acquired Businesses included elsewhere herein. Prior to April 1, 1996,
the Predecessor Company was only comprised of Communication Systems -- East.
<TABLE>
<CAPTION>
COMPANY PREDECESSOR COMPANY
------------------------- ----------------------------------------
NINE THREE
YEAR ENDED MONTHS MONTHS
DECEMBER 31, ENDED ENDED YEAR ENDED DECEMBER 31,
1997 DEC. 31(1) MARCH 31 -----------------------------
PRO FORMA 1997 1997 1996(2) 1995(3) 1994(3)
-------------- ---------- ---------- --------- ------- -------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales ...................................... $894.0 $ 546.5 $158.9 $ 543.1 $166.8 $218.9
Operating income ........................... 58.4 55.9 7.9 43.7 4.7 8.4
Interest expense, net(4) ................... 43.7 28.5 8.4 24.2 4.5 5.5
Provision (benefit) for income taxes(4) ... 4.3 10.7 (0.2) 7.8 1.2 2.3
Net income (loss)........................... 10.2 16.7 (0.3) 11.7 (1.0) 0.6
BALANCE SHEET DATA:
Working capital ............................ $141.1 $ 131.8 $ 98.8 $ 21.1 $ 19.3
Total assets ............................... 891.1 703.4 593.3 228.5 233.3
Long-term debt.............................. 428.8 392.0 -- -- -- --
Invested equity ............................ -- -- 493.9 473.6 194.7 199.5
Shareholders' equity........................ 224.7 132.7 -- -- --
OTHER DATA:
EBITDA(5) .................................. $ 95.1 $ 78.1 $ 15.7 $ 71.8 $ 16.3 $ 19.9
Net cash from (used in) operating
activities................................. -- 73.9 (16.3) 30.7 9.3 21.8
Net cash used in investing activities ...... -- (457.8) (4.3) (298.0) (5.5) (3.7)
Net cash from (used in) financing
activities................................. -- 461.4 20.6 267.3 (3.8) (18.1)
Depreciation expense ....................... 22.0 13.3 4.5 14.9 5.5 5.4
Amortization expense ....................... 14.7 8.9 3.3 13.2 6.1 6.1
Capital expenditures ....................... 19.9 11.9 4.3 13.5 5.5 3.7
Ratios of:
Earnings to fixed charges(6)............... 1.3x 1.8x (7) 1.7x 1.0x 1.4x
EBITDA to cash interest expense(8) ........ 2.3x
Net debt to EBITDA(9)...................... 4.0x
</TABLE>
- ------------
(1) Reflects the L-3 Acquisition effective April 1, 1997.
(2) Reflects ownership of Loral's Communication Systems -- West and
Specialized Communication Products businesses commencing April 1, 1996.
(3) Reflects ownership of Communication Systems -- East by Lockheed Martin
effective April 1, 1993.
(4) For periods prior to April 1, 1997, interest expense and income tax
(benefit) provision were allocated from Lockheed Martin.
(5) EBITDA is defined as operating income plus depreciation expense and
amortization expense (excluding the amortization of deferred debt
issuance costs). EBITDA is not a substitute for operating income, net
income and cash flow from operating activities as determined in
accordance with generally accepted accounting principles as a measure
of profitability or liquidity. EBITDA is presented as additional
information because management believes it to be a useful indicator of
the Company's ability to meet debt service and capital expenditure
requirements.
(6) For purposes of this computation, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest on
indebtedness plus that portion of lease rental expense representative
of the interest element.
(7) Earnings were insufficient to cover fixed charges by $0.5 million for
the three-month period ended March 31, 1997.
(8) For purposes of this computation, cash interest expense consists of pro
forma interest expense excluding amortization of deferred debt issuance
costs.
(9) Net debt is defined as long-term debt plus current portion of long-term
debt less cash and cash equivalents.
9
<PAGE>
RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus, the following factors before
deciding to invest in the Notes.
SUBSTANTIAL LEVERAGE
The Company is highly leveraged as a result of substantial indebtedness
incurred in connection with the L-3 Acquisition and the 1998 Acquisitions.
After giving pro forma effect to the L-3 Acquisition, the 1998 Acquisitions
and the Offerings, the Company would have had $430.9 million of indebtedness
outstanding, of which $54.3 million would have been Senior Debt (excluding
letters of credit), and the Company's ratio of earnings to fixed charges
would have been 1.3x for the year ended December 31, 1997. The Company may
incur additional indebtedness in the future, subject to limitations imposed
by its debt instruments, including the Senior Credit Facilities and the
Indenture.
Based upon the current level of operations and anticipated improvements,
management believes that the Company's cash flow from operations, together
with proceeds from the Offerings and available borrowings under the Revolving
Credit Facility, will be adequate to meet its anticipated requirements for
working capital, capital expenditures, research and development expenditures,
program and other discretionary investments, interest payments and scheduled
principal payments for the foreseeable future, at least for the next three
years. There can be no assurance, however, that the Company's business will
continue to generate cash flow at or above current levels or that currently
anticipated improvements will be achieved. If the Company is unable to
generate sufficient cash flow from operations in the future to service its
debt, it may be required to sell assets, reduce capital expenditures,
refinance all or a portion of its existing debt (including the 1997 Notes and
the Notes) or obtain additional financing. The Company's ability to make
scheduled principal payments of, to pay interest on or to refinance its
indebtedness (including the 1997 Notes and the Notes) depends on its future
performance and financial results, which, to a certain extent, are subject to
general conditions in or affecting the defense industry and to general
economic, political, financial, competitive, legislative and regulatory
factors beyond its control. There can be no assurance that sufficient funds
will be available to enable the Company to service its indebtedness,
including the Notes, or make necessary capital expenditures and program and
other discretionary investments. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
The degree to which the Company is leveraged could have important
consequences to Holders of the Notes, including, but not limited to, the
following: (i) a substantial portion of the Company's cash flow from
operations will be required to be dedicated to debt service and will not be
available for other purposes including capital expenditures, research and
development expenditures, and program and other discretionary investments;
(ii) the Company's ability to obtain additional financing in the future could
be limited; (iii) certain of the Company's borrowings are at variable rates
of interest, which could result in higher interest expense in the event of
increases in interest rates; (iv) the Company may be more vulnerable to
downturns in its business or in the general economy and may be restricted
from making acquisitions, introducing new technologies and products or
exploiting business opportunities; and (v) the Senior Credit Facilities and
the Indentures contain financial and restrictive covenants that limit, among
other things, the ability of the Company to borrow additional funds, dispose
of assets or pay cash dividends. Failure by the Company to comply with such
covenants could result in an event of default which, if not cured or waived,
could have a material adverse effect on the Company. In addition, the degree
to which the Company is leveraged could prevent it from repurchasing all
Notes tendered to it upon the occurrence of a Change in Control, which would
constitute an Event of Default under the Indenture. See "Description of the
Notes" and "Description of Certain Indebtedness".
ACQUISITION STRATEGY
The Company's strategy includes pursuing additional acquisitions that will
complement its business. There can be no assurance, however, that the Company
will be able to identify additional acquisition candidates on commercially
reasonable terms or at all or that, if consummated, any anticipated benefits
10
<PAGE>
will be realized from such future acquisitions. In addition, the availability
of additional acquisition financing cannot be assured and, depending on the
terms of such additional acquisitions, could be restricted by the terms of
the Senior Credit Facilities and/or the Indentures.
The process of integrating acquired operations, including the 1998
Acquisitions, into the Company's existing operations may result in unforeseen
operating difficulties and may require significant financial and managerial
resources that would otherwise be available for the ongoing development or
expansion of the Company's existing operations. Possible future acquisitions
by the Company could result in the incurrence of additional debt, contingent
liabilities and amortization expenses related to goodwill and other
intangible assets, all of which could materially adversely affect the
Company's financial condition and operating results.
SIGNIFICANT CUSTOMERS
The Company's sales are predominantly derived from contracts with agencies
of, and prime contractors to, the Government. Although DoD procurement
spending has declined from the mid-1980s resulting in delays for some new
program starts, program stretch-outs and program cancellations, the U.S.
defense budget began to stabilize in fiscal 1996. In 1997, the Company
performed under approximately 150 contracts with value exceeding $1.0 million
for the Government. Pro forma sales in 1997 to the Government, including pro
forma sales to the Government through prime contractors, were $651.1 million,
representing approximately 73% of the Company's corresponding sales. The
Company's largest Government program, a cost plus, sole source contract for
support of the U-2 Program of the DoD, contributed 13% of pro forma sales for
1997. No other program represented more than 7% of the Company's pro forma
sales in 1997. The loss of all or a substantial portion of sales to the
Government would have a material adverse effect on the Company's income and
cash flow. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- Government Contracts".
Pro forma sales by the Company to Lockheed Martin were $81.6 million in
1997 or 9.1% of the Company's total pro forma sales. The loss of all or a
substantial portion of such sales to Lockheed Martin would have a material
adverse effect on the Company's income and cash flow.
RISKS INHERENT IN GOVERNMENT CONTRACTS
The reduction in the U.S. defense budget in the early 1990s has caused
most defense-related government contractors to experience declining revenues,
increased pressure on operating margins and, in certain cases, net losses.
The Company's businesses taken as a whole experienced a substantial decline
in sales during such period. A significant decline in U.S. military
expenditures in the future could materially adversely affect the Company's
sales and earnings. The loss or significant curtailment of a material program
in which the Company participates could also materially adversely affect the
Company's future sales and earnings and thus the Company's ability to meet
its financial obligations.
Companies engaged primarily in supplying defense-related equipment and
services to government agencies are subject to certain business risks
peculiar to the defense industry. These risks include, among other things,
the ability of the Government to: (i) suspend unilaterally the Company from
receiving new contracts pending resolution of alleged violations of
procurement laws or regulations, (ii) terminate existing contracts, (iii)
audit the Company's contract-related costs and fees, including allocated
indirect costs, and (iv) control and potentially prohibit the export of the
Company's products.
All of the Company's Government contracts are, by their terms, subject to
termination by the Government either for its convenience or for default of
the contractor. Termination for convenience provisions provide only for the
recovery by the Company of costs incurred or committed, settlement expenses
and profit on work completed prior to termination. Termination for default
provisions provide for the contractor to be liable for excess costs incurred
by the Government in procuring undelivered items from another source. In
addition to the right of the Government to terminate, Government contracts
are conditioned upon the continuing availability of Congressional
appropriations. Congress usually appropriates funds for a given program on a
fiscal-year basis even though contract performance may take
11
<PAGE>
more than one year. Consequently, at the outset of a major program, the
contract is usually partially funded, and additional monies are normally
committed to the contract by the procuring agency only if, as and when
appropriations are made by Congress for future fiscal years. Foreign defense
contracts generally contain comparable provisions relating to termination at
the convenience of the government.
The Company is subject to audit and review by the Government of its costs
and performance on, and accounting and general business practices relating
to, Government contracts. The Company's contract related costs and fees,
including allocated indirect costs, are subject to adjustment based on the
results of such audits. In addition, under Government purchasing regulations,
certain of the Company's costs, including certain financing costs, goodwill,
portions of research and development costs, and certain marketing expenses
may not be reimbursable under Government contracts. Further, as a government
contractor, the Company is also subject to investigation, legal action and/or
liability that would not apply to a commercial company.
The Company is subject to risks associated with the frequent need to bid
on programs in advance of design completion (which may result in unforeseen
technological difficulties and/or cost overruns), the substantial time and
effort required for relatively unproductive design and development, design
complexity and rapid obsolescence, and the constant necessity for design
improvement. The Company obtains many of its Government contracts through a
process of competitive bidding. There can be no assurance that the Company
will continue to be successful in winning competitively awarded contracts or
that awarded contracts will generate sufficient sales to result in
profitability for the Company. See "Business -- Major Customers" and
"--Government Contracts".
In addition to these Government contract risks, many of the Company's
products and systems require licenses from Government agencies for export
from the United States, and certain of the Company's products currently are
not permitted to be exported. There can be no assurance that the Company will
be able to gain any and all licenses required to export its products, and
failure to receive the required licenses could materially reduce the
Company's ability to sell its products outside the United States.
RISKS ASSOCIATED WITH FIXED PRICE CONTRACTS
The Company's products and services are provided primarily through fixed
price or cost plus contracts. Approximately 64% of the Company's pro forma
sales in 1997 were attributable to fixed price contracts. The financial
results of long-term fixed price contracts are recognized using the
cost-to-cost percentage-of-completion method. As a result, revisions in
revenues and profit estimates are reflected in the period in which the
conditions that require such revisions become known and are estimable. The
risks inherent in long-term fixed price contracts include the difficulty of
forecasting costs and schedules, contract revenues that are related to
performance in accordance with contract specifications and potential for
component obsolescence in connection with long-term procurements. Failure to
anticipate technical problems, estimate costs accurately or control costs
during performance of a fixed price contract may reduce the Company's
profitability or cause a loss. Although the Company believes that adequate
provisions for losses for its fixed price contracts are reflected in its
financial statements, no assurance can be given that these provisions are
adequate or that losses on fixed price and time-and-material contracts will
not occur in the future.
TECHNOLOGICAL CHANGE; NEW PRODUCT DEVELOPMENT
The communication equipment industry for defense applications and in
general is characterized by changing technology. The Company's ability to
compete successfully in this market will depend on its ability to design,
develop, manufacture, assemble, test, market and support new products and
enhancements on a timely and cost-effective basis. The Company has
historically obtained technology from substantial customer-sponsored research
and development as well as from internally funded research and development;
however, there can be no assurance that the Company will continue to maintain
comparable levels of customer-sponsored research and development in the
future. See "Business -- Research and Development". Substantial funds have
been allocated to capital expenditures and programs and other discretionary
investments in the past and will continue to be required in the future. See
"Management's
12
<PAGE>
Discussion and Analysis of Financial Condition and Results of Operations".
There can be no assurance that the Company will successfully identify new
opportunities and continue to have financial resources to develop new
products in a timely or cost-effective manner, or that products and
technologies developed by others will not render the Company's products and
systems obsolete or non-competitive.
ENTRY INTO COMMERCIAL BUSINESS
The Company's revenues historically have been derived principally from
business with the DoD and other government agencies. In addition to
continuing to pursue this major market area, the Company intends to pursue a
strategy that leverages its technical capabilities and expertise into related
commercial markets. Certain of the Company's commercial products, such as
local wireless loop telecommunications equipment, medical image archiving
equipment and airport security equipment, have only been recently introduced
or are in the early stages of development. As such, these new products are
subject to certain risks, including the need to develop and maintain
marketing, sales and customer support capabilities, to secure third-party
manufacturing and distribution arrangements, to obtain certification, to
respond to rapid technological advances and, ultimately, to customer
acceptance of these products and product performance. The Company's efforts
to expand its presence in the commercial market will require significant
resources including capital and management time. There can be no assurance
that the Company will be successful in addressing these risks or in
developing these commercial business opportunities.
COMPETITION
The communications equipment industry for defense applications and as a
whole is highly competitive. Declining defense budgets and increasing
pressures for cost reductions have precipitated a major consolidation in the
defense industry. The DoD's increased use of commercial off-the-shelf
products and components in military equipment is expected to increase the
entrance of new competitors. In addition, consolidation has resulted in
delays in contract funding or awards and significant predatory pricing
pressures associated with increased competition and reduced funding. The
Company expects that the emergence of merchant suppliers will increase
competition for OEM business. The Company's ability to compete for defense
contracts depends to a large extent on the effectiveness and innovativeness
of its research and development programs, its ability to offer better program
performance than its competitors at a lower cost to the Government customer
and its readiness in facilities, equipment and personnel to undertake the
programs for which it competes. In some instances, programs are sole source
or work directed by the Government to a single supplier. In such cases, there
may be other suppliers who have the capability to compete for the programs
involved, but they can only enter or reenter the market if the Government
should choose to reopen the particular program to competition. Many of the
Company's competitors are larger and have substantially greater financial and
other resources than the Company. See "Business -- Competition".
LIMITED OPERATING HISTORY
Prior to the L-3 Acquisition, the Company's operations were conducted as
divisions of Lockheed Martin, Loral, Unisys Corp. ("Unisys") and GE
Aerospace. Following the L-3 Acquisition in April 1997, the Company has
operated independently of Lockheed Martin and has provided many corporate
services on a stand-alone basis that were previously provided by Lockheed
Martin, including research and development, marketing, and general and
administrative services including tax, treasury, management information
systems, human resources and legal services. Lockheed Martin currently
provides certain management information systems services to certain divisions
of the Company. There can be no assurance that the actual corporate services
costs incurred in operating the Company will not exceed historical charges or
that the Company will be able to obtain similar services on comparable terms.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of the Company's management, including Messrs. Lanza and
LaPenta, and its ability to attract and retain other
13
<PAGE>
highly qualified management and technical personnel. Messrs. Lanza and
LaPenta invested approximately $18 million to purchase 16.6% of the initial
capital stock of Holdings. Holdings has entered into employment agreements
with Messrs. Lanza and LaPenta. See "Management -- Employment Agreements".
The Company maintains key man life insurance to cover Messrs. Lanza and
LaPenta. The Company also faces competition for management and technical
personnel from other companies and organizations. There can be no assurance
that the Company will continue to be successful in hiring and retaining key
personnel. See "Management -- Directors and Executive Officers".
ENVIRONMENTAL LIABILITIES
The Company's operations are subject to various federal, state and local
environmental laws and regulations relating to the discharge, storage,
treatment, handling, disposal and remediation of certain materials,
substances and wastes used in its operations. The Company continually
assesses its obligations and compliance with respect to these requirements.
Management believes that the Company's current operations are in substantial
compliance with all applicable environmental laws and permits. The Company
does not believe that its environmental compliance expenditures will have a
material adverse effect on its financial condition or the results of its
operations.
In connection with the L-3 Acquisition, the Company has agreed to assume
certain on-site and off-site environmental liabilities related to events or
activities occurring prior to the L-3 Acquisition. Lockheed Martin has agreed
to retain all environmental liabilities for all facilities no longer used by
the Businesses and to indemnify fully the Company for such prior site
environmental liabilities. Lockheed Martin has also agreed, for the first
eight years following April 1997, to pay 50% of all costs incurred by the
Company above those reserved for on the Company's balance sheet at April 1997
relating to certain Company-assumed environmental liabilities and, for the
seven years thereafter, to pay 40% of certain reasonable operation and
maintenance costs relating to any environmental remediation projects
undertaken in the first eight years. The Company is aware of environmental
contamination at two of the facilities acquired from Lockheed Martin that
will require ongoing remediation. In November 1997, the Company sold one such
facility located in Sarasota, Florida, while retaining a leasehold interest
in a portion of that facility, to Dames & Moore/Brookhill LLC ("DMB") in a
transaction in which DMB contractually agreed to assume responsibility for
further remediation of the Sarasota site. Management believes that the
Company has established adequate reserves for the potential costs associated
with the assumed environmental liabilities. However, there can be no
assurance that any costs incurred will be reimbursable from the Government or
covered by Lockheed Martin under the terms of the L-3 Acquisition Agreement
or that the Company's environmental reserves will be sufficient.
BACKLOG
The Company's backlog represents orders under contracts which are
primarily with the Government. The Government enjoys broad rights to modify
unilaterally or terminate such contracts. Accordingly, most of the Company's
backlog is subject to modification and termination at the Government's will.
There can be no assurance that the Company's backlog will become revenues in
any particular period or at all. Further, there can be no assurance that the
margins on any contract included in backlog that does become revenue will be
profitable.
OWNERSHIP OF HOLDINGS AND L-3 COMMUNICATIONS
After giving effect to the Common Stock Offering, the Lehman Partnership
will own % of the outstanding voting stock of Holdings (or % if the
Underwriters' over-allotment option is exercised in full), which owns all of
the outstanding common stock of L-3 Communications. By virtue of such
ownership, the Lehman Partnership will have the power to influence
significantly the business and the affairs of Holdings and L-3 Communications
because of its significant voting power with respect to actions requiring
stockholder approval. The concentration in ownership of Holdings may preclude
Holdings from being acquired in a transaction not supported by Holdings'
principal stockholders, may render more difficult or discourage a proposed
merger or tender offer, may preclude a successful proxy contest or may
otherwise have an adverse effect on the market price of the Notes. See
"Ownership of Capital Stock".
14
<PAGE>
PENSION PLAN LIABILITIES
Pursuant to the L-3 Acquisition Agreement, Holdings and L-3 Communications
assumed certain liabilities relating to defined benefit pension plans for
present and former employees and retirees of certain businesses which were
transferred from Lockheed Martin to Holdings and L-3 Communications. Prior to
the consummation of the L-3 Acquisition, Lockheed Martin received a letter
from the Pension Benefit Guaranty Corporation (the "PBGC") which requested
information regarding the transfer of such pension plans and indicated that
the PBGC believed certain of such pension plans were underfunded using the
PBGC's actuarial assumptions (which assumptions resulted in a larger
liability for accrued benefits than the assumptions used for financial
reporting under Statement of Financial Accounting Standards Board No. 87,
"Accounting for Pension Costs" ("FASB 87")). The PBGC underfunding is related
to the Communication Systems--West, Aviation Recorders and Hycor pension
plans (collectively, the "Subject Plans"). As of December 31, 1997, the
Company calculated the net funding position of the Subject Plans and believes
them to be overfunded by approximately $5.9 million under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), assumptions,
underfunded by approximately $10.2 million under FASB 87 assumptions and, on
a termination basis, underfunded by as much as $57.5 million under PBGC
assumptions.
L-3 Communications, Lockheed Martin and the PBGC entered into certain
agreements dated as of April 30, 1997 that include Lockheed Martin providing
a commitment to the PBGC with regard to the Subject Plans and L-3
Communications providing certain assurances to Lockheed Martin regarding such
plans. See "Business -- Pension Plans". The Company expects, based in part
upon discussions with its consulting actuaries, that any increase in pension
expenses or future funding requirements from those previously anticipated for
the Subject Plans would not be material. However, there can be no assurance
that the impact of any increased pension expenses or funding requirements
under this arrangement would not be material to the Company.
SUBORDINATION
Obligations of L-3 Communications and the Guarantors under the Notes and
the Guarantees, respectively, are subordinate and junior in right of payment
to all existing and future Senior Debt of L-3 Communications and the
Guarantors, respectively. As of December 31, 1997, on a pro forma basis after
giving effect to the L-3 Acquisition, the 1998 Acquisitions and the
Offerings, L-3 Communications would have had approximately $433.6 million of
indebtedness outstanding, of which $58.6 million would have been Senior Debt
(excluding letters of credit) all of which would have been guaranteed by the
Guarantors on a senior basis. Additional Senior Debt may be incurred by L-3
Communications from time to time, subject to certain restrictions. By reason
of such subordination, in the event of an insolvency, liquidation, or other
reorganization of L-3 Communications or the Guarantors, the lenders under the
Senior Credit Facilities and other creditors who are holders of Senior Debt
must be paid in full before the holders of the Notes and the Guarantees may
be paid; accordingly, there may be insufficient assets remaining after
payment of prior claims to pay amounts due on the Notes or the Guarantees. In
addition, under certain circumstances, no payments may be made with respect
to the Notes or the Guarantees if a default exists with respect to certain
Senior Debt. The Notes and the Guarantees rank on a parity or pari passu with
the L-3 Communications' 10 3/8% Senior Subordinated Notes due 2007 and the
guarantees thereof. See "Description of the Notes -- Subordination".
RESTRICTIONS IMPOSED BY THE SENIOR CREDIT FACILITIES AND THE INDENTURES
The Senior Credit Facilities and the Indentures contain a number of
significant covenants that, among other things, restrict the ability of L-3
Communications to dispose of assets, incur additional indebtedness, repay
other indebtedness, pay dividends, make certain investments or acquisitions,
repurchase or redeem capital stock, engage in mergers or consolidations, or
engage in certain transactions with subsidiaries and affiliates and otherwise
restrict corporate activities. There can be no assurance that such
restrictions will not adversely affect the Company's ability to finance its
future operations or capital needs or engage in other business activities
that may be in the interest of the Company. In addition, the Senior Credit
Facilities also require L-3 Communications to maintain compliance with
certain financial
15
<PAGE>
ratios, including total EBITDA to total interest expense and total debt to
total EBITDA, and limit capital expenditures by L-3 Communications. The
ability of L-3 Communications to comply with such ratios and limits may be
affected by events beyond L-3 Communications' control. A breach of any of
these covenants or the inability of L-3 Communications to comply with the
required financial ratios or limits could result in a default under the
Senior Credit Facilities. In the event of any such default, the lenders under
the Senior Credit Facilities could elect to declare all borrowings
outstanding under the Senior Credit Facilities, together with accrued
interest and other fees, to be due and payable, to require L-3 Communications
to apply all of its available cash to repay such borrowings or to prevent L-3
Communications from making debt service payments on other indebtedness
(including the 1997 Notes), any of which would be an Event of Default under
the Notes. If L-3 Communications were unable to repay any such borrowings
when due, the lenders could proceed against their collateral. In connection
with the Senior Credit Facilities, L-3 Communications has granted the lenders
thereunder a first priority lien on substantially all of its assets. The
lenders under the Senior Credit Facilities will also have a first priority
security interest in all of the capital stock of L-3 Communications and its
subsidiaries. If the indebtedness under the Senior Credit Facilities, the
1997 Notes or the Notes were to be accelerated, there can be no assurance
that the assets of L-3 Communications would be sufficient to repay such
indebtedness in full. See "Description of the Notes" and "Description of
Certain Indebtedness".
FRAUDULENT CONVEYANCE
A portion of the indebtedness under the Notes and the Guarantees is being
incurred to repay the interim financing for the 1998 Acquisitions and to
repay the indebtedness incurred under the Senior Credit Facilities in
connection with the L-3 Acquisition. Management believes that the
indebtedness of L-3 Communications represented by the Notes and the
indebtedness of the Guarantors represented by the Guarantees is being
incurred for proper purposes and in good faith, and that, based on present
forecasts and other financial information, after the issuance of the Notes
and the Guarantees, L-3 Communications and the Guarantors will be solvent,
will have sufficient capital for carrying on its business and will be able to
pay its debts as they mature. Notwithstanding management's belief, however,
under federal and state fraudulent transfer laws, if a court of competent
jurisdiction in a suit by an unpaid creditor or a representative of creditors
(such as a trustee in bankruptcy or a debtor-in-possession) were to find
that, at the time of the incurrence of such indebtedness, any of L-3
Communications and the Guarantors was insolvent, was rendered insolvent by
reason of such incurrence, was engaged in a business or transaction for which
its remaining assets constituted unreasonably small capital, intended to
incur, or believed that it would incur, debts beyond its ability to pay such
debts as they matured, or intended to hinder, delay or defraud its creditors,
and that the indebtedness was incurred for less than reasonably equivalent
value, then such court could, among other things, (i) void all or a portion
of L-3 Communications' obligations to the Holders of the Notes or the
Guarantors' obligations under the Guarantees, the effect of which would be
that the Holders of the Notes and the Guarantees might not be repaid in full
and/or (ii) subordinate obligations of L-3 Communications or the Guarantors
to the Holders of the Notes and the Guarantees to other existing and future
indebtedness of L-3 Communications or the Guarantors, as the case may be, to
a greater extent than would otherwise be the case, the effect of which would
be to entitle such other creditors to which the Notes and the Guarantees were
not previously subordinated to be paid in full before any payment could be
made on the Notes and the Guarantees. See "--Substantial Leverage" above.
LIMITATION ON CHANGE OF CONTROL
The Indentures provide that, upon the occurrence of a Change of Control of
L-3 Communications or Holdings, L-3 Communications will make an offer to
purchase all of the Notes and the 1997 Notes at a price in cash equal to 101%
of the aggregate principal amount thereof together with accrued and unpaid
interest to the date of purchase. The Senior Credit Facilities currently
prohibit L-3 Communications from repurchasing any Notes or 1997 Notes except
with the proceeds of one or more Equity Offerings. The Senior Credit
Facilities also provide that certain change of control events with respect to
the Company would constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Debt to which L-3
Communications becomes a party may contain similar restrictions and
16
<PAGE>
provisions. In the event a Change of Control event occurs at a time when L-3
Communications is prohibited from purchasing the Notes or the 1997 Notes, or
if L-3 Communications is required to make a Net Proceeds Offer (as defined
under "Description of the Notes") pursuant to the terms of the Notes or the
1997 Notes, L-3 Communications could seek the consent of its lenders to the
purchase of the Notes or the 1997 Notes or could attempt to refinance the
borrowings that contain such prohibition. If L-3 Communications does not
obtain such a consent or repay such borrowings, L-3 Communications will
remain prohibited from purchasing the Notes or the 1997 Notes. In such case,
L-3 Communications' failure to make such an offer or to purchase tendered
Notes or the 1997 Notes would constitute an Event of Default under the
Indenture or the 1997 Indenture. If, as a result thereof, a default occurs
with respect to any Senior Debt, the subordination provisions in the
Indenture would likely restrict payments to the holders of the Notes.
Finally, L-3 Communications' ability to pay cash to the holders of Notes or
the 1997 Notes upon a purchase may be limited by L-3 Communications'
then-existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required purchases.
Furthermore, the Change of Control provisions may in certain circumstances
make more difficult or discourage a takeover of the Company. See "Description
of the Notes --Repurchase at the Option of Holders -- Change of Control".
LACK OF MARKET FOR THE NOTES
There is no existing trading market for the Notes, and there can be no
assurance regarding the future development of a market for the Notes or the
ability of the Holders of the Notes to sell their Notes or the price at which
such Holders may be able to sell their Notes. If such market were to develop,
the Notes could trade at prices that may be higher or lower than their
initial offering price depending on many factors, including prevailing
interest rates, the Company's operating results and the market for similar
securities. The Underwriters have advised the Company that they currently
intend to make a market with respect to the Notes. However, the Underwriters
are not obligated to do so, and any market making with respect to the Notes
may be discontinued at any time without notice. Because Lehman Brothers Inc.
is an affiliate of the Company, Lehman Brothers Inc. will be required to
deliver a current "market-maker" prospectus and otherwise comply with the
registration requirements of the Securities Act in connection with any
secondary market sale of the Notes, which may affect its ability to continue
market-making activities. See "Underwriting". No assurance can be given as to
the liquidity of or the trading market for the Notes.
FORWARD LOOKING STATEMENTS
This Prospectus contains forward looking statements concerning the
Company's operations, economic performance and financial condition, including
in particular, the likelihood of the Company's success in developing and
expanding its business and the realization of sales from backlog. These
statements are based upon a number of assumptions and estimates which are
inherently subject to significant uncertainties and contingencies, many of
which are beyond the control of the Company, and reflect future business
decisions which are subject to change. Some of these assumptions inevitably
will not materialize, and unanticipated events will occur which will affect
the Company's future results. All such forward looking statements are
qualified by reference to matters discussed under this section entitled "Risk
Factors".
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Notes Offering, are estimated to
be approximately $ , after deducting underwriting discounts, commissions
and estimated offering expenses.
The Company intends to use the net proceeds of the Notes Offering,
together with the net proceeds of the Common Stock Offering contributed to
L-3 Communications, to repay a substantial portion of its existing
indebtedness under the Senior Credit Facilities and for general corporate
purposes, including potential acquisitions. The borrowings under the Senior
Credit Facilities had been used by the Company to fund in part the L-3
Acquisition and the 1998 Acquisitions. The weighted average interest rate
under the Term Loan Facilities was 7.99% at February 24, 1998. Amounts repaid
under the Revolving Credit Facility will be available to be reborrowed by the
Company from time to time for, among other reasons, general corporate
purposes or to finance future acquisitions. Affiliates of the Underwriters
are lenders under the Senior Credit Facilities and will receive a portion of
the net proceeds of the Offerings in repayment of amounts outstanding
thereunder. See "Description of Certain Indebtedness -- Senior Credit
Facilities".
SOURCES AND USES OF FUNDS
($ in millions)
<TABLE>
<CAPTION>
SOURCES OF FUNDS AMOUNT USES OF FUNDS AMOUNT
- --------------------- -------- ----------------------------------------- --------
<S> <C> <C> <C>
Notes Offering ....... $150.0 Cash on hand ............................. $ 50.0
Common Stock Offering 100.0 Repayment of Term Loan Facilities ....... 117.7
Repayment of Revolving Credit Facility(1). 68.8
Expenses of the Offerings(2).............. 13.5
-------- --------
Total Sources......... $250.0 Total Uses ............................... $250.0
======== ========
</TABLE>
- ------------
(1) Availability under the Revolving Credit Facility at any given time is
$200.0 million, less the amount of outstanding borrowings and
outstanding letters of credit. Upon consummation of the Offerings, the
Company will have available under its Revolving Credit Facility $200.0
million less amounts outstanding for letters of credit.
(2) Expenses are estimated and include the underwriting discounts and
commissions of the Offerings.
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1997 and as adjusted to give pro forma effect to the 1998
Acquisitions, the Offerings and the application of the net proceeds therefrom
as if these transactions had occurred on December 31, 1997. See "Use of
Proceeds" and "Unaudited Pro Forma Condensed Consolidated Financial
Information".
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------
PRO FORMA
COMPANY BEFORE
ACTUAL THE OFFERINGS PRO FORMA
-------- ----------------- -----------
($ IN MILLIONS)
<S> <C> <C> <C>
Cash and cash equivalents ............... $ 77.5 -- $ 50.0
======== ================= ===========
Current portion of long-term debt ....... $ 5.0 $ 5.3 $ 2.1
Revolving Credit Facility(1) ............ -- 68.8 --
Term Loan Facilities .................... 167.0 167.0 52.5
10 3/8% Senior Subordinated Notes due
2007 ................................... 225.0 225.0 225.0
% Senior Subordinated Notes due 2008 . -- -- 150.0
Industrial development bond ............. -- 1.3 1.3
-------- ----------------- -----------
Total debt ............................ $397.0 $467.4 $430.9
-------- ----------------- -----------
Shareholders' equity
Common Stock ........................... $125.0 $125.0 $217.0
Retained earnings....................... 16.7 16.7 16.7
Deemed distribution..................... (9.0) (9.0) (9.0)
-------- ----------------- -----------
Total shareholders' equity............. 132.7 132.7 224.7
-------- ----------------- -----------
Total capitalization................... $529.7 $600.1 $655.6
======== ================= ===========
</TABLE>
- ------------
(1) Availability under the Revolving Credit Facility at any given time is
$200.0 million, less the amount of outstanding borrowings and
outstanding letters of credit. Upon consummation of the Offerings, the
Company will have available under its Revolving Credit Facility $200.0
million less amounts outstanding for letters of credit.
18
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma financial information gives effect to
the L-3 Acquisition, the 1998 Acquisitions and the Offerings (collectively,
the "Transactions"). The Offerings include the Notes Offering and the
contribution by Holdings to the Company of the proceeds of the Common Stock
Offering. The unaudited pro forma condensed consolidated statement of
operations gives effect to the Transactions as if they had occurred as of
January 1, 1997. The unaudited pro forma condensed consolidated balance sheet
gives effect to the Transactions as if they had occurred as of December 31,
1997. The pro forma financial information is based on (i) the consolidated
financial statements of the Company for the nine-month period ended December
31, 1997, (ii) the Combined Statement of Operations of the Predecessor
Company for the three-month period ended March 31, 1997 and (iii) the
financial statements of the 1998 Acquisitions for the year ended December 31,
1997, using the purchase method of accounting and the assumptions and
adjustments in the accompanying notes to the unaudited pro forma condensed
consolidated financial statements.
The pro forma adjustments are based upon preliminary estimates for the
1998 Acquisitions. Actual adjustments will be based on final appraisals
and other analyses of fair values which are in process and adjustment of the
final purchase price. Management does not expect that differences between
the preliminary and final allocations will have a material impact on the
Company's pro forma financial position or results of operations. The pro
forma statement of operations does not reflect any cost savings that
management of the Company believes would have resulted had the Transactions
occurred on January 1, 1997. The pro forma financial information should be
read in conjunction with (i) the audited Consolidated (Combined) Financial
Statements of the Company and the Predecessor Company as of December 31, 1997
and for the nine months ended December 31, 1997 and the three months ended
March 31, 1997, (ii) the audited financial statements of STS for the year
ended June 30, 1997, (iii) the unaudited condensed financial statements of
STS as of December 31, 1997 and for the six months ended December 31, 1997
and 1996, (iv) the audited consolidated financial statements of ILEX as of
December 31, 1997 and for the year ended December 31, 1997 and (v) the
audited combined financial statements of Ocean Systems as of December 31,
1997 and for the year ended December 31, 1997, all of which are included
elsewhere herein. The unaudited pro forma condensed financial information may
not be indicative of the financial position and results of operations of the
Company that actually would have occurred had the Transactions been in effect
on the dates indicated or the financial position and results of operations
that may be obtained in the future.
19
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND OTHER
DATA
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
NINE MONTHS THREE MONTHS PRO FORMA
ENDED ENDED ADJUSTMENTS
DECEMBER 31, MARCH 31, L-3
1997 1997(1) ACQUISITION(1)
-------------- -------------- ----------------
($ IN MILLIONS)
<S> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Sales............. $546.5 $158.9 $(1.8)
Costs and
expenses......... 490.6 151.0 (3.2)
-------------- -------------- ----------------
Operating
income (loss) . 55.9 7.9 1.4
Interest and
investment
income
(expense)........ 1.4 -- --
Interest expense . 29.9 8.4 1.5
-------------- -------------- ----------------
Income (loss)
before income
taxes.......... 27.4 (0.5) (0.1)
Income tax
expense
(benefit)........ 10.7 (0.2) --
-------------- -------------- ----------------
Net income
(loss)......... $ 16.7 $ (0.3) $(0.1)
============== ============== ================
OTHER DATA:
EBITDA(7)......... $ 78.1
Depreciation
expense.......... 13.3
Amortization
expense ......... 8.9
Capital
expenditures .... 11.9
Ratio of earnings
to fixed
charges(8)....... 1.8x
Ratio of
EBITDA(7) to
cash interest
expense(9)....... 2.8x
Ratio of net debt
to EBITDA(7).....
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
PRO FORMA ------------ COMPANY
L-3 1998 1998 BEFORE THE THE
ACQUISITION ACQUISITIONS(3) ACQUISITIONS OFFERINGS OFFERINGS PRO FORMA
------------- --------------- -------------- ------------ --------- ---------
STATEMENT OF
OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C>
Sales............. $703.6 $190.4 $ -- $894.0 $ -- $894.0
Costs and
expenses......... 638.4 196.3 0.9 (4) 835.6 -- 835.6
------------- --------------- -------------- ------------ ----------- -----------
Operating
income (loss) . 65.2 (5.9) (0.9) 58.4 -- 58.4
Interest and
investment
income
(expense)........ 1.4 (0.1) (1.4)(5) (0.1) -- (0.1)
Interest expense . 39.8 0.5 5.2 (5) 45.5 (1.9)(5) 43.6
------------- --------------- -------------- ------------ ----------- -----------
Income (loss)
before income
taxes.......... 26.8 (6.5) (7.5) 12.8 1.9 14.7
Income tax
expense
(benefit)........ 10.5 (4.0) (2.9)(6) 3.6 0.7 (6) 4.3
------------- --------------- -------------- ------------ ----------- -----------
Net income
(loss)......... $ 16.3 $ (2.5) $(4.6) $ 9.2 $ 1.2 $ 10.4
============= =============== ============== ============ =========== ===========
OTHER DATA:
EBITDA(7)......... $ 95.1 $ 95.1
Depreciation
expense.......... 22.0 22.0
Amortization
expense ......... 14.7 14.7
Capital
expenditures .... 19.9 19.9
Ratio of earnings
to fixed
charges(8)....... 1.3x 1.3x
Ratio of
EBITDA(7) to
cash interest
expense(9)....... 2.2x 2.3x
Ratio of net debt
to EBITDA(7)..... 4.9x 4.0x
</TABLE>
See notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
20
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
------------ COMPANY
1998 1998 BEFORE THE THE
COMPANY ACQUISITIONS(3) ACQUISITIONS OFFERINGS OFFERINGS(5) PRO FORMA
--------- --------------- -------------- ------------ ------------ -----------
($ IN MILLIONS)
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............ $ 77.5 $ 4.9 $(82.4)(4) -- $ 50.0 $ 50.0
Contracts in process................. 167.2 85.2 (2.5)(4) $249.9 -- 249.9
Other current assets................. 22.7 2.0 -- 24.7 -- 24.7
--------- --------------- -------------- ------------ ------------ -----------
Total current assets............... 267.4 92.1 (84.9) 274.6 50.0 324.6
--------- --------------- -------------- ------------ ------------ -----------
Property, plant and equipment, net ... 83.0 24.9 (3.4)(4) 104.5 -- 104.5
Intangibles, primarily cost in excess
of net assets acquired, net of
amortization......................... 297.5 2.2 86.8 (4) 386.5 -- 386.5
Other assets.......................... 55.5 2.5 12.0 (6) 70.0 5.5 75.5
--------- --------------- -------------- ------------ ------------ -----------
Total assets....................... $703.4 $121.7 $ 10.5 $835.6 $ 55.5 $891.1
========= =============== ============== ============ ============ ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ... $ 5.0 $ 0.3 -- $ 5.3 $ (3.2) $ 2.1
Accounts payable and accrued
expenses............................ 68.6 30.6 -- 99.2 -- 99.2
Customer advances and amounts in
excess of costs incurred............. 34.5 16.2 -- 50.7 -- 50.7
Other current liabilities............ 27.5 6.2 (2.2)(4) 31.5 -- 31.5
--------- --------------- -------------- ------------ ------------ -----------
Total current liabilities.......... 135.6 53.3 (2.2) 186.7 (3.2) 183.5
--------- --------------- -------------- ------------ ------------ -----------
Pension, postretirement benefits and
other liabilities.................... 43.1 11.0 -- 54.1 -- 54.1
Revolving credit facility............. -- -- $ 68.8 (2) 68.8 (68.8) --
Term loan facilities.................. 167.0 -- -- 167.0 (114.5) 52.5
Senior subordinated notes............. 225.0 -- -- 225.0 150.0 375.0
Industrial development bond........... -- 1.3 -- 1.3 1.3
Shareholders' equity.................. 132.7 56.1 (56.1) 132.7 92.0 224.7
--------- --------------- -------------- ------------ ------------ -----------
Total liabilities and
shareholders' equity.............. $703.4 $121.7 $ 10.5 $835.6 $ 55.5 $891.1
========= =============== ============== ============ ============ ===========
</TABLE>
See notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
21
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following facts and assumptions were used in determining the pro forma
effect of the Transactions.
1. The Company's historical financial statements reflect the results of
operations of the Company since the effective date of the L-3 Acquisition,
April 1, 1997, and the Predecessor Company historical financial statements
reflect the results of operations of the Predecessor Company for the three
months ended March 31, 1997. The adjustments made to the pro forma
statement of operations for the three months ended March 31, 1997,
relating to the Predecessor Company are: (a) the elimination of $1.8
million of sales and $1.8 million of costs and expenses related to the
Hycor business which was acquired as part of the L-3 Acquisition and which
has been accounted for as "net assets of acquired business held for sale",
(b) a reduction to costs and expenses of $0.8 million to record
amortization expenses on the excess of the L-3 Acquisition purchase price
over net assets acquired of $303.2 million over 40 years, net of the
reversal of amortization expenses of intangibles included in the
Predecessor Company historical financial statements, (c) a reduction to
costs and expenses of $0.6 million to record estimated pension cost on a
separate company basis net of the reversal of the allocated pension cost
included in the Predecessor Company historical financial statements and
(d) a net increase to interest expense of $1.5 million, comprised of a
$0.2 million allocated interest expense reduction related to the Hycor
business and a net $1.7 million increase, reflecting pro forma interest
expense of $10.2 million based on actual borrowings of $400.0 million and
effective cost of borrowing rates incurred by the Company to finance the
L-3 Acquisition less interest expense of approximately $8.5 million
included in the historical financial statements of the Predecessor
Company. A statutory (federal, state and foreign) tax rate of 39.0% was
assumed on these pro forma adjustments.
2. On February 5, 1998, L-3 Communications purchased the assets of STS for
$27.0 million of cash. On March 4, 1998, L-3 Communications purchased
substantially all the assets of ILEX for $49.2 million of cash (net of
acquired cash of $2.7 million) plus additional consideration contingent
upon post-acquisition performance of ILEX. On March 30, 1998, L-3
Communications purchased the assets of Ocean Systems for $67.5 million of
cash. The purchase prices are subject to adjustment based upon the actual
closing net assets of STS and ILEX as defined. For purposes of the pro
forma financial information, the aggregate purchase prices (including
estimated expenses of $2.6 million) for the 1998 Acquisitions of $146.3
million were assumed to be financed using cash on hand of $77.5 million
and initially using $68.8 million of borrowings under the Revolving Credit
Facility. See Note 5 for the pro forma effects of the Offerings on
interest expense and long-term debt including the Revolving Credit
Facility.
3. The pro forma statement of operations and the pro forma balance sheet
include the following historical financial data for the 1998 Acquisitions.
Such data have been derived from each entity's historical financial
statements included elsewhere herein.
The pro forma statement of operations includes the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------
OCEAN 1998
STS(A) ILEX SYSTEMS ACQUISITIONS
-------- ------- --------- --------------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Sales.................................... $53.9 $63.5 $73.0 $190.4
Costs and expenses....................... 61.7 55.9 78.7 196.3
-------- ------- --------- --------------
Operating (loss) income................ (7.8) 7.6 (5.7) (5.9)
Interest and investment income
(expense)............................... -- (0.2) 0.1 (0.1)
Interest expense......................... -- -- 0.5 0.5
-------- ------- --------- --------------
Income (loss) before income taxes ..... (7.8) 7.4 (6.1) (6.5)
Income tax (benefit) provision .......... (2.1) 0.5 (2.4) (4.0)
-------- ------- --------- --------------
Net (loss) income...................... $(5.7) $ 6.9 $(3.7) $ (2.5)
======== ======= ========= ==============
</TABLE>
- ------------
(a) Represents fiscal year ended June 30, 1997 plus the six month period
ended December 31, 1997 minus the six month period ended December 31,
1996.
22
<PAGE>
For the 1998 Acquisitions, the pro forma balance sheet includes the
following historical financial data:
<TABLE>
<CAPTION>
OCEAN 1998
STS ILEX SYSTEMS ACQUISITIONS
------- ------- --------- --------------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... -- $ 4.9 -- $ 4.9
Contracts in process............................................ $32.6 13.2 $39.4 85.2
Other current assets............................................ -- 0.3 1.7 2.0
------- ------- --------- --------------
Total current assets........................................... 32.6 18.4 41.1 92.1
------- ------- --------- --------------
Property, plant and equipment, net............................... 7.2 0.9 16.8 24.9
Intangibles, primarily cost in excess of net assets acquired,
net of amortization............................................. -- 0.4 1.8 2.2
Other assets..................................................... -- 0.1 2.4 2.5
------- ------- --------- --------------
Total assets................................................... $39.8 $19.8 $62.1 $121.7
======= ======= ========= ==============
LIABILITIES AND NET ASSETS
Current liabilities:
Current portion of long-term debt............................... $ 0.2 $ 0.1 -- $ 0.3
Accounts payable and accrued expenses........................... 6.5 5.4 $18.7 30.6
Customer advances and amounts in excess of costs incurred ...... -- -- 16.2 16.2
Other current liabilities....................................... 3.7 2.5 -- 6.2
------- ------- --------- --------------
Total current liabilities...................................... 10.4 8.0 34.9 53.3
------- ------- --------- --------------
Pension, postretirement benefits and other liabilities .......... -- -- 11.0 11.0
Industrial development bond...................................... 1.3 -- -- 1.3
Net assets....................................................... 28.1 11.8 16.2 56.1
------- ------- --------- --------------
Total liabilities and net assets............................... $39.8 $19.8 $62.1 $121.7
======= ======= ========= ==============
</TABLE>
4. The aggregate estimated excess of purchase price over fair value of net
assets acquired related to the 1998 Acquisitions is $89.0 million,
comprised of $37.2 million and $51.8 million, respectively, for ILEX and
Ocean Systems and is being amortized over 40 years resulting in a pro
forma charge of $2.2 million per annum. Based upon preliminary estimates of
fair value, the acquisition of STS resulted in no goodwill being recorded
since the purchase price was equal to the net assets acquired. The pro
forma balance sheet includes a net increase to costs in excess of
net assets acquired of $86.8 million after eliminating acquired cost in
excess of net assets acquired of $2.2 million included in the 1998
Acquisitions historical financial statements.
Other adjustments to the pro forma balance sheet include reductions to
cash of $82.4 million representing the use of $77.5 million of the
Company's historical cash and $2.7 million of acquired cash assumed to
have been used to fund partially the 1998 Acquisitions and the elimination
of $2.2 million of cash and other current liabilities included in the 1998
ILEX historical financial statements to reflect the assumed settlement of
distributions payable to the ILEX shareholders. Contracts-in-process pro
forma adjustments include a net reduction of $2.5 million to reflect $1.0
million of accounts receivable not acquired relating to ILEX, an inventory
write-up to fair value of $3.5 million primarily related to finished goods
at Ocean Systems and a reduction of $5.0 million relating to the valuation
of acquired contracts-in-process at contract price, less the estimated
cost to complete and an allowance for normal profit margin on the
Company's effort to complete such contracts. The pro forma balance sheet
includes a reduction to fixed assets of $3.4 million to eliminate net book
value of the Ocean Systems Sylmar facility which will not be acquired by
L-3 Communications. The fair value of other fixed assets is not expected
to differ materially from their historical carrying amounts. The pro forma
statement of operations does not reflect any adjustments related to the
inventory write-up and the valuation of acquired contracts-in-process
since such adjustments are neither recurring nor material.
23
<PAGE>
A net increase of $0.9 million was made to the costs and expenses data in
the pro forma statement of operations relating to the 1998 Acquisitions,
comprised of the following:
<TABLE>
<CAPTION>
($ IN MILLIONS)
<S> <C> <C>
(a) Amortization expense of estimated purchase cost in excess of net assets $ 2.2
(b) Elimination of goodwill amortization expense included in the historical
financial statements for the 1998 Acquisitions......................... (2.1)
(c) Estimated annual rent expense on the Sylmar facility of Ocean Systems
which will not be acquired by L-3 Communications....................... 1.1
(d) Elimination of depreciation expense on buildings and improvements on
the Sylmar facility of Ocean Systems which will not be acquired by L-3
Communications......................................................... (0.3)
---------------
Total increase to costs and expenses.................................. $ 0.9
===============
</TABLE>
5. The pro forma adjustments for the 1998 Acquisitions, reflecting the
Company before the Offerings, include (a) the elimination of $1.4 million
of interest income included in the historical financial statements of the
Company to reflect the use of cash on hand to fund partially the purchase
price for the 1998 Acquisitions and (b) an increase to interest expense of
$5.2 million on debt incurred to fund the remaining purchase prices for
the 1998 Acquisitions. Pro forma adjustments for the Offerings reflect a
decrease to interest expense of $1.9 million to reflect the reduction in
debt from the use of proceeds. The details of interest expense, after such
pro forma adjustments follow:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
---------------------------------
PRO FORMA COMPANY
BEFORE THE OFFERINGS PRO FORMA
-------------------- -----------
($ IN MILLIONS)
<S> <C> <C>
Interest on Revolving Credit Facility (7.625% on $68.8 million) ......... $ 5.4 --
Interest on the 1997 Notes (10.375% on $225.0 million)................... 23.3 $23.3
Interest on the Notes (assumed 8.25% on $150.0 million).................. -- 12.4
Interest on borrowings under Term Loan Facilities (8.0% on $172.0
million and $54.3 million, respectively)................................ 14.0 4.3
Interest on industrial development bond (4.0% on $1.3 million) .......... 0.1 0.1
Commitment fee of 0.5% on unused portion of Revolving Credit Facility
(0.5% on $131.2 million and $200.0 million)............................. 0.7 1.0
Amortization of deferred debt issuance costs............................. 2.0 2.5
-------------------- -----------
Total pro forma interest expense ...................................... $45.5 $43.6
==================== ===========
</TABLE>
In accordance with SEC regulations, the pro forma statement of operations
do not reflect interest income on the $50.0 million cash balance in the
pro forma balance sheet.
The Offerings include the Notes Offering and the contribution to the
Company by Holdings of the proceeds of the Common Stock Offering. The net
proceeds from the Offerings of $236.5 million, comprised of $150.0 million
from the Notes Offering less estimated debt issue costs of $5.5 million,
and $100.0 million from the contribution of the proceeds of the Common
Stock Offering less estimated issuance expenses of $8.0 million, have been
assumed to reduce borrowings under the Revolving Credit Facility and Term
Loan Facilities by $186.5 million and increase cash and cash equivalents
by $50.0 million. The pro forma balance sheet includes the following
adjustments:
<TABLE>
<CAPTION>
INCREASE
(DECREASE)
-----------------
($ IN MILLIONS)
<S> <C>
Cash and cash equivalents ............................................... $ 50.0
=================
Senior subordinated notes (proceeds from the Notes)...................... 150.0
=================
Other assets (deferred debt issuance costs).............................. $ 5.5
=================
24
<PAGE>
INCREASE
(DECREASE)
-----------------
($ IN MILLIONS)
=================
The net proceeds from the Offerings will be used to reduce borrowings
and were recorded as follows:
Current portion of long-term debt....................................... $ (3.2)
Revolving Credit Facility............................................... (68.8)
Term Loan Facilities.................................................... (114.5)
-----------------
$(186.5)
=================
Shareholders' equity:
Contribution by Holdings of proceeds of Common Stock Offering, less
expenses................................................................ $ 92.0
=================
</TABLE>
6. The pro forma adjustments were tax-effected, as appropriate, using a
statutory (federal, state and foreign) tax rate of 39.0%. The pro forma
balance sheet includes an estimated $12.0 million of deferred tax assets
related principally to differences between book and tax bases of assumed
liabilities related to the 1998 Acquisitions.
25
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected unaudited pro forma data as of December 31, 1997 and for the
year then ended have been derived from, and should be read in conjunction
with, the unaudited pro forma condensed consolidated financial statements
included elsewhere herein. The unaudited pro forma statement of operations
and other data reflect the L-3 Acquisition, the 1998 Acquisitions and the
Offerings as if such transactions had occurred on January 1, 1997, for the
statement of operations and other data. The balance sheet data reflect the
1998 Acquisitions and the Offerings as if such transactions had occurred on
December 31, 1997.
The selected consolidated (combined) financial data as of December 31,
1997, 1996, 1995 and 1994, and for the nine months ended December 31, 1997,
the three months ended March 31, 1997 and the years ended December 31, 1996
and 1995 have been derived from the audited financial statements for the
respective periods.
The selected consolidated (combined) financial data as of December 31,
1993 and March 31, 1993, the nine months ended December 31, 1993 and the
three months ended March 31, 1993 have been derived from the unaudited
financial statements of Communication Systems -- East. In the opinion of the
Businesses' management, such unaudited financial statements reflect all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the financial position and results of operations of Communication
Systems -- East, also referred to as Lockheed Martin Communication Systems
Division in the Company's Consolidated (Combined) Financial Statements.
These selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated (Combined) Financial Statements of the
Company (Predecessor Company) and the Loral Acquired Businesses included
elsewhere herein. Prior to April 1, 1996, the Predecessor Company was only
comprised of Communication Systems -- East.
<PAGE>
<TABLE>
<CAPTION>
COMPANY PREDECESSOR COMPANY
------------------------ ------------------------------------------------------------------
NINE THREE NINE THREE
YEAR ENDED MONTHS MONTHS MONTHS MONTHS
DECEMBER 31, ENDED ENDED YEAR ENDED DECEMBER 31, ENDED ENDED
1997 DEC. 31,(1) MARCH 31, ---------------------------- DEC. 31.(3) MARCH 31(4)
PRO FORMA 1997 1997 1996(2) 1995(3) 1994(3) 1993 1993
------------- ----------- ----------- --------- -------- -------- --------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS
DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales ..................... $894.0 $ 546.5 $158.9 $ 543.1 $166.8 $218.9 $200.0 $67.8
Operating income .......... 58.4 55.9 7.9 43.7 4.7 8.4 12.4 5.1
Interest expense, net(5) .. 43.7 28.5 8.4 24.2 4.5 5.5 4.1 --
Provision (benefit) for
income taxes(5) ........... 4.3 10.7 (0.2) 7.8 1.2 2.3 3.8 2.0
Net income (loss) .......... 10.4 16.7 (0.3) 11.7 (1.0) 0.6 4.5 3.1
BALANCE SHEET DATA:
Working capital ........... $141.1 $ 131.8 $ 98.8 $ 21.1 $ 19.3 $ 24.7 $22.8
Total assets .............. 891.1 703.4 593.3 228.5 233.3 241.7 93.5
Long-term debt ............. $428.8 $ 392.0 -- -- -- -- -- --
Invested equity ........... 493.9 473.6 194.7 199.5 202.0 59.9
Shareholders' equity ....... 224.7 132.7
OTHER DATA:
EBITDA(6) ................. $ 95.1 $ 78.1 $ 15.7 $ 71.8 $ 16.3 $ 19.9 $ 23.4 $ 7.0
Net cash from (used in)
operating activities ...... -- 73.9 (16.3) 30.7 9.3 21.8 -- --
Net cash used in investing
activities ................ -- (457.8) (4.3) (298.0) (5.5) (3.7) -- --
Net cash from (used in)
financing activities ...... -- 461.4 20.6 267.3 (3.8) (18.1) -- --
Depreciation expense ...... 22.0 13.3 4.5 14.9 5.5 5.4 6.1 1.8
Amortization expense ...... 14.7 8.9 3.3 13.2 6.1 6.1 4.9 0.1
Capital expenditures ...... 19.9 11.9 4.3 13.5 5.5 3.7 2.6 0.8
Ratios of:
Earnings to fixed
charges(7) ............... 1.3x 1.8x (8) 1.7x 1.0x 1.4x 2.5x (8)
EBITDA to cash interest
expense(9) ............... 2.3x
Net debt to EBITDA(10)..... 4.0x
</TABLE>
- ------------
(1) Reflects the L-3 Acquisition effective April 1, 1997.
(2) Reflects ownership of Loral's Communication Systems -- West and
Specialized Communication Products businesses commencing April 1, 1996.
(3) Reflects ownership of Communication Systems -- East by Lockheed Martin
effective April 1, 1993.
(4) Reflects ownership of Communications Systems -- East by GE Aerospace.
The amounts shown herein include only those amounts as reflected in the
financial records of Communication Systems --East.
(5) For periods prior to April 1, 1997, interest expense and income tax
(benefit) provision were allocated from Lockheed Martin.
(6) EBITDA is defined as operating income plus depreciation expense and
amortization expense (excluding the amortization of deferred debt
issuance costs). EBITDA is not a substitute for operating income, net
income and cash flow from operating activities as determined in
accordance with generally accepted accounting principles as a measure
of profitability or liquidity. EBITDA is presented as additional
information because management believes it to be a useful indicator of
the Company's ability to meet debt service and capital expenditure
requirements.
(7) For purposes of this computation, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest on
indebtedness plus that portion of lease rental expense representative
of the interest element.
(8) Earnings were insufficient to cover fixed charges by $0.5 million for
the three months ended March 31, 1997, and no interest expense was
incurred for the three months ended March 31, 1993.
(9) For purposes of this computation, cash interest expense consists of pro
forma interest expense excluding amortization of deferred debt issuance
costs.
(10) Net debt is defined as long-term debt plus current portion of long-term
debt less cash and cash equivalents.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The matters discussed herein may include "forward-looking statements" as
defined in the Private Securities Litigation Reform Act of 1995. Such
statements involve risks and uncertainties which could result in operating
performance that is materially different from management's projections. The
section of this Prospectus entitled "Risk Factors" should be read in
conjunction with this Management's Discussion and Analysis of Financial
Condition and Results of Operations section.
GENERAL
The Company is a leading merchant supplier of sophisticated secure
communication systems and specialized communication products including
secure, high data rate communication systems, microwave components, avionics
and ocean systems, telemetry, instrumentation and space products. These
systems and products are critical elements of virtually all major
communication, command and control, intelligence gathering and space systems.
The Company's systems and specialized products are used to connect a variety
of airborne, space, groundand sea-based communication systems and are
incorporated into the transmission, processing, recording, monitoring and
dissemination functions of these communication systems. The Company's
customers include the DoD, selected Government intelligence agencies, major
aerospace/defense prime contractors, foreign governments and commercial
customers. The Company operates primarily in one industry segment, electronic
components and systems.
All domestic government contracts and subcontracts of the Company are
subject to audit and various cost controls, and include standard provisions
for termination for the convenience of the Government. Multi-year Government
contracts and related orders are subject to cancellation if funds for
contract performance for any subsequent year become unavailable. Foreign
government contracts generally include comparable provisions relating to
termination for the convenience of the relevant foreign government.
The defense industry has recently undergone significant changes
precipitated by ongoing federal budget pressures and new roles and missions
to reflect changing strategic and tactical threats. Since the mid-1980's, the
overall U. S. defense budget has declined in real dollars. In response, the
DoD has focused its resources on enhancing its military readiness, joint
operations and digital command and control communications by incorporating
advanced electronics to improve the performance, reduce operating cost and
extend the life expectancy of its existing and future platforms. The emphasis
on system interoperability, force multipliers and providing battlefield
commanders with real-time data is increasing the electronics content of
nearly all of the major military procurement and research programs. As a
result, the DoD's budget for communications and defense electronics is
expected to grow. According to Federal Sources, an independent private
consulting group, the defense budget for C(3)I is expected to increase from
$31.0 billion in the fiscal year ended September 30, 1997 to $42.0 billion in
the fiscal year ended September 30, 2002, a compound annual growth rate of
6.3%.
ACQUISITION HISTORY
The Company was formed to acquire substantially all of the assets of (i)
nine business units previously purchased by Lockheed Martin as part of its
acquisition of Loral in April 1996 (the "Loral Acquired Businesses") which
include eight business units of Loral ("Specialized Communications products")
and one business unit purchased by Loral as part of its acquisition of the
Defense Systems business of Unisys Corporation in May 1995 ("Communications
System --West"), and (ii) one business unit purchased by Lockheed Martin as
part of its acquisition of the aerospace business of General Electric Company
in April 1993 ("Communication Systems -- East"). Collectively, the Loral
Acquired Businesses and Communications Systems -- East comprise the
"Predecessor Company" or "Businesses".
27
<PAGE>
RESULTS OF OPERATIONS
The following information should be read in conjunction with Consolidated
(Combined) Financial Statements and the notes thereto.
The Company's financial statements reflect operations since the effective
date of the L-3 Acquisition, April 1, 1997; and the Predecessor Company's
results of operations for the three months ended March 31, 1997 and the year
ended December 31, 1996 which include the results of operations of the Loral
Acquired Businesses beginning on April 1, 1996, the effective date of that
acquisition by Lockheed Martin. Therefore, the results of operations for the
year ended December 31, 1996 reflect the results of operations of the Loral
Acquired Businesses for the nine months from April 1, 1996 to December 31,
1996. Accordingly, changes between periods for the year ended December 31,
1997 to the year ended December 31, 1996 of the Predecessor Company are
significantly affected by the timing of the L-3 Acquisition and Loral
Acquired Businesses acquisitions. See Note 4 to the Consolidated (Combined)
Financial Statements. The results of operations for the year ended December
31, 1995 and the period from January 1 to March 31, 1996 represent the
results of the Predecessor Company, which only comprise the results of
operations of Communications Systems -- East. Operating income of the Company
and the Predecessor Company are not directly comparable between periods as a
result of the effects of valuation of assets and liabilities recorded in
accordance with Accounting Principles Board Opinion No. 16 ("APB 16") by the
Company and the Predecessor Company, in the purchase accounting for the L-3
Acquisition and Loral Acquired Businesses acquisitions. Interest expense and
income taxes expense for the periods are not comparable and the impact of
interest expense and income tax expense on the Company is discussed below.
As indicated in Note 6 to the Consolidated (Combined) Financial
Statements, effective April 1, 1997 the Company has accounted for the sale of
its Hycor business in accordance with FASB Emerging Issues Task Force Issue
No. 87-11 "Allocation of Purchase Price to Assets to Be Sold". Accordingly,
the results of operations of the Hycor business are not included in the
results of operations of the Company for the nine months ended December 31,
1997. Hycor is a business unit of the Loral Acquired Businesses, and,
accordingly, Hycor is only included in the results of operations of the
Predecessor Company beginning on April 1, 1996, the effective date of the
Loral Acquired Businesses acquisition by Lockheed Martin. On January 29,
1998, the Company sold the Hycor business, excluding land and buildings, for
$3.5 million in cash subject to adjustment based on final closing net assets.
The results of operations presented below exclude the results of
operations of the 1998 Acquisitions for the year ended December 31, 1997.
The results of operations of the Predecessor Company for the three months
ended March 31, 1997 and the years ended December 31, 1996 and 1995, include
certain costs and expenses allocated by Lockheed Martin for corporate office
expenses based primarily on the allocation methodology prescribed by
government regulations pertaining to government contractors. Interest expense
was allocated based on Lockheed Martin's actual weighted average consolidated
interest rate applied to the portion of the beginning of the year invested
equity deemed to be financed by consolidated debt based on Lockheed Martin's
debt to equity ratio on such date. The provision (benefit) for income taxes
was allocated to the Predecessor Company as if it were a separate taxpayer,
calculated by applying statutory rates to reported pre-tax income after
considering items that do not enter into the determination of taxable income
and tax credits related to the Predecessor Company. Also, pension and
post-employment benefit costs were allocated based on employee headcount.
Accordingly, the results of operations and financial position hereinafter of
the Predecessor Company may not be the same as would have occurred had the
Predecessor Company been an independent entity.
28
<PAGE>
The following table sets forth selected statement of operations data for
the Company and the Predecessor Company for the periods indicated.
<TABLE>
<CAPTION>
COMPANY PREDECESSOR COMPANY
-------------- ---------------------------------------------------------------
YEAR
NINE MONTHS NINE MONTHS THREE MONTHS THREE MONTHS ENDED
ENDED ENDED ENDED ENDED DECEMBER 31,
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31, ----------------
1997 1996 1997 1996 1996 1995
-------------- -------------- -------------- -------------- ------- ------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
SALES $546.5 $501.9 $158.9 $41.2 $543.1 $166.8
COSTS AND EXPENSES ................ 490.6 459.9 151.0 39.5 499.4 162.1
OPERATING INCOME .................. 55.9 42.0 7.9 1.7 43.7 4.7
NET INTEREST EXPENSE .............. 28.5 22.2 8.4 2.0 24.2 4.5
INCOME (LOSS) BEFORE INCOME TAXES 27.4 19.8 (0.5) (0.3) 19.5 .2
INCOME TAX PROVISION (BENEFIT) ... 10.7 7.6 (0.2) 0.2 7.8 1.2
NET INCOME (LOSS).................. 16.7 12.2 (0.3) (0.5) 11.7 (1.0)
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Sales for the nine months ended December 31, 1997 as compared to the
corresponding period in 1996 increased by $44.6 million, of which $30.5
million is attributable to the Loral Acquired Businesses and $14.1 million to
Communication Systems -- East. The increase in sales is attributable to
increased volume in sales of microwave components, CHBDL, UAV programs, F-14
display system contract, power supplies and P3-C Repair Depot. Operating
income for the nine months ended December 31, 1997 as compared to the
corresponding period in 1996 increased by $13.9 million, of which $5.8
million is attributable to the Loral Acquired Businesses and $8.1 million to
Communication Systems -- East. The increase in operating income for the nine
months ended December 31, 1997 is attributable to increased sales, improved
operating performance on sales of aviation recorders, passive microwave
components and display systems, the GEMnet product-line and P3-C Repair Depot
sales, partially offset by $3.3 million of cost of sales related to ongoing
certification efforts for the Company's Explosive Detection System ("EDS")
contract and lower sales volume on the U-2 Program.
Sales and operating income for the three months ended March 31, 1997
increased by $117.7 million and $6.2 million, respectively, as compared to
the corresponding period in 1996. The increases are attributable to the
acquisition of the Loral Acquired Businesses, offset by losses incurred on
three programs by Communication Systems -- East.
Sales and operating income of the Hycor business included in the
Predecessor Company's results of operations for the three months ended March
31, 1997 and the year ended December 31, 1996 were $1.8 million and nil, and
$7.5 million and $0.3 million, respectively.
Net interest expense for the nine months ended December 31, 1997 was $28.5
million representing interest expense on the Company's outstanding borrowings
(see Note 8 to Consolidated (Combined) Financial Statements), and
amortization of debt issuance costs, less interest income of $1.4 million and
interest expense of $0.6 million allocated to the Hycor business net assets
held for sale. Interest expense for the three months ended March 31, 1997 and
the prior period was $8.4 million and $24.2 million, respectively, and was
allocated to the Predecessor Company by applying Lockheed Martin's weighted
average consolidated interest rate to the portion of the Predecessor
Company's invested equity account deemed to be financed by Lockheed Martin's
consolidated debt. The increase in interest expense reflects higher interest
rates on the third party debt, as compared to the interest rate utilized to
calculate interest expense by the Predecessor Company.
The income tax provision for the nine months ended December 31, 1997
reflects the Company's effective income tax rate of 39%. For the three months
ended March 31, 1997 and in the prior period, income taxes were allocated to
the Predecessor Company by Lockheed Martin and the effective income tax rate
was significantly impacted by amortization of costs in excess of net assets
acquired, which were not deductible for income tax purposes. See Note 11 to
Consolidated (Combined) Financial Statements.
29
<PAGE>
SUPPLEMENTAL ANALYSIS OF ANNUAL RESULTS OF OPERATIONS OF THE COMPANY AND THE
PREDECESSOR COMPANY
As noted above, the Company's financial statements reflect operations
since the effective date of the L-3 Acquisition, April 1, 1997, and the
results of operations for the year ended December 31, 1996 represent the
results of operations of the Predecessor Company, and include the results of
operations of the Loral Acquired Businesses beginning on April 1, 1996, the
effective date of that acquisition. Accordingly, changes between periods for
the year ended December 31, 1997 to the year ended December 31, 1996 of the
Predecessor Company are significantly affected by the timing of these
acquisitions. To enable investors to better assess the trends in the results
of operations and to facilitate comparisons, the following presentation of
results of operations for the year ended December 31, 1997 were obtained by
aggregating, without adjustment, the historical results of operations of the
Predecessor Company for the period from January 1, 1997 through March 31,
1997 with the historical results of operations of the Company for the nine
months period from April 1, 1997 through December 31, 1997 (the "1997
period"), and the results of operations for the year ended December 31, 1996
were obtained by aggregating, without adjustments, the historical results of
operations of the Predecessor Company for the year ended December 31, 1996
with the historical results of operations of the Loral Acquired Businesses
for the period from January 1, 1996 through March 31, 1996 (the "1996
period"). All the historical results were derived from the audited financial
statements for respective periods included herein.
The following table sets forth historical selected statement of operations
data for the Company, Predecessor Company and the Loral Acquired Businesses
for the periods indicated and the related calendar year results of operation
data derived therefrom.
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR LORAL ACQUIRED
COMPANY COMPANY COMPANY BUSINESSES
-------------- -------------- -------- -------------- ---------------
NINE MONTHS THREE MONTHS YEAR THREE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, MARCH 31, 1997 DECEMBER 31, MARCH 31, 1996
1997 1997 PERIOD 1996 1996 PERIOD
-------------- -------------- -------- -------------- --------------- ------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Sales.............. $546.5 $158.9 $705.4 $543.1 $132.2 $675.3
Costs and expenses. 490.6 151.0 641.6 499.4 124.4 623.8
-------------- -------------- -------- -------------- -------------- --------
Operating income .. $ 55.9 $ 7.9 $ 63.8 $ 43.7 $ 7.8 $ 51.5
============== ============== ======== ============== ============== ========
EBITDA ............ $ 78.1 $ 15.7 $ 93.8 $ 71.8 $ 12.8 $ 84.6
============== ============== ======== ============== ============== ========
</TABLE>
Sales for the 1997 period increased to $705.4 million from $675.3 million
for the 1996 period. Operating income increased to $63.8 million in the 1997
period from $51.5 million in the 1996 period. Operating income is not
directly comparable between the periods as a result of the effects of
valuation of assets and liabilities in accordance with Accounting Principles
Opinion No. 16.
The sales increase in the 1997 period was primarily attributable to sales
of the Loral Acquired Businesses which increased by $18.1 million to $531.4
million in the 1997 period as compared to $513.3 million in the 1996 period.
This sales increase was primarily attributable to increased sales volume on
E2-C antenna program, the E2-C and F-14 display systems and passive microwave
components, additional production and shipments on CHBDL and UAV programs,
and partially offset by lower sales volume on the U-2 Program. Additionally,
sales of Communication Systems --East increased by $12.0 million to $174.0
million in the current period from $162.0 million in the 1996 period, and
were primarily attributable to increased sales of power supplies, the GEMnet
product line and the P3-C Repair Depot.
Operating income increased by 23.9% to $63.8 million in the 1997 period
from $51.5 million in the 1996 period. Operating income as a percentage of
sales increased to 9.0% in the 1997 period as compared to 7.6% in the 1996
period. The increase in operating income was largely attributable to cost
reductions, increased sales volume of the Loral Acquired Businesses and
operating improvements at Communications Systems -- East. Operating income
for the 1997 period also reflected fourth quarter cost of sales of $3.3
million related to on-going certification efforts for the Company's EDS
contract. Excluding these EDS costs, operating income would have been $67.1
million for the 1997 period and operating income as a percentage of sales
would have been 9.5%.
30
<PAGE>
EBITDA is defined as operating income plus depreciation expense and
amortization expense (excluding the amortization of debt issuance costs).
EBITDA is not a substitute for operating income, net income or cash flows
from operating activities as determined in accordance with generally accepted
accounting principles as a measure of profitability or liquidity. EBITDA is
presented as additional information because management believes it to be a
useful indicator of the Company's ability to meet debt service and capital
expenditure requirements. EBITDA for the 1997 period increased by $9.2
million to $93.8 million from $84.6 million from the 1996 period. EBITDA
margin, defined as EBITDA as a percentage of sales, increased to 13.3% for
the 1997 period from 12.5% for the 1996 period. The increases in EBITDA and
EBITDA margin were attributable to the items affecting the trends in
operating income between the 1997 period and 1996 period discussed above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The results of operations of the Loral Acquired Businesses are reflected
in the results of operations of the Predecessor Company beginning on April 1,
1996, the effective date of that acquisition by Lockheed Martin. During 1996,
sales increased to $543.1 million from $166.8 million in 1995. Operating
income increased to $43.7 million compared with $4.7 million in 1995. Net
income increased to $11.7 million as compared to a net loss of $1.0 million
in 1995. The Loral Acquired Businesses contributed $13.6 million to net
income for the year ended December 31, 1996.
The sales increase in 1996 was attributable to the sales of the Loral
Acquired Businesses which contributed $381.1 million of the increase. Sales
of Communication Systems -East decreased in 1996 by $4.8 million as compared
to 1995 primarily due to lower volume on Aegis power supplies and SIGINT
system production, partially offset by Local Management Device/Key Processor
("LMD/KP") production startup.
The increase in 1996 operating income was largely attributable to the
Loral Acquired Businesses, which contributed $36.9 million of the increase.
Communication Systems -East operating income in 1996 increased $2.2 million
primarily due to improved operating performance on the Shipboard Telephone
Communications ("STC-2") program partially offset by increased costs on the
Space Station contract. As a percentage of sales, operating income increased
to 8.0% from 2.8%. This increase is attributable to the improvement in
Communication Systems -- East noted above, higher contract margins and
operating improvements in the Loral Acquired Businesses.
Allocated interest expense increased to $24.2 million in 1996 from $4.5
million in 1995 due primarily to the acquisition of the Loral Acquired
Businesses, which was assumed to be fully financed by debt, coupled with a
higher debt-to-equity ratio used in the allocation for Communication Systems
- -- East. See Note 9 to Consolidated (Combined) Financial Statements.
The effective income tax rate declined to 40% in 1996 as compared to 681%
in 1995. The 1995 effective rate was significantly impacted by non-deductible
amortization of costs in excess of net assets acquired. As a percentage of
income subject to tax, such amortization declined significantly in 1996.
LIQUIDITY AND CAPITAL RESOURCES
THE L-3 ACQUISITION
Effective April 1, 1997, the Company purchased the Businesses from
Lockheed Martin for $503.8 million, after a purchase price adjustment of
$21.2 million and acquisition costs of $8.0 million. On November 5, 1997 the
L-3 Acquisition Agreement was amended to finalize the purchase price
adjustment which amounted to $21.2 million of which $15.9 million was
received on April 30, 1997 and $5.3 million was received on November 7, 1997,
plus interest thereon. The amendment also included the assumption by the
Company of Lockheed Martin's rights and obligations under a contract for the
U.S. Army's Command and Control Vehicle ("C(2)V") Mission Module Systems
("MMS"), for which the Company received a cash payment of $12.2 million from
Lockheed Martin.
FINANCING
The L-3 Acquisition was funded by a combination of debt and equity
aggregating $525.0 million. The equity of $125.0 million was comprised of
$80.0 million in cash contributed to Holdings by the Lehman Partnership
31
<PAGE>
and Senior Management and a $45.0 million retained interest in Holdings by
Lockheed Martin representing partial consideration to Lockheed Martin for the
L-3 Acquisition. In connection with its sale of the Businesses to the Company,
the Company entered into a $275.0 million credit facility consisting of
$175.0 million of term loans (the "Term Loan Facilities") and a $100.0 million
revolving credit facility (the "Revolving Credit Facility") (collectively, the
"Senior Credit Facilities"). The initial debt balance of $400.0 million
consisted of $175.0 million of borrowings under the Term Loan Facilities and
$225.0 million of 10 3/8% Senior Subordinated Notes (the "1997 Notes") due
May 1, 2007.
The required principal payments under the Term Loans Facilities are: $5.0
million in 1998, $11.0 million in 1999, $19.0 million in 2000, $25.0 million
in 2001, $33.2 million in 2002, $20.0 million in 2003, and $25.2 million in
2004, $24.9 million 2005, and $8.7 million in 2006. Interest payments on the
Term Loan Facilities vary in accordance with the type of borrowings and are
made at a minimum every three months. At December 31, 1997, the Senior Credit
Facilities also included a $100.0 million Revolving Credit Facility. In
February 1998, the Senior Credit Facilities were amended to, among other
things, increase the amount available under the revolving credit facility to
$200.0 million, waive certain excess cash flow prepayments, as defined,
otherwise required, and permit the incurrence of up to an additional $150.0
million of subordinated debt. Other than upon a change of control or the
occurrence of certain asset sales, L-3 Communications will not be required to
repurchase the 1997 Notes until maturity on May 1, 2007. L-3 Communications
is required to make semi-annual interest payments with respect to the 1997
Notes.
The Company has a substantial amount of indebtedness. Based upon the
current level of operations, management believes that the Company's cash flow
from operations, together with available borrowings under the Revolving
Credit Facility, will be adequate to meet its anticipated requirements for
working capital, capital expenditures, research and development expenditures,
program and other discretionary investments, interest payments and scheduled
principal payments for the foreseeable future including at least the next
three years. There can be no assurance, however, that the Company's business
will continue to generate cash flow at or above current levels or that
currently anticipated improvements will be achieved. If the Company is unable
to generate sufficient cash flow from operations in the future to service its
debt, it may be required to sell assets, reduce capital expenditures,
refinance all or a portion of its existing debt or obtain additional
financing. The Company's ability to make scheduled principal payments, to pay
interest on or to refinance its indebtedness depends on its future
performance and financial results, which, to a certain extent, are subject to
general conditions in or affecting the defense industry and to general
economic, political, financial, competitive, legislative and regulatory
factors beyond its control. There can be no assurance that sufficient funds
will be available to enable the Company to service its indebtedness,
including the 1997 Notes and the Notes, or make necessary capital
expenditures and program and discretionary investments.
On November 5, 1997, L-3 Communications completed its exchange offer
relating to the 1997 Notes and the holders of the 1997 Notes received
registered securities. The 1997 Notes are redeemable at the option of L-3
Communications, in whole or in part, at any time on or after May 1, 2002, at
various redemption prices plus accrued and unpaid interest to the applicable
redemption date. In addition, prior to May 1, 2000, L-3 Communications may
redeem up to 35% of the aggregate principal amount of the 1997 Notes at a
redemption price of 109.375% of the principal amount thereof, plus accrued
and unpaid interest to the redemption date with the net cash proceeds of one
or more equity offerings by Holdings that are contributed to L-3
Communications as common equity capital. See "Risk Factors -- Substantial
Leverage".
The Senior Credit Facilities and the 1997 Notes contain financial
covenants, which remain in effect so long as any amount is owed thereunder by
L-3 Communications. The financial covenants under the Senior Credit
Facilities require that (i) L-3 Communications' debt ratio, as defined, be
less than or equal to 5.50 for the quarter ended December 31, 1997, and that
the maximum allowable debt ratio, as defined, thereafter be further reduced
to less than or equal to 3.1 for the quarters ending after June 30, 2002, and
(ii) L-3 Communications' interest coverage ratio, as defined, be at least
1.85 for the quarter ended December 31, 1997, and thereafter increasing the
interest coverage ratio, as defined, to at least 3.10 for any fiscal quarters
ending after June 30, 2002. At December 31, 1997, L-3 Communications was and
has been in compliance with these covenants at all times.
32
<PAGE>
To mitigate risks associated with changing interest rates on certain of
its debt, the Company entered into the interest rate cap and floor contracts
(the "interest rate agreements"). The Company manages exposure to
counterparty credit risk by entering into the interest rate agreements only
with major financial institutions that are expected to perform fully under
the terms of such agreements. Cash payments to (from) the Company and the
counterparties are made at the end of the quarter to the extent due under the
terms of the interest rate agreements. Such payments are recorded as
adjustments to interest expense. The initial costs of the interest rate
agreements are capitalized as deferred debt issuance costs and amortized into
interest expense. The impact of the interest rate agreements to interest
expense was not material for the nine months ended December 31, 1997. See
Note 10 to the Consolidated (Combined) Financial Statements.
CASH FLOWS
The following table sets forth selected cash flow statement data for the
Company and the Predecessor Company for the periods indicated:
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR
COMPANY COMPANY COMPANY
-------------- -------------- ------------------
YEAR
NINE MONTHS THREE MONTHS ENDED
ENDED ENDED DECEMBER 31,
DECEMBER 31, MARCH 31, ------------------
1997 1997 1996 1995
-------------- -------------- --------- -------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Net cash from (used in)
operating activities .. $ 73.9 $(16.3) $ 30.7 $ 9.3
Net cash used in
investing activities .. (457.8) (4.3) (298.0) (5.5)
Net cash from financing
activities............. 461.4 20.6 267.3 (3.8)
</TABLE>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Cash provided by
operating activities of the Company for the nine months ended December 31,
1997 was $73.9 million. Cash provided by operations benefited from improved
operating results, effective management of contracts in process and increases
in accrued employment costs. Contracts in process declined by $18.2 million
to $167.2 million from April 1, 1997 to December 31, 1997, and was primarily
attributable to collections of and reductions in the levels of commercial and
affiliate receivables.
Net cash used in operating activities of the Predecessor Company was $16.3
million for the quarter ended March 31, 1997, resulting primarily from the
increase in contracts in process and decrease in current liabilities. Cash
flows used by the Loral Acquired Businesses was $10.2 million. Cash used for
operating activities by Communication Systems -- East amounted to $6.1
million.
Cash provided by operating activities of the Predecessor Company was $30.7
million in 1996 and $9.3 million in 1995. The increase of $21.4 million in
1996 was due primarily to the impact of the Loral Acquired Businesses which
were acquired by Lockheed Martin effective April 1, 1996. Earnings after
adjustment for non-cash items provided $36.7 million, offset by changes in
other operating assets and liabilities. Without the Loral Acquired
Businesses, cash provided by operating activities for Communication
Systems--East increased to $13.7 million in 1996, 46% over 1995.
The Company's current ratio at December 31, 1997 remained constant at 2.0:
1 as compared to the Predecessor Company's current ratio at December 31,
1996.
NET CASH USED IN INVESTING ACTIVITIES: Cash used in investing activities
for the nine months ended December 31, 1997 consisted primarily of $466.3
million paid by the Company for the L-3 Acquisition (See Note 1 to
Consolidated (Combined) Financial Statements); offset by proceeds from the
sale of the Company's Sarasota, Florida property of approximately $9.5
million and cash received in connection with the assumption of obligations
under the C(2)V MMS contract from Lockheed Martin of $12.2 million. During
the year ended December 31, 1996, $287.8 million was paid by the Predecessor
Company for the acquisition of the Loral Acquired Businesses. See Note 4 to
the Consolidated (Combined) Financial
33
<PAGE>
Statements. In addition, for the nine months ended December 31, 1997 and the
three months ended March 31, 1997, $11.9 million and $4.3 million,
respectively, was used for capital expenditures, and $5.1 million and nil,
respectively, for purchase of investments. The Company typically makes
capital expenditures related primarily to improvement of manufacturing
facilities and equipment. The Company expects that its capital expenditures
for 1998 will be approximately $27.0 million.
All transactions between the Businesses and Lockheed Martin have been
accounted as settled in cash at the time such transactions were recorded by
the Businesses. Accordingly, in 1996, cash flows reflect the purchase of the
Loral Acquired Businesses.
NET CASH PROVIDED BY FINANCING ACTIVITIES: Cash from financing activities
of the Company was $461.4 million for the nine months ended December 31,
1997, and was due to the debt incurred and proceeds from the issuance of
common stock which were issued to finance the L-3 Acquisition. See
"--Financing" above. Net cash from financing activities also reflects the
payment of debt issue costs of $15.6 million and $3.0 million of scheduled
debt payments of the Term Loan Facilities.
Prior to the L-3 Acquisition, the Businesses participated in the Lockheed
Martin cash management system, under which all cash was received and all
payments were made by Lockheed Martin. For purposes of the statements of cash
flows, all transactions with Lockheed Martin were deemed to have been settled
in cash at the time they were recorded by the Predecessor Company. Net cash
from (used in) financing activities of the Predecessor Company for the three
months ended March 31, 1997 and the years ended December 31, 1996 and 1995,
were approximately $20.6 million, $267.3 million and ($3.8) million,
respectively, and represent advances from (repayments to) Lockheed Martin,
the Predecessor Company's parent company.
1998 ACQUISITIONS
On March 30, 1998, the Company purchased the assets of Ocean Systems for
$67.5 million of cash.
On March 4, 1998, the Company purchased the assets of ILEX for $51.9
million of cash, subject to adjustment based on closing net assets, and
additional consideration based on post-acquisition performance of ILEX.
On February 5, 1998, the Company purchased the assets of STS for $27.0
million in cash, subject to adjustment based upon closing net assets.
The Company has financed the 1998 Acquisitions using its cash on hand and
available borrowings under its Revolving Credit Facility.
The Company considers and executes strategic acquisitions on an ongoing
basis and may be evaluating acquisitions or engaged in acquisition
negotiations at any given time. As of the date hereof, the Company has
completed, has reached agreement on or is in discussions regarding certain
acquisitions, in addition to the 1998 Acquisitions, that are either
individually or in the aggregate not material to the financial condition of
results of operations of the Company.
BACKLOG
The Company's funded backlog at December 31, 1997 totaled $516.9 million,
as compared with the Predecessor Company's funded backlog at December 31,
1996 of $542.5 million. Funded orders, on a pro forma basis, for the Company
for 1997 were $711.5 million. The Predecessor Company's funded orders for
1996 were $619.5 million. It is expected that 86.0% of the backlog at
December 31, 1997 will be recorded as sales during 1998. However, there can
be no assurance that the Company's backlog will become revenues in any
particular period, if at all. See "Risk Factors -- Backlog". Approximately
81% of the total backlog at December 31, 1997 was directly or indirectly for
defense contracts for end use by the Government. Approximately $434.0 million
of total backlog was directly or indirectly for U.S. and foreign government
defense contracts, and approximately $19.5 million of total backlog was
directly or indirectly for U.S. and foreign government non-defense contracts.
Foreign customers account for approximately $34.6 million of the total
backlog.
34
<PAGE>
RESEARCH AND DEVELOPMENT
Research and development, including bid and proposal, costs ("R&D costs")
sponsored by the Company was $28.9 million for the nine months ended December
31, 1997. R&D costs sponsored by the Predecessor Company were $12.0 million,
$36.5 million and $9.8 million for the three months ended March 31, 1997 and
the years ended December 31, 1996 and 1995, respectively. The Loral Acquired
Businesses sponsored R&D costs of $5.6 million for the three months ended
March 31, 1996 and $21.4 million for the year ended December 31, 1995.
Accordingly, the Company, Predecessor Company and the Loral Acquired
Businesses, in the aggregate, sponsored R&D costs of $40.9 million, $42.1
million and $31.2 million, respectively, for the years ended December 31,
1997, 1996 and 1995. Customer-funded research and development was $117.1
million in 1997, as compared with $153.5 million for 1996. The decrease in
customer-funded research and development in 1997 is due primarily to research
and development programs existing in 1996 which moved into the production
phase during 1997.
CONTINGENCIES
See Note 13 to the Consolidated (Combined) Financial Statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information". SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set general purpose financial
statements. SFAS No. 131 establishes accounting standards for the way that
public business enterprises report information about operating segments and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. In February
1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits". SFAS No. 132 revises employers'
disclosures about pension and other postretirement benefits plans. It does
not change the measurement or recognition of those plans. It standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful as
they were when SFAS No. 87 "Employers' Accounting for Pensions", SFAS No. 88
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits" and SFAS No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions" were issued. SFAS
132 suggests combined formats for presentation of pension and other
postretirement benefits disclosures. The Company is currently evaluating the
impact, if any, of SFAS No. 130, SFAS No. 131 and SFAS No. 132.
INFLATION
The effect of inflation on the Company's sales and earnings has not been
significant. Although a majority of the Company's sales are made under
long-term contracts, the selling prices of such contracts, established for
deliveries in the future, generally reflect estimated costs to be incurred in
these future periods. In addition, some contracts provide for price
adjustments through escalation clauses.
YEAR 2000 CONVERSION
Under the Company's decentralized structure, each division maintains
and/or outsources its computer-based data processing functions. While each
division is responsible for its own computer-based functions, in late 1997 a
corporate-wide Year 2000 program (the "Program") was instituted for purposes
of overseeing Year 2000 compliance efforts. The Program's major phases
include (i) identification of areas requiring update, which began in
late 1997; (ii) assessment of required update actions and related
impacts, which commenced in the first quarter of 1998; (iii) development of
update schedule and cost estimates, which is scheduled to be concluded
in the second quarter of 1998 and (iv) implementation of such plan,
including follow-up testing, which is scheduled to commence during the second
quarter of 1998 and be completed by mid-1999. Through December 31, 1997, the
costs incurred in connection with the Program were not material. While
these cost estimates have not been finalized, based upon the type of
systems employed by the Company, costs of the Program are not expected to be
material to the results of operations, liquidity or capital resources of the
Company.
35
<PAGE>
BUSINESS
COMPANY OVERVIEW
L-3 is a leading merchant supplier of sophisticated secure communication
systems and specialized communication products including secure, high data
rate communication systems, microwave components, avionics and ocean systems,
and telemetry, instrumentation and space products. These systems and products
are critical elements of virtually all major communication, command and
control, intelligence gathering and space systems. The Company's systems and
specialized products are used to connect a variety of airborne, space,
groundand sea-based communication systems and are incorporated into the
transmission, processing, recording, monitoring and dissemination functions
of these communication systems. The Company's customers include the DoD,
selected Government intelligence agencies, major aerospace/defense prime
contractors, foreign governments and commercial customers. In 1997, L-3 had
pro forma sales of $894.0 million and pro forma EBITDA of $95.1 million. The
Company's pro forma funded backlog as of December 31, 1997 was $638.1
million. These results reflect internal growth as well as the execution of
the Company's strategy of acquiring businesses that complement or extend
L-3's product lines.
The Company's business areas enjoy proprietary technologies and
capabilities and have leading positions in their respective primary markets.
Management has organized the Company's operations into two primary business
areas: Secure Communication Systems and Specialized Communication Products.
In 1997, the Secure Communication Systems and Specialized Communication
Products business areas generated approximately $456.0 million and $438.0
million of pro forma sales, respectively, and $52.3 million and $42.8 million
of pro forma EBITDA, respectively. In addition, the Company is seeking to
expand its products and technologies in commercial markets. See " -- Emerging
Commercial Products" below.
SECURE COMMUNICATION SYSTEMS. L-3 is the established leader in secure,
high data rate communications in support of military and other national
agency reconnaissance and surveillance applications. The Company's Secure
Communication Systems operations are located in Salt Lake City, Utah, Camden,
New Jersey and Shrewsbury, New Jersey. These operations are predominantly
cost plus, sole source contractors supporting long-term programs for the U.S.
Armed Forces and classified customers. The Company's major secure
communication programs and systems include: secure data links for airborne,
satellite, ground-and sea-based information collection and transmission;
strategic and tactical signal intelligence systems that detect, collect,
identify, analyze and disseminate information and related support contracts
for military and national agency intelligence efforts; as well as secure
telephone and network equipment. The Company believes that it has developed
virtually every high bandwidth data link used by the military for
surveillance and reconnaissance in operation today. L-3 is also a leading
supplier of communication software support services to military and related
government intelligence markets. In addition to these core Government
programs, L-3 is leveraging its technology base by expanding into related
commercial communication equipment markets, including applying its high data
rate communications and archiving technology to the medical image archiving
market and its wireless communication expertise to develop local wireless
loop telecommunications equipment.
SPECIALIZED COMMUNICATION PRODUCTS. This business area includes (i)
Microwave Components, (ii) Avionics and Ocean Systems and (iii) Telemetry,
Instrumentation and Space Products operations of the Company.
Microwave Components. L-3 is the preeminent worldwide supplier of
commercial off-the-shelf, high performance microwave components and frequency
monitoring equipment. L-3's microwave products are sold under the
industry-recognized Narda brand name through a standard catalog to wireless,
industrial and military communication markets. L-3 also provides
state-of-the-art communication components including channel amplifiers and
frequency filters for the commercial communication satellite market.
Approximately 76% of Microwave Components sales is made to commercial
customers, including Loral Space & Communications, Ltd., Motorola, Lucent,
AT&T and Lockheed Martin.
36
<PAGE>
Avionics and Ocean Systems. Avionics and Ocean Systems include the
Company's Aviation Recorders, Display Systems, Antenna Systems and Acoustic
Undersea Warfare Systems operations. L-3 is the world's leading manufacturer
of commercial cockpit voice and flight data recorders ("black boxes"). These
recorders are sold under the Fairchild brand name both on an original
equipment manufacturer ("OEM") basis to aircraft manufacturers as well as
directly to the world's major airlines for their existing fleets of aircraft.
L-3's aviation recorders are also installed on military transport aircraft
throughout the world. L-3 provides military and high-end commercial displays
for use on a number of DoD programs including the F-14, V-22, F-117 and E-2C.
Further, L-3 manufactures high performance surveillance antennas and related
equipment for U.S. Air Force, U.S. Army and U.S. Navy aircraft including the
F-15, F-16, AWACS, E-2C and B-2, as well as the U.K.'s maritime patrol
aircraft. L-3 is also one of the world's leading product suppliers of
acoustic undersea warfare systems and airborne dipping sonar systems to the
U.S. and over 20 foreign navies.
Telemetry, Instrumentation and Space Products. The Company's Telemetry,
Instrumentation and Space Products operations develop and manufacture
commercial off-the-shelf, real-time data collection and transmission products
and components for missile, aircraft and space-based electronic systems.
These products are used to gather flight parameter data and other critical
information and transmit it from air or space to the ground. Telemetry
products are also used for range safety and training applications to simulate
battlefield situations. L-3 is also a leading global satellite communications
systems and services provider offering systems and services used in satellite
transmission of voice, video and data.
EMERGING COMMERCIAL PRODUCTS. Building upon its core technical expertise
and capabilities, the Company is seeking to expand into several closely
aligned commercial business areas and applications. Emerging Commercial
Products currently include the following three niche markets: (i) medical
archiving and simulation systems; (ii) local wireless loop telecommunications
equipment; and (iii) airport security equipment. These commercial products
were developed based on technology used in the Company's military businesses
with relatively small incremental financial investments. The Company is
applying its technical capabilities in high data rate communications and
archiving technology developed in its Secure Communication Systems business
area to the medical image archiving market jointly with GE Medical Systems.
Based on secure, high data rate communications technology also developed in
its Secure Communication Systems business area, the Company has developed
local wireless loop telecommunications equipment that is primarily designed
for emerging market countries and rural areas where voice and data
communication infrastructure is inadequate or non-existent. L-3 has completed
the development phase for the local wireless loop telecommunications
equipment and made its initial shipment in January 1998. In addition, the FAA
has awarded the Company a development contract for next generation airport
security equipment for explosive detection. L-3 has shipped two prototype
test units and FAA certification testing commenced in the first quarter of
1998. To date, revenues generated from L-3's Emerging Commercial Products
have not been, in the aggregate, material to the Company.
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The Company's systems and products are summarized in the following tables:
SECURE COMMUNICATION SYSTEMS (1997 PRO FORMA SALES: $456.0 MILLION)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
SYSTEMS SELECTED APPLICATIONS SELECTED PLATFORMS/END USES
- ------------------------------------- --------------------------------------- ----------------------------------------
<S> <C> <C>
SECURE HIGH DATA RATE COMMUNICATIONS
o Wideband data links o High performance, secure o Used on aircraft and naval ships and
communication links for interoperable unmanned aerial vehicles with military
tactical communication and and commercial satellites
reconnaissance
SATELLITE COMMUNICATION TERMINALS
o Ground-based satellite o Interoperable, transportable ground o Provide remote personnel with
communication terminals terminals for remote data links to communication links to distant forces
distant segments via commercial or
military satellites
SPACE COMMUNICATION AND SATELLITE CONTROL
o Satellite communication and o On-board satellite external o International Space Station; Earth
tracking systems communications, video systems, solid Observing Satellite; Landsat-7; Space
state recorders and ground support Shuttle; and National Oceanic and
equipment Atmospheric Administration weather
satellites
o Satellite command and control o Software integration, test and o Air Force satellite control network
sustainment and support maintenance support for Air Force and Titan IV launch system
satellite control network;
engineering support for satellite
launch systems
MILITARY COMMUNICATIONS
o Shipboard communication systems o Shipboard and ship-to-ship o Shipboard voice communications systems
communications for Aegis cruisers and destroyers and
fully automated Integrated Radio Room
(IRR) for ship-to-ship communications
on Trident submarines
o Digital battlefield communications o Communications on the move for o Communication systems for U.S. Army
tactical battlefield C(2)V
o Communication software support o Value added, critical software o ASAS, JSTARS and GUARDRAIL
services support for C(3)I systems
INFORMATION SECURITY SYSTEMS
o Secure Telephone Unit (STU o Secure and non-secure voice, data and o Office and battlefield secure and
III)/Secure Terminal Equipment video communication utilizing ISDN non-secure communication for armed
(STE) and ATM commercial network services, intelligence and security
technologies agencies
o Local management device/key o Provides electronic key material o User authorization and recognition and
processor (LMD/KP) accounting, system management and message encryption for secure
audit support functions for secure communication
data communication
o Information processing systems o Custom designed strategic and o Classified military and national
tactical signal intelligence systems agency intelligence efforts
that detect, collect, identify,
analyze and disseminate information
and related support contracts
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
SPECIALIZED COMMUNICATION PRODUCTS (1997 PRO FORMA SALES: $438.0 MILLION)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRODUCTS SELECTED APPLICATIONS SELECTED PLATFORMS/END USES
- --------------------------------------- --------------------------------------- ----------------------------------------
<S> <C> <C>
MICROWAVE COMPONENTS
o Passive components, mechanical o Radio transmission, switching and o Broad-band and narrow-band commercial
switches and wireless assemblies conditioning; antenna and base applications (PCS, cellular, SMR, and
station testing and monitoring paging infrastructure) sold under the
Narda brand name; and broad-
band military applications
o Safety products o Radio frequency (RF) monitoring and o Monitor cellular base station and
measurement industrial RF emissions frequency
monitoring
o Semiconductors (diodes, capacitors) o Radio frequency switches, limiters, o Various industrial and military end
voltage control, oscillators, uses, including commercial satellites,
harmonic generators avionics and specialty communication
products
o Satellite and wireless components o Satellite transponder control, o China Sat, Pan Am Sat, Telstar,
(channel amplifiers, transceivers, channel and frequency separation Sirius, Tempo, Tiros, Milstar, GPS and
converters, filters and multiplexers) LandSat
AVIONICS AND OCEAN SYSTEMS
Aviation Recorders
o Solid state cockpit voice and flight o Voice recorders continuously record o Installed on business and commercial
data recorders most recent 30-120 minutes of voice aircraft and certain military
and sounds from cockpit and aircraft transport aircraft; sold to both
inter-communications. Flight data aircraft OEMs and airlines under the
recorders record the last 25 hours of Fairchild brand name
flight parameters
Antenna Systems
o Ultra-wide frequency and advanced o Surveillance; radar detection o F-15, F-16, F-18, E-2C, P-3, C-130,
radar antenna systems and rotary B-2, AWACS, Apache, Cobra, Mirage
joints (France), Maritime Patrol (U.K.) and
Tornado (U.K.)
Display Systems
o Cockpit and mission display systems o High performance, ruggedized flat o E-2C, V-22, F-14, F-117, E-6B, C-130,
panel and cathode ray tube displays AWACS and JSTARS
Ocean Systems
o Airborne dipping sonar systems o Submarine detection and localization o SH-60, SH-2/3, AB-212, EH-101 and Lynx
Helicopters
o Submarine and surface ship towed o Submarine and surface ship detection o SSN, SSBN, DDG-963 and FFG-7
arrays and localization
o Torpedo defense systems o Torpedo detection and jamming o SSN, SSBN and DDG-963
o Mine countermeasure systems o Coastal and route survey o MCDV (Canada)
TELEMETRY, INSTRUMENTATION AND SPACE PRODUCTS
Airborne, Ground and Space Telemetry
o Aircraft, missile and satellite o Real time data acquisition, o JSF, F-15, F-18, F-22, Comanche,
telemetry systems measurement, processing, simulation, Nimrod (U.K.), Tactical Hellfire,
distribution, display and storage for Titan, EELV, A2100 and ATHENA
flight testing
o Training range telemetry systems o Battlefield simulation o Combat simulation
Space Products
o Global satellite communications o Satellite transmission of voice, o Rural telephony or private networks,
systems supplier video and data direct to home uplinks, satellite news
gathering and wideband applications
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
INDUSTRY OVERVIEW
The defense industry has recently undergone significant changes
precipitated by ongoing federal budget pressures and new roles and missions
to reflect changing strategic and tactical threats. Since the mid-1980's, the
overall U.S. defense budget has declined in real dollars. In response, the
DoD has focused its resources on enhancing its military readiness, joint
operations and digital command and control communications by incorporating
advanced electronics to improve the performance, reduce operating cost and
extend the life expectancy of its existing and future platforms. The emphasis
on system interoperability, force multipliers and providing battlefield
commanders with real-time data is increasing the electronics content of
nearly all of the major military procurement and research programs. As a
result, the DoD's budget for communications and defense electronics is
expected to grow. According to Federal Sources, an independent private
consulting group, the defense budget for C(3)I is expected to increase from
$31.0 billion in the fiscal year ended September 30, 1997 to $42.0 billion in
the fiscal year ended September 30, 2002, a compound annual growth rate of
6.3%.
The industry has also undergone dramatic consolidation resulting in the
emergence of three dominant prime system contractors (Boeing, Lockheed Martin
and Raytheon). One outgrowth of this consolidation among the remaining major
prime contractors is their desire to limit purchases of products and
sub-systems from one another. However, there are numerous essential products,
components and systems that are not economical for the major prime
contractors to design, develop or manufacture for their own internal use
which creates opportunities for merchant suppliers such as L-3. As the prime
contractors continue to evaluate their core competencies and competitive
position, focusing their resources on larger programs and platforms, the
Company expects the prime contractors to continue to exit non-strategic
business areas and procure these needed elements on more favorable terms from
independent, commercially oriented merchant suppliers. Recent examples of
this trend include divestitures of certain non-core businesses by
AlliedSignal, Ceridian, Lockheed Martin and Raytheon.
The prime contractors' focus on cost control is also driving increased use
of commercial off-the-shelf products for upgrades of existing systems and in
new systems. The Company believes the prime contractors will continue to be
under pressure to reduce their costs and will increasingly seek to focus
their resources and capabilities on major systems, turning to commercially
oriented merchant suppliers to produce sub-systems, components and products.
Going forward, successful merchant suppliers will use their resources to
complement and support, rather than compete with the prime contractors. L-3
anticipates the relationship between the major prime contractors and their
primary suppliers will, as in the automotive and commercial aircraft
industry, develop into critical partnerships encompassing increasingly
greater outsourcing of non-core products and systems by the prime contractors
to their key merchant suppliers and increasing supplier participation in the
development of future programs. Early involvement in the upgrading of
existing systems and the design and engineering of new systems incorporating
these outsourced products will provide merchant suppliers, including the
Company, with a competitive advantage in securing new business and provide
the prime contractors with significant cost reduction opportunities through
coordination of the design, development and manufacturing processes.
BUSINESS STRATEGY
In 1997, management successfully integrated the business units of Lockheed
Martin it acquired in the L-3 Acquisition and enhanced the Company's
operating efficiency through reduced overhead expenses and facility
rationalization. These efforts resulted in improvements in sales,
profitability and competitive contract award win rates. Going forward, L-3
intends to leverage its market position, diverse program base and favorable
mix of cost plus to fixed price contracts to enhance its profitability and to
establish itself as the premier merchant supplier of communication systems
and products to the major prime contractors in the aerospace/defense industry
as well as the Government. The Company's strategy to continue to achieve its
objectives includes:
O EXPAND MERCHANT SUPPLIER RELATIONSHIPS. Management has developed
strong relationships with virtually all of the prime contractors, the DoD
and other major government agencies, enabling L-3 to identify business
opportunities and anticipate customer needs. As an independent merchant
supplier, the Company anticipates its growth will be driven by expanding
its share of existing
40
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programs and by participating in new programs. Management identifies
opportunities where it believes it will be able to use its strong
relationships to increase its business presence and allow its customers to
reduce their costs. The Company also expects to benefit from increased
outsourcing by prime contractors who in the past may have limited their
purchases to captive suppliers and who are now expected to view L-3's
capabilities on a more favorable basis given its status as an independent
company. L-3's independent status positions it to be the desired merchant
supplier to multiple bidders on prime contract bids. As an example of the
Company's merchant supplier strategy, L-3 equipment is included in all
three prime contractor bids for the ASTOR program in the United Kingdom
and both prime contractor bids for the DoD's JASSM program.
o SUPPORT CUSTOMER REQUIREMENTS. A significant portion of L-3's sales
are derived from high-priority, long-term programs and from programs for
which the Company has been the incumbent supplier, and in many cases acted
as the sole provider, over many years. Approximately 65% of the Company's
total pro forma 1997 sales were generated from sole source contracts.
L-3's customer satisfaction and excellent performance record are evidenced
by its performance-based award fees exceeding 90% on average over the past
two years. Management believes prime contractors will increasingly award
long-term, sole source, outsourcing contracts to the merchant supplier
they believe is most capable on the basis of quality, responsiveness,
design, engineering and program management support as well as cost.
Reflecting L-3's strong competitive position, the Company (excluding the
1998 Acquisitions) has experienced a contract award win rate in 1997 in
excess of 60% on new competitive contracts for which it competes and in
excess of 90% on contracts for which it is the incumbent. The Company
intends to continue to align its research and development, manufacturing
and new business efforts to complement its customers' requirements and
provide state-of-the-art products.
o ENHANCE OPERATING MARGINS. Since the L-3 Acquisition in April 1997,
management has reduced corporate administrative and facilities expenses,
increased sales and improved competitive contract award win rates.
Enhancement of operating margins was primarily due to efficient management
and elimination of significant corporate expense allocations which existed
prior to the L-3 Acquisition. Pro forma EBITDA (excluding the 1998
Acquisitions) as a percentage of sales improved from 12.5% in 1996 to
13.4% in 1997. Management intends to continue to enhance its operating
performance by reducing overhead expenses, continuing consolidation and
increasing productivity.
o LEVERAGE TECHNICAL AND MARKET LEADERSHIP POSITIONS. L-3 has developed
strong, proprietary technical capabilities that have enabled it to capture
a number one or two market position in most of its key business areas,
including secure, high data rate communications systems, solid state
aviation recorders, telemetry, instrumentation and space products,
advanced antenna systems and high performance microwave components. Over
the past three years, the Company, on a pro forma basis, has invested over
$150.0 million in Company-sponsored independent research and development,
including bid and proposal costs, in addition to making substantial
investments in its technical and manufacturing resources. Further, the
Company has a highly skilled workforce including approximately 2,000
engineers. Management is applying the Company's technical expertise and
capabilities into several closely aligned commercial business areas and
applications, such as medical imaging archive management, wireless
telephony and airport security equipment and will continue to explore
other similar commercial opportunities.
o MAINTAIN DIVERSIFIED BUSINESS MIX. The Company enjoys a diverse
business mix with a limited program exposure, a favorable balance of cost
plus and fixed price contracts, a significant sole source follow-on
business and an attractive customer profile. The Company's largest
program, representing 13% of 1997 pro forma sales, is a long-term, sole
source, cost plus contract for the U-2 Program. No other program
represented more than 7% of pro forma 1997 sales. Further, the Company's
pro forma sales mix of contracts in 1997 was 36% cost plus and 64% fixed
price, providing the Company with a favorable mix of predictable
profitability (cost plus) and higher margin (fixed price) business. L-3
also enjoys an attractive customer mix of defense and commercial business,
with DoD related sales accounting for 62% and commercial and federal
(non-DoD) sales accounting for 38% of 1997 pro forma sales. The Company
intends to leverage this favorable business profile to expand its merchant
supplier business base.
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<PAGE>
o CAPITALIZE ON STRATEGIC ACQUISITION OPPORTUNITIES. Recent industry
consolidation has essentially eliminated traditional middle-tier
aerospace/defense companies. This level of consolidation is now beginning
to draw the concern of the DoD and federal anti-trust regulators. In 1997,
a number of mezzanine companies were sold: Computing Devices International
division of Ceridian to General Dynamics, Kaman Sciences to ITT, BDM to
TRW and TASC Inc., a subsidiary of Primark Corporation, to Litton. As a
result, the Company anticipates that the consolidation of the smaller
participants in the defense industry will create attractive complementary
acquisition candidates for L-3 in the future as these companies continue
to evaluate their core competencies and competitive position. L-3 intends
to vertically enhance its product base through internal research and
development efforts as well as selective acquisitions and horizontally add
to its product base through acquisitions in areas synergistic with L-3's
present technology. The Company seeks to acquire potential targets with
the following criteria: (i) significant market position in its business
area, (ii) product offerings which complement and/or extend those of L-3
and (iii) positive future growth and earnings prospects.
RECENT DEVELOPMENTS
Since the formation of the Company in April 1997, the Company has actively
pursued its acquisition strategy. The Company recently purchased the assets
and liabilities of STS, ILEX and Ocean Systems. The combined purchase price
for the 1998 Acquisitions was $146.4 million of cash, subject to certain
post-closing adjustments, and in one case certain additional consideration
based on post-closing performance. The Company has financed these
acquisitions through the use of its existing cash balances as well as through
borrowings under the $375.0 million Senior Credit Facilities. These three
businesses complement and extend L-3's product offerings.
Ocean Systems
On March 30, 1998, L-3 Communications purchased the assets of Ocean
Systems for $67.5 million in cash. In 1997, Ocean Systems had sales of $73.0
million. Ocean Systems is one of the world's leading products suppliers of
acoustic undersea warfare systems, having designed, manufactured and
supported a broad range of compact, lightweight, high performance acoustic
systems for navies around the world for over 40 years. Ocean Systems is the
leading products supplier of airborne dipping sonar systems in the world with
substantial market share of the sector and systems in service with the U.S.
and 20 foreign navies. Ocean Systems also produces several sea systems
products including towed array sonar, integrated side-looking sonar, acoustic
jammers, mine detection and torpedo defense systems and supplies commercial
navigation and hydrographic survey systems worldwide. Ocean Systems is
further supported by ELAC located in Kiel, Germany. ELAC manufactures a broad
range of naval defense products including submarine, torpedo and navigation
sonars as well as survey and navigation systems for the commercial nautical
products industry. Ocean Systems expands L-3's leading products and
capabilities into the undersea and anti-submarine warfare market place.
ILEX Systems
On March 4, 1998, L-3 Communications purchased the assets of ILEX for
$51.9 million in cash, subject to adjustment based on closing net assets,
plus additional consideration based on post-closing performance of ILEX which
could include the issuance of up to 540,000 shares of Common Stock over the
next three years. In 1997, ILEX had sales of $63.5 million. ILEX is a leading
supplier of communication software support services to military and related
government intelligence markets. ILEX also provides environmental consulting,
software and systems engineering services and complementary products to
several commercial markets. ILEX complements L-3's Secure Communication
Systems business area by adding software expertise in critical C(3)I programs
and increasing the number of the Company's skilled workforce by adding
approximately 500 software system engineers and scientists.
Satellite Transmission Systems
On February 5, 1998, L-3 Communications purchased the assets of STS of
California Microwave, Inc. for $27.0 million, subject to adjustment based on
closing net assets. For the fiscal year ended June 30, 1997,
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STS had sales of $68.0 million. STS is a leading global satellite
communications systems and services provider. Its customers include foreign
post, telephone and telegraph administrations, domestic and international
prime communications infrastructure contractors, telecommunication and
satellite service providers, broadcasters and media-related companies,
government agencies and large corporations. STS expands L-3's ability to
apply its products and provides networking capability to L-3's wireless
communications products business. STS also opens new opportunities in
broader, international markets.
The Company considers and executes strategic acquisitions on an ongoing
basis and may be evaluating acquisitions or engaged in acquisition
negotiations at any given time. As of the date hereof, the Company has
completed, has reached agreement on or is in discussions regarding certain
acquisitions, in addition to the 1998 Acquisitions, that are either
individually or in the aggregate not material to the financial condition or
results of operations of the Company.
HISTORY
Holdings and L-3 Communications were formed in April 1997 by Mr. Frank C.
Lanza, the former President and Chief Operating Officer of Loral, Mr. Robert
V. LaPenta, the former Senior Vice President and Controller of Loral
(collectively, "Senior Management"), Lehman Brothers Capital Partners III,
L.P. and its affiliates (the "Lehman Partnership") and Lockheed Martin to
acquire (the "L-3 Acquisition") substantially all of the assets and certain
liabilities of (i) nine business units previously purchased by Lockheed
Martin as part of its acquisition of Loral in April 1996 (the "Loral Acquired
Businesses") and (ii) one business unit, Communication Systems -- East,
purchased by Lockheed Martin as part of its acquisition of GE Aerospace in
April 1993 (collectively, the "Businesses"). L-3 Communications is a
wholly-owned subsidiary of Holdings. At March 31, 1998, Messrs. Lanza and
LaPenta and certain other members of management collectively owned 17.8%; the
Lehman Partnership owned 49.0%; and Lockheed Martin owned 33.2% of the
outstanding capital stock of Holdings.
The Company's executive offices are located at 600 Third Avenue, New York,
New York, 10016, and the telephone number at that address is 212-697-1111.
PRODUCTS AND SERVICES
SECURE COMMUNICATION SYSTEMS
L-3 is a leader in communication systems for high performance intelligence
collection, imagery processing and ground, air, sea and satellite
communications for the DoD and other government agencies. The Salt Lake City
operation provides secure, high data rate, real-time communication systems
for surveillance, reconnaissance and other intelligence collection systems.
The Camden operation designs, develops, produces and integrates communication
systems and support equipment for space, ground and naval applications. The
Shrewsbury operation provides communication software support services to
military and related government intelligence markets. Product lines of the
Secure Communication Systems business include high data rate communications
links, satellite communications ("SATCOM") terminals, Navy vessel
communication systems, space communications and satellite control systems,
signal intelligence information processing systems, information security
systems, tactical battlefield sensor systems and commercial communication
systems.
O HIGH DATA RATE COMMUNICATIONS
The Company is a technology leader in high data rate, covert,
jam-resistant microwave communications in support of military and other
national agency reconnaissance and surveillance applications. L-3's product
line covers a full range of tactical and strategic secure point-to-point and
relay data transmission systems, products and support services that conform
to military and intelligence specifications. The Company's systems and
products are capable of providing battlefield commanders with real time,
secure surveillance and targeting information and were used extensively by
U.S. armed forces in the Persian Gulf war.
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During the 1980s, largely based on its prior experience with command and
control guidance systems for remotely-piloted vehicles, L-3 developed its
current family of strategic and tactical data links, including its Modular
Interoperable Data Link ("MIDL") systems and Modular Interoperable Surface
Terminals ("MIST"). MIDL and MIST technologies are considered virtual DoD
standards in terms of data link hardware. The Company's primary focus is
spread spectrum communication (based on CDMA technology), which involves
transmitting a data signal with a high rate noise signal so as to make it
difficult to detect by others, and then re-capturing the signal and removing
the noise. The Company's data links are capable of providing information at
over 200 Mb/s.
L-3 provides these secure high band width products to the U.S. Air Force,
Navy, Army and various Government agencies, many through long-term sole
source programs. The scope of these programs include air-to-ground,
air-to-air, ground-to-air and satellite communications. Government programs
include: U-2 Support Program, Common High-Band Width Data Link ("CHBDL"),
Battle Group Passive Horizon Extension System ("BGPHES"), Light Airborne
Multi-Purpose System ("LAMPS"), TriBand SATCOM Subsystem ("TSS"), major
unmanned aerial vehicle ("UAV") programs and Direct Air-Satellite Relay
("DASR").
O SATELLITE COMMUNICATION TERMINALS
L-3 provides ground-to-satellite, high availability, real-time global
communications capability through a family of transportable field terminals
to communicate with commercial, military and international satellites. These
terminals provide remote personnel with anywhere, anytime effective
communication capability and provide communications links to distant forces.
The Company's TriBand SATCOM Subsystem ("TSS") employs a 6.25 meter tactical
dish with a single point feed that provides C, Ku and X band communication to
support the U.S. Army. The Company also offers an 11.3 meter dish which is
transportable on two C-130 aircraft. The SHF Portable Terminal System ("PTS")
is a lightweight (28 lbs.), manportable terminal, which communicates through
DSCS, NATO or SKYNET satellites and brings unprecedented connectivity to
small military tactical units and mobile command posts. L-3 delivered 14 of
these terminals for use by NATO forces in Bosnia.
O SPACE COMMUNICATIONS AND SATELLITE CONTROL
Continuing L-3's tradition of providing communications for every manned
U.S. space flight since Mercury, the Company is currently designing and
testing three communication subsystems for the International Space Station
("ISS"). These systems will control all ISS radio frequency ("RF")
communications and external video activities. The Company also provides
solid-state recorders and memory units for data capture, storage, transfer
and retrieval for space applications. The standard NASA tape recorder, which
was developed and produced by the Company, has completed over four million
hours of service without a mission failure. Current programs include
recorders for the National Oceanic & Atmospheric Administration ("NOAA")
weather satellites, the Earth Observing Satellite ("EOS"), AM spacecraft and
Landsat-7 Earth-monitoring spacecraft. The Company also provides space and
satellite system simulation, satellite operations and computer system
training, depot support, network engineering, resource scheduling, launch
system engineering, support, software integration and test through cost-plus
contracts with the U.S. Air Force.
O MILITARY COMMUNICATIONS
The Company provides integrated, computer controlled switching systems for
the interior and exterior voice and data needs of today's Navy military
vessels. The Company's products include Integrated Voice Communication
Systems ("IVCS") for Aegis cruisers and destroyers and the Integrated Radio
Room ("IRR") for Trident class submarines, the first computer controlled
communications center in a submarine. These products integrate the intercom,
tactical and administrative communications network into one system accessing
various types of communication terminals throughout the ship. The Company's
MarCom 2000 secure digital switching system is in development for the Los
Angeles class attack submarine and provides an integrated approach to the
specialized voice and data communications needs of a shipboard environment
for internal and external communications, command and control and air
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traffic control. The Company also offers on-board, high data rate
communications systems which provide a data link for carrier battle groups
which are interoperable with the U.S. Air Force's surveillance/
reconnaissance terminal platforms. The Company provides the US Army's Command
and Control Vehicle ("C2V") Mission Module Systems ("MMS"). MMS provides the
"communications on the move" capability needed for the digital battlefield by
packaging advanced communications into a modified Bradley Fighting Vehicle.
The Company is a proven supplier of superior technological expertise to the
DoD, including its contractors and related government intelligence agencies.
O INFORMATION SECURITY SYSTEMS
The Company has produced more than 100,000 secure telephone units ("STU
III") which are in use today by the U.S. Armed Forces to provide secure
telephone capabilities for classified confidential communication over public
commercial telephone networks. The Company has begun producing the
next-generation digital, ISDN-compatible STE. STE provides clearer voice and
thirteen-times faster data/fax transmission capability than the STU III. STE
also supports secure conference calls and secure video teleconferencing. STE
uses a CryptoCard security system which consists of a small, portable,
cryptographic module mounted on a PCMCIA card holding the algorithms, keys
and personalized credentials to identify its user for secure communications
access. The Company also provides LMD/KP which is the workstation component
of the Government's Electronic Key Management System ("EKMS"), the next
generation of information security systems. EKMS is the Government system to
replace current "paper" secret keys used to secure government communications
with "electronic" secret keys. LMD/KP is the component of the EKMS which
produces and distributes the electronic keys. L-3 also develops specialized
strategic and tactical SIGINT systems to detect, acquire, collect, and
process information derived from electronic sources. These systems are used
by classified customers for intelligence gathering and require high speed
digital signal processing and high density custom hardware designs.
O TACTICAL SECURITY SYSTEMS
The Company manufactures the IREMBASS, an unattended ground sensor system
which uses sensors placed along likely avenues of enemy approach or intrusion
in a battlefield environment. The sensors respond to seismic and acoustic
disturbances, infrared energy and magnetic field changes and thus detect
enemy activities. IREMBASS is currently in use by U.S. Special Operations
Forces, the U.S. Army's Light Divisions and several foreign governments. The
Company also provides the Intrusion Detection Early Warning System ("IDEWS"),
a sensor system designed for platoon-level physical security applications.
Weighing less than two pounds, this sensor system is ideal for covert
perimeter intrusion detection, border protection and airfield or military
installation security.
SPECIALIZED COMMUNICATION PRODUCTS
MICROWAVE COMPONENTS
L-3 is the preeminent worldwide supplier of commercial off-the-shelf, high
performance radio frequency ("RF") microwave components, assemblies and
instruments supplying the wireless communications, industrial and military
markets. The Company is also a leading provider of state-of-the-art
space-qualified commercial satellite and strategic military RF products. L-3
sells many of these components under the well-recognized Narda brand name and
through the world's most comprehensive catalog of standard, stocked hardware.
L-3 also sells its products through a direct sales force and an extensive
network of premier market representatives. Specific catalog offerings include
wireless products, electro-mechanical switches, power dividers and hybrids,
couplers/detectors, attenuators, terminations and phase shifters, isolators
and circulators, adapters, control products, sources, mixers, waveguide
components, RF safety products, power meters/monitors and custom passive
products. The Company operates from two sites, Hauppauge, New York ("Narda
East"), and Sacramento, California ("Narda West").
Narda East represents approximately 65% of L-3's microwave sales volume,
offering high performance microwave components, networks and instruments to
the wireless, industrial and military communications markets. Narda East's
products can be divided into three major categories: passive components,
higher level wireless assemblies/monitoring systems and safety instruments.
45
<PAGE>
Passive components are generally purchased in narrow frequency
configurations by wireless OEM equipment manufacturers and service providers.
Similar components are purchased in wide frequency configurations by first
tier military equipment suppliers. Commercial applications for Narda
components are primarily in cellular or PCS base stations. Narda also
manufactures higher level assemblies for wireless base stations and the
paging industry. These products include communication antenna test sets,
devices that monitor reflected power to determine if a cellular base station
antenna is working and whether the base station radios are operating at peak
power levels. Military applications include general procurement for test
equipment or electronic surveillance and countermeasure systems. RF safety
products are instruments which are used to measure the level of non-ionizing
radiation in a given area, i.e., from an antenna, test set or other emitting
source, and determine whether human exposure limits are within federal
standards.
Narda West designs and manufactures state-of-the-art space-qualified and
wireless components. Space qualified components include channel amplifiers
for satellite transponder control and diplexers/ multiplexers, which are used
to separate various signals and direct them to the appropriate other sections
of the payload. Narda West's primary areas of focus are communications
satellite payload products. Channel amplifiers constitute Narda West's main
satellite product. These components amplify the weak signals received from
earth stations by a factor of 1 million, and then drive the power amplifier
tubes that broadcast the signal back to earth. These products are sold to
satellite manufacturers and offer lower cost, lower weight and improved
performance versus in-house alternatives. On a typical satellite, for which
there are 20 to 50 channel amps, Narda West's channel amps offer cost savings
of up to 60% (up to $1 million per satellite) and decrease launch weight by
up to 25 kilograms.
Narda West products include wireless microwave components for cellular and
PCS base station applications. These products include filters used to
transmit and receive channel separation as well as ferrite components, which
isolate certain microwave functions, thereby preventing undesired signal
interaction. Other products include a wide variety of high-reliability power
splitters, combiners and filters for spacecraft and launch vehicles, such as
LLV, Tiros, THAAD, Mars Surveyor, Peacekeeper, Galileo, Skynet, Cassini,
Milstar, Space Shuttle, LandSat, FltSatCom, GPS, GPS Block IIR, IUS, ACE,
SMEX and certain classified programs. The balance of the operation's business
is of an historical nature and involves wideband filters used for electronic
warfare applications.
AVIONICS AND OCEAN SYSTEMS
O AVIATION RECORDERS
L-3 manufactures commercial solid-state crash-protected aviation recorders
("black boxes") under the Fairchild brand name, and has delivered over 40,000
flight recorders to airplane manufacturers and airlines around the world.
Recorders are mandated and regulated by various worldwide agencies for
commercial airlines and a large portion of business aviation aircraft.
Management anticipates growth opportunities in Aviation Recorders as a result
of the current high level of orders for new commercial aircraft. Expansion
into the military market shows continued growth opportunities. L-3 Recorders
were recently selected for installation on the fleet of the Royal Australian
Air Force and Royal Australian Army transport aircraft and are currently
being installed on the U.S. Navy C-9 aircraft. There are two types of
recorders: (i) the Cockpit Voice Recorder ("CVR") which records the last 30
to 120 minutes of crew conversation and ambient sounds from the cockpit and
(ii) the Flight Data Recorder ("FDR") which records the last 25 hours of
aircraft flight parameters such as speed, altitude, acceleration, thrust from
each engine and direction of the flight in its final moments. Recorders are
highly ruggedized instruments, designed to absorb the shock equivalent to
that of an object traveling at 268 knots stopping in 18 inches, fire
resistant to 1,100 degrees centigrade and pressure resistant to 20,000 feet
undersea for 30 days. Management believes that the Company has the leading
worldwide market position for CVR's and FDR's.
O ANTENNA SYSTEMS
Under the Randtron brand name, L-3 produces high performance antennas
designed for surveillance, high-resolution, ultra-wide frequency bands,
detection of low radar cross section ("LRCS") targets, LRCS
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<PAGE>
installations, severe environmental applications and polarization diversity.
L-3's main antenna product is a sophisticated 24-foot diameter antenna
operational on all E-2C aircraft. This airborne antenna consists of a 24-foot
rotating aerodynamic radome containing a UHF surveillance radar antenna, IFF
antenna and forward and aft auxiliary antennas. Production of this antenna
began in the early 1980s, and production is planned beyond 2000 for the E-2C,
P-3 and C-130 AEW aircraft. The replacement for this antenna is a very
adaptive radar currently under development for introduction early in the next
decade. L-3 also produces broad-band antennas for a variety of tactical
aircraft and rotary joints for the AWAC's and E-2C's antenna. Randtron has
delivered over 2,000 aircraft sets of antennas and has a current backlog
through 1999.
O DISPLAY SYSTEMS
L-3 specializes in the design, development and manufacture of ruggedized
display system solutions for military and high-end commercial applications.
L-3's current product lines include cathode ray tubes ("CRTs"), the Actiview
family of active matrix liquid crystal displays ("AMLCD"), and a family of
high performance Display Processing systems. L-3 manufactures flat-panel
displays that are used on platforms such as E-2C, F-117, and the LCAC
(Landing Craft Air Cushion) vehicle. Recent new contracts for flat-panel
displays include the SH-60J helicopter and the C-130 Senior Scout. L-3 also
manufactures CRT displays for the E-2C Hawkeye, V-22 Osprey, and F-14 Tomcat
and electronics used in aircraft anti-lock braking systems.
O OCEAN SYSTEMS
The Company is one of the world's leading suppliers of acoustic undersea
warfare systems, having designed, manufactured and supported a broad range of
compact, lightweight, high performance acoustic systems for navies around the
world for over forty years. This experience spans a wide range of platforms,
including helicopters, submarines and surface ships, that employ the
Company's sonar systems and countermeasures.
TELEMETRY, INSTRUMENTATION AND SPACE
The Company is a leader in component products and systems used in
telemetry and instrumentation for airborne applications such as satellites,
aircraft, UAVs, launch vehicles, guided missiles, projectiles and targets.
Telemetry involves the collection of data from these platforms, its
transmission to ground stations for analysis, and its further dissemination
or transportation to another platform. A principal use of this telemetry data
is to measure as many as 1,000 different parameters of the platform's
operation (in much the same way as a flight data recorder on an airplane
measures various flight parameters) and transmit this data to the ground.
Additionally, for satellite platforms, the equipment also acquires the
command uplink that controls the satellite and transmits the necessary data
for ground processing. In these applications, high reliability of components
is crucial because of the high cost of satellite repair and the length of
uninterrupted service required. Telemetry also provides the data to terminate
the flight of missiles and rockets under errant conditions and/or at the end
of a mission. Telemetry and command/control products are currently provided
on missile programs such as AMRAAM, ASRAAM, AIM-9X, JASSM, JDAM, FOTT, ATACMS
and PAC-3, as well as satellite programs such as GPS BLK IIF, GLOBALSTAR,
EARTHWATCH, SBIRS, LUNAR PROSPECTOR and MTSAT.
O AIRBORNE, GROUND AND SPACE TELEMETRY
The Company provides airborne equipment and data link systems to gather
critical information and to process, format and transmit it to the ground
through communication data links from a communications satellite, spacecraft,
aircraft and/or missile. These products are available in both COTS and custom
configurations. Major customers are the major defense contractors who
manufacture aircraft, missiles, warheads, launch vehicles, munitions and
bombs. Ground instrumentation activity occurs at the ground station where the
serial stream of combined data is received and decoded in real-time, as it is
received
47
<PAGE>
from the airborne platform. Data can be encrypted and decrypted during this
process, an additional expertise that the Company offers. The Company
recently introduced the NeTstar satellite ground station, which collapses
racks of satellite RF receivers, demodulators and related units into a PC.
O SPACE PRODUCTS
L-3 offers value-added solutions that require complex product integration,
rich software content and comprehensive support to its customers. The Company
focuses on the following niches within the satellite ground segment equipment
market: telephony, video broadcasting and multimedia. The Company's customers
include foreign PTT's, domestic and international prime communications
infrastructure contractors, telecommunications or satellite service
providers, broadcasters and media-related companies.
EMERGING COMMERCIAL PRODUCTS
O MEDICAL ARCHIVING AND SIMULATION SYSTEMS
The Company markets GEMnet(Trademark), a cardiac image management and
archive system through an exclusive reseller arrangement with GE Medical
Systems. GEMnet(Trademark) eliminates the use of cinefilm in a cardiac
catheterization laboratory by providing a direct digital connection to the
laboratory. The system provides for acquisition, display, analysis and
short-and long-term archive of cardiac patient studies, providing significant
cost savings and process improvements to the hospital. The Company is an
exclusive reseller of EchoNet(Trademark) pursuant to a reseller arrangement
with Heartlab, Inc. EchoNet(Trademark) is a digital archive management and
review system designed specifically for the echocardiology profession. The
system accepts digital echocardiology studies from a variety of currently
available ultrasound systems, manages the studies, making them available on a
network, and allows the physicians and technicians to become more productive.
EchoNet(Trademark) is a trademark of Heartlab, Inc. GEMnet(Trademark) is a
trademark of GE.
The Company has approximately a one-third equity ownership interest in
Medical Education Technologies, Inc. ("METI"). METI is a medical technology
company engaged in the development, manufacture and sale of Human Patient
Simulators ("HPS"). The HPS is a computerized system with a life-like
mannequin that reacts to medical treatments and interventions similar to a
human being. Originally oriented to the anesthesiology training and education
domain, METI has expanded into cardiology, critical care, trauma care, allied
health care, military medicine and continuing medical education. METI's
target customers for its HPS include medical schools throughout the world,
colleges with registered nursing programs, community colleges and state,
local and volunteer emergency medical service organizations.
O WIRELESS LOOP TELECOMMUNICATIONS EQUIPMENT
The Company is applying its wireless communication expertise to introduce
local wireless loop telecommunications equipment using a synchronous Code
Division Multiple Access technology ("CDMA") supporting terrestrial and space
based, fixed and mobile communication services. The system's principal
targeted customer base is emerging market countries and rural areas where
existing telecommunications infrastructure is inadequate or non-existent. The
Company's system will have the potential to interface with low earth orbit
("LEO") PCS systems such as Globalstar, Iridium and/or any local public
telephone network. The Company expects to manufacture for sale certain of the
infrastructure equipment. The Company intends to pursue joint ventures with
third parties for service and distribution capabilities. The Company has
entered into product distribution agreements with Granger Telecom Ltd. for
distribution in parts of Africa, the Middle East and the United Kingdom, and
with Unisys for distribution in parts of Mexico and South America. This same
technology is also being introduced into the Ellipso "big LEO" program to
provide the key communications capability in the ground and user segments. In
this program, the Company will provide the CDMA processing equipment in the
Ground Control Segment and the Ellipso user terminals, both fixed and mobile.
O AIRPORT SECURITY EQUIPMENT
The FAA has awarded the Company a development contract for next generation
airport security equipment for explosive detection. L-3 has teamed with
Analogic Corporation and GE to design and
48
<PAGE>
produce an explosive detection system ("EDS") utilizing a dual energy
computer tomography ("CT") X-ray system. L-3's EDS system, the eXaminer
3DX(Trademark) 6000, will analyze the contents of checked baggage at airports
for a wide-range of explosive material as specified by the FAA. The eXaminer
3DX(Trademark) 6000 will inspect baggage at an average of 675 bags per hour,
which will allow screening of passenger-checked baggage for a large body
aircraft, such as a Boeing 747, in approximately 40 minutes. It can be
installed as a stand-alone unit in a conveyor system or in a mobile van. L-3
has shipped two prototype test units and FAA certification testing commenced
in the first quarter of 1998.
MAJOR CUSTOMERS
The Company's sales are predominantly derived from contracts with agencies
of, and prime contractors to, the Government. Various Government customers
exercise independent purchasing decisions. Sales to the Government generally
are not regarded as constituting sales to one customer. Instead, each
contracting entity is considered to be a separate customer. In 1997, the
Company performed under approximately 150 contracts with value exceeding $1
million for the Government. Pro forma 1997 sales to the Government, including
sales through prime contractors, were $651.1 million. Pro forma sales to
Lockheed Martin were $81.6 million in 1997. The Company's largest program is
a long-term, sole source cost plus support contract for the U-2 Program which
contributed sales on a pro forma basis assuming the L-3 Acquisition had
occurred on January 1, 1995, of 13%, 14%, and 14%, respectively, for 1997,
1996 and 1995. No other program represented more than 7% of such pro forma
sales for 1997, 1996 and 1995.
RESEARCH AND DEVELOPMENT
The Company employs scientific, engineering and other personnel to improve
its existing product lines and to develop new products and technologies in
the same or related fields. As of December 31, 1997, the Company employed
approximately 2,000 engineers (of whom over 20% hold advanced degrees). The
pro forma amounts of research and development performed under customer-funded
contracts and Company-sponsored research projects, including bid and proposal
costs, for 1997 were $150.2 million and $46.2 million, respectively.
COMPETITION
The Company's ability to compete for defense contracts depends to a large
extent on the effectiveness and innovativeness of its research and
development programs, its ability to offer better program performance than
its competitors at a lower cost to the Government customer, and its readiness
in facilities, equipment and personnel to undertake the programs for which it
competes. In some instances, programs are sole source or work directed by the
Government to a single supplier. In such cases, there may be other suppliers
who have the capability to compete for the programs involved, but they can
only enter or reenter the market if the Government should choose to reopen
the particular program to competition. Approximately 65% of the Company's
1997 pro forma sales related to sole source contracts.
The Company experiences competition from industrial firms and U.S.
government agencies, some of which have substantially greater resources than
the Company. These competitors include: AlliedSignal, AMP, Inc., Aydin
Corporation, Cubic Corporation, GTE Corporation, Harris Corporation, Hughes,
Motorola and Titan Corporation. A majority of the sales of the
Company is derived from contracts with the Government and its prime
contractors, and such contracts are awarded on the basis of negotiations or
competitive bids. Management does not believe any one competitor or a small
number of competitors is dominant in any of the business areas of the
Company. Management believes the Company will continue to be able to compete
successfully based upon the quality and cost competitiveness of its products
and services.
PATENTS AND LICENSES
Although the Company owns some patents and has filed applications for
additional patents, it does not believe that its operations depend upon its
patents. In addition, the Company's Government contracts
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<PAGE>
generally license it to use patents owned by others. Similar provisions in
the Government contracts awarded to other companies make it impossible for
the Company to prevent the use by other companies of its patents in most
domestic work.
BACKLOG
As of December 31, 1997, the Company's pro forma funded backlog was
approximately $638.1 million. This backlog provides management with a useful
tool to project sales and plan its business on an on-going basis; however, no
assurance can be given that the Company's backlog will become revenues in any
particular period or at all. Funded backlog does not include the total
contract value of multi-year, cost-plus reimbursable contracts, which are
funded as costs are incurred by the Company. Funded backlog also does not
include unexercised contract options which represent the amount of revenue
which would be recognized from the performance of contract options that may
be exercised by customers under existing contracts and from purchase orders
to be issued under indefinite quantity contracts or basic ordering
agreements. Backlog is a more relevant predictor of future sales in the
Secure Communication Systems business area. Current funded backlog in Secure
Communication Systems as of December 31, 1997 was $306.0 million, of which
approximately 93% is expected to be shipped in 1998. The Company believes
backlog is a less relevant factor in the Specialized Communication Products
business area given the nature of its catalog and commercial oriented
business. Overall, approximately 85% of the Company's December 31, 1997
funded backlog is expected to be shipped in 1998.
<TABLE>
<CAPTION>
PRO FORMA
FUNDED BACKLOG AS OF
DECEMBER 31, 1997
--------------------
($ IN MILLIONS)
<S> <C>
Secure Communication Systems ..... $306.0
Specialized Communication
Products.......................... 332.1
----------
$638.1
==========
</TABLE>
GOVERNMENT CONTRACTS
Approximately 73% of the Company's 1997 pro forma sales were made to
agencies of the Government or to prime contractors or subcontractors of the
Government.
Approximately 64% of the Company's pro forma 1997 sales mix of contracts
were firm fixed price contracts under which the Company agrees to perform for
a predetermined price. Although the Company's fixed price contracts generally
permit the Company to keep profits if costs are less than projected, the
Company does bear the risk that increased or unexpected costs may reduce
profit or cause the Company to sustain losses on the contract. Generally,
firm fixed price contracts offer higher margin than cost plus type contracts.
All domestic defense contracts and subcontracts to which the Company is a
party are subject to audit, various profit and cost controls and standard
provisions for termination at the convenience of the Government. Upon
termination, other than for a contractor's default, the contractor will
normally be entitled to reimbursement for allowable costs and to an allowance
for profit. Foreign defense contracts generally contain comparable provisions
relating to termination at the convenience of the government. To date, no
significant fixed price contract of the Company has been terminated.
Companies supplying defense-related equipment to the Government are
subject to certain additional business risks peculiar to that industry. Among
these risks are the ability of the Government to unilaterally suspend the
Company from new contracts pending resolution of alleged violations of
procurement laws or regulations. Other risks include a dependence on
appropriations by the Government, changes in the Government's procurement
policies (such as greater emphasis on competitive procurements) and the need
to bid on programs in advance of design completion. A reduction in
expenditures by the Government for products of the type manufactured by the
Company, lower margins resulting from increasingly competitive procurement
policies, a reduction in the volume of contracts or subcontracts awarded to
the Company or substantial cost overruns would have an adverse effect on the
Company's cash flow.
50
<PAGE>
PROPERTIES
The table below sets forth certain information with respect to
manufacturing facilities and properties of the Company, excluding
non-operating properties held for sale.
<TABLE>
<CAPTION>
LOCATION OWNED LEASED
- ----------------------------------- ------- --------
(THOUSANDS OF
SQUARE FEET)
<S> <C> <C>
L-3 Headquarters, NY ............... -- 58.7
SECURE COMMUNICATION SYSTEMS:
Camden, NJ......................... -- 588.7
Salt Lake City, UT................. -- 457.6
Sierra Vista, AZ................... -- 18.8
Camarillo, CA...................... -- 2.4
El Segundo, CA .................... -- 1.4
Milpitas, CA....................... -- 21.4
Oakland, CA........................ -- 5.2
Santa Ana, CA...................... -- 5.0
Santa Clara, CA ................... -- 6.2
Santa Maria, CA ................... -- 9.8
Colorado Springs, CO .............. -- 5.8
Hartford, CT....................... -- 1.8
Chicago, IL........................ -- 7.3
Boston, MA......................... -- 25.6
Annapolis Junction, MD ............ -- 6.6
Wheaton, MD........................ -- 0.5
Moorestown, NJ..................... -- 2.8
Shrewsbury, NJ..................... -- 22.5
New York, NY....................... -- 5.9
Cleveland, OH...................... -- 1.4
Fairfax, VA........................ -- 1.6
Warrentown, VA .................... -- 0.8
SPECIALIZED COMMUNICATION PRODUCTS:
Folsom, CA ........................ -- 57.5
Lancaster, CA ..................... -- 5.4
Menlo Park, CA .................... -- 98.3
San Diego, CA ..................... 196.0 68.9
San Mateo, CA ..................... -- 14.8
Santa Clara, CA ................... -- 2.0
Sylmar, CA......................... -- 240.0
Sarasota, FL....................... -- 143.7
Merritt Island, FL ................ -- 1.2
Atlanta, GA ....................... -- 52.1
Alpharetta, GA .................... 40.0 --
Norcross, GA ...................... -- 4.8
Lowell, MA......................... -- 47.0
Hauppauge, NY ..................... 240.0 --
Warminster, PA .................... 44.7 --
Hampshire (U.K.)................... -- 1.2
Kiel, Germany...................... -- 143.0
------- --------
Total............................... 520.7 2,137.7
======= ========
</TABLE>
LEGAL PROCEEDINGS
From time to time the Company is involved in legal proceedings arising in
the ordinary course of its business. Management believes it is adequately
reserved for these liabilities and that there is no litigation pending that
could have a material adverse effect on the Company's financial condition and
its results of operations.
51
<PAGE>
ENVIRONMENTAL MATTERS
The Company's operations are subject to various federal, state and local
environmental laws and regulations relating to the discharge, storage,
treatment, handling, disposal and remediation of certain materials,
substances and wastes used in its operations. The Company continually
assesses its obligations and compliance with respect to these requirements.
Management believes that the Company's current operations are in substantial
compliance with all existing applicable environmental laws and permits. The
Company does not believe that its environmental compliance expenditures will
have a material adverse effect on its financial condition or results of its
operations.
Pursuant to the L-3 Acquisition Agreement, the Company has agreed to
assume certain on-site and off-site environmental liabilities related to
events or activities occurring prior to the L-3 Acquisition. Lockheed Martin
has agreed to retain all environmental liabilities for all facilities no
longer used by the Businesses and to indemnify fully the Company for such
prior site environmental liabilities. Lockheed Martin has also agreed, for
the first eight years following April 1997, to pay 50% of all costs incurred
by the Company above those reserved for on the Company's balance sheet at
April 1997 relating to certain Company-assumed environmental liabilities and,
for the seven years thereafter, to pay 40% of certain reasonable operation
and maintenance costs relating to any environmental remediation projects
undertaken in the first eight years. The Company is aware of environmental
contamination at two of the facilities acquired from Lockheed Martin that
will require ongoing remediation. In November 1997, the Company sold one such
facility located in Sarasota, Florida, while retaining a leasehold interest
in a portion of that facility, to DMB in a transaction in which DMB
contractually agreed to assume responsibility for further remediation of the
Sarasota site. Management believes that the Company has established adequate
reserves for the potential costs associated with the assumed environmental
liabilities. However, there can be no assurance that any costs incurred will
be reimbursable from the Government or covered by Lockheed Martin under the
terms of the L-3 Acquisition Agreement or that the Company's environmental
reserves will be sufficient.
In connection with the acquisition of Ocean Systems, the Company has
acquired the stock of ELAC. The premises currently leased by ELAC have
environmental contamination consisting of chlorinated solvents in the
groundwater beneath and adjoining the site. However, Honeywell Inc.
("Honeywell"), the previous owner of ELAC and the current owner of the
property, has retained the liability for remediating the ELAC site and has
contractually agreed to indemnify AlliedSignal and ELAC. Management believes
that any necessary remediation will be covered by the Honeywell
indemnification.
PENSION PLANS
In connection with the L-3 Acquisition, Holdings and L-3 Communications
assumed certain liabilities relating to defined benefit pension plans for
present and former employees and retirees of certain businesses which were
transferred from Lockheed Martin to Holdings and L-3 Communications. Prior to
the consummation of the L-3 Acquisition, Lockheed Martin received a letter
from the PBGC which requested information regarding the transfer of such
pension plans and indicated that the PBGC believed certain of such pension
plans were underfunded using the PBGC's actuarial assumptions (which
assumptions result in a larger liability for accrued benefits than the
assumptions used for financial reporting under FASB 87). The PBGC
underfunding is related to the Subject Plans. As of December 31, 1997, the
Company calculated the net funding position of the Subject Plans and believes
them to be overfunded by approximately $5.9 million under ERISA assumptions,
underfunded by approximately $10.2 million under FASB 87 assumptions and, on
a termination basis, underfunded by as much as $57.5 million under PBGC
assumptions.
With respect to the Subject Plans, Lockheed Martin entered into an
agreement (the "Lockheed Martin Commitment Agreement") among Lockheed Martin,
L-3 and the PBGC dated as of April 30, 1997. The material terms and
conditions of the Lockheed Martin Commitment Agreement include a commitment
by Lockheed Martin to, under certain circumstances, assume sponsorship of the
Subject Plans or provide another form of financial support for the Subject
Plans. The Lockheed Martin Commitment Agreement will continue with respect to
any Subject Plan until such time as such Subject Plan is no longer
underfunded on a PBGC basis for two consecutive years or, at any time after
May 31,
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<PAGE>
2002, the Company achieves investment grade credit ratings. Pursuant to the
Lockheed Martin Commitment Agreement, the PBGC agreed that it would take no
further action in connection with the L-3 Acquisition.
In return for the Lockheed Martin Commitment, the Company entered into an
agreement with Lockheed Martin, dated as of April 30, 1997, pursuant to which
the Company provided certain assurances to Lockheed Martin including, but not
necessarily limited to, (i) continuing to fund the Subject Plans consistent
with prior practices and to the extent deductible for tax purposes and, where
appropriate, recoverable under Government contracts, (ii) agreeing to not
increase benefits under the Subject Plans without the consent of Lockheed
Martin, (iii) restricting the Company from a sale of any businesses employing
individuals covered by the Subject Plans if such sale would not result in
reduction or elimination of the Lockheed Martin Commitment with regard to the
specific plan and (iv) if the Subject Plans were returned to Lockheed Martin,
granting Lockheed Martin the right to seek recovery from the Company of those
amounts actually paid, if any, by Lockheed Martin with regard to the Subject
Plans after their return. In addition, upon the occurrence of certain events,
Lockheed Martin, at its option, will have the right to decide whether to
assume sponsorship of any or all of the Subject Plans, even if the PBGC has
not sought to terminate the Subject Plans. The Company has performed its
obligations under the letter agreement with Lockheed Martin and the Lockheed
Martin Commitment and has not received any communications from the PBGC
concerning actions which the PBGC contemplates taking in respect of the
Subject Plans.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 6,100
full-time and part-time employees. The Company believes that its relations
with its employees are good.
Approximately 540 of the Company's employees at its Communication Systems
- -- East operation in Camden, New Jersey are represented by four unions, the
Association of Scientists and Professional Engineering Personnel, the
International Federation of Professional and Technical Engineers, the
International Union of Electronic, Electrical, Salaried, Machine and
Furniture Workers and an affiliate of the International Brotherhood of
Teamsters. Three of the four collective bargaining agreements expire in
mid-1998. While the Company has not yet initiated discussions with
representatives of these unions, management believes it will be able to
negotiate, without material disruption to its business, satisfactory new
collective bargaining agreements with these employees. However, there can be
no assurance that a satisfactory agreement will be reached with the covered
employees or that a material disruption to the Company's Camden operations
will not occur.
Approximately 200 employees of Ocean Systems are represented by the United
Auto Workers. The collective bargaining agreement expires in mid-1999.
Approximately 140 of the employees at Ocean Systems' ELAC subsidiary in Kiel,
Germany are represented by the Metal Trade Industrial Workers of the Hamburg
Region and ELAC is represented by the Association of Metal Industry Employers
for Schleswig-Holstein. The labor contract expires in mid-1998. While the
Company has not yet initiated discussions with representatives of these
unions, management believes it will be able to negotiate, without material
disruption to its business, a satisfactory new labor contract with these
employees. However, there can be no assurance that a satisfactory agreement
will be reached with the covered employees or that material disruption to
operations of ELAC or Ocean Systems will not occur.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Under the L-3 Acquisition Agreement, Lockheed Martin has agreed to
indemnify L-3, subject to certain limitations, for Lockheed Martin's breach
of representations and warranties and L-3 has assumed certain obligations
relating to environmental matters and benefits plans. These obligations
include certain on-site and off-site environmental liabilities related to
events or activities of the Businesses occurring prior to the L-3
Acquisition. Lockheed Martin has agreed to indemnify Holdings, subject to
certain limitations, for its breach of (i) non-environmental representations
and warranties up to $50 million (subject to a $5 million threshold) and (ii)
for the first eight years following April 1997, to pay 50% of all costs
incurred by the Company above those reserved for on the Company's balance
sheet at April 1997 relating to certain Company-assumed environmental
liabilities and, for the seven years thereafter, 40% of certain reasonable
operation and maintenance costs relating to any environmental remediation
projects undertaken in the first eight years (subject to a $6 million
threshold).
Lockheed Martin provides to certain divisions of the Company certain
management information systems services at Lockheed Martin's fully-burdened
cost but without profit. Holdings, L-3 Communications and Lockheed Martin
have entered into certain subleases of real property and cross-licenses of
intellectual property.
In addition, Holdings and Lockheed Martin have entered into a Limited
Noncompetition Agreement (the "Noncompetition Agreement") which, for up to
three years from April 1997, in certain circumstances, precludes Lockheed
Martin from engaging in the sale of any products that compete with the
products of the Company that are set forth in the Noncompetition Agreement
for specifically identified application of the products. Under the
Noncompetition Agreement, Lockheed Martin is prohibited, with certain
exceptions, from acquiring any business engaged in the sale of the specified
products referred to in the preceding sentence, although Lockheed Martin may
acquire such a business under circumstances where the exceptions do not apply
provided that it offers to sell such business to L-3 within 90 days of its
acquisition. The Noncompetition Agreement does not, among other exceptions,
(i) apply to businesses operated and managed by Lockheed Martin on behalf of
the Government, (ii) prohibit Lockheed Martin from engaging in any existing
businesses and planned businesses as of the closing of the L-3 Acquisition or
businesses that are reasonably related to existing or planned businesses or
(iii) apply to selling competing products where such products are part of a
larger system sold by Lockheed Martin.
In the ordinary course of business L-3 sells products to Lockheed Martin
and its affiliates. Pro forma and aggregated sales to Lockheed Martin were
$81.6 million, $70.7 million and $25.9 million for the years ended December
31, 1997, 1996 and 1995, respectively. See Note 19 to the Consolidated
(Combined) Financial Statements.
Sales of products to Lockheed Martin, excluding those under existing
intercompany work transfer agreements, are made on terms no less favorable
than those which would be available from non-affiliated third party
customers. A significant portion of L-3's sales to Lockheed Martin are either
based on competitive bidding or catalog prices.
STOCKHOLDERS AGREEMENT
Holdings, Lockheed Martin, the Lehman Partnership and Messrs. Lanza and
LaPenta entered into a stockholders agreement (the "Stockholders Agreement")
which, except the terms relating to (i) the registration rights, (ii)
provision of services by Lehman Brothers Inc. and (iii) the standstill
agreement by Lockheed Martin, terminates upon the consummation of the Common
Stock Offering. Prior to the consummation of the Common Stock Offering, the
Lehman Partnership is entitled to designate a majority of the members of the
Board of Directors provided that it holds at least 35% of the capital stock
of Holdings and remains the single largest shareholder.
Pursuant to the Stockholders Agreement, certain of the existing
stockholders have the right, from time to time on or after the 180-day period
following the completion of the initial public offering and subject to
certain conditions, to require the Company to register under the Securities
Act shares of Common Stock held by them. Lockheed Martin, the Lehman
Partnership and each of the Senior Management has three, four and one demand
registration rights, respectively. In addition, the Stockholders
54
<PAGE>
Agreement also provides certain existing stockholders with certain piggyback
registration rights. The Stockholders Agreement provides, among other things,
that the Company will pay expenses in connection with (i) up to two demand
registrations requested by Lockheed Martin, up to three demand registrations
requested by the Lehman Partnership and the two demand registrations
requested by the Senior Management and (ii) any registration in which the
existing stockholders participate through piggyback registration rights
granted under such agreement.
The Stockholders Agreement also provides that Lehman Brothers Inc. has the
exclusive right to provide investment banking services to Holdings for the
five-year period after the closing of the L-3 Acquisition (except that the
exclusivity period is three years as to cash acquisitions undertaken by L-3).
In the event that Lehman Brothers Inc. agrees to provide any investment
banking services to L-3, it will be paid fees that are mutually agreed upon
based on similar transactions and practices in the investment banking
industry.
Under the Stockholders Agreement Lockheed Martin is subject to a
standstill arrangement which generally prohibits any increase in its share
ownership percentage over 34.9%.
55
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information concerning the directors and
executive officers of Holdings and L-3 Communications.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- ----- -----------------------------------------------
<S> <C> <C>
Frank C. Lanza ......... 66 Chairman, Chief Executive Officer and Director
Robert V. LaPenta ...... 52 President, Chief Financial Officer and Director
Michael T. Strianese .. 42 Vice President--Finance and Controller
Christopher C. Cambria 39 Vice President--General Counsel and Secretary
Robert F. Mehmel ....... 35 Vice President--Planning and Assistant Secretary
Lawrence H. Schwartz .. 60 Vice President--Business Development
Jimmie V. Adams ........ 61 Vice President--Washington D.C. Operations
Robert RisCassi ........ 62 Vice President--Washington D.C. Operations
David J. Brand(a)....... 36 Director
Alberto M. Finali ...... 43 Director
Eliot M. Fried(a)....... 65 Director
Robert B. Millard(b).... 47 Director
Alan H. Washkowitz(b)... 57 Director
Thomas A. Corcoran .... 53 Director
Frank H. Menaker, Jr.(a) 57 Director
John E. Montague(b)..... 44 Director
</TABLE>
(a) Member of the Audit Committee.
(b) Member of the Compensation Committee.
Frank C. Lanza, Chairman and CEO. Mr. Lanza joined the Company in April
1997. From April 1996, when Loral was acquired by Lockheed Martin, until
April 1997, Mr. Lanza was Executive Vice President of Lockheed Martin, a
member of Lockheed Martin's Executive Council and Board of Directors and
President and COO of Lockheed Martin's C(3)I and Systems Integration Sector,
which comprised many of the businesses acquired by Lockheed Martin from
Loral. Prior to the April 1996 acquisition of Loral, Mr. Lanza was President
and COO of Loral, a position he held since 1981. He joined Loral in 1972 as
President of its largest division, Electronic Systems. His earlier experience
was with Dalmo Victor and Philco Western Development Laboratory.
Robert V. LaPenta, President and Chief Financial Officer. Mr. LaPenta
joined the Company in April 1997. From April 1996, when Loral was acquired by
Lockheed Martin, until April 1997, Mr. LaPenta was a Vice President of
Lockheed Martin and was Vice President and Chief Financial Officer of
Lockheed's C(3)I and Systems Integration Sector. Prior to the April 1996
acquisition of Loral, he was Loral's Senior Vice President and Controller, a
position he held since 1981. He joined Loral in 1972 and was named Vice
President and Controller of its largest division in 1974. He became Corporate
Controller in 1978 and was named Vice President in 1979.
Michael T. Strianese, Vice President-Finance and Controller. Mr. Strianese
joined the Company in April 1997. From April 1996, when Loral was acquired by
Lockheed Martin, until April 1997, Mr. Strianese was Vice President and
Controller of Lockheed Martin's C(3)I and Systems Integration Sector. From
1991 to the April 1996 acquisition of Loral, he was Director of Special
Projects at Loral. Prior to joining Loral, he spent 11 years with Ernst &
Young. Mr. Strianese is a Certified Public Accountant.
Christopher C. Cambria, Vice President-General Counsel and Secretary. Mr.
Cambria joined the Company in June 1997. From 1994 until joining the Company,
Mr. Cambria was an associate with Fried, Frank, Harris, Shriver & Jacobson.
From 1986 until 1993, he was an associate with Cravath, Swaine & Moore.
Robert F. Mehmel, Vice President-Planning and Assistant Secretary. Mr.
Mehmel joined the Company in April 1997. From April 1996, when Loral was
acquired by Lockheed Martin, until April 1997, Mr. Mehmel was the Director of
Financial Planning and Capital Review for Lockheed Martin's C(3)I and
56
<PAGE>
Systems Integration Sector. From 1984 to 1996, Mr. Mehmel held several
accounting and financial analysis positions at Loral Electronic Systems and
Loral. At the time of Lockheed Martin's acquisition of Loral, he was
Corporate Manager of Business Analysis.
Lawrence H. Schwartz, Vice President-Business Development. Mr. Schwartz
joined the Company in May 1997. From April 1996 until May 1997, Mr. Schwartz
was Vice President of Technology for the C(3)I and System Integration Sector
of Lockheed Martin. Prior to the April 1996 acquisition of Loral, he was
Corporate Vice President of Technology for Loral, a position he held since
1987. Between 1976 and 1987, Mr Schwartz was Vice President of Engineering,
Senior Vice President of Business Development, Senior Vice President of the
Rapport Program and Senior Vice President of Development Programs at Loral
Electronic Systems.
Jimmie V. Adams, Vice President-Washington, D.C. Operations. General
Jimmie V. Adams (U.S.A.F.-ret.) joined the Company in April 1997. From April
1996 until April 1997, he was Vice President of Lockheed Martin's Washington
Operations for the C(3)I and Systems Integration Sector. Prior to the April
1996 acquisition of Loral he held the same position at Loral since 1993.
Before joining Loral in 1993, he was Commander in Chief, Pacific Air Forces,
Hickam Air Force Base, Hawaii, capping a 35-year career with the U.S. Air
Force. He was also Deputy Chief of Staff for plans and operation for U.S. Air
Force headquarters and Vice Commander of Headquarters Tactical Air Command
and Vice Commander in Chief of the U.S. Air Forces Atlantic at Langley Air
Force Base. He is a command pilot with more than 141 combat missions.
Robert RisCassi, Vice President-Washington, D.C. Operations. General
Robert W. RisCassi (U.S. Army-ret.) joined the Company in April 1997. From
April 1996 until April 1997, he was Vice President of Land Systems for
Lockheed Martin's C(3)I and Systems Integration Sector. Prior to the April
1996 acquisition of Loral he held the same position for Loral since 1993. He
joined Loral in 1993 after retiring as U.S. Army Commander in Chief, United
Nations Command/Korea. His 35-year military career included posts as Army
Vice Chief of Staff; Director, Joint Staff, Joint Chiefs of Staff; Deputy
Chief of Staff for Operations and Plans; and Commander of the Combined Arms
Center.
David J. Brand, Director. Mr. Brand has served as a director since April
1997 and is a Managing Director of Lehman Brothers and a principal in the
Global Mergers & Acquisitions Group, leading Lehman Brothers' Technology
Mergers and Acquisitions business. Mr. Brand joined Lehman Brothers in 1987
and has been responsible for merger and corporate finance advisory services
for many of Lehman Brothers' technology and defense industry clients. Mr.
Brand is currently a director of K&F Industries, Inc. Mr. Brand holds an
M.B.A. from Stanford University's Graduate School of Business and a B.S. in
Mechanical Engineering from Boston University.
Alberto M. Finali, Director. Mr. Finali has served as a director since
April 1997 and is a Managing Director of Lehman Brothers and principal of the
Merchant Banking Group, based in New York. Prior to joining the Merchant
Banking Group, Mr. Finali spent four years in Lehman Brothers' London office
as a senior member of the M&A Group. Mr. Finali joined Lehman Brothers in
1987 as a member of the M&A Group in New York and became a Managing Director
in 1997. Prior to joining Lehman Brothers, Mr. Finali worked in the Pipelines
and Production Technology Group of Bechtel, Inc. in San Francisco. Mr. Finali
holds an M.E. and an M.B.A. from the University of California at Berkeley,
and a Laurea Degree in Civil Engineering from the Polytechnic School in
Milan, Italy.
Eliot M. Fried, Director. Mr. Fried has served as a director since April
1997 and is a Managing Director of Lehman Brothers. Mr. Fried joined
Shearson, Hayden Stone, a predecessor firm, in 1976 and became a Managing
Director in 1982. Mr. Fried has extensive experience in portfolio management
and equity research. Mr. Fried is currently a director of Bridgeport
Machines, Inc., Energy Ventures, Inc., SunSource L.P., Vernitron Corporation
and Walter Industries, Inc. Mr. Fried holds an M.B.A. from Columbia
University and a B.A. from Hobart College.
Robert B. Millard, Director. Mr. Millard has served as a director since
April 1997 and is a Managing Director of Lehman Brothers, Head of Lehman
Brothers' Principal Trading & Investments Group and principal of the Merchant
Banking Group. Mr. Millard joined Kuhn Loeb & Co. in 1976 and became a
57
<PAGE>
Managing Director of Lehman Brothers in 1983. Mr. Millard is currently a
director of GulfMark International, Inc. and Energy Ventures, Inc. Mr.
Millard holds an M.B.A. from Harvard University and a B.S. from the
Massachusetts Institute of Technology.
Alan H. Washkowitz, Director. Mr. Washkowitz has served as a director
since April 1997 and is a Managing Director of Lehman Brothers and head of
the Merchant Banking Group, and is responsible for the oversight of Lehman
Brothers Merchant Banking Portfolio Partnership L.P. Mr. Washkowitz joined
Lehman Brothers in 1978 when Kuhn Loeb & Co. was acquired by Lehman Brothers.
Mr. Washkowitz is currently a director of Illinois Central Corporation, K&F
Industries, Inc. and McBride plc. Mr. Washkowitz holds an M.B.A. from Harvard
University, a J.D. from Columbia University and an A.B. from Brooklyn
College.
Thomas A. Corcoran, Director. Mr. Corcoran has served as a director since
July 1997 and has been the President and Chief Operating Officer of the
Electronic Systems Sector of Lockheed Martin Corporation since March 1995.
From 1993 to 1995, Mr. Corcoran was President of the Electronics Group of
Martin Marietta Corporation. Prior to that he worked for General Electric for
26 years and from 1983 to 1993 he held various management positions with GE
Aerospace; he was a company officer from 1990 to 1993. Mr. Corcoran is a
member of the Board of Trustees of Worcester Polytechnic Institute, the Board
of Trustees of Stevens Institute of Technology, the Board of Governors of the
Electronic Industries Association, a Director of the U.S. Navy Submarine
League and a Director of REMEC Corporation.
Frank H. Menaker, Jr., Director. Mr. Menaker has served as a director
since April 1997 and has served as Senior Vice President and General Counsel
of Lockheed Martin since July 1996. He served as Vice President and General
Counsel of Lockheed Martin from March 1995 to July 1996, as Vice President of
Martin Marietta Corporation from 1982 until 1995 and as General Counsel of
Martin Marietta Corporation from 1981 until 1995. He is a director of Martin
Marietta Materials, Inc., a member of the American Bar Association and has
been admitted to practice before the United States Supreme Court. Mr. Menaker
is a graduate of Wilkes University and the Washington College of Law at
American University.
John E. Montague, Director. Mr. Montague has served as a director since
April 1997 and has been Vice President, Financial Strategies at Lockheed
Martin responsible for mergers, acquisitions and divestiture activities and
shareholder value strategies since March 1995. Previously, he was Vice
President, Corporate Development and Investor Relations at Martin Marietta
Corporation from 1991 to 1995. From 1988 to 1991, he was Director of
Corporate Development at Martin Marietta Corporation, which he joined in 1977
as a member of the engineering staff. Mr. Montague is a director of Rational
Software Corporation. Mr. Montague received his B.S. from the Georgia
Institute of Technology and an M.S. in engineering from the University of
Colorado.
The Board of Directors intends to appoint two additional directors who are
not affiliated with the Company promptly following the Common Stock Offering.
The additional directors have not yet been identified.
Upon closing of the Common Stock Offering, the Company's certificate of
incorporation will provide for a classified Board of Directors composed of
directors. Accordingly, the terms of the office of the Board of Directors
will be divided into three classes, each class consisting of as nearly equal
a number of directors possible. Class I ( directors) will expire at the
annual meeting of the stockholders to be held in 1999; Class II (
directors) will expire at the annual meeting of the stockholders to be held
in 2000; and Class III ( directors) will expire at the annual meeting of
the stockholders to be held in 2001. At each annual meeting of the
stockholders, beginning with the 1999 annual meeting, the successors to
directors whose terms will then expire will be elected to serve from the time
of election and qualification until the third annual meeting following
election and until their successors have been duly elected and qualified, or
until their earlier resignation or removal, if any. To the extent there is an
increase or reduction in the number of directors, increase or decrease in
directorships resulting therefrom will be distributed among the three classes
so that, as nearly as possible, each class will consist of an equal number of
directors.
58
<PAGE>
Each executive officer and key employee serves at the discretion of the
Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has two standing committees: an Audit Committee and
a Compensation Committee. Currently, the Audit Committee consists of Messrs.
Brand, Fried and Menaker. The Company intends to appoint to the Audit
Committee only persons who qualify as an "independent" director for purposes
of the rules and regulations of the NYSE. The Audit Committee will select and
engage, on behalf of the Company, the independent public accountants to audit
the Company's annual financial statements, and will review and approve the
planned scope of the annual audit. Currently, Messrs. Millard and Montague
serve as members of the Compensation Committee. The Compensation Committee
establishes remuneration levels for certain officers of the Company, performs
such functions as provided under the Company's employee benefit programs and
executive compensation programs and administers the 1997 Option Plan of Key
Employees of Holdings.
COMPENSATION OF DIRECTORS
The current directors of the Company do not receive compensation for their
services as directors. Any non-affiliated directors will receive directors'
fees and reimbursements for their reasonable out-of-pocket expenses in
connection with their travel to and attendance at meetings of the board of
directors or committees thereof.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that to the fullest
extent permitted by the Delaware General Corporation Law (the "DGCL"), a
director of the Company shall not be liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Under the DGCL, liability of a director may not be limited (i) for any breach
of the director's duty of loyalty to the Company or its stockholders, (ii)
for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain
unlawful dividend payments or stock redemptions or repurchases and (iv) for
any transaction from which the director derives an improper personal benefit.
The effect of the provisions of the Company's Certificate of Incorporation is
to eliminate the rights of the Company and its stockholders (through
stockholders' derivative suits on behalf of the Company) to recover monetary
damages against a director for breach of the fiduciary duty of care as a
director (including breaches resulting from negligent or grossly negligent
behavior), except in the situations described in clauses (i) through (iv)
above. This provision does not limit or eliminate the rights of the Company
or any stockholder to seek nonmonetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. In
addition, the Company's Bylaws provide that the Company shall indemnify its
directors, officers, employees and agents against losses incurred by any such
person by reason of the fact that such person was acting in such capacity.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
that, in the opinion of the Commission, such indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable.
59
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table provides certain summary
information concerning compensation paid or accrued by the Company to or on
behalf of the Company's Chief Executive Officer and each of the four other
most highly compensated executive officers of the Company (the "Named
Executive Officers") during the nine months ended December 31, 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS
ANNUAL -----------------------------
COMPENSATION SECURITIES
---------------------- RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS STOCK AWARDS STOCK OPTIONS COMPENSATION(1)
- -------------------------------------- ---------- -------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Frank C. Lanza (Chairman and Chief
Executive Officer)(2)................. $542,654 -- 1,142,857 --
Robert V. LaPenta (President and Chief
Financial Officer)(2)................. 356,538 -- 1,142,857 --
Lawrence H. Schwartz (Vice President) . 145,327 $80,000 17,000 --
Jimmie V. Adams (Vice President) ...... 157,854 70,000 15,000 $ 61
Robert RisCassi (Vice President) ...... 125,704 60,000 15,000 611
</TABLE>
- ------------
(1) Represents Company match under savings plan.
(2) On March 2, 1998, each of Mr. Lanza and
Mr. LaPenta exercised 228,571 options.
Stock Options Granted in 1997. The following table sets forth information
concerning individual grants of stock options to purchase Holdings' Common
Stock made in 1997 to each of the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION GRANT-DATE
NAME AND PRINCIPAL POSITION GRANTED (#) FISCAL YEAR ($/SH) DATE VALUE(1)
- -------------------------------------- -------------- --------------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Frank C. Lanza (Chairman and Chief
Executive Officer).................... 1,142,857(2) 38.2% $6.47 April 30, 2007 $2,326,731
Robert V. LaPenta (President and Chief
Financial Officer) ................... 1,142,857(2) 38.2% $6.47 April 30, 2007 $2,326,731
Lawrence H. Schwartz (Vice President) 17,000 0.6% $6.47 July 1, 2007 $ 17,571
Jimmie V. Adams (Vice President) ...... 15,000 0.5% $6.47 July 1, 2007 $ 15,504
Robert RisCassi (Vice President) ...... 15,000 0.5% $6.47 July 1, 2007 $ 15,504
</TABLE>
- ------------
(1) The grant-date valuation of the options was calculated using the
minimum value method described in SFAS No. 123. The minimum value is
computed as the current price of stock at the grant date reduced to
exclude the present value of any expected dividends during the option's
expected life minus the present value of the exercise price, and does
not consider the expected volatility of the price of the stock
underlying the option. The material assumptions underlying the
computations are: an average discount rate 6.3%; a dividend yield of 0%
and a weighted average expected option life of 5.49 years, with the
option lives ranging from 2 years to 10 years.
(2) Half of the options granted consists of Time Options and half consists
of Performance Options. See "--Employment Agreements" for descriptions
of the terms of these options.
60
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS OPTIONS AT
ACQUIRED ON AT YEAR-END YEAR-END (1)
EXERCISE VALUE ------------------------------ -------------------------------
NAME AND PRINCIPAL POSITION EXERCISABLE REALIZED UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
- ---------------------------- ------------- ---------- ------------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Frank C. Lanza (Chairman and
Chief Executive Officer)(2). -- -- -- 1,142,857 -- $1,748,571
Robert V. LaPenta (President
and Chief Financial
Officer)(2)................. -- -- -- 1,142,857 -- 1,748,571
Lawrence H. Schwartz (Vice
President).................. -- -- -- 17,000 -- 26,010
Jimmie V. Adams (Vice
President).................. -- -- -- 15,000 -- 22,950
Robert RisCassi (Vice
President).................. -- -- -- 15,000 -- 22,950
</TABLE>
(1) The fair value of Holdings' Common Stock was estimated by the Company
using an independent appraisal of such Common Stock performed as of
January 31, 1998.
(2) On March 2, 1998, each of Mr. Lanza and Mr. LaPenta exercised
228,571 options.
PENSION PLAN
The following table shows the estimated annual pension benefits payable
under the L-3 Communications Corporation Pension Plan and Supplemental
Employee Retirement Plan to a covered participant upon retirement at normal
retirement age, based on the career average compensation (salary and bonus)
and years of credited service with the Company.
<TABLE>
<CAPTION>
CAREER AVERAGE COMPENSATION YEARS OF CREDITED SERVICE
- --------------------------- ----------------------------------------------------
15 20 25 30 35
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$125,000.................... $ 18,981 $ 24,937 $ 29,833 $ 33,856 $ 37,164
150,000.................... 23,172 30,408 36,355 41,243 45,260
175,000.................... 27,364 35,879 42,877 48,629 53,357
200,000.................... 31,556 41,349 49,399 56,015 61,454
225,000.................... 35,747 46,820 55,921 63,402 69,550
250,000.................... 39,939 52,291 62,444 70,788 77,647
300,000.................... 48,322 63,233 75,488 85,561 93,840
400,000.................... 65,089 85,116 101,577 115,106 126,226
450,000.................... 73,472 96,057 114,621 129,879 142,420
500,000.................... 81,855 106,999 127,665 144,651 158,613
750,000.................... 123,772 161,707 192,887 218,515 239,579
</TABLE>
As of December 31, 1997, the current annual compensation and current years
of credited service (including for Messrs. LaPenta, Adams and RisCassi, years
of credited service as an employee of Loral and Lockheed Martin) for each of
the following persons were: Mr. Lanza, $750,000 and one year; Mr. LaPenta,
$500,000 and 26 years; Mr. Adams, $216,011 and 5 years; Mr. RisCassi,
$172,016 and 4 years; and Mr. Schwartz, $229,000 and one year. Compensation
covered under the pension plans includes amounts reported as salary and bonus
in the Summary Compensation Table.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of Holdings established a Compensation Committee in
June 1997. During the last fiscal year, Messrs. Robert Millard, Steven Berger
and John Montague served as members of the Compensation Committee. None of
these individuals has served at any time as an officer or employee of
Holdings or L-3 Communications. Mr. Berger resigned from Holdings' Board of
Directors and the Compensation Committee in January 1998. Prior to the
establishment of the Compensation Committee, all decisions relating to
executive compensation were made by Holdings' Board of Directors. For a
description of the transactions between the Company and entities affiliated
with members of the Compensation Committee, see "Certain Relationships and
Certain Transactions". No executive officer of
61
<PAGE>
Holdings or L-3 Communications serves as a member of the board of directors
or compensation committee of any entity which has one or more executive
officers serving as a member of Holdings' Board of Directors or Compensation
Committee.
1997 STOCK OPTION PLAN
In April 1997, Holdings adopted the 1997 Option Plan for Key Employees of
Holdings (the "1997 Stock Option Plan") which authorizes the Compensation
Committee to grant options to key employees of Holdings and its subsidiaries.
On March 10, 1998, the 1997 Stock Option Plan was amended to increase the
shares available for option grants to 4,255,815 shares of Common Stock of which
had been granted as of March 31, 1998. The Compensation Committee of the
Board of Directors of Holdings, in its sole discretion, determines the terms
of option agreements, including without limitation the treatment of option
grants in the event of a change of control. The 1997 Stock Option Plan remains
in effect for 10 years following the date of approval.
On April 30, 1997, Holdings granted each of Messrs. Lanza and LaPenta
options to purchase 1,142,857 shares of Common Stock. See "--Employment
Agreements" for a description of the terms of these grants. On July 1, 1997
and November 11, 1997, the Compensation Committee authorized grants of
options to employees of Holdings and its subsidiaries, other than Messrs.
Lanza and LaPenta, to acquire an aggregate of 689,500 shares of Common Stock
at an exercise price of $6.47 per share (the "Employee Options"). Each
Employee Option was granted pursuant to an individual agreement that provides
(i) 20% of shares underlying the option will become exercisable on the first
anniversary of the grant date, 50% will become exercisable on the second
anniversary of the grant date and 30% will become exercisable on the third
anniversary of the grant date; provided that, in the event of an initial
public offering of Common Stock, 15% of the shares underlying the option
(which would otherwise become exercisable on the second anniversary of the
grant date) will become exercisable on the earlier to occur of (A) the
completion of the initial public offering of the Common Stock and (B) the
first anniversary of the grant date; (ii) all shares underlying the option
will become exercisable upon certain events constituting a change of control;
and (iii) the option will expire upon the earliest to occur of (A) the tenth
anniversary of the grant date (B) one year after termination of employment
due to the optionee's death or permanent disability (C) immediately upon
termination of the optionee's employment for cause and (D) three months after
termination of optionee's employment for any other reason. On March 2, 1998,
each of Mr. Lanza and Mr. LaPenta exercised 228,571 options.
EMPLOYMENT AGREEMENTS
Holdings entered into an employment agreement (the "Employment
Agreements") effective on April 30, 1997 with each of Mr. Lanza, Chairman and
Chief Executive Officer of Holdings and L-3 Communications, who will receive
a base salary of $750,000 per annum and appropriate executive level benefits,
and Mr. LaPenta, President and Chief Financial Officer of Holdings and and
L-3 Communications, who will receive a base salary of $500,000 per annum and
appropriate executive level benefits. The Employment Agreements provide for
an initial term of five years, which will automatically renew for one-year
periods thereafter, unless a party thereto gives notice of its intent to
terminate at least 90 days prior to the expiration of the term.
Upon a termination without cause or resignation for good reason, Holdings
will be obligated, through the end of the term, to (i) continue to pay the
base salary and (ii) continue to provide life insurance and medical and
hospitalization benefits comparable to those provided to other senior
executives; provided, however, that any such coverage shall terminate to the
extent that Mr. Lanza or Mr. LaPenta, as the case may be, is offered or
obtains comparable benefits coverage from any other employer. The Employment
Agreements provide for confidentiality during employment and at all times
thereafter. There is also a noncompetition and non-solicitation covenant
which is effective during the employment term and for one year thereafter;
provided, however, that if the employment terminates following the expiration
of the initial term, the noncompetition covenant will only be effective
during the period, if any, that Holdings pays the severance described above.
Holdings has granted each of Messrs. Lanza and LaPenta (collectively, the
"Equity Executives") nonqualified options to purchase, at $6.47 per share of
Common Stock, 1,142,857 shares of Holdings'
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<PAGE>
initial fully-diluted common stock. In each case, half of the options will be
"Time Options" and half will be "Performance Options" (collectively, the
"Options"). The Time Options will become exercisable with respect to 20% of
the shares subject to the Time Options on March 2, 1998 and each of the
second through fifth anniversaries of the closing of the L-3 Acquisition (the
"Closing") if employment continues through and including such date. The
Performance Options will become exercisable nine years after the Closing, but
will become exercisable earlier with respect to up to 20% of the shares
subject to the Performance Options on March 2, 1998 and each of the second
through fifth anniversaries of the Closing, to the extent certain EBITDA
targets are achieved. The Options will become fully exercisable under certain
circumstances, including a change in control. The Option term is ten years
from the Closing; except that (i) if the Equity Executive is fired for cause
or resigns without good reason, the Options expire upon termination of
employment; (ii) if the Equity Executive is fired without cause, resigns for
good reason, dies, becomes disabled or retires, the Options expire one year
after termination of employment. Unexercisable Options will terminate upon
termination of employment, unless acceleration is expressly provided for.
Upon a change of control, Holdings may terminate the Options, so long as the
Equity Executives are cashed out or permitted to exercise their Options prior
to such change of control.
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<PAGE>
OWNERSHIP OF CAPITAL STOCK
All outstanding capital stock of L-3 Communications is owned by Holdings.
Following the consummation of the Common Stock Offering, the existing
2,944,000 shares of Class B Common Stock of Holdings will convert to Common
Stock. Assuming such conversion, as of March 31, 1998, there were 20,457,142
shares of Common Stock outstanding. The following table sets forth certain
information regarding the beneficial ownership of the shares of the Common
Stock of Holdings, as of March 31, 1998, by each person who beneficially owns
more than five percent of the outstanding shares of Common Stock of Holdings
and by the directors and certain executive officers of Holdings, individually
and as a group.
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP
------------------------------
BEFORE AFTER
COMMON STOCK COMMON STOCK
NAME OF BENEFICIAL OWNER COMMON STOCK OFFERING OFFERING
- ----------------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
Lehman Brothers Capital Partners III, L.P. and
affiliates(1)
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285 .................................. 10,020,000 49.0% %
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817-1877.............................. 6,800,000 33.2
Frank C. Lanza
c/o L-3 Communications Holdings, Inc.
600 Third Avenue, 34th Floor
New York, New York 10016 .................................. 1,700,571 8.3
Robert V. LaPenta
c/o L-3 Communications Holdings, Inc.
600 Third Avenue, 34th Floor
New York, New York 10016 .................................. 1,700,571 8.3
All directors and executive officers as group (23 persons) . 3,637,142 17.8
</TABLE>
- ------------
(1) David J. Brand, Alberto M. Finali, Eliot M. Fried, Robert B. Millard
and Alan H. Washkowitz, each of whom is director of the Company, are
each Managing Directors of Lehman Brothers Inc. As limited partners of
Lehman Brothers Capital Partners III, L.P. or other affiliated
partnerships sponsored by Lehman Brothers, all such individuals may be
deemed to have shared beneficial ownership of shares of Common Stock
held by Lehman Brothers Capital Partners III, L.P. and such affiliated
partnerships. Such individuals disclaim any such beneficial ownership.
DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR CREDIT FACILITIES
The Senior Credit Facilities have been provided by a syndicate of banks
and other financial institutions led by Lehman Commercial Paper Inc., as
Arranger and Syndication Agent. The Senior Credit Facilities provide for
$175.0 million in term loans (the "Term Loan Facilities") and for $200.0
million in revolving credit loans (the "Revolving Credit Facility" and,
together with the Term Loan Facilities, the "Senior Credit Facilities"). The
Revolving Credit Facility includes borrowing capacity available for letters
of credit and for borrowings on same-day notice (the "Swingline Loans"). The
Term Loans, originally funded on April 30, 1997, comprised of a Tranche A
Term Loan ($100.0 million), which had an initial maturity of six years, a
Tranche B Term Loan ($45.0 million), which had an initial maturity of eight
years, and a Tranche C Term Loan ($30.0 million), which had an initial
maturity of nine years. The Revolving Loan Termination Date (as defined
therein) is March 31, 2003.
All borrowings under the Senior Credit Facilities bear interest, at L-3
Communications' option, at either: (A) a "base rate" equal to, for any day,
the higher of: (a) 0.50% per annum above the latest Federal Funds Rate; and
(b) the rate of interest in effect for such day as publicly announced from
time to time
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<PAGE>
by Bank of America NT&SA, as Administrative Agent, in San Francisco,
California, as its "reference rate" plus (i) in the case of the Tranche A
Term Loan, the Revolving Credit Facility and the Swingline Loans, a debt to
EBITDA-dependent rate ranging from 0.50% to 1.25% per annum, (ii) in the case
of the Tranche B Term Loan, a rate of 1.50% per annum or (iii) in the case of
the Tranche C Term Loan, a rate of 1.75% per annum or (B) a "LIBOR rate"
equal to, for any Interest Period (as defined in the Senior Credit
Facilities), with respect to LIBOR Loans comprising part of the same
borrowing, the London interbank offered rate of interest per annum for such
Interest Period as determined by the Administrative Agent, plus (i) in the
case of the Tranche A Term Loan and the Revolving Credit Facility, a debt to
EBITDA-dependent rate ranging from 1.50% to 2.25% per annum, (ii) in the case
of the Tranche B Term Loan, a rate of 2.50% per annum or (iii) in the case of
the Tranche C Term Loan, a rate of 2.75% per annum.
L-3 Communications will pay a commitment fee calculated at a debt to
EBITDA-dependent rate ranging from 0.375% to 0.50% per annum of the available
unused commitment under the Revolving Credit Facility, in each case in effect
on each day. Such fee will be payable quarterly in arrears and upon
termination of the Revolving Credit Facility.
L-3 Communications will pay a letter of credit fee calculated at a debt to
EBITDA-dependent rate ranging from 1.50% to 2.25% per annum of the face
amount of each letter of credit and a fronting fee calculated at a rate equal
to 0.125% per annum of the face amount of each letter of credit. Such fees
will be payable quarterly in arrears and upon the termination of the
Revolving Credit Facility. In addition, L-3 Communications will pay customary
transaction charges in connection with any letters of credit.
The foregoing debt to EBITDA-dependent rates range from the low rate
specified if the ratio of debt to EBITDA is less than 3.75 to 1.0 to the high
rate specified if such ratio is at least equal to 4.75 to 1.0.
The Term Loans are subject to the following amortization schedule:
<TABLE>
<CAPTION>
TRANCHE A TERM LOAN TRANCHE B TERM LOAN TRANCHE C TERM LOAN
------------------- ------------------- -------------------
<S> <C> <C> <C>
Year 1 ... $ 4,000,000 $ 500,000 $ 500,000
Year 2 ... 5,000,000 500,000 500,000
Year 3 ... 15,000,000 500,000 500,000
Year 4 ... 21,000,000 500,000 500,000
Year 5 ... 27,000,000 500,000 500,000
Year 6 ... 28,000,000 500,000 500,000
Year 7 ... -- 20,000,000 500,000
Year 8 ... -- 22,000,000 500,000
Year 9 ... -- -- 26,000,000
</TABLE>
Borrowings under the Senior Credit Facilities are subject to mandatory
prepayment (i) with the net proceeds of any incurrence of indebtedness with
certain exceptions to be agreed, (ii) with the proceeds of certain asset
sales and (iii) on an annual basis with (A) 75% of the Company's excess cash
flow (as defined in the Senior Credit Facilities) if the ratio of the
Company's debt to EBITDA is greater than 3.5 to 1.0 or (B) 50% of such excess
cash flow if the ratio is less than 3.5 to 1.0.
L-3 Communications' obligations under the Senior Credit Facilities are
secured by a lien on substantially all of the tangible and intangible assets
of the Company, including: (i) a pledge by Holdings of the stock of L-3
Communications and (ii) a pledge by L-3 Communications and its direct and
indirect subsidiaries of all of the stock of their respective domestic
subsidiaries and 65% of the stock of L-3 Communications' first-tier foreign
subsidiaries. In addition, indebtedness under the Senior Credit Facilities is
guaranteed by Holdings and by all of L-3 Communications' direct and indirect
domestic subsidiaries.
The Senior Credit Facilities contain customary covenants and restrictions
on L-3 Communications' ability to engage in certain activities. In addition,
the Senior Credit Facilities provide that L-3 Communications must meet or
exceed certain interest coverage ratios and must not exceed a leverage ratio.
The Senior Credit Facilities also include customary events of default.
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<PAGE>
10 3/8% SENIOR SUBORDINATED NOTES DUE 2007
L-3 Communications has outstanding $225.0 million in aggregate principal
amount of its 10 3/8% Senior Subordinated Notes due 2007 (the "1997 Notes").
The 1997 Notes are subject to the terms and conditions of an Indenture (the
"1997 Indenture") dated as of April 30, 1997 between L-3 Communications and
The Bank of New York, as trustee, a copy of which was filed as an exhibit to
L-3 Communications' Registration Statement on Form S-4 relating to the 1997
Notes. The 1997 Notes are subject to all of the terms and conditions of the
1997 Indenture. The following summary of the material provisions of the 1997
Indenture does not purport to be complete, and is subject to, and qualified
in its entirety by reference to, all of the provisions of the 1997 Indenture
and those terms made a part of the 1997 Indenture by the Trust Indenture Act
of 1939, as amended. All terms defined in the 1997 Indenture and not
otherwise defined herein are used below with the meanings set forth in the
1997 Indenture.
General. The 1997 Notes will mature on May 1, 2007 and bear interest at 10
3/8% per annum, payable semi-annually on May 1 and November 1 of each year.
The 1997 Notes are general unsecured obligations of L-3 Communications and
are subordinated in right of payment to all existing and future Senior Debt
of L-3 Communications and rank pari passu with the Notes. The 1997 Notes will
be unconditionally guaranteed, on an unsecured senior subordinated basis,
jointly and severally, by all of L-3 Communications' future Restricted
Subsidiaries other than Foreign Subsidiaries.
Optional Redemption. The 1997 Notes are subject to redemption at any time,
at the option of L-3 Communications, in whole or in part, on or after May 1,
2002 at redemption prices (plus accrued and unpaid interest) starting at
105.188% of principal (plus accrued and unpaid interest) during the 12-month
period beginning May 1, 2002 and declining annually to 100% of principal
(plus accrued and unpaid interest) on May 1, 2005 and thereafter.
In addition, prior to May 1, 2000, L-3 Communications may redeem up to 35%
of the aggregate principal amount of the 1997 Notes with the net proceeds of
one or more Equity Offerings (as defined in the Indentures), to the extent
such proceeds are contributed (within 120 days of any such offering) to L-3
Communications as common equity, at a price equal to 109.375% of the
principal (plus accrued and unpaid interest) provided that at least 65% of
the original aggregate principal amount of the 1997 Notes remains outstanding
thereafter.
Change of Control. Upon the occurrence of a Change of Control, each holder
of the 1997 Notes may require L-3 Communications to repurchase all or a
portion of such holder's 1997 Notes at a purchase price equal to 101% of the
principal amount thereof (plus accrued and unpaid interest). Generally, a
Change of Control means the occurrence of any of the following: (i) the
disposition of all or substantially all of L-3 Communications' assets to any
person, (ii) the adoption of a plan relating to the liquidation or
dissolution of L-3 Communications, (iii) the consummation of any transaction
in which a person other than the Principals and their Related Parties becomes
the beneficial owner of more than 50% of the voting stock of L-3
Communications, or (iv) the first day on which a majority of the members of
the Board of Directors of L-3 Communications are not Continuing Directors.
Subordination. The 1997 Notes are general unsecured obligations of L-3
Communications and are subordinate to all existing and future Senior Debt of
L-3 Communications. The 1997 Notes will rank senior in right of payment to
all subordinated Indebtedness of L-3 Communications. Any Subsidiary
Guarantees would be general unsecured obligations of the Guarantors and are
subordinated to the Senior Debt and to the guarantees of Senior Debt of such
Guarantors. The Subsidiary Guarantees rank senior in right of payment to all
subordinated Indebtedness of the Guarantors.
Certain Covenants. The 1997 Indenture contains a number of covenants
restricting the operations of L-3 Communications, which, among other things,
limit the ability of L-3 Communications to incur additional Indebtedness, pay
dividends or make distributions, sell assets, issue subsidiary stock,
restrict distributions from Subsidiaries, create certain liens, enter into
certain consolidations or mergers and enter into certain transactions with
affiliates.
Events of Default. Events of Default under the 1997 Indenture include the
following: (i) a default for 30 days in the payment when due of interest on
the 1997 Notes; (ii) default in payment when due of
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<PAGE>
the principal of or premium, if any, on the Notes; (iii) failure by L-3
Communications to comply with certain provisions of the 1997 Indenture
(subject, in some but not all cases, to notice and cure periods); (iv)
default under Indebtedness for money borrowed by L-3 Communications or any of
its Restricted Subsidiaries in excess of $10.0 million; (v) failure by L-3
Communications or any Restricted Subsidiary that would be a Significant
Subsidiary to pay final judgments aggregating in excess of $10.0 million,
which judgments are not paid, discharged or stayed for a period of 60 days;
(vi) except as permitted by the Indenture, any Subsidiary Guarantee shall be
held in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or any Guarantor, or any Person
acting on behalf of any Guarantor, shall deny or disaffirm its obligations
under its Subsidiary Guarantee; or (vii) certain events of bankruptcy or
insolvency with respect to L-3 Communications or any of its Restricted
Subsidiaries.
Upon the occurrence of an Event of Default, with certain exceptions, the
Trustee or the holders of at least 25% in principal amount of the then
outstanding Notes may accelerate the maturity of all the 1997 Notes as
provided in the 1997 Indenture.
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<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued under an indenture dated as of , 1998 (the
"Indenture") between the Company, as issuer, and , as
trustee (the "Trustee"). The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes are
subject to all such terms, and holders of the Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of the material provisions of the Indenture describes the material
terms of the Indenture but does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the provisions of the
Indenture, including the definitions of certain terms contained therein and
those terms made part of the Indenture by reference to the Trust Indenture
Act. For definitions of certain capitalized terms used in the following
summary, see "--Certain Definitions".
For purposes of this summary, the term "Company" refers only to L-3
Communications Corporation and not to any of its Subsidiaries.
The Notes will be general unsecured obligations of the Company and will
rank pari passu in right of payment with the 1997 Notes and will be
subordinated in right of payment to all current and future Senior Debt. At
December 31, 1997, on a pro forma basis giving effect to the 1998
Acquisitions and the Offerings, the Company would have had Senior Debt of
approximately $58.6 million outstanding (excluding letters of credit). The
Indenture will permit the incurrence of additional Senior Debt in the future.
See "--Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock".
The Indenture will provide that the Company's payment obligations under
the Notes will be jointly and severally guaranteed (the "Subsidiary
Guarantees") by all of the Company's present and future Restricted
Subsidiaries, other than Foreign Subsidiaries (collectively, the
"Guarantors"). The Subsidiary Guarantee of each Guarantor will be
subordinated to the prior payment in full of all Senior Debt of such
Guarantor, which would include the guarantees of amounts borrowed under the
Senior Credit Facilities.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $250.0 million,
of which $150.0 million will be issued in the Notes Offering. The Notes will
mature on , 2008. Interest on the Notes will accrue at the rate of %
per annum and will be payable semi-annually in arrears on and ,
commencing on , 1998, to Holders of record on the immediately preceding
and . Interest on the Notes will accrue from the most recent date
to which interest has been paid or, if no interest has been paid, from the
date of original issuance. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. Principal, premium, if any,
and interest on the Notes will be payable at the office or agency of the
Company maintained for such purpose within the City and State of New York or,
at the option of the Company, payment of interest may be made by check mailed
to the Holders of the Notes at their respective addresses set forth in the
register of Holders of Notes; provided that all payments of principal,
premium and interest with respect to Notes the Holders of which have given
wire transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the
Holders thereof if such Holders shall be registered Holders of at least
$250,000 in principal amount of Notes. Until otherwise designated by the
Company, the Company's office or agency in New York will be the office of the
Trustee maintained for such purpose. The Notes will be issued in
denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to ,
2003. Thereafter, the Notes will be subject to redemption at any time at the
option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages
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<PAGE>
of principal amount) set forth below plus accrued and unpaid interest to the
applicable redemption date, if redeemed during the twelve-month period
beginning on of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------ --------------
<S> <C>
2003 .................... %
2004 .................... %
2005 .................... %
2006 and thereafter .... 100.000%
</TABLE>
Notwithstanding the foregoing, during the first 36 months after the Issue
Date, the Company may on any one or more occasions redeem up to an aggregate
of 35% of the Notes originally issued at a redemption price of % of the
principal amount thereof, plus accrued and unpaid interest to the redemption
date, with the net cash proceeds of one or more Equity Offerings by the
Company or the net cash proceeds of one or more Equity Offerings by Holdings
that are contributed to the Company as common equity capital; provided that
at least 65% of the Notes originally issued remain outstanding immediately
after the occurrence of each such redemption; and provided, further, that any
such redemption must occur within 120 days of the date of the closing of such
Equity Offering.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes
will be subordinated in right of payment, as set forth in the Indenture, to
the prior payment in full of all Senior Debt, whether outstanding on the
Issue Date or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property,
an assignment for the benefit of creditors or any marshalling of the
Company's assets and liabilities, the holders of Senior Debt will be entitled
to receive payment in full in cash of all Obligations due in respect of such
Senior Debt (including interest after the commencement of any such proceeding
at the rate specified in the applicable Senior Debt, whether or not an
allowable claim in any such proceeding) before the Holders of Notes will be
entitled to receive any payment with respect to the Notes, and until all
Obligations with respect to Senior Debt are paid in full, any distribution to
which the Holders of Notes would be entitled shall be made to the holders of
Senior Debt (except, in each case, that Holders of Notes may receive
Permitted Junior Securities and payments made from the trust described under
"--Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(except from the trust described under "--Legal Defeasance and Covenant
Defeasance") if (i) a default in the payment of the principal of, premium, if
any, or interest on Designated Senior Debt occurs and is continuing or (ii)
any other default occurs and is continuing with respect to Designated Senior
Debt that permits holders of the Designated Senior Debt as to which such
default relates to accelerate its maturity (or that would permit such holders
to accelerate with the giving of notice or the passage of time or both) and
the Trustee receives a notice of such default (a "Payment Blockage Notice")
from the Company or the holders of any Designated Senior Debt. Payments on
the Notes may and shall be resumed (A) in the case of a payment default, upon
the date on which such default is cured or waived and (B) in case of a
nonpayment default, the earlier of the date on which such nonpayment default
is cured or waived or 179 days after the date on which the applicable Payment
Blockage Notice is received, unless the maturity of any Designated Senior
Debt has been accelerated. No new period of payment blockage may be commenced
unless and until (i) 360 days have elapsed since the effectiveness of the
immediately prior Payment Blockage Notice and (ii) all scheduled payments of
principal, premium, if any, and interest on the Notes that have come due have
been paid in full in cash. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice unless such default shall have been waived for a period of not less
than 90 days.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
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<PAGE>
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Notes may recover less ratably
than creditors of the Company who are holders of Senior Debt. On a pro forma
basis, after giving effect to the Offerings and the 1998 Acquisitions, the
principal amount of Senior Debt outstanding (excluding letters of credit) at
December 31, 1997 would have been approximately $58.6 million.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided that no Notes of $1,000 or less shall be redeemed in
part. Notices of redemption shall be mailed by first class mail at least 30
but not more than 60 days before the redemption date to each Holder of Notes
to be redeemed at its registered address. Notices of redemption may not be
conditional. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note. Notes called for redemption become
due on the date fixed for redemption. On and after the redemption date,
interest ceases to accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders",
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to
the offer described below (the "Change of Control Offer") at an offer price
in cash equal to 101% of the aggregate principal amount thereof plus accrued
and unpaid interest to the date of purchase (the "Change of Control
Payment"). Within ten days following any Change of Control, the Company will
mail a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Notes on the date
specified in such notice, which date shall be no earlier than 30 days and no
later than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"), pursuant to the procedures required by the Indenture
and described in such notice. The Company will comply with the requirements
of Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of the Notes as a result of a Change of
Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the
Paying Agent an amount equal to the Change of Control Payment in respect of
all Notes or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions
thereof being purchased by the Company. The Paying Agent will promptly mail
to each Holder of Notes so tendered the Change of Control Payment for such
Notes, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered, if any; provided
that each such new Note will be in a principal amount of $1,000 or an
integral multiple thereof.
The Indenture will provide that, prior to mailing a Change of Control
Offer, but in any event within 90 days following a Change of Control, the
Company will either repay all outstanding Senior Debt or offer to repay all
Senior Debt and terminate all commitments thereunder of each lender who has
accepted such
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<PAGE>
offer or obtain the requisite consents, if any, under all agreements
governing outstanding Senior Debt to permit the repurchase of Notes required
by this covenant. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
The Change of Control provisions described above will be applicable
whether or not any other provisions of the Indenture are applicable. Except
as described above with respect to a Change of Control, the Indenture does
not contain provisions that permit the Holders of the Notes to require that
the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Senior Credit Facilities will prohibit the Company from purchasing any
Notes, and also provides that certain change of control events with respect
to the Company would constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Debt to which the Company
becomes a party may contain similar restrictions and provisions. In the event
a Change of Control occurs at a time when the Company is prohibited from
purchasing Notes, the Company could seek the consent of its lenders to the
purchase of Notes or could attempt to refinance the borrowings that contain
such prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an
Event of Default under the Indenture and 1997 Indenture which would, in turn,
constitute a default under the Senior Credit Facilities. In such
circumstances, the subordination provisions in the Indenture would likely
restrict payments to the Holders of Notes. See "Risk Factors -- Change of
Control". Finally, the Company's ability to pay cash to the holders of Notes
upon a purchase may be limited by the Company's then-existing financial
resources. There can be no assurance that sufficient funds will be available
when necessary to make any required purchases. Even if sufficient funds were
otherwise available, the terms of the Senior Credit Facilities will prohibit,
subject to certain exceptions, the Company's prepayment of Notes prior to
their scheduled maturity. Consequently, if the Company is not able to prepay
indebtedness outstanding under the Senior Credit Facilities and any other
Senior Indebtedness containing similar restrictions or obtain requisite
consents, the Company will be unable to fulfill its repurchase obligations if
holders of Notes exercise their purchase rights following a Change of
Control, thereby resulting in a default under the Indenture and 1997
Indenture. Furthermore, the Change of Control provisions of the Indenture and
1997 Indenture may in certain circumstances make more difficult or discourage
a takeover of the Company.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole to any "person" (as such term is used in
Section 13(d)(3) of the Exchange Act) other than the Principals or their
Related Parties (as defined below), (ii) the adoption of a plan relating to
the liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above), other than the
Principals and their Related Parties, becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act),
directly or indirectly, of more than 50% of the Voting Stock of the Company
(measured by voting power rather than number of shares) or (iv) the first day
on which a majority of the members of the Board of Directors of the Company
are not Continuing Directors.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board
of Directors on the Issue Date or (ii) was nominated for election or elected
to such Board of Directors with the approval of a majority of the Continuing
Directors who were members of such Board at the time of such nomination or
election.
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"Principals" means any Lehman Investor, Lockheed Martin Corporation, Frank
C. Lanza and Robert V. LaPenta.
"Related Party" with respect to any Principal means (i) any controlling
stockholder, 50% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (ii) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding a more than 50% controlling
interest of which consist of such Principal and/or such other Persons
referred to in the immediately preceding clause (i).
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board
of Directors of such Person.
With respect to the disposition of assets, the phrase "all or
substantially all" as used in the Indenture varies according to the facts and
circumstances of the subject transaction and is subject to judicial
interpretation. Accordingly, in certain circumstances there may be a degree
of uncertainty in ascertaining whether a particular transaction would involve
a disposition of "all or substantially all" of the assets of the Company, and
therefore it may be unclear as to whether a Change of Control has occurred
and whether the holders have the right to require the Company to purchase the
Notes.
ASSET SALES
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i)
the Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair
market value (evidenced by an Officers' Certificate delivered to the Trustee
which will include a resolution of the Board of Directors with respect to
such fair market value in the event such Asset Sale involves aggregate
consideration in excess of $5.0 million) of the assets or Equity Interests
issued or sold or otherwise disposed of and (ii) at least 80% of the
consideration therefor received by the Company or such Restricted Subsidiary,
as the case may be, consists of cash, Cash Equivalents and/or Marketable
Securities; provided, however, that (A) the amount of any Senior Debt of the
Company or such Restricted Subsidiary that is assumed by the transferee in
any such transaction and (B) any consideration received by the Company or
such Restricted Subsidiary, as the case may be, that consists of (1) all or
substantially all of the assets of one or more Similar Businesses, (2) other
long-term assets that are used or useful in one or more Similar Businesses
and (3) Permitted Securities shall be deemed to be cash for purposes of this
provision.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (i) to repay
Indebtedness under a Credit Facility, or (ii) to the acquisition of Permitted
Securities, all or substantially all of the assets of one or more Similar
Businesses, or the making of a capital expenditure or the acquisition of
other long-term assets in a Similar Business. Pending the final application
of any such Net Proceeds, the Company may temporarily reduce Indebtedness
under a Credit Facility or otherwise invest such Net Proceeds in any manner
that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales
that are not applied or invested as provided in the first sentence of this
paragraph will be deemed to constitute "Excess Proceeds". When the aggregate
amount of Excess Proceeds exceeds $10.0 million, the 1997 Indenture provides
that the Company will be required to make an offer to all holders of 1997
Notes (an "Asset Sale Offer") to purchase the maximum principal amount of
1997 Notes that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest to the date of purchase, in accordance with the
procedures set forth in the 1997 Indenture. To the extent that the aggregate
amount of 1997 Notes tendered pursuant to an Asset Sale Offer is less than
the remaining Excess Proceeds ("Remaining Excess Proceeds") and the sum of
(A) such amount of Remaining Excess Proceeds and (B) the Remaining Excess
Proceeds from any subsequent Asset Sale Offers exceeds $3.0 million, the
Company will be required to make an offer to all Holders of Notes and any
other Indebtedness that ranks pari passu with the Notes that, by its terms,
requires the Company to offer to repurchase such Indebtedness with such
Remaining Excess Proceeds (a "Secondary Asset Sale Offer") to purchase the
maximum principal amount of Notes and pari passu Indebtedness that may be
purchased out of such Remaining Excess Proceeds, at an offer price in cash in
an amount equal to 100% of the principal amount thereof plus accrued and
unpaid interest thereon, if any, to the date of purchase, in accordance
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with the procedures set forth in the Indenture. To the extent that the
aggregate amount of Notes or pari passu Indebtedness tendered pursuant to a
Secondary Asset Sale Offer is less than the Remaining Excess Proceeds, the
Company may use any Remaining Excess Proceeds for general corporate purposes.
If the aggregate principal amount of Notes or pari passu Indebtedness
surrendered by Holders thereof exceeds the amount of Remaining Excess
Proceeds in a Secondary Asset Sale Offer, the Company shall repurchase such
Indebtedness on a pro rata basis and the Trustee shall select the Notes to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
The Senior Credit Facilities will substantially limit the Company's
ability to purchase subordinated Indebtedness, including the Notes. Any
future credit agreements relating to Senior Debt may contain similar
restrictions. See "Description of Certain Indebtedness -- Senior Credit
Facilities".
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or
consolidation involving the Company) or to the direct or indirect holders of
the Company's or any of its Restricted Subsidiaries' Equity Interests in
their capacity as such (other than (A) dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Company or (B)
dividends or distributions by a Restricted Subsidiary so long as, in the case
of any dividend or distribution payable on or in respect of any class or
series of securities issued by a Restricted Subsidiary other than a Wholly
Owned Restricted Subsidiary, the Company or a Restricted Subsidiary receives
at least its pro rata share of such dividend or distribution in accordance
with its Equity Interests in such class or series of securities); (ii)
purchase, redeem or otherwise acquire or retire for value (including without
limitation, in connection with any merger or consolidation involving the
Company) any Equity Interests of the Company or any direct or indirect parent
of the Company; (iii) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness
that is subordinated to the Notes except a payment of interest or principal
at Stated Maturity; or (iv) make any Restricted Investment (all such payments
and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under caption "Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries since April 30, 1997 (excluding Restricted Payments permitted
by clauses (ii) through (vii) of the next succeeding paragraph or of the
kind contemplated by such clauses that were made prior to the date of the
Indenture), is less than the sum of (i) 50% of the Consolidated Net Income
of the Company for the period (taken as one accounting period) from July
1, 1997 to the end of the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period is
a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net
cash proceeds received by the Company since April 30, 1997 from a
contribution to its common equity capital or the issue or sale of Equity
Interests of the Company (other than Disqualified Stock) or of
Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or
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convertible debt securities) sold to a Subsidiary of the Company and other
than Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock), plus (iii) to the extent that any
Restricted Investment that was made after April 30, 1997 is sold for cash
or otherwise liquidated or repaid for cash, the amount of cash received in
connection therewith (or from the sale of Marketable Securities received
in connection therewith), plus (iv) to the extent not already included in
such Consolidated Net Income of the Company for such period and without
duplication, (A) 100% of the aggregate amount of cash received as a
dividend from an Unrestricted Subsidiary, (B) 100% of the cash received
upon the sale of Marketable Securities received as a dividend from an
Unrestricted Subsidiary, and (C) 100% of the net assets of any
Unrestricted Subsidiary on the date that it becomes a Restricted
Subsidiary. As of December 31, 1997 (without giving effect to the Common
Stock Offering), the amount that would have been available to the Company
for Restricted Payments pursuant to this paragraph (c) would have been
$6.8 million.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the Indenture;
(ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the
Company in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company)
of, other Equity Interests of the Company (other than any Disqualified
Stock); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance or
other acquisition shall be excluded from clause (c) (ii) of the preceding
paragraph;
(iii) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness (other than intercompany Indebtedness) in
exchange for, or with the net cash proceeds from an incurrence of,
Permitted Refinancing Indebtedness;
(iv) the repurchase, retirement or other acquisition or retirement for
value of common Equity Interests of the Company or Holdings held by any
future, present or former employee, director or consultant of the Company
or any Subsidiary or Holdings issued pursuant to any management equity
plan or stock option plan or any other management or employee benefit plan
or agreement; provided, however, that the aggregate amount of Restricted
Payments made under this clause (iv) does not exceed $1.5 million in any
calendar year and provided further that cancellation of Indebtedness owing
to the Company from members of management of the Company or any of its
Restricted Subsidiaries in connection with a repurchase of Equity
Interests of the Company will not be deemed to constitute a Restricted
Payment for purposes of this covenant or any other provision of the
Indenture;
(v) repurchases of Equity Interests deemed to occur upon exercise of
stock options upon surrender of Equity Interests to pay the exercise price
of such options;
(vi) payments to Holdings (A) in amounts equal to the amounts required
for Holdings to pay franchise taxes and other fees required to maintain
its legal existence and provide for other operating costs of up to
$500,000 per fiscal year and (B) in amounts equal to amounts required for
Holdings to pay federal, state and local income taxes to the extent such
income taxes are actually due and owing; provided that the aggregate
amount paid under this clause (B) does not exceed the amount that the
Company would be required to pay in respect of the income of the Company
and its Subsidiaries if the Company were a stand alone entity that was not
owned by Holdings; and
(vii) other Restricted Payments in an aggregate amount since the Issue
Date not to exceed $20.0 million.
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not
cause a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the
extent repaid in cash) in the Subsidiary so designated will be deemed to be
Restricted Payments at the time of such designation and will reduce the
amount available for Restricted Payments under the first
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paragraph of this covenant. All such outstanding Investments will be deemed
to constitute Investments in an amount equal to the fair market value of such
Investments at the time of such designation. Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined by the
Board of Directors whose resolution with respect thereto shall be delivered
to the Trustee. Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which
the calculations required by the covenant "Restricted Payments" were
computed.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not issue
any Disqualified Stock and will not permit any of its Subsidiaries to issue
any shares of preferred stock; provided, however, that the Company and any
Restricted Subsidiary may incur Indebtedness (including Acquired Debt) or
issue shares of preferred stock if the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which
such additional Indebtedness is incurred or such preferred stock is issued
would have been at least 2.0 to 1.0, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the preferred stock had been
issued, as the case may be, at the beginning of such four-quarter period.
The foregoing limitation will not apply to the incurrence of any of the
following items of Indebtedness (collectively, "Permitted Debt"):
(i) the incurrence by the Company of Indebtedness under Credit Facilities
(and the guarantee thereof by the Guarantors); provided that the aggregate
principal amount of all Indebtedness outstanding under all Credit
Facilities (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of the Company and its Restricted
Subsidiaries thereunder) after giving effect to such incurrence, including
all Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any other Indebtedness incurred pursuant to this clause (i), does
not exceed an amount equal to $375.0 million less the aggregate amount of
all Net Proceeds of Asset Sales applied to repay any such Indebtedness
(including any such Permitted Refinancing Indebtedness) pursuant to the
covenant described above under the caption "--Asset Sales";
(ii) the incurrence by the Company and its Restricted Subsidiaries of the
Existing Indebtedness;
(iii) the incurrence by the Company and the Guarantors of $150.0 million
in aggregate principal amount of the Notes and the Subsidiary Guarantees
thereof;
(iv) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of the Company or such Restricted Subsidiary, in an aggregate
principal amount, including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any other Indebtedness incurred
pursuant to this clause (iv), not to exceed $30.0 million at any time
outstanding;
(v) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness in connection with the acquisition of assets or a new
Restricted Subsidiary; provided that such Indebtedness was incurred by the
prior owner of such assets or such Restricted Subsidiary prior to
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such acquisition by the Company or one of its Restricted Subsidiaries and
was not incurred in connection with, or in contemplation of, such
acquisition by the Company or one of its Restricted Subsidiaries; and
provided further that the principal amount (or accreted value, as
applicable) of such Indebtedness, together with any other outstanding
Indebtedness incurred pursuant to this clause (v), does not exceed $10.0
million;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace, Indebtedness that was
permitted by the Indenture to be incurred;
(vii) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to
letters of credit issued in the ordinary course of business in respect of
workers' compensation claims or self-insurance, or other Indebtedness with
respect to reimbursement type obligations regarding workers' compensation
claims; provided, however, that upon the drawing of such letters of credit
or the incurrence of such Indebtedness, such obligations are reimbursed
within 30 days following such drawing or incurrence;
(viii) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or assumed
in connection with the disposition of any business, assets or a
Subsidiary, other than guarantees of Indebtedness incurred by any Person
acquiring all or any portion of such business, assets or a Subsidiary for
the purpose of financing such acquisition; provided, however, that (A)
such Indebtedness is not reflected on the balance sheet of the Company or
any Restricted Subsidiary (contingent obligations referred to in a
footnote to financial statements and not otherwise reflected on the
balance sheet will not be deemed to be reflected on such balance sheet for
purposes of this clause (A)) and (B) the maximum assumable liability in
respect of all such Indebtedness shall at no time exceed the gross
proceeds including noncash proceeds (the fair market value of such noncash
proceeds being measured at the time received and without giving effect to
any subsequent changes in value) actually received by the Company and its
Restricted Subsidiaries in connection with such disposition;
(ix) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; provided, however, that (A) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinated
to the prior payment in full in cash of all Obligations with respect to
the Notes and (B)(1) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a Person
other than the Company or one of its Restricted Subsidiaries and (2) any
sale or other transfer of any such Indebtedness to a Person that is not
either the Company or one of its Restricted Subsidiaries shall be deemed,
in each case, to constitute an incurrence of such Indebtedness by the
Company or such Restricted Subsidiary, as the case may be;
(x) the incurrence by the Company or any of the Guarantors of Hedging
Obligations that are incurred for the purpose of (A) fixing, hedging or
capping interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of the Indenture to be outstanding or (B)
protecting the Company and its Restricted Subsidiaries against changes in
currency exchange rates;
(xi) the guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or a Restricted Subsidiary of the Company that
was permitted to be incurred by another provision of this covenant;
(xii) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company that was not permitted by this clause (xii), and
the issuance of preferred stock by Unrestricted Subsidiaries;
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(xiii) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted
Subsidiaries in the ordinary course of business; and
(xiv) the incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
other Indebtedness incurred pursuant to this clause (xiv), not to exceed
$50.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xiv) above or
is entitled to be incurred pursuant to the first paragraph of this covenant,
the Company shall, in its sole discretion, classify, or later reclassify,
such item of Indebtedness in any manner that complies with this covenant.
Accrual of interest, the accretion of accreted value and the payment of
interest in the form of additional Indebtedness will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant.
LIENS
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien securing Indebtedness on any asset now
owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom, except Permitted Liens.
ANTILAYERING PROVISION
The Indenture will provide that (i) the Company will not incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that
is subordinate or junior in right of payment to any Senior Debt and senior in
any respect in right of payment to the Notes, and (ii) no Guarantor will
incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to any Senior
Debt of a Guarantor and senior in any respect in right of payment to any of
the Subsidiary Guarantees.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (i)(A) pay
dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits, or (B) pay
any indebtedness owed to the Company or any of its Restricted Subsidiaries,
(ii) make loans or advances to the Company or any of its Restricted
Subsidiaries or (iii) transfer any of its properties or assets to the Company
or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (A) the provisions of security
agreements that restrict the transfer of assets that are subject to a Lien
created by such security agreements, (B) the provisions of agreements
governing Indebtedness incurred pursuant to clause (v) of the second
paragraph of the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock", (C) the Indenture, the Notes,
and the 1997 Indenture and the 1997 Notes, (D) applicable law, (E) any
instrument governing Indebtedness or Capital Stock of a Person acquired by
the Company or any of its Restricted Subsidiaries as in effect at the time of
such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance
or restriction is not applicable to any Person, or the properties or assets
of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred, (F)
by reason of customary non-assignment provisions in leases entered into in
the ordinary course of business and consistent with past practices, (G)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii)
above on the property so acquired, (H) Permitted
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Refinancing Indebtedness, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced, (I) contracts for the sale of assets, including, without
limitation, customary restrictions with respect to a Subsidiary pursuant to
an agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary, (J)
agreements relating to secured Indebtedness otherwise permitted to be
incurred pursuant to the covenants described under "Limitations on Incurrence
of Indebtedness and Issuance of Preferred Stock" and "Liens" that limit the
right of the debtor to dispose of the assets securing such Indebtedness, (K)
restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business, or (L)
customary provisions in joint venture agreements and other similar agreements
entered into in the ordinary course of business.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to another corporation, Person or entity unless (i) the Company
is the surviving corporation or the entity or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company) or the entity or Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all the obligations of the Company under the Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction no
Default or Event of Default exists; and (iv) except in the case of a merger
of the Company with or into a Wholly Owned Restricted Subsidiary of the
Company, the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made, after giving pro forma effect to such transaction as if such
transaction had occurred at the beginning of the most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding such transaction either (A) would be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant
described above under the caption "--Incurrence of Indebtedness and Issuance
of Preferred Stock" or (B) would have a pro forma Fixed Charge Coverage Ratio
that is greater than the actual Fixed Charge Coverage Ratio for the same
four-quarter period without giving pro forma effect to such transaction.
Notwithstanding the foregoing clause (iv), (i) any Restricted Subsidiary
may consolidate with, merge into or transfer all or part of its properties
and assets to the Company and (ii) the Company may merge with an Affiliate
that has no significant assets or liabilities and was incorporated solely for
the purpose of reincorporating the Company in another State of the United
States so long as the amount of Indebtedness of the Company and its
Restricted Subsidiaries is not increased thereby.
TRANSACTIONS WITH AFFILIATES
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms
that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable
transaction by the Company or such Restricted Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee (A) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of
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$5.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies
with clause (i) above and that such Affiliate Transaction has been approved
by a majority of the disinterested members of the Board of Directors and (B)
with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $15.0 million, an
opinion as to the fairness to the Holders of such Affiliate Transaction from
a financial point of view issued by an accounting, appraisal or investment
banking firm of national standing.
The foregoing provisions will not prohibit: (i) any employment agreement
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business; (ii) any transaction with a Lehman Investor;
(iii) any transaction between or among the Company and/or its Restricted
Subsidiaries; (iv) transactions between the Company or any of its Restricted
Subsidiaries, on the one hand, and Lockheed Martin or any of its Subsidiaries
or a Permitted Joint Venture, on the other hand, on terms that are not
materially less favorable to the Company or the applicable Restricted
Subsidiary of the Company than those that could have been obtained from an
unaffiliated third party; provided that (A) in the case of any such
transaction or series of related transactions pursuant to this clause (iv)
involving aggregate consideration in excess of $5.0 million but less than
$25.0 million, such transaction or series of transactions (or the agreement
pursuant to which the transactions were executed) was approved by the
Company's Chief Executive Officer or Chief Financial Officer and (B) in the
case of any such transaction or series of related transactions pursuant to
this clause (iv) involving aggregate consideration equal to or in excess of
$25.0 million, such transaction or series of related transactions (or the
agreement pursuant to which the transactions were executed) was approved by a
majority of the disinterested members of the Board of Directors; (v) any
transaction pursuant to and in accordance with the provisions of the
Transaction Documents as the same are in effect on the Issue Date; and (vi)
any Restricted Payment that is permitted by the provisions of the Indenture
described above under the caption "--Restricted Payments".
PAYMENTS FOR CONSENT
The Indenture will provide that neither the Company nor any of its
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Notes for or as an inducement to any consent, waiver or amendment of any
of the terms or provisions of the Indenture or the Notes unless such
consideration is offered to be paid or is paid to all Holders of the Notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
REPORTS
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act or otherwise report
on an annual and quarterly basis on forms provided for such annual and
quarterly reporting pursuant to rules and regulations promulgated by the
Commission, the Indenture will require the Company to file with the
Commission (and provide the Trustee and Holders with copies thereof, without
cost to each Holder, within 15 days after it files them with the Commission),
(a) within 90 days after the end of each fiscal year, annual reports on Form
10-K (or any successor or comparable form) containing the information
required to be contained therein (or required in such successor or comparable
form); (b) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year, reports on Form 10-Q (or any successor or
comparable form); (c) promptly from time to time after the occurrence of an
event required to be therein reported, such other reports on Form 8-K (or any
successor or comparable form); and (d) any other information, documents and
other reports which the Company would be required to file with the Commission
if it were subject to Section 13 or 15(d) of the Exchange Act; provided,
however, the Company shall not be so obligated to file such reports with the
Commission if the Commission does not permit such filing, in which event the
Company will make available such information to prospective purchasers of
Notes, in addition to providing such information to the Trustee and the
Holders, in each case within 15 days after the time the Company would be
required to file such information with the Commission, if it were subject to
Sections 13 or 15(d) of the Exchange Act.
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FUTURE SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes will be jointly and
severally guaranteed by all of the Company's existing and future Restricted
Subsidiaries, other than Foreign Subsidiaries. The Indenture will provide
that if the Company or any of its Subsidiaries shall acquire or create a
Subsidiary (other than a Foreign Subsidiary or an Unrestricted Subsidiary)
after the Issue Date, then such Subsidiary shall execute a Subsidiary
Guarantee and deliver an opinion of counsel, in accordance with the terms of
the Indenture. The Subsidiary Guarantee of each Guarantor will rank pari
passu with the guarantees of the Original Notes subordinated to the prior
payment in full of all Senior Debt of such Guarantor, which would include the
guarantees of amounts borrowed under the Senior Credit Facilities. The
obligations of each Guarantor under its Subsidiary Guarantee will be limited
so as not to constitute a fraudulent conveyance under applicable law.
The Indenture will provide that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person) another
Person (except the Company or another Guarantor) unless (i) subject to the
provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) or to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Notes and the Indenture; (ii) immediately after giving
effect to such transaction, no Default or Event of Default exists; and (iii)
the Company (A) would be permitted by virtue of the Company's pro forma Fixed
Charge Coverage Ratio, immediately after giving effect to such transaction,
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the covenant described above under
the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock" or
(B) would have a pro forma Fixed Charge Coverage Ratio that is greater than
the actual Fixed Charge Coverage Ratio for the same four-quarter period
without giving pro forma effect to such transaction.
Notwithstanding the foregoing paragraph, (i) any Guarantor may consolidate
with, merge into or transfer all or part of its properties and assets to the
Company and (ii) any Guarantor may merge with an Affiliate that has no
significant assets or liabilities and was incorporated solely for the purpose
of reincorporating such Guarantor in another State of the United States so
long as the amount of Indebtedness of the Company and its Restricted
Subsidiaries is not increased thereby.
The Indenture will provide that in the event of a sale or other
disposition of all of the assets of any Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the
capital stock of any Guarantor, then such Guarantor (in the event of a sale
or other disposition, by way of such a merger, consolidation or otherwise, of
all of the capital stock of such Guarantor) or the corporation acquiring the
property (in the event of a sale or other disposition of all of the assets of
such Guarantor) will be released and relieved of any obligations under its
Subsidiary Guarantee; provided that the Net Proceeds of such sale or other
disposition are applied in accordance with the applicable provisions of the
Indenture. See "--Repurchase at Option of Holders -- Asset Sales".
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on
the Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) default in payment when due of the principal of or premium,
if any, on the Notes (whether or not prohibited by the subordination
provisions of the Indenture); (iii) failure by the Company to comply with the
provisions described under the captions "--Change of Control", "--Asset
Sales" or "--Merger, Consolidation or Sale of Assets"; (iv) failure by the
Company for 60 days after notice to comply with any of its other agreements
in the Indenture or the Notes; (v) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the Company
or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee
now exists, or is created after the Issue Date, which default results in the
acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of
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any such Indebtedness, together with the principal amount of any other such
Indebtedness the maturity of which has been so accelerated, aggregates $10.0
million or more; (vi) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $10.0 million,
which judgments are not paid, discharged or stayed for a period of 60 days;
(vii) certain events of bankruptcy or insolvency with respect to the Company
or any of its Restricted Subsidiaries; and (viii) except as permitted by the
Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding
to be unenforceable or invalid.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately; provided, however,
that so long as any Designated Senior Debt is outstanding, such declaration
shall not become effective until the earlier of (i) the day which is five
Business Days after receipt by the Representatives of Designated Senior Debt
of such notice of acceleration or (ii) the date of acceleration of any
Designated Senior Debt. Notwithstanding the foregoing, in the case of an
Event of Default arising from certain events of bankruptcy or insolvency,
with respect to the Company or any Restricted Subsidiary, all outstanding
Notes will become due and payable without further action or notice. Holders
of the Notes may not enforce the Indenture or the Notes except as provided in
the Indenture. Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default
or Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to
the optional redemption provisions of the Indenture, an equivalent premium
shall also become and be immediately due and payable to the extent permitted
by law upon the acceleration of the Notes. If an Event of Default occurs
prior to , 2003 by reason of any willful action (or inaction) taken (or
not taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to , 2003, then the premium
specified in the Indenture shall also become immediately due and payable to
the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee
a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes and the Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws
and it is the view of the Commission that such a waiver is against public
policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and
interest on such Notes when such payments are due from the trust referred to
below, (ii) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen
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Notes and the maintenance of an office or agency for payment and money for
security payments held in trust, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and the Company's obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or
Event of Default with respect to the Notes. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default"
will no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest on
the outstanding Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Notes are
being defeased to maturity or to a particular redemption date; (ii) in the
case of Legal Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the Issue
Date, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel
shall confirm that, the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default
or Event of Default resulting from the borrowing of funds to be applied to
such deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after
the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will
not result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) to which the
Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries is bound; (vi) the Company must have delivered to the
Trustee an opinion of counsel to the effect that after the 91st day following
the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; (vii) the Company must deliver to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company
with the intent of preferring the Holders of Notes over the other creditors
of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and (viii) the Company must
deliver to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by
the Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
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AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection with a
purchase of, or tender offer or exchange offer for, Notes), and any existing
default or compliance with any provision of the Indenture or the Notes may be
waived with the consent of the Holders of a majority in principal amount of
the then outstanding Notes (including consents obtained in connection with a
tender offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any Notes held by a non-consenting Holder): (i) reduce
the principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption
of the Notes (other than provisions relating to the covenants described above
under the caption "--Repurchase at the Option of Holders"), (iii) reduce the
rate of or change the time for payment of interest on any Note, (iv) waive a
Default or Event of Default in the payment of principal of or premium, if
any, or interest on the Notes (except a rescission of acceleration of the
Notes by the Holders of at least a majority in aggregate principal amount of
the Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Note payable in money other than that stated in
the Notes, (vi) make any change in the provisions of the Indenture relating
to waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of or premium, if any, or interest on the Notes, (vii)
waive a redemption payment with respect to any Note (other than a payment
required by one of the covenants described above under the caption
"--Repurchase at the Option of Holders") or (viii) make any change in the
foregoing amendment and waiver provisions. In addition, any amendment to the
provisions of Article 10 of the Indenture (which relates to subordination)
will require the consent of the Holders of at least 75% in aggregate
principal amount of the Notes then outstanding if such amendment would
adversely affect the rights of Holders of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the
Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of Notes
in the case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, or to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall
have offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
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"1997 Indenture" means the indenture, dated as of April 30, 1997, among
The Bank of New York, as trustee, and the Company, with respect to the 1997
Notes.
"1997 Notes" means the $225,000,000 in aggregate principal amount of the
Company's 10 3/8% Senior Subordinated Notes due 2007, issued pursuant to the
1997 Indenture on April 30, 1997.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or
in contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or
otherwise; provided that beneficial ownership of 10% or more of the voting
securities of a Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
(provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "--Change of Control" and/or the
provisions described above under the caption "--Merger, Consolidation or Sale
of Assets" and not by the provisions of the Asset Sale covenant), and (ii)
the issue or sale by the Company or any of its Subsidiaries of Equity
Interests of any of the Company's Restricted Subsidiaries, in the case of
either clause (i) or (ii), whether in a single transaction or a series of
related transactions (A) that have a fair market value in excess of $1.0
million or (B) for net proceeds in excess of $1.0 million. Notwithstanding
the foregoing: (i) a transfer of assets by the Company to a Restricted
Subsidiary or by a Restricted Subsidiary to the Company or to another
Restricted Subsidiary, (ii) an issuance of Equity Interests by a Restricted
Subsidiary to the Company or to another Restricted Subsidiary, (iii) a
Restricted Payment that is permitted by the covenant described above under
the caption "--Restricted Payments" and (iv) a disposition of Cash
Equivalents in the ordinary course of business will not be deemed to be an
Asset Sale.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining
term of the lease included in such sale and leaseback transaction (including
any period for which such lease has been extended or may, at the option of
the lessor, be extended).
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated)
of corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of assets
of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government
or any agency or instrumentality thereof having maturities of not more than
one year from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any
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domestic financial institution to the Senior Credit Facilities or with any
domestic commercial bank having capital and surplus in excess of $500.0
million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having the highest rating obtainable from Moody's
or S&P and in each case maturing within six months after the date of
acquisition, (vi) investment funds investing 95% of their assets in
securities of the types described in clauses (i)-(v) above, and (vii) readily
marketable direct obligations issued by any State of the United States of
America or any political subdivision thereof having maturities of not more
than one year from the date of acquisition and having one of the two highest
rating categories obtainable from either Moody's or S&P.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to
the extent that such provision for taxes was included in computing such
Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or
accrued and whether or not capitalized (including, without limitation,
original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges incurred
in respect of letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus
(iv) depreciation, amortization (including amortization of goodwill, debt
issuance costs and other intangibles but excluding amortization of other
prepaid cash expenses that were paid in a prior period) and other non-cash
expenses (excluding any such non-cash expense to the extent that it
represents an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of
such Person and its Restricted Subsidiaries for such period to the extent
that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, minus (v) non-cash items
(excluding any items that were accrued in the ordinary course of business)
increasing such Consolidated Net Income for such period, in each case, on a
consolidated basis and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that (i) the Net Income of any Person that is
not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof that is a Guarantor, (ii) the Net Income of any Restricted Subsidiary
shall be excluded to the extent that the declaration or payment of dividends
or similar distributions by that Restricted Subsidiary of that Net Income is
not at the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the
date of such acquisition shall be excluded, (iv) the cumulative effect of a
change in accounting principles shall be excluded, (v) the Net Income of any
Unrestricted Subsidiary shall be excluded, whether or not distributed to the
Company or one of its Restricted Subsidiaries, and (vi) the Net Income of any
Restricted Subsidiary shall be calculated after deducting preferred stock
dividends payable by such Restricted Subsidiary to Persons other than the
Company and its other Restricted Subsidiaries.
"Consolidated Tangible Assets" means, with respect to the Company, the
total consolidated assets of the Company and its Restricted Subsidiaries,
less the total intangible assets of the Company and its Restricted
Subsidiaries, as shown on the most recent internal consolidated balance sheet
of the Company and such Restricted Subsidiaries calculated on a consolidated
basis in accordance with GAAP.
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"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Senior Credit Facilities) or
commercial paper facilities with banks or other institutional lenders
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special
purpose entities formed to borrow from such lenders against such receivables)
or letters of credit, in each case, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Senior Credit Facilities and (ii) any other Senior Debt permitted under the
Indenture the principal amount of which is $25.0 million or more and that has
been designated by the Company as "Designated Senior Debt".
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof,
in whole or in part, on or prior to the date that is 91 days after the date
on which the Notes mature; provided, however, that any Capital Stock that
would constitute Disqualified Stock solely because the holders thereof have
the right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the
Company may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described above under the caption "--Certain Covenants -- Restricted
Payments"; and provided further, that if such Capital Stock is issued to any
plan for the benefit of employees of the Company or its Subsidiaries or by
any such plan to such employees, such Capital Stock shall not constitute
Disqualified Stock solely because it may be required to be repurchased by the
Company in order to satisfy applicable statutory or regulatory obligations.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any public or private sale of equity securities
(excluding Disqualified Stock) of the Company or Holdings, other than any
private sales to an Affiliate of the Company or Holdings.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means any Indebtedness of the Company (other than
Indebtedness under the Senior Credit Facilities and the Notes) in existence
on the date of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts
and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations, but excluding amortization of debt issuance costs) and (ii) the
consolidated interest of such Person and its Restricted Subsidiaries that was
capitalized during such period, and (iii) any interest expense on
Indebtedness of another Person that is guaranteed by such Person or one of
its Restricted Subsidiaries or secured by a Lien on assets of such Person or
one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is
called upon) and (iv) the product of (A) all dividend payments, whether or
not in cash, on any series of preferred stock of such Person or any of its
Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests of the Company, times (B) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in
accordance with GAAP.
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"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person and its Restricted Subsidiaries
for such period. In the event that the Company or any of its Restricted
Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other
than revolving credit borrowings) or issues preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but on or prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation
Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect to such incurrence, assumption, Guarantee or redemption of
Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to
above, (i) acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to
the Calculation Date shall be deemed to have occurred on the first day of the
four-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated without giving effect to clause (iii) of the
proviso set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to
the Calculation Date, shall be excluded, and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with
GAAP, and operations or businesses disposed of prior to the Calculation Date,
shall be excluded, but only to the extent that the obligations giving rise to
such Fixed Charges will not be obligations of the referent Person or any of
its Restricted Subsidiaries following the Calculation Date.
"Foreign Subsidiary" means a Restricted Subsidiary of the Company that was
not organized or existing under the laws of the United States, any state
thereof, the District of Columbia or any territory thereof.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant
segment of the accounting profession, which were in effect April 30, 1997.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means each Subsidiary of the Company that executes a
Subsidiary Guarantee in accordance with the provisions of the Indenture, and
their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (i) currency exchange or interest rate swap agreements,
interest rate cap agreements and currency exchange or interest rate collar
agreements and (ii) other agreements or arrangements designed to protect such
Person against fluctuations in currency exchange rates or interest rates.
"Holdings" means L-3 Communications Holdings, Inc.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether
or not such indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any indebtedness of any
other Person. The amount of any
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Indebtedness outstanding as of any date shall be (i) the accreted value
thereof, in the case of any Indebtedness that does not require current
payments of interest, and (ii) the principal amount thereof, together with
any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel, moving and
similar loans or advances to officers and employees made in the ordinary
course of business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, together with all items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP. If the Company or any Subsidiary of the Company sells
or otherwise disposes of any Equity Interests of any direct or indirect
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, such Person is no longer a Subsidiary of the Company, the
Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Equity Interests of
such Subsidiary not sold or disposed of in an amount determined as provided
in the last paragraph of the covenant described above under the caption
"--Restricted Payments".
"Issue Date" means the closing date for the sale and original issuance of
the Notes under the Indenture.
"Lehman Investor" means Lehman Brothers Holdings Inc. and any of its
Affiliates.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Marketable Securities" means, with respect to any Asset Sale, any readily
marketable equity securities that are (i) traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market; and (ii)
issued by a corporation having a total equity market capitalization of not
less than $250.0 million; provided that the excess of (A) the aggregate
amount of securities of any one such corporation held by the Company and any
Restricted Subsidiary over (B) ten times the average daily trading volume of
such securities during the 20 immediately preceding trading days shall be
deemed not to be Marketable Securities; as determined on the date of the
contract relating to such Asset Sale.
"Moody's" means Moody's Investors Services, Inc.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain or
loss, together with any related provision for taxes thereon, realized in
connection with (A) any Asset Sale (including, without limitation,
dispositions pursuant to sale and leaseback transactions) or (B) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any
of its Restricted Subsidiaries and (ii) any extraordinary gain or loss,
together with any related provision for taxes on such extraordinary gain or
loss and (iii) the cumulative effect of a change in accounting principles.
"Net Proceeds" means the aggregate cash proceeds received by the Company
or any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation
expenses incurred as a result thereof, taxes paid or payable as a result
thereof (after taking into account any available tax credits or deductions
and any tax sharing arrangements), amounts required to be applied to the
repayment of Indebtedness secured by a Lien on the asset or assets that were
the subject of such Asset Sale and any reserve for adjustment in respect of
the sale price of such asset or assets established in accordance with GAAP.
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"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (A) provides credit support of any
kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (B) is directly or indirectly liable (as a
guarantor or otherwise), or (C) constitutes the lender; and (ii) no default
with respect to which (including any rights that the holders thereof may have
to take enforcement action against an Unrestricted Subsidiary) would permit
(upon notice, lapse of time or both) any holder of any other Indebtedness
(other than Indebtedness incurred under Credit Facilities) of the Company or
any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior
to its stated maturity; and (iii) as to which the lenders have been notified
in writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, premium (if any), interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization, whether or not a claim for post-filing interest is allowed in
such proceeding), penalties, fees, charges, expenses, indemnifications,
reimbursement obligations, damages, guarantees and other liabilities or
amounts payable under the documentation governing any Indebtedness or in
respect thereto.
"Permitted Investments" means (i) any Investment in the Company or in a
Restricted Subsidiary of the Company that is a Guarantor; (ii) any Investment
in cash or Cash Equivalents; (iii) any Investment by the Company or any
Restricted Subsidiary of the Company in a Person, if as a result of such
Investment (A) such Person becomes a Restricted Subsidiary of the Company and
a Guarantor or (B) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary of the Company that
is a Guarantor; (iv) any Restricted Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant
to and in compliance with the covenant described above under the caption
"--Repurchase at the Option of Holders -- Asset Sales" or any disposition of
assets not constituting an Asset sale; (v) any acquisition of assets solely
in exchange for the issuance of Equity Interests (other than Disqualified
Stock) of the Company; (vi) advances to employees not to exceed $2.5 million
at any one time outstanding; (vii) any Investment acquired in connection with
or as a result of a workout or bankruptcy of a customer or supplier; (viii)
Hedging Obligations permitted to be incurred under the covenant described
above under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock"; (ix) any Investment in a Similar Business that is not a
Restricted Subsidiary; provided that the aggregate fair market value of all
Investments outstanding pursuant to this clause (ix) (valued on the date each
such Investment was made and without giving effect to subsequent changes in
value) may not at any one time exceed 10% of the Consolidated Tangible Assets
of the Company; and (x) other Investments in any Person having an aggregate
fair market value (measured on the date each such Investment was made and
without giving effect to subsequent changes in value), when taken together
with all other Investments made pursuant to this clause (x) that are at the
time outstanding, not to exceed $15.0 million.
"Permitted Joint Venture" means any joint venture, partnership or other
Person designated by the Board of Directors (until designation by the Board
of Directors to the contrary); provided that (i) at least 25% of the Capital
Stock thereof with voting power under ordinary circumstances to elect
directors (or Persons having similar or corresponding powers and
responsibilities) is at the time owned (beneficially or directly) by the
Company and/or by one or more Restricted Subsidiaries of the Company and (ii)
such joint venture, partnership or other Person is engaged in a Similar
Business. Any such designation or designation to the contrary shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"Permitted Junior Securities" means Equity Interests in the Company or
debt securities that are subordinated to all Senior Debt (and any debt
securities issued in exchange for Senior Debt) to substantially the same
extent as, or to a greater extent than, the Notes and the Subsidiary
Guarantees are subordinated to Senior Debt pursuant to Article 10 of the
Indenture.
"Permitted Liens" means (i) Liens securing Senior Debt of the Company or
any Guarantor that was permitted by the terms of the Indenture to be
incurred; (ii) Liens in favor of the Company or any
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Guarantor; (iii) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were in existence prior
to the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof
by the Company or any Subsidiary of the Company, provided that such Liens
were in existence prior to the contemplation of such acquisition and do not
extend to any other assets of the Company or any of its Restricted
Subsidiaries; (v) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like
nature incurred in the ordinary course of business; (vi) Liens to secure
Indebtedness (including Capital Lease Obligations) permitted by clause (iv)
of the second paragraph of the covenant entitled "Incurrence of Indebtedness
and Issuance of Preferred Stock" covering only the assets acquired with such
Indebtedness -- ; (vii) Liens existing on the Issue Date; (viii) Liens for
taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity
with GAAP shall have been made therefor; (ix) Liens incurred in the ordinary
course of business of the Company or any Restricted Subsidiary of the Company
with respect to obligations that do not exceed $5.0 million at any one time
outstanding; (x) Liens on assets of Guarantors to secure Senior Debt of such
Guarantors that was permitted by the Indenture to be incurred; (xi) Liens
securing Permitted Refinancing Indebtedness, provided that any such Lien does
not extend to or cover any property, shares or debt other than the property,
shares or debt securing the Indebtedness so refunded, refinanced or extended;
(xii) Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory obligations, surety and appeal bonds, government
contracts, performance and return of money bonds and other obligations of a
like nature, in each case incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (xiii) Liens
upon specific items of inventory or other goods and proceeds of any Person
securing such Person's obligations in respect of bankers' acceptances issued
or created for the account of such Person to facilitate the purchase,
shipment or storage of such inventory or other goods in the ordinary course
of business; (xiv) Liens encumbering customary initial deposits and margin
deposits, and other Liens incurred in the ordinary course of business that
are within the general parameters customary in the industry, in each case
securing Indebtedness under Hedging Obligations; and (xv) Liens encumbering
deposits made in the ordinary course of business to secure nondelinquent
obligations arising from statutory or regulatory, contractual or warranty
requirements of the Company or its Subsidiaries for which a reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been
made.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Restricted Subsidiaries; provided
that: (i) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses and prepayment premiums incurred in
connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date no earlier than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of, the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; (iii) if the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded is subordinated
in right of payment to the Notes, such Permitted Refinancing Indebtedness is
subordinated in right of payment to the Notes on terms at least as favorable
to the Holders of Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred either by the Company or by
the Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Permitted Securities" means, with respect to any Asset Sale, Voting Stock
of a Person primarily engaged in one or more Similar Businesses; provided
that after giving effect to the Asset Sale such Person shall become a
Restricted Subsidiary and a Guarantor.
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"Representative" means the indenture trustee or other trustee, agent or
representative for any Senior Debt.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means, with respect to any Person, each Subsidiary
of such Person that is not an Unrestricted Subsidiary.
"Senior Credit Facilities" means the credit agreement, as in effect on the
Issue Date among the Company and a syndicate of banks and other financial
institutions led by Lehman Commercial Paper Inc., as syndication agent, and
any related notes, collateral documents, letters of credit and guarantees,
including any appendices, exhibits or schedules to any of the foregoing (as
the same may be in effect from time to time), in each case, as such
agreements may be amended, modified, supplemented or restated from time to
time, or refunded, refinanced, restructured, replaced, renewed, repaid or
extended from time to time (whether with the original agents and lenders or
other agents and lenders or otherwise, and whether provided under the
original credit agreement or other credit agreements or otherwise).
"Senior Debt" means (i) all Indebtedness of the Company or any of its
Restricted Subsidiaries outstanding under Credit Facilities and all Hedging
Obligations with respect thereto, (ii) any other Indebtedness permitted to be
incurred by the Company or any of its Restricted Subsidiaries under the terms
of the Indenture, unless the instrument under which such Indebtedness is
incurred expressly provides that it is on a parity with or subordinated in
right of payment to the Notes and (iii) all Obligations with respect to the
foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Debt will not include (i) any liability for federal, state, local or other
taxes owed or owing by the Company, (ii) any Indebtedness of the Company to
any of its Subsidiaries or other Affiliates, (iii) any trade payables or (iv)
any Indebtedness that is incurred in violation of the Indenture. The 1997
Notes will be pari passu with the Notes and will not constitute Senior Debt.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Similar Business" means a business, a majority of whose revenues in the
most recently ended calendar year were derived from (i) the sale of defense
products, electronics, communications systems, aerospace products, avionics
products and/or communications products, (ii) any services related thereto,
(iii) any business or activity that is reasonably similar thereto or a
reasonable extension, development or expansion thereof or ancillary thereto,
and (iv) any combination of any of the foregoing.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (A) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (B) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"S&P" means Standard and Poor's Corporation.
"Transaction Documents" means the Indenture, the Notes and the
Underwriting Agreement.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary:
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(i) has no Indebtedness other than Non-Recourse Debt; (ii) is not party to
any agreement, contract, arrangement or understanding with the Company or any
Restricted Subsidiary of the Company unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Company
or such Restricted Subsidiary than those that might be obtained at the time
from Persons who are not Affiliates of the Company; (iii) is a Person with
respect to which neither the Company nor any of its Restricted Subsidiaries
has any direct or indirect obligation (A) to subscribe for additional Equity
Interests or (B) to maintain or preserve such Person's financial condition or
to cause such Person to achieve any specified levels of operating results;
(iv) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of the Company or any of its Restricted
Subsidiaries; and (v) has at least one director on its board of directors
that is not a director or executive officer of the Company or any of its
Restricted Subsidiaries and has at least one executive officer that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions and was permitted by the covenant described above under the
caption "Certain Covenants -- Restricted Payments". If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock", the Company shall be in default of such covenant). The Board of
Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation
shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i)
such Indebtedness is permitted under the covenant described under the caption
"Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock", calculated on a pro forma basis as if such designation had occurred
at the beginning of the four-quarter reference period, and (ii) no Default or
Event of Default would be in existence following such designation.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the
sum of the products obtained by multiplying (A) the amount of each then
remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
thereof, by (B) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment, by (ii)
the then outstanding principal amount of such Indebtedness.
"Wholly Owned" means, when used with respect to any Subsidiary or
Restricted Subsidiary of a Person, a Subsidiary (or Restricted Subsidiary, as
appropriate) of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned
Subsidiaries (or Wholly Owned Restricted Subsidiaries, as appropriate) of
such Person and one or more Wholly Owned Subsidiaries (or Wholly Owned
Restricted Subsidiaries, as appropriate) of such Person.
92
<PAGE>
UNITED STATES FEDERAL TAX CONSIDERATIONS
The following summary describes material U.S. federal income tax
consequences of the ownership of the Notes as of the date hereof by U.S.
Holders as described below. Except where noted, it deals only with Notes held
as capital assets by initial purchasers that purchase the Notes at their
issue price and does not deal with special situations, such as those of
dealers in securities or currencies, financial institutions, tax-exempt
entities, life insurance companies, persons holding Notes as a part of a
hedging constructive sale or conversion transaction or a straddle or holders
of Notes whose "functional currency" is not the U.S. dollar. Furthermore, the
discussion below is based upon the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), and regulations, rulings and judicial
decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in federal income tax
consequences different from those discussed below. In addition, except as
otherwise indicated, the following does not consider the effect of any
applicable foreign, state, local or other tax laws or estate or gift tax
considerations. PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF
NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL INCOME TAX
CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS, AS WELL AS ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
STATED INTEREST ON NOTES
It is expected that the Notes will not be issued with original issue
discount, therefore, interest on a Note will generally be taxable to a U.S.
Holder as ordinary income from domestic sources at the time it is paid or
accrued in accordance with the U.S. Holder's method of accounting for tax
purposes. As used herein, a "U.S. Holder" means a holder of a Note that is
(i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in or under the laws of the United States or
any political subdivision thereof, (iii) an estate the income of which is
subject to U.S. federal income taxation regardless of its source, or (iv) a
trust which is subject to the supervision of a court within the United States
and the control of one or more U.S. persons as described in Section
7701(a)(30) of the Code. A "Non-U.S. Holder" is a holder of a Note that is
not a U.S. Holder.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A U.S. Holder's tax basis in a Note will, in general, be the U.S. Holder's
cost therefor. Upon the sale, exchange, retirement or other disposition of a
Note, a U.S. Holder will recognize gain or loss equal to the difference
between the amount realized upon the sale, exchange, retirement or other
disposition and the tax basis of the Note. Such gain or loss will be capital
gain or loss and will be long-term capital gain or loss if at the time of
sale, exchange, retirement or other disposition the Note has been held for
more than one year. Under recently enacted legislation, capital gains of
individuals derived in respect of capital assets held for more than one year
are eligible for reduced rates of taxation which may vary depending upon the
holding period of such capital assets. Prospective investors should consult
their own tax advisors with respect to the tax consequences of the new
legislation. The deductibility of capital losses is subject to limitations.
NON-U.S. HOLDERS
Under present U.S. federal income and estate tax law, and subject to the
discussion below concerning backup withholding:
(a) no withholding of U.S. federal income tax will be required with
respect to the payment by the Company or any paying agent of principal,
premium, if any, or interest on, if any, in respect of a Note owned by a
Non-U.S. Holder (the "Portfolio Interest Exception"), provided (i) that
the beneficial owner does not actually or constructively own 10% or more
of the total combined voting power of all classes of stock of the Company
entitled to vote within the meaning of section 871(h)(3) of the Code and
the regulations thereunder, (ii) the beneficial owner is not a controlled
foreign corporation that is related to the Company through stock
ownership, (iii) the beneficial owner is not a bank whose receipt of
interest on a Note is described in section 881(c)(3)(A) of the Code and
(iv) the beneficial owner satisfies the statement requirement (described
generally below) set forth in section 871(h) and section 881(c) of the
Code and the regulations thereunder.
93
<PAGE>
(b) no withholding of U.S. federal income tax will be required with
respect to any gain or income realized by a Non-U.S. Holder upon the sale,
exchange, retirement or other disposition of a Note; and
(c) a Note beneficially owned by an individual who at the time of death
is a Non-U.S. Holder will not be subject to U.S. federal estate tax as a
result of such individual's death, provided that such individual does not
actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote within the
meaning of section 871(h)(3) of the Code and provided that the interest
payments with respect to such Note would not have been, if received at the
time of such individual's death, effectively connected with the conduct of
a U.S. trade or business by such individual.
To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of such Note, or a financial institution holding the Note on behalf of
such owner, must provide, in accordance with specified procedures, a paying
agent of the Company with a statement to the effect that the beneficial owner
is not a U.S. person. Currently, these requirements will be met if (i) the
beneficial owner provides his name and address, and certifies, under
penalties of perjury, that he is not a U.S. person (which certification may
be made on an IRS Form W-8 (or successor form)) or (ii) a financial
institution holding the Note on behalf of the beneficial owner certifies,
under penalties of perjury, that such statement has been received by it and
furnishes a paying agent with a copy thereof. Under recently finalized
Treasury regulations (the "Final Regulations"), the statement requirement
referred to in (a)(iv) above may also be satisfied with other documentary
evidence for interest paid after December 31, 1998 with respect to an
offshore account or through certain foreign intermediaries.
If a Non-U.S. Holder cannot satisfy the requirements of the Portfolio
Interest Exception described in (a) above, payments on a Note made to such
Non-U.S. Holder will be subject to a 30% withholding tax unless the
beneficial owner of the Note provides the Company or its paying agent, as the
case may be, with a properly executed (i) IRS Form 1001 (or successor form)
claiming an exemption from withholding under the benefit of a tax treaty or
(ii) IRS Form 4224 (or successor form) stating that interest paid on the Note
is not subject to withholding tax because it is effectively connected with
the beneficial owner's conduct of a trade or business in the United States.
Under the Final Regulations, Non-U.S. Holders will generally be required to
provide IRS Form W-8 in lieu of IRS Form 1001 and IRS Form 4224, although
alternative documentation may be applicable in certain situations.
If a Non-U.S. Holder is engaged in a trade or business in the United
States and payment on a Note is effectively connected with the conduct of
such trade or business, the Non-U.S. Holder, although exempt from the
withholding tax discussed above, will be subject to U.S. federal income tax
on such payment on a net income basis in the same manner as if it were a U.S.
Holder. In addition, if such holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% of its effectively connected
earnings and profits for the taxable year, subject to adjustments. For this
purpose, such payment on a Note will be included in such foreign
corporation's earnings and profits.
Any gain or income realized upon the sale, exchange, retirement or other
disposition of a Note generally will not be subject to U.S. federal income
tax unless (i) such gain or income is effectively connected with a trade or
business in the United States of the Non-U.S. Holder, or (ii) in the case of
a Non-U.S. Holder who is an individual, such individual is present in the
United States for 183 days or more in the taxable year of such sale,
exchange, retirement or other disposition, and certain other conditions are
met.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments on a
Note and to the proceeds of sale of a Note made to U.S. Holders other than
certain exempt recipients (such as corporations). A 31% backup withholding
tax will apply to such payments if the U.S. Holder fails to provide a
taxpayer identification number or certification of foreign or other exempt
status or fails to report in full dividend and interest income.
94
<PAGE>
No information reporting or backup withholding will be required with
respect to payments made by the Company or any paying agent to Non-U.S.
Holders if a statement described in (a)(iv) under "--Non-U.S. Holders" has
been received and the payor does not have actual knowledge that the
beneficial owner is a U.S. person.
In addition, backup withholding and information reporting will not apply
if payments on a Note are paid or collected by a foreign office of a
custodian, nominee or other foreign agent on behalf of the beneficial owner
of such Note, or if a foreign office of a broker (as defined in applicable
Treasury regulations) pays the proceeds of the sale of a Note to the owner
thereof. If, however, such nominee, custodian, agent or broker is, for U.S.
federal income tax purposes, a U.S. person, a controlled foreign corporation
or a foreign person that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States, or, for
taxable years beginning after December 31, 1998, a foreign partnership, in
which one or more U.S. persons, in the aggregate, own more than 50% of the
income or capital interests in the partnership or which is engaged in a trade
or business in the United States, such payments will be subject to
information reporting (but not backup withholding), unless (i) such
custodian, nominee, agent or broker has documentary evidence in its records
that the beneficial owner is not a U.S. person and certain other conditions
are met or (ii) the beneficial owner otherwise establishes an exemption.
Under the Final Regulations, backup withholding will not apply to such
payments absent actual knowledge that the payee is a U.S. person.
Payments on a Note paid to the beneficial owner of a Note by a U.S. office
of a custodian, nominee or agent, or the payment by the U.S. office of a
broker of the proceeds of sale of a Note, will be subject to both backup
withholding and information reporting unless the beneficial owner provides
the statement referred to in (a)(iv) above and the payor does not have actual
knowledge that the beneficial owner is a U.S. person or otherwise establishes
an exemption.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
95
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions of the underwriting agreement (the form
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part) (the "Underwriting Agreement"), to purchase from
L-3 Communications, and L-3 Communications has agreed to sell to the
Underwriters, the aggregate principal amount of Notes set forth opposite
their respective names below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
- ----------------------------------- --------------------
<S> <C>
Lehman Brothers Inc. ...............
BancAmerica Robertson Stephens ....
--------------------
Total............................. $150,000,000
====================
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the Notes are subject to the approval of certain
legal matters by their counsel and to certain conditions, and that if any
Notes are purchased by the Underwriters pursuant to the Underwriting
Agreement, all of the Notes agreed to be purchased by the Underwriters
pursuant to the Underwriting Agreement must be so purchased.
In the Underwriting Agreement, L-3 Communications has agreed to indemnify
the Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
In order to facilitate the Notes Offering, the Underwriters may engage in
transactions that stabilize, maintain, or otherwise affect the price of the
Notes. Specifically, the Underwriters may overallot in connection with the
Notes Offering, creating a short position in the Notes for their own account.
In addition, to cover overallotments or to stabilize the price of the Notes,
the Underwriters may bid for and purchase Notes in the open market. Any of
these activities may stabilize or maintain the market price of the Notes
above independent market levels.
Lehman Brothers Inc. has provided investment banking, financial advisor
and other services to the Company, for which services Lehman Brothers Inc.
has received fees. In addition, Lehman Brothers Inc. is acting as lead
underwriter for the concurrent Common Stock Offering, and Lehman Brothers
Commercial Paper Inc., an affiliate of Lehman Brothers Inc., is the Arranger
and Syndication Agent under the Senior Credit Facilities. After the
completion of the Common Stock Offering and assuming that the Underwriters'
over-allotment option is exercised, the Lehman Partnership will beneficially
own % of the outstanding capital stock of Holdings. By virtue of such
ownership, the Lehman Partnership will be able to significantly influence the
business and affairs of the Company with respect to matters requiring
stockholder approval. See "Management -- Directors and Executive Officers"
and "Ownership of Capital Stock".
Because Lehman Brothers Inc. is an "affiliate" of the Company under the
Conduct Rules of the National Association of Securities Dealers, Inc. (the
"NASD") and Lehman Brothers Commercial Paper Inc. and BancAmerica Robertson
Stephens are lenders under the Senior Credit Facilities and may receive
significant portions of the proceeds from the Offerings, will act
as "qualified independent underwriter". In accordance with the Conduct Rules
of the NASD, the yield at which the Notes will be distributed to the public
will be established at a yield no lower than that recommended by
in its capacity as a qualified independent underwriter.
Bank of America NT&SA, an affiliate of BancAmerica Robertson Stephens,
acts as the Administrative Agent and a lender under the Senior Credit
Facilities. See "Description of Certain Indebtedness -- Senior Credit
Facilities".
96
<PAGE>
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the
Company by Simpson Thacher & Bartlett, New York, New York and for the
Underwriters by Latham & Watkins, New York, New York.
EXPERTS
The (i) consolidated balance sheet of the Company as of December 31, 1997
and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for the nine months then ended, (ii)
combined statements of operations, changes in invested equity and cash flows
of the Predecessor Company for the three months ended March 31, 1997, (iii)
combined balance sheet of the Predecessor Company as of December 31, 1996 and
the related combined statements of operations, changes in invested equity and
cash flows for the year then ended, (iv) combined statement of operations and
cash flows of the Loral Acquired Businesses for the three months ended March
31, 1996 and for the year ended December 31, 1995 and (v) the combined
balance sheet of AlliedSignal Ocean Systems (a wholly-owned operation of
AlliedSignal, Inc.) and the related combined statements of operations, cash
flows and equity for the year then ended, included in this Prospectus, have
been included herein in reliance on the reports of Coopers & Lybrand L.L.P.,
independent auditors, given on the authority of that firm as experts in
accounting and auditing. The report on the combined financial statements of
the Predecessor Company for the year ended December 31, 1996 indicates that
Coopers & Lybrand L.L.P.'s opinion, insofar as it relates to the financial
statements of the Lockheed Martin Communications Systems Division included in
such combined financial statements, is based solely on the report of other
auditors.
The combined financial statements of Lockheed Martin Communications
Systems Division as of and for the years ended December 31, 1996 (not
presented separately herein) and 1995, and the financial statements of the
Satellite Transmission Systems Division of California Microwave, Inc. as of
June 30, 1997 and 1996 and for each of the three years in the period ended
June 30, 1997, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
The consolidated financial statements of Ilex Systems, Inc. as of December
31, 1997, and for the year then ended have been included in this Prospectus
and the Registration Statement in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
97
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
L-3 COMMUNICATIONS CORPORATION
(AND THE PREDECESSOR COMPANY)
Consolidated (Combined) Financial Statements as of December 31, 1997 and
1996 and for the nine months ended December 31, 1997, the three months ended
March 31, 1997, and the years ended December 31, 1996 and 1995 ........................... F-3
Report of Coopers & Lybrand L.L.P. ...................................................... F-4
Report of Ernst & Young LLP on the financial statements of Lockheed Martin
Communications Systems Division as of December 31, 1996 and for the two years ended
December 31, 1996....................................................................... F-5
Consolidated (Combined) Balance Sheets as of December 31, 1997 and December 31, 1996 ... F-6
Consolidated (Combined) Statements of Operations for the nine months ended December 31,
1997, for the three months ended March 31, 1997 and for the years ended December 31,
1996 and 1995 .......................................................................... F-7
Consolidated (Combined) Statements of Changes in Shareholders' Equity and Invested
Equity for the nine months ended December 31, 1997, for three months ended March 31,
1997 and for the years ended December 31, 1996 and 1995 ................................ F-8
Consolidated (Combined) Statements of Cash Flows for the nine months ended December 31,
1997, for the three months ended March 31, 1997 and for the years ended December 31,
1996 and 1995 .......................................................................... F-9
Notes to Consolidated (Combined) Financial Statements.................................... F-10
LORAL ACQUIRED BUSINESSES
Combined Financial Statements for the three months ended March 31, 1996 and the year
ended December 31, 1995 .................................................................. F-28
Report of Coopers & Lybrand L.L.P. ...................................................... F-29
Combined Statements of Operations for three months ended March 31, 1996 and the
year ended December 31, 1995 ........................................................... F-30
Combined Statements of Cash Flows for three months ended March 31, 1996 and the year
ended December 31, 1995 ................................................................ F-31
Notes to Combined Financial Statements .................................................. F-32
SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC.
Unaudited Condensed Financial Statements as of December 31, 1997 and for the six months
ended December 31, 1997 and 1996 ......................................................... F-38
Condensed Balance Sheet (Unaudited) as of December 31, 1997 ............................. F-39
Condensed Statements of Operations (Unaudited) for the six months ended December 31,
1997 and 1996 .......................................................................... F-40
Condensed Statements of Cash Flows (Unaudited) for the six months ended December 31,
1997 and 1996 .......................................................................... F-41
Notes to the Condensed Financial Statements ............................................. F-42
F-1
<PAGE>
Financial Statements as of June 30, 1997 and 1996 and for the years ended
June 30, 1997, 1996 and 1995 ............................................................. F-45
Report of Ernst & Young LLP.............................................................. F-46
Balance Sheets as of June 30, 1997 and 1996 ............................................. F-47
Statements of Operations for the years ended June 30, 1997, 1996 and 1995 .............. F-48
Statements of Cash Flows for the years ended June 30, 1997, 1996 and 1995 .............. F-49
Notes to the Financial Statements ....................................................... F-50
ILEX SYSTEMS, INC. AND SUBSIDIARY
Consolidated Financial Statements as of December 31, 1997 and for the year ended December
31, 1997 .................................................................................. F-56
Report of KPMG Peat Marwick LLP ......................................................... F-57
Consolidated Balance Sheet as of December 31, 1997 ...................................... F-58
Consolidated Statement of Income for the year ended December 31, 1997 .................. F-59
Consolidated Statement of Shareholders' Equity for the year ended December 31, 1997 .... F-60
Consolidated Statement of Cash Flows for the year ended December 31, 1997 .............. F-61
Notes to the Consolidated Financial Statements .......................................... F-62
ALLIEDSIGNAL OCEAN SYSTEMS (A WHOLLY-OWNED OPERATION OF ALLIEDSIGNAL, INC.)
Combined Financial Statements as of December 31, 1997 and for the year ended December 31,
1997 ...................................................................................... F-66
Report of Coopers & Lybrand L.L.P. ...................................................... F-67
Combined Balance Sheet as of December 31, 1997 .......................................... F-68
Combined Statement of Operations for the year ended December 31, 1997 .................. F-69
Combined Statement of Invested Equity for the year ended December 31, 1997 ............. F-70
Combined Statement of Cash Flows for the year ended December 31, 1997 .................. F-71
Notes to the Combined Financial Statements .............................................. F-72
</TABLE>
F-2
<PAGE>
L-3 COMMUNICATIONS CORPORATION
(and the Predecessor Company)
Consolidated (Combined) Financial Statements as of December 31, 1997 and
1996 and for the nine months ended December 31, 1997, the three months ended
March 31, 1997 and the years ended December 31, 1997 and 1996.
F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
L-3 Communications Corporation:
We have audited the accompanying (i) consolidated balance sheet of L-3
Communications Corporation and subsidiaries (the "Company") as of December
31, 1997, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for the nine months then ended, (ii) the
combined statements of operations and cash flows of the Predecessor Company,
as defined in Note 1 to the financial statements, for the three months ended
March 31, 1997 and (iii) combined balance sheet of the Predecessor Company,
as of December 31, 1996 and the related combined statements of operations,
changes in invested equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the 1996 financial statements of the Lockheed
Martin Communications Systems Division, which statements reflect total assets
and sales constituting 35 percent and 30 percent of the related combined
totals. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts
included for the Lockheed Martin Communications Systems Division for 1996, is
based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report
of the other auditors provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above (i) present
fairly, in all material respects, the consolidated financial position of the
Company and subsidiaries as of December 31, 1997 and their consolidated
results of operations and cash flows for the nine months then ended, and (ii)
based on our audit and the report of other auditors for 1996, present fairly
in all material respects the combined financial position of the Predecessor
Company as of December 31, 1996 and their combined results of operations, and
cash flows for the year then ended and the three months ended March 31, 1997,
in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York 10019
February 2, 1998
F-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Lockheed Martin Corporation
We have audited the combined balance sheet of Lockheed Martin
Communications Systems Division, as defined in Note 1 to the financial
statements, as of December 31, 1996, and the related combined statements of
operations, changes in shareholders' equity and invested equity, and cash
flows for each of the two years in the period ended December 31, 1996. These
financial statements are the responsibility of the Division's and Lockheed
Martin Corporation's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Lockheed Martin Communications Systems Division at December 31, 1996 (not
presented separately herein), and the combined results of its operations and
its cash flows for the year ended December 31, 1996 (not presented separately
herein), and the results of its operations and its cash flows for the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Washington, D.C.
March 7, 1997
F-5
<PAGE>
L-3 COMMUNICATIONS CORPORATION
CONSOLIDATED (COMBINED) BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
CONSOLIDATED COMBINED
----------------- ------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................................... $ 77,474 --
Contracts in process ........................................... 167,202 $198,073
Net assets held for sale ....................................... 6,653 --
Deferred income taxes .......................................... 13,298 --
Other current assets ........................................... 2,750 3,661
----------------- ------------------
Total current assets ......................................... 267,377 201,734
----------------- ------------------
Property, plant and equipment ................................... 95,034 116,566
Less, accumulated depreciation and amortization ................ 12,025 24,983
----------------- ------------------
83,009 91,583
----------------- ------------------
Intangibles, primarily cost in excess of net assets acquired,
net of amortization ............................................ 297,503 282,674
Deferred income taxes ........................................... 24,217 --
Other assets .................................................... 31,298 17,307
----------------- ------------------
Total assets ................................................. $703,404 $593,298
================= ==================
LIABILITIES AND SHAREHOLDERS' (INVESTED) EQUITY
Current liabilities:
Current portion of long-term debt .............................. $ 5,000 --
Accounts payable, trade ........................................ 33,052 $ 35,069
Accrued employment costs ....................................... 31,162 27,313
Customer advances .............................................. 15,989 3,381
Amounts in excess of costs incurred ............................ 18,469 10,918
Accrued interest ............................................... 4,419 --
Other current liabilities ...................................... 27,476 26,207
----------------- ------------------
Total current liabilities .................................... 135,567 102,888
----------------- ------------------
Pension and postretirement benefits ............................. 38,113 --
Other liabilities ............................................... 5,009 16,801
Long-term debt .................................................. 392,000 --
Commitments and contingencies ...................................
Shareholders' Equity
Common Stock, $.01 par value; 100 shares authorized and
outstanding.................................................... -- --
Additional paid-in capital ..................................... 125,000 --
Retained earnings .............................................. 16,715 --
Deemed distribution ............................................ (9,000) --
----------------- ------------------
Total Shareholders' and Invested Equity ......................... 132,715 473,609
----------------- ------------------
Total Liabilities and Shareholders' Equity ................... $703,404 $593,298
================= ==================
</TABLE>
See notes to consolidated (combined) financial statements.
F-6
<PAGE>
L-3 COMMUNICATIONS CORPORATION
CONSOLIDATED (COMBINED) STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR COMPANY
CONSOLIDATED COMBINED
----------------- ---------------------------------------
NINE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, 1997 MARCH 31, 1997 1996 1995
----------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Sales ......................... $546,525 $158,873 $543,081 $166,781
Costs and expenses ............ 490,669 150,937 499,390 162,132
----------------- -------------- ------------ ------------
Operating income .............. 55,856 7,936 43,691 4,649
Interest income ............... 1,430 -- -- --
Interest expense .............. 29,884 8,441 24,197 4,475
----------------- -------------- ------------ ------------
Income (loss) before income
taxes ........................ 27,402 (505) 19,494 174
Income tax expense (benefit) .. 10,687 (247) 7,798 1,186
----------------- -------------- ------------ ------------
Net income (loss) ............. $ 16,715 $ (258) $ 11,696 $ (1,012)
================= ============== ============ ============
</TABLE>
See notes to consolidated (combined) financial statements.
F-7
<PAGE>
L-3 COMMUNICATIONS CORPORATION
CONSOLIDATED (COMBINED) STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND
INVESTED EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997, THREE MONTHS ENDED
MARCH 31, 1997 AND YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
COMBINED CONSOLIDATED
------------- -----------------------------------------------------------------------
COMMON STOCK
--------------------- ADDITIONAL
INVESTED SHARES PAID-IN RETAINED EQUITY
EQUITY ISSUED PAR VALUE CAPITAL EARNINGS ADJUSTMENT TOTAL
------------- -------- ----------- ------------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1995 .. $199,506
Repayments to Lockheed
Martin.................. (3,831)
Net loss................. (1,012)
-------------
Balance December 31, 1995. 194,663
Advances from Lockheed
Martin.................. 267,250
Net income............... 11,696
-------------
Balance December 31, 1996. 473,609
Advances from Lockheed
Martin.................. 20,579
Net loss................. (258)
-------------
Balance March 31, 1997 ... $493,930 -- -- -- -- -- --
============= ======== =========== ============ ========== ============ ==========
Shares Issued............ 100 $-- $125,000 $125,000
Deemed distribution ..... $(9,000) (9,000)
Net Income............... $16,715 16,715
-------- ----------- ------------ ---------- ------------ ----------
Balance December 31, 1997. 100 $-- $125,000 $16,715 $(9,000) $132,715
======== =========== ============ ========== ============ ==========
</TABLE>
See notes to consolidated (combined) financial statements.
F-8
<PAGE>
L-3 COMMUNICATIONS CORPORATION
CONSOLIDATED (COMBINED) STATEMENTS OF CASH FLOWS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR COMPANY
----------------- ---------------------------------------
NINE MONTHS THREE MONTHS YEAR ENDED DECEMBER 31,
ENDED ENDED -----------------------
DECEMBER 31, 1997 MARCH 31, 1997 1996 1995
----------------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ........................... $ 16,715 $ (258) $ 11,696 $(1,012)
Depreciation and amortization ............... 22,190 7,786 28,139 11,578
Amortization of deferred debt issue costs .. 1,517 -- -- --
Deferred income taxes ....................... 9,991 -- -- --
Changes in operating assets and liabilities,
net of amounts acquired
Contracts in process ....................... 18,161 (17,475) 23,543 (3,267)
Other current assets ....................... (275) (481) 3,049 788
Other assets ............................... 2,141 (761) (8,346) 1,245
Accounts payable ........................... (6,146) (207) 4,104 (648)
Accrued employment costs ................... 6,363 (625) 2,282 (611)
Customer advances .......................... (611) 1,146 (5,541) --
Amounts in excess of costs incurred ....... 1,156 (3,037) (6,045) (2,041)
Accrued interest ........................... 4,419 -- -- --
Other current liabilities .................. (7,132) (1,867) 3,180 4,004
Pension and postretirement benefits ....... 4,284 -- -- --
Other liabilities .......................... 1,087 (500) (25,327) (699)
----------------- -------------- ----------- ----------
Net cash from (used in) operating activities 73,860 (16,279) 30,734 9,337
----------------- -------------- ----------- ----------
INVESTING ACTIVITIES:
Acquisition of business ..................... (466,317) -- (287,803) --
Proceeds from assumption of contract
obligation ................................. 12,176 -- -- --
Net cash from assets held for sale .......... 3,179 -- -- --
Proceeds from sale of property .............. 9,458 -- -- --
Purchases of investments .................... (5,113) -- -- --
Capital expenditures ........................ (11,934) (4,300) (13,528) (5,532)
Disposition of property, plant and equipment 771 -- 3,347 26
----------------- -------------- ----------- ----------
Net cash used in investing activities ...... (457,780) (4,300) (297,984) (5,506)
----------------- -------------- ----------- ----------
FINANCING ACTIVITIES:
Borrowings under senior credit facility .... 175,000 -- -- --
Proceeds from sale of 10 3/8% senior
subordinated notes ......................... 225,000 -- -- --
Proceeds from issuance of common stock ..... 80,000 -- -- --
Debt issuance costs ......................... (15,606) -- -- --
Payment of debt ............................. (3,000) -- -- --
Advances from (repayments to) Lockheed
Martin ..................................... -- 20,579 267,250 (3,831)
----------------- -------------- ----------- ----------
Net cash from (used in) financing
activities.................................. 461,394 20,579 267,250 (3,831)
----------------- -------------- ----------- ----------
Net change in cash .......................... 77,474 -- -- --
Cash and cash equivalents, beginning of the
period...................................... -- -- -- --
----------------- -------------- ----------- ----------
Cash and cash equivalents, end of the period $ 77,474 -- -- --
================= ============== =========== ==========
</TABLE>
See notes to consolidated (combined) financial statements.
F-9
<PAGE>
L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS
(Dollars in thousands)
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The accompanying consolidated financial statements include the assets,
liabilities and results of operations of L-3 Communications Corporation,
Inc., successor company, ("L-3" or the "Company"), a wholly owned subsidiary
of L-3 Communications Holdings, Inc. ("Holdings") following the change in
ownership (see Note 2) effective as of April 1, 1997 and for the period from
April 1, 1997 to December 31, 1997. Prior to April 1, 1997, the statements
comprise substantially all of the assets and liabilities and results of
operations of (i) nine business units previously purchased by Lockheed Martin
Corporation ("Lockheed Martin") as part of its acquisition of Loral
Corporation ("Loral") in April 1996 (the "Loral Acquired Businesses"), and
(ii) one business unit, Communications Systems -- East purchased by Lockheed
Martin as part of its acquisition of the aerospace business of GE in April
1993 (collectively, the "Businesses" or the "Predecessor Company"). The
combined financial statements of the Predecessor Company reflect the
Businesses' assets, liabilities and results of operations included in
Lockheed Martin's historical financial statements. Intercompany accounts
between Lockheed Martin and the Businesses have been included in Invested
Equity. The assets and operations of the semiconductor product line and
certain other facilities which are not material have been excluded from the
combined financial statements. Significant intercompany and inter-business
transactions and balances have been eliminated.
The Company is a supplier of sophisticated secure communication systems
and specialized communication products including secure, high data rate
communication systems, microwave components, avionics, recorders, telemetry
and space products. The Company's customers include the Department of Defense
(the "DoD"), selected U.S. government intelligence agencies, major
aerospace/defense prime contractors and commercial customers. The Company
operates primarily in one industry segment, electronic components and
systems.
Substantially all the Company's products are sold to agencies of the U.S.
Government, primarily the Department of Defense, to foreign government
agencies or to prime contractors or subcontractors thereof. All domestic
government contracts and subcontracts of the Businesses are subject to audit
and various cost controls, and include standard provisions for termination
for the convenience of the U.S. Government. Multi-year U.S. Government
contracts and related orders are subject to cancellation if funds for
contract performance for any subsequent year become unavailable. Foreign
government contracts generally include comparable provisions relating to
termination for the convenience of the government.
2. CHANGE IN OWNERSHIP TRANSACTION
Holdings and L-3 were formed by Mr. Frank C. Lanza, the former President
and Chief Operating Officer of Loral, Mr. Robert V. LaPenta, the former
Senior Vice President and Controller of Loral (collectively, the "Equity
Executives"), Lehman Brothers Capital Partners III, L.P. and its affiliates
(the "Lehman Partnership") and Lockheed Martin to acquire the Businesses. The
Company was capitalized with an equity contribution from Holdings of
$125,000.
On March 28, 1997, Lanza, LaPenta, the Lehman Partnership, L-3, and
Lockheed Martin entered into a Transaction Agreement (the "L-3 Acquisition
Agreement") whereby Holdings would acquire the Businesses from Lockheed
Martin (the "L-3 Acquisition"). Also included in the acquisition is a
semiconductor product line of another business and certain leasehold
improvements in New York City which were not material. Pursuant to the L-3
Acquisition Agreement, L-3 acquired the Businesses from Lockheed Martin for
$525,000, comprising $458,779 of cash, after a $21,221 reduction related to a
purchase price adjustment, and $45,000 of common equity, representing a 34.9%
interest in Holdings retained by Lockheed Martin, plus acquisition costs of
$8,000.
The Company and Lockheed Martin finalized the purchase price adjustment
pursuant to an amendment to the L-3 Acquisition Agreement dated November 5,
1997, which also included the
F-10
<PAGE>
L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued)
(Dollars in thousands)
assumption by the Company of Lockheed Martin's rights and obligations under
a contract for the production of mission communication systems for track
vehicles, for which the Company received cash of $12,176.
In connection with the L-3 Acquisition Agreement, Holdings and the Company
anticipated entering into a transition services agreement with Lockheed
Martin pursuant to which Lockheed Martin would provide to L-3 and its
subsidiaries (and L-3 would provide to Lockheed Martin) certain corporate
services of a type previously provided at costs consistent with past
practices until December 31, 1997 (or, in the case of Communication Systems
- -- East (formerly known as Communication Systems -- Camden), for a period of
up to 18 months after the Closing). Lockheed Martin is providing L-3 the
services contemplated by the proposed transaction services agreement in the
absence of any executed agreement. The parties also entered into supply
agreements which reflect previously existing inter-company work transfer
agreements or similar support arrangements upon prices and other terms
consistent with previously existing arrangements. Holdings, the Company and
Lockheed Martin have entered into certain subleases of real property and
cross-licenses of intellectual property.
Pursuant to the L-3 Acquisition Agreement the Company also assumed certain
obligations relating to environmental liabilities and benefit plans.
In accordance with Accounting Principles Board Opinion No. 16, the
acquisition of the Businesses by Holdings and L-3 has been accounted for as a
purchase business combination effective as of April 1, 1997. The purchase
cost (including the fees and expenses related thereto) was allocated to the
tangible and intangible assets and liabilities of the Company based upon
their respective fair values. The assets and liabilities recorded in
connection with the purchase price allocation were $664,800 and $164,400,
respectively. The excess of the purchase price over the fair value of net
assets acquired of $303,200 was recorded as goodwill, and is being amortized
on a straight-line basis over a period of 40 years. As a result of the 34.9%
ownership interest retained by Lockheed Martin, the provisions of Emerging
Issues Task Force Issue Number 88-16 were applied in connection with the
purchase price allocation, which resulted in the recognition of a deemed
distribution of $9,000.
In connection with the determination of the fair value of assets acquired
and pursuant to the provisions of Accounting Principles Board Opinion No. 16,
the Company has valued acquired contracts in process at contract price, less
the estimated cost to complete and an allowance for the Company's normal
profit on its effort to complete such contracts.
Had the L-3 Acquisition occurred on January 1, 1996, the unaudited pro
forma sales and net income for the years ended December 31, 1997 and 1996
would have been $703,600 and $16,300, and $663,200 and $9,700, respectively.
The pro forma results, which are based on various assumptions, are not
necessarily indicative of what would have occurred had the acquisition been
consummated on January 1, 1996. The 1997 and 1996 pro forma sales and net
income have been adjusted to (a) include the operations of the Loral Acquired
Businesses from January 1, 1996 (Note 3) and (b) exclude the operations of
the Hycor business net assets held for sale from January 1, 1996 (Note 6).
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS: Cash equivalents consist of highly liquid
investments with a maturity of three months or less at time of purchase.
STATEMENTS OF CASH FLOWS: Changes in operating assets and liabilities are
net of the impact of acquisitions and final purchase price allocations. The
Predecessor Company participated in Lockheed Martin's cash management system,
under which all cash was received and payments were made by Lockheed Martin.
All transactions between the Predecessor Company and Lockheed Martin have
been accounted for as settled in cash at the time the transactions were
recorded by the Predecessor Company.
F-11
<PAGE>
L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued)
(Dollars in thousands)
REVENUE RECOGNITION: Sales on production-type contracts are recorded as
units are shipped; profits applicable to such shipments are recorded pro
rata, based upon estimated total profit at completion of the contract. Sales
and profits on cost reimbursable contracts are recognized as costs are
incurred. Sales and estimated profits under other long-term contracts are
recognized under the percentage of completion method of accounting using the
cost-to-cost method. Amounts representing contract change orders or claims
are included in sales only when they can be reliably estimated and their
realization is probable.
Losses on contracts are recognized when determined. Revisions in profit
estimates are reflected in the period, on a cumulative catch-up basis, in
which the facts, requiring the revision, become known.
CONTRACTS IN PROCESS: Costs accumulated on contracts in process include
direct costs, as well as manufacturing overhead, and for government
contracts, general and administrative costs, independent research and
development costs and bid and proposal costs. In accordance with industry
practice, contracts in process contain amounts relating to contracts and
programs with long performance cycles, a portion of which may not be realized
within one year.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated
at cost. Depreciation is provided primarily on the straight-line method over
the estimated useful lives of the related assets. Leasehold improvements are
amortized over the shorter of the lease term or the estimated useful life of
the improvements.
COST IN EXCESS OF NET ASSETS ACQUIRED: The excess of the cost of the L-3
Acquisition over the fair value of the net assets acquired is being amortized
using a straight-line method over a 40 year period. Accumulated amortization
of the Company amounted to $5,741 at December 31, 1997.
The carrying amount of cost in excess of net assets acquired is evaluated
on a recurring basis. Current and future profitability as well as current and
future undiscounted cash flows, excluding financing costs, of the acquired
businesses are primary indicators of recoverability. For the nine months
ended December 31, 1997, there was no reduction to the carrying amount of the
cost in excess of net assets acquired resulting from these evaluations.
PREDECESSOR COMPANY INTANGIBLES: Intangibles, primarily the excess of the
cost of Businesses over the fair value of the net assets acquired, was
amortized using a straight-line method primarily over a 40-year period. Other
intangibles were amortized over their estimated useful lives which range from
11 to 15 years. Amortization expense of the Businesses was $2,655 for the
three months ended March 31, 1997; $10,115 and $6,086 for the years ended
December 31, 1996 and 1995, respectively. Accumulated amortization was
$26,524 at December 31, 1996.
Intangibles of the Predecessor Company include costs allocated to the
Businesses relating to the Request for Funding Authorization ("RFA"),
consisting of over 20 restructuring projects to reduce operating costs,
initiated by General Electric ("GE") Aerospace in 1990 and to the REC Advance
Agreement ("RAA"), a restructuring plan initiated after Lockheed Martin's
acquisition of GE Aerospace. The RAA was initiated to close two regional
electronic manufacturing centers. Restructure costs are reimbursable from the
U.S. Government if savings can be demonstrated to exceed costs. The total
cost of restructuring under the RFA and the RAA represented approximately 15%
of the estimated savings to the U.S. Government and, therefore, a deferred
asset has been recorded by Lockheed Martin. The deferred asset is being
allocated to all the former GE Aerospace sites, including the Communications
Systems Division, on a basis that includes manufacturing labor, overhead, and
direct material less non-hardware subcontracts. At December 31, 1997 and
1996, approximately $2,313 and $4,400, respectively, of unamortized RFA and
RAA costs are deferred on the Company's and the Predecessor Company's
consolidated (combined) balance sheets in other current assets and other
assets.
The carrying values of the Predecessor Company intangibles were reviewed
if the facts and circumstances indicated potential impairment of their
carrying value. If this review indicated that
F-12
<PAGE>
L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued)
(Dollars in thousands)
intangible assets were not recoverable, as determined based on the
undiscounted cash flows of the entity acquired over the remaining
amortization period, the Businesses carrying values related to the intangible
asset were reduced by the estimated shortfall of cash flows.
INCOME TAXES: The Company provides for income taxes using the liability
method prescribed by the Financial Accounting Standards Board ("FASB")
Statement No. 109, "Accounting for Income Taxes." Under the liability method,
deferred income tax assets and liabilities reflect tax carryforwards and the
net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting and income tax purposes, as
determined under enacted tax laws and rates. The financial effect of changes
in tax laws or rates is accounted for in the period of enactment.
PREDECESSOR COMPANY INCOME TAXES: The Predecessor Company was included in
the consolidated Federal income tax return and certain combined and separate
state and local income tax returns of Lockheed Martin. However, for purposes
of these financial statements, the provision for income taxes has been
allocated to the Predecessor Company based upon reported combined income
before income taxes. Income taxes, current and deferred, are considered to
have been paid or charged to Lockheed Martin and are recorded through the
invested equity account with Lockheed Martin. The principal components of the
deferred taxes are contract accounting methods, property, plant and
equipment, goodwill amortization and timing of accruals.
RESEARCH AND DEVELOPMENT: Research and development costs sponsored by the
Company and the Predecessor Company include research and development, bid and
proposal costs related to government products and services. These costs
generally are allocated among all contracts and programs in progress under
U.S. Government contractual arrangements. Customer-sponsored research and
development costs incurred pursuant to contracts are accounted for as direct
contract costs.
STOCK OPTIONS: In accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations, compensation expense for stock options is recognized in
income based on the excess, if any, of the Company's fair value of the stock
at the grant date of the award or other measurement date over the amount an
employee must pay to acquire the stock. The exercise price for stock options
granted to employees equals or exceeds the fair value of Holdings common
stock at the date of grant, thereby resulting in no recognition of
compensation expense by the Company. The Company has adopted the disclosure
- -only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123").
DERIVATIVE FINANCIAL INSTRUMENTS: In the normal course of financing
operations, the Company enters into interest rate cap and floor transactions
for interest rate protection purposes, and not for speculative or trading
purposes. Cash payments to and from the Company and the counterparties are
recorded as a component of interest expense. The initial cost of these
arrangements are deferred and amortized as interest expense.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. The most significant of these estimates and
assumptions relate to contract estimates of sales and costs, allocations from
Lockheed Martin, recoverability of recorded amounts of fixed assets and cost
in excess of net assets acquired, litigation and environmental obligations.
Actual results could differ from these estimates.
EARNINGS PER SHARE: Earnings per share data is not presented since the
Company and the Predecessor Company are wholly owned subsidiaries.
F-13
<PAGE>
L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued)
(Dollars in thousands)
ACCOUNTING PRONOUNCEMENTS: In June 1997, the FASB issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in full set general purpose financial statements. SFAS No. 131
establishes accounting standards for the way that public business enterprises
report selected information about operating segments and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. In February 1998, the FASB issued
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." SFAS No. 132 revises employers' disclosures about pension and
other postretirement benefits plans. It does not change the measurement or
recognition of those plans. It standardizes the disclosure requirements for
pensions and other postretirement benefits to the extent practicable,
requires additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial analysis, and
eliminates certain disclosures that are no longer as useful as they were when
SFAS No. 87 "Employers' Accounting for Pensions", SFAS No. 88 "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits" and SFAS No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" were issued. SFAS No. 132
suggests combined formats for presentation of pension and other
postretirement benefits disclosures. SFAS No. 130 and SFAS No. 131 and
SFAS No. 132 are required to be adopted by 1998. The Company is currently
evaluating the impact, if any, of SFAS No. 130, SFAS No. 131 and SFAS 132.
Effective January 1, 1996, the Businesses adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets To
Be Disposed Of" ("SFAS 121"). SFAS 121 establishes the accounting standards
for the impairment of long-lived assets, certain intangible assets and cost
in excess of net assets acquired to be held and used for long-lived assets
and certain intangible assets to be disposed of. The impact of adopting SFAS
121 was not material.
Effective in December 1997 the Company adopted the provisions of SFAS No.
129, "Disclosure of Information about Capital Structure" ("SFAS 129").
RECLASSIFICATIONS: Certain reclassifications have been made to conform
prior-year amounts to the current-year presentation.
4. PREDECESSOR COMPANY ACQUISITION
Effective April 1, 1996, Lockheed Martin acquired substantially all the
assets and liabilities of the defense businesses of Loral, including the
Wideband Systems Division and the Products Group which are included in the
Businesses. The acquisition of the Wideband Systems Division and Products
Group businesses (the "Loral Acquired Businesses") has been accounted for as
a purchase by Lockheed Martin Communications Systems -- Camden Division
("Division"). The acquisition has been reflected in the financial statements
based on the purchase price allocated to those acquired businesses by
Lockheed Martin. The assets and liabilities recorded in connection with the
purchase price allocation were $401,000 and $113,200, respectively. As such,
the accompanying condensed combined financial statements for periods prior to
April 1, 1997 reflect the results of operations of the Division and the Loral
Acquired Businesses from the effective date of acquisition including the
effects of an allocated portion of cost in excess of net assets acquired
resulting from the acquisition.
F-14
<PAGE>
L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued)
(Dollars in thousands)
5. CONTRACTS IN PROCESS
Billings and accumulated costs and profits on long-term contracts,
principally with the U.S. Government, comprise the following:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
---------- -----------
DECEMBER 31,
-------------------------
1997 1996
---------- -----------
<S> <C> <C>
Billed contract receivables..................................... $ 39,029 $ 45,212
Unbilled contract receivables .................................. 33,136 84,814
Other billed receivables, principally commercial and affiliates 31,253 41,154
Inventoried costs .............................................. 82,954 72,880
---------- -----------
186,372 244,060
Less, unliquidated progress payments (19,170) (45,987)
---------- -----------
Net contracts in process........................................ $167,202 $198,073
========== ===========
</TABLE>
The U.S. Government has title to or a secured interest in, inventory to
which progress payments are applied. Unbilled contract receivables represent
accumulated costs and profits earned but not yet billed to customers. The
Company believes that substantially all such amounts will be billed and
collected within one year.
The following data has been used in the determination of costs and
expenses:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR COMPANY
-------------- --------------------------------
NINE THREE
MONTHS MONTHS FOR THE YEAR ENDED
ENDED ENDED DECEMBER 31,
DECEMBER 31, MARCH 31, -------------------
1997 1997 1996 1995
-------------- ----------- --------- --------
<S> <C> <C> <C> <C>
Selling, general and administrative ("SG&A") costs
included in inventoried costs ..................... $15,379 $14,536 $14,700 $1,156
Selling, general and administrative costs incurred . 88,527 28,449 82,226 6,525
Independent research and development, including bid
and proposal costs, included in SG&A incurred ..... $28,893 $12,024 $36,500 $9,800
</TABLE>
6. NET ASSETS HELD FOR SALE
The Company has accounted for the allocation of purchase price and the net
assets of its Hycor business in accordance with the FASB's Emerging Issues
Task Force Issue 87-11 "Allocation of Purchase Price to Assets to be Sold"
("EITF 87-11"). Accordingly, the net assets related to the Hycor business as
of April 1, 1997 are included in the accompanying consolidated balance sheet
as "Net assets held for sale". The fair value assigned to such net assets is
based upon management's estimate of the proceeds from the sale of the Hycor
business less the estimated income from operations for such business during
the holding period of April 1, 1997 through January 29, 1998 (the "holding
period"), plus interest expense on debt allocated to such net assets during
the holding period. On January 29, 1998, the Company sold the Hycor business,
excluding land and buildings for $3.5 million in cash subject to adjustment
based on final closing net assets. In accordance with EITF 87-11, loss from
the operations of the Hycor business of $108 and interest expense of $552 on
the debt allocated to the Hycor net assets have been excluded from the
Company's consolidated statements of operations for the nine months ended
December 31, 1997. Management of the Company expects that any gain or loss
realized on the ultimate disposition of the Hycor business will not have a
material impact on the original purchase price allocation.
F-15
<PAGE>
L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued)
(Dollars in thousands)
Also included in net assets held for sale at December 31, 1997 is a
Company property located in Atlanta, Georgia.
7. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
---------- -----------
DECEMBER 31,
-------------------------
1997 1996
---------- -------------
<S> <C> <C>
Land.......................................... $ 6,670 $ 9,200
Buildings and improvements ................... 19,487 27,000
Machinery, equipment, furniture and fixtures 58,978 73,137
Leasehold improvements ....................... 9,899 7,229
---------- ----------
$95,034 $116,566
========== ==========
</TABLE>
Depreciation and amortization expense attributable to property, plant and
equipment was $13,320 for the nine months ended December 31, 1997; $4,529 for
the three months ended March 31, 1997, and $14,924 and $5,492 for the years
ended December 31, 1996 and 1995, respectively.
8. DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
Term loans............................. $172,000
10 3/8 Senior Subordinated Notes
due 2007 ............................. 225,000
----------
$397,000
Less current portion of term loans ... 5,000
----------
Total long-term debt.................. $392,000
==========
</TABLE>
In connection with the L-3 Acquisition, the Company entered into a credit
facility (the "Senior Credit Facilities") with a syndicate of banks and
financial institutions for $275,000 consisting of $175,000 of term loans (the
"Term Loan Facilities") and a $100,000 revolving credit facility (the
"Revolving Credit Facility"). The Senior Credit Facilities bear interest, at
the option of the Company, at a rate related to (i) the higher of federal
funds rate plus 0.50% per annum or the reference rate published by Bank of
America NT&SA or (ii) LIBOR. At December 31, 1997, such interest rates, based
on various maturities, ranged from 7.625% to 8.625%. Interest payments vary
in accordance with the type of borrowing and are made at a minimum every
three months. The Revolving Credit Facility expires in 2003 and is available
for ongoing working capital and letter of credit needs. The Term Loans mature
in installments until the final maturity date in 2006. Approximately $93,428
of the Revolving Credit Facility is available at December 31, 1997 reflecting
letters of credit of $6,572 drawn against the Revolving Credit Facility of
$100,000. In February 1998, the Senior Credit Facilities were amended to,
among other things, increase the Revolving Credit Facility to $200,000, waive
certain excess cash flow prepayments, as defined, otherwise required and
permit the incurrence of up to an additional $150,000 of subordinated debt.
The Company pays a commitment fee of 0.375% per annum on the unused portion
of the Revolving Credit Facility.
In April 1997, the Company issued $225,000 of 10 3/8% senior subordinated
notes (the "1997 Notes") due May 1, 2007 with interest payable semi-annually
on May 1 and November 1 of each year, commencing November 1, 1997. On
November 5, 1997, the Company completed its exchange offer relating to the
1997
F-16
<PAGE>
L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued)
(Dollars in thousands)
Notes and the holders of the 1997 Notes received registered securities. The
1997 Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after May 1, 2002, at various redemption prices plus
accrued and unpaid interest to the applicable redemption date. In addition,
prior to May 1, 2000, the Company may redeem up to 35% of the aggregate
principal amount of 1997 Notes at a redemption price of 109.375% of the
principal amount thereof, plus accrued and unpaid interest to the redemption
date with the net cash proceeds of one or more equity offerings by Holdings
that are contributed to the Company as common equity capital.
The Senior Credit Facilities and the 1997 Notes agreement contain
financial and restrictive covenants that limit, among other things, the
ability of the Company to borrow additional funds, dispose of assets, or pay
cash dividends. At December 31, 1997, none of the Company's retained earnings
were available to pay dividends. The Senior Credit Facilities contain
financial covenants, which remain in effect so long as any amount is owed by
the Company thereunder. These financial covenants require that (i) the
Company's debt ratio, as defined, be less than or equal to 5.50 for the
quarter ended December 31, 1997, and that the maximum allowable debt ratio,
as defined, thereafter be further reduced to less than or equal to 3.1 for
the quarters ending after June 30, 2002, and (ii) the Company's interest
coverage ratio, as defined, be at least 1.85 for the quarter ended December
31, 1997, and thereafter increasing the interest coverage ratio, as defined,
to at least 3.10 for any fiscal quarters ended after June 30, 2002. At
December 31, 1997, the Company was in compliance with these covenants.
In connection with the Senior Credit Facilities, the Company has granted
the lenders a first priority lien on substantially all of the Company's
assets including the stock of L-3 Communications Corporation.
The aggregate principal payments for debt, excluding borrowings under the
Revolving Credit Facility, for the five years ending December 31, 1998
through 2002 are: $5,000, $11,000, $19,000, $25,000 and $33,200,
respectively.
The costs related to the issuance of debt have been deferred and are being
amortized as interest expense over the term of the related debt using a
method that approximates the effective interest method.
9. PREDECESSOR COMPANY'S INTEREST EXPENSE
Interest expense has been allocated to the Predecessor Company by applying
Lockheed Martin's weighted average consolidated interest rate to the portion
of the beginning of the period invested equity account deemed to be financed
by consolidated debt, which has been determined based on Lockheed Martin's
debt to equity ratio on such date, except that the acquisition of the Loral
Acquired Businesses has been assumed to be fully financed by debt. Management
of the Businesses believes that this allocation methodology is reasonable.
Interest expense of the Predecessor Company was calculated using the
following balances and interest rates:
<TABLE>
<CAPTION>
THREE MONTHS YEARS ENDED DECEMBER 31,
ENDED ------------------------
MARCH 31, 1997 1996 1995
-------------- ---------- --------
<S> <C> <C> <C>
Invested Equity .... $473,609 $482,466 $199,506
Interest Rate ..... 7.10% 7.20% 7.40%
</TABLE>
10. FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, billed contract receivables, other billed receivables
(principally commercial and affiliates), trade accounts payable, customer
advances, debt instruments, and interest rate cap and interest rate floor
contracts. The book values of cash and cash equivalents, billed contract
receivables, other billed receivables (principally
F-17
<PAGE>
L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued)
(Dollars in thousands)
commercial and affiliates), trade accounts payable and customer advances are
considered to be representative of their respective fair values at December
31, 1997 due to the short-term maturities or expected settlement dates of
these instruments.
The Company's debt instruments consist of term loans and 1997 Notes (Note
8). The carrying values of the term loans approximate fair value because they
are variable-rate loans which bear interest at current market rates.
The 1997 Notes are registered, unlisted public debt which is traded in the
over-the-counter market. The fair value of such debt at December 31, 1997 was
estimated to be approximately $243,000, based on trading activity on December
31, 1997.
To mitigate risks associated with changing interest rates on certain of
its debt, the Company entered into the interest rate agreements. The fair
values of the interest rate caps and interest rate floors (collectively, the
"interest rate agreements") were estimated by discounting expected cash flows
using quoted market interest rates. The Company manages exposure to
counterparty credit risk by entering into the interest rate agreements only
with major financial institutions that are expected to fully perform under
the terms of such agreements. The notional amounts are used to measure the
volume of these agreements and do not represent exposure to credit loss. The
impact of the interest rate agreements was not material to interest expense
for the nine months ended December 31, 1997. Information with respect to the
interest rate agreements is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------
NOTIONAL UNREALIZED
AMOUNT GAINS (LOSSES)
---------- --------------
<S> <C> <C>
Interest rate caps ...... $100,000 $(1,008)
---------- --------------
Interest rate floors...... $ 50,000 $ (263)
---------- --------------
</TABLE>
At December 31, 1996, the Predecessor Company's financial instruments
consisted primarily of billed contract receivables, other billed receivables
(principally commercial and affiliates), trade accounts payable and customer
advances. The book value of billed contract receivables, other billed
receivables (principally commercial and affiliates), trade accounts payable
and customer advances approximated their respective fair values at December
31, 1996, due to the short-term maturities or expected settlement dates of
those instruments.
11. INCOME TAXES
THE COMPANY
Pretax income of the Company for the nine months ended December 31, 1997
was $27,402 and was primarily domestic. The components of the Company's
provision for income taxes for the nine months ended December 31, 1997 are:
<TABLE>
<CAPTION>
<S> <C>
Income taxes currently payable, primarily federal ...... $ 696
Deferred income taxes:
Federal ............................................... 8,635
State and local ....................................... 1,356
--------
Subtotal .............................................. $ 9,991
--------
Total provision for income taxes ....................... $10,687
========
</TABLE>
F-18
<PAGE>
L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued)
(Dollars in thousands)
The effective income tax rate of the Company for the nine months ended
December 31, 1997 differs from the statutory federal income tax rate for the
following reasons:
<TABLE>
<CAPTION>
<S> <C>
Statutory federal income tax rate ................................ 35.0%
State and local income taxes, net of federal income tax benefit . 3.2
Non-deductible goodwill amortization and other expenses ......... 3.7
Research and development and other tax credits ................... (2.9)
-------
Effective income tax rate ........................................ 39.0%
=======
</TABLE>
The significant components of the Company's net deferred tax assets at
December 31, 1997 are:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Other postretirement benefits ....................... $ 8,649
Inventoried costs ................................... 8,711
Compensation and benefits ........................... 528
Pension costs ....................................... 4,177
Property, plant and equipment ....................... 8,098
Income recognition on long-term contracts .......... 3,691
Other ............................................... 1,861
Net operating loss and other credit carryforwards .. 2,969
---------
Total deferred tax assets........................... 38,684
Deferred tax liabilities:
Cost in excess of net assets acquired ............... (1,099)
Other, net .......................................... (70)
---------
Total deferred tax liabilities...................... (1,169)
---------
Net deferred tax assets............................... $37,515
=========
The net deferred tax assets are classified as follows:
Current deferred tax assets ......................... $13,298
Long-term deferred tax assets........................ 24,217
---------
$37,515
=========
</TABLE>
At December 31, 1997, the Company had $2,969 of tax credit carryforwards,
primarily related to U.S. federal net operating losses and research and
experimentation tax credits which expire, if unused, in 2012. The Company
believes that these carryforwards will be available to reduce future income
tax liabilities and has recorded these carryforwards as non-current deferred
tax assets.
PREDECESSOR COMPANY
The (benefit) provision for income taxes for the Predecessor Company was
calculated by applying statutory tax rates to the reported income (loss)
before income taxes after considering items that do not enter into the
determination of taxable income and tax credits reflected in the consolidated
provision of Lockheed Martin, which are related to the Businesses.
Substantially all the income of the Businesses are from domestic operations.
For the three months ended March 31, 1997, it is estimated that the benefit
for deferred taxes represents $1,315. For the years ended December 31, 1996
and 1995, it is estimated that the (benefit) provision for deferred taxes
represents ($2,143) and $3,994, respectively.
F-19
<PAGE>
L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued)
(Dollars in thousands)
The effective income tax rate of the Predecessor Company differs from the
statutory Federal income tax rate for the following reasons:
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS YEARS ENDED
ENDED DECEMBER 31,
MARCH 31, ----------------
1997 1996 1995
-------------- ------- -------
<S> <C> <C> <C>
Statutory federal income tax rate ..................... (35.0)% 35.0% 34.0%
Amortization of cost in excess of net assets acquired (8.1) 2 529
Research and development and other tax credits ....... (11.3) (2) --
State and local income taxes, net of federal income
tax benefit and state and local income tax credits .. 4.8 6 101
Foreign sales corporation tax benefits ................ (8.4) (1) --
Other, net ............................................ 9.1 -- 17.0
--------- ------- -------
Effective income tax rate ............................. (48.9)% 40.0% 681%
========= ======= =======
</TABLE>
12. STOCK OPTIONS
THE COMPANY
Holdings sponsors an option plan for key employees, pursuant to which
options to purchase up to 3,255,815 shares of common stock have been
authorized for grant.
On April 30, 1997, Holdings adopted the 1997 Option Plan for key employees
and granted to the Equity Executives nonqualified options to purchase, at
$6.47 per share, 2,285,714 shares of Class A common stock of Holdings. In
each case, half of the options are "Time Options" and half are "Performance
Options" (collectively, the "Options"). The Time Options become exercisable
with respect to 20% of the shares subject to the Time Options on each of the
first five anniversaries if employment continues through and including such
date. The Performance Options become exercisable nine years after the grant
date, but may become exercisable earlier with respect to up to 20% of the
shares subject to the Performance Options on each of the first five
anniversaries, to the extent certain defined targets are achieved. The
Options, which have a ten year term, become fully exercisable under certain
circumstances, including a change in control.
On July 1, 1997 and November 11, 1997, Holdings granted nonqualified
options to certain officers and other employees of the Company to purchase at
$6.47 per share 689,500 shares of Class A common stock of Holdings
(collectively, the "1997 Options"). Generally, the 1997 Options vest over a
three-year vesting period and expire ten years from the date of grant.
The exercise price for Holdings' stock options granted to employees in
1997 equaled the estimated fair value of Holdings' common stock at the date
of grant. Accordingly, in accordance with APB 25, no compensation expense was
recognized by the Company.
Pro forma information regarding net earnings as required by SFAS 123 has
been determined as if the Company had accounted for its employee stock
options under the fair value method. Because Holdings is a nonpublic entity
the fair value for the options was estimated at the date of grant using the
minimum value method prescribed in SFAS 123, which does not consider the
expected volatility of Holdings' stock price, with the following
weighted-average assumptions for 1997: risk-free interest rate of 6.3%;
dividend yield of 0%; and weighted-average expected option life of 5.49
years.
F-20
<PAGE>
L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued)
(Dollars in thousands)
For purposes of pro forma disclosures, the compensation cost of the
options based on their estimated fair values is amortized to expense over
vesting periods of the options. The Company's net income for the nine months
ended December 31, 1997 would have decreased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
<S> <C>
Net income:
As reported ............................ $16,715
=========
Pro forma ............................... $16,161
=========
</TABLE>
A summary of the stock option activity for the nine months ended December
31, 1997 is as follows:
<TABLE>
<CAPTION>
SHARES WEIGHTED AVERAGE
(000'S) EXERCISE PRICE
-------- ----------------
<S> <C> <C>
Options granted ........................ 2,975 $6.47
Options exercised ...................... -- --
Options cancelled ...................... 4 $6.47
Options outstanding, December 31, 1997 . 2,971 $6.47
Options exercisable, December 31, 1997 . -- --
</TABLE>
The weighted-average grant-date fair value of options granted during the
nine months ended December 31, 1997 was $1.82 per option. The weighted
average remaining contract life of the Company's outstanding stock options
was 9.37 years at December 31, 1997.
PREDECESSOR COMPANY
During the three months ended March 31, 1997 and the years ended December
31, 1996 and 1995, certain employees of the Predecessor Company participated
in Lockheed Martin's stock option plans. All stock options granted had 10
year terms and vested over a two year service period. Exercise prices of
options awarded in both years were equal to the market price of the stock on
the date of grant. Pro forma information regarding net earnings (loss) as
required by SFAS No. 123 has been determined as if the Predecessor Company
had accounted for its employee stock options under the fair value method. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for the three months ended March 31, 1997 and the years ended
December 31, 1996 and 1995, respectively: risk-free interest rates of 5.58%,
5.58% and 6.64%; dividend yield of 1.70%; volatility factors related to the
expected market price of the Lockheed Martin's common stock of .186, .186 and
.216; weighted-average expected option life of five years. The
weighted-average fair values of options granted during 1997, 1996 and 1995
were $17.24, $17.24 and $16.09, respectively.
For the purposes of pro forma disclosures, the options' estimated fair
values are amortized to expense over the options' vesting periods. The
Predecessor Company's pro forma net loss for the three months ended March 31,
1997 and the years ended December 31, 1996 and 1995 were ($386), $11,531, and
$(1,040), respectively.
F-21
<PAGE>
L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued)
(Dollars in thousands)
13. COMMITMENTS AND CONTINGENCIES
THE COMPANY
The Company and Predecessor Company leases certain facilities and
equipment under agreements expiring at various dates through 2011. At
December 31, 1997, the Company's future minimum payments for noncancellable
operating leases with initial or remaining terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
OPERATING LEASES
------------------------------------
REAL ESTATE EQUIPMENT TOTAL
------------- ----------- --------
<S> <C> <C> <C>
1998.......... $ 8,599 $295 $ 8,894
1999 ......... 7,734 244 7,978
2000 ......... 10,030 232 10,262
2001 ......... 8,926 29 8,955
2002 ......... 2,795 22 2,817
Thereafter .. 14,393 -- 14,393
--------- ------- --------
$52,477 $822 $53,299
========= ======= ========
</TABLE>
Real estate lease commitments have been reduced by minimum sublease
rentals of $22,106 due in the future under noncancellable subleases.
Leases covering major items of real estate and equipment contain renewal
and or purchase options which may be exercised by the Company and Predecessor
Company. Rent expense, net of sublease income from other Lockheed Martin
entities, was $7,330 for the Company for the nine months ended December 31,
1997; $2,553 for the Predecessor Company for the three months ended March 31,
1997 and $8,495 and $4,772 for the Predecessor Company for the years ended
December 31, 1996 and 1995, respectively.
The Company is and the Predecessor Company has been engaged in providing
products and services under contracts with the U.S. Government and to a
lesser degree, under foreign government contracts, some of which are funded
by the U.S. Government. All such contracts are subject to extensive legal and
regulatory requirements, and, from time to time, agencies of the U.S.
Government investigate whether such contracts were and are being conducted in
accordance with these requirements. Under government procurement regulations,
an indictment of the Company and the Predecessor Company by a federal grand
jury could result in the Company and the Predecessor Company being suspended
for a period of time from eligibility for awards of new government contracts.
A conviction could result in debarment from contracting with the federal
government for a specified term.
The decline in the U.S. defense budget since the mid-1980s has resulted in
program delays, cancellations and scope reduction for defense contracts in
general. These events may or may not have an effect on the Company's
programs; however, in the event that U.S. Government expenditures for
products of the type manufactured by the Company are reduced, and not offset
by greater commercial sales or other new programs or products, or
acquisitions, there may be a reduction in the volume of contracts or
subcontracts awarded to the Company.
Pursuant to the L-3 Acquisition Agreement, Holdings and the Company have
agreed to assume certain on-site and off-site environmental liabilities
related to events or activities occurring prior to the consummation of the
L-3 Acquisition. Lockheed Martin has agreed to retain all environmental
liabilities for all facilities not used by the Businesses as of April, 1997
and to indemnify fully Holdings for such prior site environmental
liabilities. Lockheed Martin has also agreed, for the first eight years
following April 1997 to pay 50% of all costs incurred by Holdings above those
reserved for on the Company's balance sheet at March 31, 1997 relating to
certain Company-assumed environmental liabilities and, for the seven
F-22
<PAGE>
L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued)
(Dollars in thousands)
years thereafter, to pay 40% of certain reasonable operation and maintenance
costs relating to any environmental remediation projects undertaken in the
first eight years. The Company believes that its total liability for known or
reasonably probable environmental claims, even without consideration of the
Lockheed Martin indemnification, would not either individually or
collectively have a material adverse effect upon the Company's financial
condition or upon the results of its operations.
Management continually assesses the Company's obligations with respect to
applicable environmental protection laws. While it is difficult to determine
the timing and ultimate cost to be incurred by the Company in order to comply
with these laws, based upon available internal and external assessments, with
respect to those environmental loss contingencies of which management is
aware, the Company believes that even without considering potential insurance
recoveries, if any, there are no environmental loss contingencies that,
individually or in the aggregate, would be material to the Company's results
of operations. The Company accrues for these contingencies when it is
probable that a liability has been incurred and the amount of the loss can be
reasonably estimated.
The Company and the Predecessor Company have been periodically subject to
litigation, claims or assessments and various contingent liabilities
(including environmental matters) incidental to its business. With respect to
those investigative actions, items of litigation, claims or assessments of
which they are aware, management of the Company is of the opinion that the
probability is remote that, after taking into account certain provisions that
have been made with respect to these matters, the ultimate resolution of any
such investigative actions, items of litigation, claims or assessments will
have a material adverse effect on the financial position or results of
operations of the Company and the Predecessor Company.
14. PENSIONS AND OTHER EMPLOYEE BENEFITS
THE COMPANY
PENSIONS: Holdings and the Company maintain a number of pension plans,
both contributory and noncontributory, covering certain employees.
Eligibility for participation in these plans varies and benefits are
generally based on members' compensation and years of service. The Company's
funding policy is generally to contribute in accordance with cost accounting
standards that affect government contractors, subject to the Internal Revenue
Code and regulations thereon. Plan assets are invested primarily in U.S.
government and agency obligations and listed stocks and bonds.
Pension expense for the nine months ended December 31, 1997 includes the
following components:
<TABLE>
<CAPTION>
<S> <C>
Service cost ................. $ 5,109
Interest cost ................ 8,883
Actual return on plan assets (11,285)
Net deferral ................. 1,581
----------
Total pension cost ........... $ 4,288
==========
</TABLE>
F-23
<PAGE>
L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued)
(Dollars in thousands)
The following presents the funded status and amounts recognized in the
balance sheet for the Company's pension plans:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS
--------------- ---------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits ................................................ $13,742 $152,133
--------- ---------
Accumulated benefits ........................................... $13,825 $155,474
Effect of projected future salary increases .................... 3,337 25,795
--------- ----------
Projected benefits.............................................. $17,162 $181,269
========= ==========
Plan assets at fair value........................................ $18,172 $155,278
--------- ----------
Plan assets in excess of (less than) projected benefit
obligation...................................................... 1,010 (25,991)
Unrecognized net (gain) loss .................................... (559) 5,683
--------- ----------
Prepaid (accrued) pension cost................................... $ 451 $(20,308)
========= ==========
</TABLE>
The following assumptions were used in accounting for pension plans for
the Company:
<TABLE>
<CAPTION>
APRIL 1, 1997 DECEMBER 31, 1997
--------------- -----------------
<S> <C> <C>
Discount rate .................... 7.50% 7.25%
Rate of increase in compensation 5.00% 5.00%
Rate of return on plan assets ... 9.00% 9.00%
</TABLE>
In connection with the Company's assumption of certain plan obligations
pursuant to the L-3 Acquisition, Lockheed Martin has provided the PBGC with
commitments to assume sponsorship or other forms of financial support under
certain circumstances. In this connection, the Company has provided certain
assurances to Lockheed Martin including, but not limited to, (i) continuing
to fund the pension plans consistent with prior practices and to the extent
deductible for tax purposes and, where appropriate, recoverable under
Government contracts, (ii) agreeing to not increase benefits under the
pension plans without the consent of Lockheed Martin, (iii) restricting the
Company from a sale of any businesses employing individuals covered by the
pension plans if such sale would not result in reduction or elimination of
the Lockheed Martin Commitment with regard to the specific plan and (iv) if
the pension plans were returned to Lockheed Martin, granting Lockheed Martin
the right to seek recovery from the Company of those amounts actually paid,
if any, by Lockheed Martin with regard to the pension plans after their
return.
POST-RETIREMENT HEALTH CARE AND LIFE INSURANCE: In addition to providing
pension benefits, the Company provides certain health care and life insurance
benefits for retired employees and dependents at certain locations.
Participants are eligible for these benefits when they retire from active
service and meet the eligibility requirements for the Company's pension
plans. These benefits are funded primarily on a pay-as-you-go basis with the
retiree generally paying a portion of the cost through contributions,
deductibles and coinsurance provisions.
F-24
<PAGE>
L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued)
(Dollars in thousands)
Post-retirement health care and life insurance costs for the nine months
ended December 31, 1997 include the following components:
<TABLE>
<CAPTION>
<S> <C>
Service cost .............................................. $ 466
Interest cost ............................................. 840
-------
Total post-retirement health care and life insurance costs $1,306
=======
</TABLE>
The following table presents the amounts recognized in the balance sheet
for the Company at December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Accumulated post-retirement benefit obligation:
Retirees.................................................... $ 4,702
Fully eligible plan participants ........................... 3,188
Other active plan participants ............................. 10,990
---------
Total accumulated post-retirement benefit obligation ........ $18,880
Unrecognized net loss ....................................... 624
---------
Accrued post-retirement health care and life insurance costs $18,256
=========
</TABLE>
Actuarial assumptions used in determining the December 31, 1997
accumulated post-retirement benefit obligation include a discount rate of
7.25%, an average rate of compensation increase of 5.0% and an assumed health
care cost trend rate of 6.5% in 1997 decreasing gradually to a rate of 4.5%
by the year 2001. The discount rate used at April 1, 1997 was 7.50%. The
other assumptions did not change from April 1, 1997. Increasing the assumed
health care cost trend rate by 1% would change the accumulated
post-retirement benefits obligation at December 31, 1997 by approximately
$2,218 and the aggregate service and interest cost components for the nine
months ended December 31, 1997 by approximately $81 and $113, respectively.
EMPLOYEE SAVINGS PLAN: Under its various employee savings plans, the
Company matches the contributions of participating employees up to a
designated level. The extent of the match, vesting terms and the form of the
matching contribution vary among the plans. Under these plans, the Company's
matching contributions, in cash, for the nine months ended December 31, 1997
was $3,742.
THE PREDECESSOR COMPANY
Certain of the Businesses for the Predecessor Company participated in
various Lockheed Martin-sponsored pension plans covering certain employees.
Eligibility for participation in these plans varies, and benefits are
generally based on members' compensation and years of service. Lockheed
Martin's funding policy was generally to contribute in accordance with cost
accounting standards that affect government contractors, subject to the
Internal Revenue Code and regulations. Since the aforementioned pension
arrangements are part of certain Lockheed Martin defined benefit plans, no
separate actuarial data is available for the portion allocable to the
Businesses. Therefore, no liabilities or assets are reflected in the
accompanying combined financial statements of the Predecessor Company as of
December 31, 1996. The Businesses have been allocated pension costs based
upon participant employee headcount. Net pension expense included in the
accompanying combined financial statements of the Predecessor Company was
$1,848 for the three months ended March 31, 1997, and $7,027 and $4,134, for
the years ended December 31, 1996 and 1995, respectively.
In addition to participating in Lockheed Martin-sponsored pension plans,
certain of the Businesses of the Predecessor Company provided varying levels
of health care and life insurance benefits for retired
F-25
<PAGE>
L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued)
(Dollars in thousands)
employees and dependents. Participants were eligible for these benefits when
they retired from active service and met the pension plan eligibility
requirements. These benefits are funded primarily on a pay-as-you-go basis
with the retiree generally paying a portion of the cost through
contributions, deductibles and coinsurance provisions. Since the
aforementioned postretirement benefits are part of certain Lockheed Martin
postretirement arrangements, no separate actuarial data is available for the
portion allocable to the Businesses. Accordingly, no liability is reflected
in the accompanying combined financial statements as of combined December 31,
1996 and 1995. The Businesses have been allocated postretirement benefits
cost based on participant employee headcount. Postretirement benefit costs
included in the accompanying combined financial statements was $616 for the
three months ended March 31, 1997 and $2,787 and $2,124 for the years ended
December 31, 1996 and 1995, respectively. Under various employee savings
plans sponsored by Lockheed Martin, the Predecessor Company matched
contributions of participating employees up to a designated level. Under
these plans the matching contributions for the three months ended March 31,
1997 and for the years ended December 31, 1996 and 1995 were $1,241, $3,940
and $1,478, respectively.
15. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures to the consolidated statement of cash flows are
as follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR COMPANY
----------------- ------------------------------
YEAR ENDED
NINE MONTHS THREE MONTHS DECEMBER 31,
ENDED ENDED --------------
DECEMBER 31, 1997 MARCH 31, 1997 1996 1995
<S> <C> <C> <C> <C>
----------------- -------------- ------ ------
Interest paid ..... $21,245 -- -- --
================= ============== ====== ======
Income taxes paid $ 109 -- -- --
================= ============== ====== ======
</TABLE>
The Company issued $45,000 of Holdings Class A Common Stock to Lockheed
Martin in a non-cash transaction as partial consideration paid to Lockheed
Martin for the L-3 Acquisition.
16. SALES TO PRINCIPAL CUSTOMERS
The Company and the Predecessor Company operate primarily in one industry
segment, government electronic systems. Sales to principal customers are as
follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR COMPANY
-------------- -------------------------------------------
THREE
NINE MONTHS YEAR YEAR
MONTHS ENDED ENDED ENDED ENDED
DECEMBER 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1997 1997 1996 1995
-------------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
U.S. Government Agencies ... $434,020 $128,505 $425,033 $161,617
Foreign (principally foreign
governments) ............... 12,090 13,612 33,475 4,945
Other (principally U.S.
commercial) ................ 100,415 16,756 84,573 219
-------------- ----------- -------------- --------------
$546,525 $158,873 $543,081 $166,781
============== =========== ============== ==============
</TABLE>
17. OTHER TRANSACTIONS WITH LOCKHEED MARTIN
The Company and the Predecessor Company sell products to Lockheed Martin
and its affiliates, net sales for which were $60,402 for the nine months
ended December 31, 1997; $21,171 for the three months
F-26
<PAGE>
L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued)
(Dollars in thousands)
ended March 31, 1997 and $70,658 and $25,874 for the years ended December
31, 1996 and 1995, respectively. Included in Contracts in Process are
receivables from Lockheed Martin and its affiliates of $8,846 and $10,924 at
December 31, 1997 and 1996, respectively.
Lockheed Martin provides the Company information systems and other
services and previously provided similar services to the Predecessor Company
for which the Company and the Predecessor Company was charged certain amounts
for the nine months ended December 31, 1997, the three months ended
March 31, 1997 and the years ended December 31, 1996 and 1995.
The Predecessor Company relied on Lockheed Martin for certain services,
including treasury, cash management, employee benefits, taxes, risk
management, internal audit, financial reporting, contract administration and
general corporate services. Although certain assets, liabilities and expenses
related to these services have been allocated to the Businesses, the combined
financial position, results of operations and cash flows presented in the
accompanying combined financial statements would not be the same had the
Businesses been independent entities.
The amount of allocated corporate expenses to the Predecessor Company and
reflected in these combined financial statements was estimated based
primarily on an allocation methodology prescribed by government regulations
pertaining to government contractors. Allocated costs to the Businesses were
$5,208 for the three months ended March 31, 1997, and $10,057 and $2,964 for
the years ended December 31, 1996 and 1995, respectively.
18. SUBSEQUENT EVENTS
In February 1998, the Company purchased substantially all the assets and
liabilities of the Satellite Transmission Systems division of California
Microwave, Inc. The purchase price of $27,000 is subject to adjustment based
on closing net assets. The Company used cash on hand to fund the purchase
price.
On December 22, 1997, the Company signed a definitive agreement to
purchase substantially all the assets and liabilities of the Ocean Systems
division of AlliedSignal Inc. The purchase price of $67,500, subject to
adjustment based on closing net working capital, will be financed through
cash on hand and/or borrowings available under the Senior Credit Facilities.
In February 1998, the Company entered into a definitive agreement to
purchase the assets of ILEX Systems ("ILEX") for $51,900 in cash and
additional consideration based on post-acquisition performance of ILEX.
The acquisition of ILEX and Ocean Systems are expected to close during the
first quarter of 1998. The Company plans to finance the purchase prices using
its cash on hand and available borrowings under its revolving credit
facility.
In February 1998, the Company filed a registration statement with the
Securities and Exchange Commission ("SEC") for the sale of $150,000 aggregate
principal amount of Senior Subordinated Notes due 2008 (the "Notes
Offering"), and concurrently with the Notes Offering, Holdings filed a
registration statement with the SEC for the sale of common stock for a
proposed maximum aggregate offering of $100,000.
F-27
<PAGE>
LORAL ACQUIRED BUSINESSES
COMBINED FINANCIAL STATEMENTS
For the three months ended March 31, 1996 and the year ended December 31, 1995
F-28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors of
L-3 Communications Corporation:
We have audited the accompanying combined statements of operations and
cash flows for the Loral Acquired Businesses as defined in Note 1 (the
"Businesses") for the three months ended March 31, 1996 and the year ended
December 31, 1995. These financial statements are the responsibility of the
Businesses' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined results of the operations and cash
flows of the Businesses for the three months ended March 31, 1996 and the
year ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York 10019
March 20, 1997
F-29
<PAGE>
LORAL ACQUIRED BUSINESSES
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1996 DECEMBER 31, 1995
--------------- -----------------
<S> <C> <C>
Sales ...................... $132,200 $448,165
Cost and expenses .......... 124,426 424,899
--------------- --------------
Operating income ........... 7,774 23,266
Allocated interest expense 4,365 20,799
--------------- --------------
Income before income taxes 3,409 2,467
Income taxes ............... 1,292 854
--------------- -------------
Net income.................. $ 2,117 $ 1,613
=============== ==============
</TABLE>
See notes to combined financial statements.
F-30
<PAGE>
LORAL ACQUIRED BUSINESSES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income ................................... $ 2,117 $ 1,613
Depreciation and amortization ................ 5,011 20,625
Changes in operating assets and liabilities
Contracts in process ........................ (11,382) 7,327
Other current assets ........................ (3,436) 890
Other assets ................................ 2,437 6,736
Accounts payable and accrued liabilities ... 4,525 (4,533)
Other current liabilities ................... 3,348 4,428
Other liabilities ........................... (452) 117
-------------- -----------------
Net cash from operating activities ........... 2,168 37,203
-------------- -----------------
INVESTING ACTIVITIES:
Acquisition of business ...................... -- (214,927)
Capital expenditures ......................... (3,962) (12,683)
Disposition of property, plant and equipment 187 4,342
-------------- -----------------
(3,775) (223,268)
-------------- -----------------
FINANCING ACTIVITIES:
Advances from (repayments to) Loral ......... $ 1,607 $ 186,065
-------------- -----------------
Net change in cash............................ -- --
============== =================
</TABLE>
See notes to combined financial statements.
F-31
<PAGE>
LORAL ACQUIRED BUSINESSES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
1. BACKGROUND AND DESCRIPTION OF BUSINESS
On January 31, 1997, Lockheed Martin Corporation ("Lockheed Martin"),
Lehman Brothers Holdings Inc. ("Lehman"), Frank C. Lanza ("Lanza") and Robert
V. LaPenta ("LaPenta") entered into a Memorandum of Understanding ("MOU")
regarding the transfer of certain businesses of Lockheed Martin to a newly
formed corporation ("Newco") to be owned by Lockheed Martin, Lehman, Lanza
and LaPenta. The businesses proposed to be transferred (the "Loral Acquired
Businesses" or "Businesses") include Lockheed Martin's Wideband Systems
Division and the Products Group, comprised of ten autonomous operations, all
of which were acquired by Lockheed Martin effective April 1, 1996 as part of
the acquisition by Lockheed Martin of the defense electronics business of
Loral Corporation ("Loral"). Also included in the transaction is the
acquisition of a semiconductor product line of another business and certain
leasehold improvements in New York City.
The Businesses are leading suppliers of sophisticated secure communication
systems, microwave communication components, avionic and instrumentation
products and other products and services to major aerospace and defense
contractors as well as the U.S. Government. The Businesses operate primarily
in one industry segment, communication systems and products.
Substantially all the Businesses' products are sold to agencies of the
United States Government, primarily the Department of Defense, to foreign
government agencies or to prime contractors or subcontractors thereof. All
domestic government contracts and subcontracts of the Businesses are subject
to audit, various cost controls and include standard provisions for
termination for the convenience of the government. Multi-year government
contracts and related orders are subject to cancellation if funds for
contract performance for any subsequent year become unavailable. Foreign
government contracts generally include comparable provisions relating to
termination for the convenience of the government.
The decline in the U.S. defense budget since the mid 1980s has resulted in
program delays, cancellations and scope reductions for defense contractors in
general. These events may or may not have an effect on the Businesses'
programs; however, in the event that expenditures for products of the type
manufactured by the Businesses are reduced, and not offset by greater foreign
sales or other new programs or products, or acquisitions, there may be a
reduction in the volume of contracts or subcontracts awarded to the
Businesses.
The Businesses' operations, as presented herein, include allocations and
estimates of certain expenses of Loral based upon estimates of services
performed by Loral that management of the Businesses believe are reasonable.
Such services include treasury, cash management, employee benefits, taxes,
risk management, internal audit and general corporate services. Accordingly,
the results of operations and cash flows as presented herein may not be the
same as would have occurred had the Businesses been independent entities.
2. BASIS OF PRESENTATION
BASIS OF COMBINATION
The accompanying combined financial statements reflect the Businesses'
assets, liabilities and operations included in Loral Corporation's historical
financial statements that will be transferred to Newco. All significant
intercompany transactions and amounts have been eliminated. The combined
financial statements do not include the operations of telecommunications
switch product line which will not be transferred and was exited in 1995.
Also, the assets and operations of the semiconductor product line and certain
other facilities which are not material to the Businesses have been excluded
from the financial statements.
F-32
<PAGE>
LORAL ACQUIRED BUSINESSES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
ALLOCATION OF CORPORATE EXPENSES
The amount of corporate office expenses reflected in these financial
statements has been estimated based primarily on the allocation methodology
prescribed by government regulations pertaining to government contractors,
which management of the Businesses believes to be a reasonable allocation
method.
INCOME TAXES
The Businesses were included in the consolidated Federal income tax return
and certain combined and separate state and local income tax returns of
Loral. However, for the purposes of these financial statements, the provision
for income taxes was allocated based upon reported income before income
taxes. Such provision was recorded through the advances from (repayments to)
Loral account.
INTEREST EXPENSE
Interest expense has been allocated to the Businesses by applying Loral's
weighted average consolidated interest rate to the portion of the beginning
of the period invested equity account deemed to be financed by consolidated
debt, which amount has been determined based on Loral's debt to equity ratio
on such date, except that the acquisition of Wideband Systems has been
assumed to be fully financed by debt.
STATEMENTS OF CASH FLOWS
The Businesses participated in Loral's cash management system, under which
all cash was received and payments made by Loral. All transactions between
the Businesses and Loral have been accounted for as settled in cash on the
date such transactions were recorded by the Businesses.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONTRACTS IN PROCESS
Sales on long-term production-type contracts are recorded as units are
shipped; profits applicable to such shipments are recorded pro rata, based
upon estimated total profit at completion of the contract. Sales and profits
on cost reimbursable contracts are recognized as costs are incurred. Sales
and estimated profits under other long-term contracts are recognized under
the percentage of completion method of accounting using the cost-to-cost
method. Amounts representing contract change orders or claims are included in
sales only when they can be reliably estimated and realization is probable.
Incentive fees and award fees enter into the determination of contract
profits when they can be reliably estimated.
Costs accumulated under long-term contracts include direct costs as well
as manufacturing, overhead, and for government contracts, general and
administrative, independent research and development and bid and proposal
costs. Losses on contracts are recognized when determined. Revisions in
profit estimates are reflected in the period in which the facts which require
the revision become known.
DEPRECIATION AND AMORTIZATION
Depreciation is provided primarily on the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements are
amortized over the shorter of the lease term or the estimated useful life of
the improvements. The excess of the cost of purchased businesses over the
fair value of the net assets acquired is being amortized using a
straight-line method generally over a 40-year period.
F-33
<PAGE>
LORAL ACQUIRED BUSINESSES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
The carrying amount of cost in excess of net assets acquired is evaluated
on a recurring basis. Current and future profitability as well as current and
future undiscounted cash flows, excluding financing costs, of the underlying
businesses are primary indicators of recoverability. There were no
adjustments to the carrying amount of cost in excess of net assets acquired
resulting from these evaluations during the periods presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Businesses' management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. The most significant of these estimates and
assumptions relate to contract estimates of sales and costs, cost allocations
from Loral, including interest and income taxes, recoverability of recorded
amounts of fixed assets and cost in excess of net assets acquired, litigation
and environmental obligations. Actual results could differ from these
estimates.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, the Businesses adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 establishes the accounting
standards for the impairment of long-lived assets, certain intangible assets
and cost in excess of net assets and certain intangible assets to be disposed
of. The impact of adopting SFAS 121 was not material.
Effective January 1, 1994, the Businesses adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"). SFAS 112 requires that the costs of benefits provided
to employees after employment but before retirement be recognized on an
accrual basis. The adoption of SFAS 112 did not have a material impact on the
results of operations of the Businesses.
4. ACQUISITIONS
Effective May 1, 1995, Loral acquired substantially all the assets and
liabilities of the Defense Systems operations of Unisys Corporation, which
included the Wideband Systems Division. The acquisition has been accounted
for as a purchase. As such, the accompanying combined financial statements
reflect the results of operations of the Wideband Systems Division from the
effective date of acquisition, including the amortization of an allocated
portion of cost in excess of net assets acquired resulting from the
acquisition. Such allocation was based on the sales and profitability of the
Wideband Systems Divisions relative to the aggregate sales and profitability
of the defense systems operations acquired by Loral. The assets and
liabilities recorded in connection with the purchase price allocation were
$240,525 and $25,598, respectively.
Had the acquisition of the Wideband Systems Division occurred on January
1, 1995, the unaudited pro forma sales and net income for the year ended
December 31, 1995 would have been $524,355 and $504,780, respectively. The
results, which are based on various assumptions, are not necessarily
indicative of what would have occurred had the acquisition been consummated
as of January 1, 1995.
F-34
<PAGE>
LORAL ACQUIRED BUSINESSES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
5. OPERATING EXPENSES
The following expenses have been included in the statements of operations:
<TABLE>
<CAPTION>
THREE YEAR
MONTHS ENDED ENDED
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
<S> <C> <C>
General and administrative expenses ...................... $23,558 $90,757
Independent research and development, and bid and
proposal costs .......................................... $ 5,587 $21,370
</TABLE>
6. INCOME TAXES
The provision for income taxes was calculated by applying Loral's
statutory tax rates to the reported pre-tax book income after considering
items that do not enter into the determination of taxable income and tax
credits reflected in the consolidated provision which are related to the
Businesses. It is estimated that deferred income taxes represent
approximately $714,000 and $2,857,000 of the provisions for income taxes
reflected in these financial statements for the three months ended March 31,
1996 and the year ended December 31, 1995. The principal components of
deferred income taxes are contract accounting methods, property plant and
equipment, goodwill amortization, and timing of accruals. Substantially all
of the Businesses' income is from domestic operations.
The following is a reconciliation of the statutory rate to the effective
tax rates reflected in the financial statements:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1996 1995
------- --------
<S> <C> <C>
Statutory Federal income tax rate ............................. 35.0% 35.0%
Research and development and other tax credits................. -- (18.6)
State and local income taxes, net of Federal income tax
benefit and state and local income tax credits ............... 3.9 (.3)
Foreign sales corporation tax benefit ......................... (2.2) (3.0)
Amortization of goodwill ...................................... 6.3 35.1
Other, net .................................................... (5.1) (13.6)
------- --------
Effective income tax rate ..................................... 37.9% 34.6%
======= ========
</TABLE>
7. INTEREST EXPENSE
Interest expense was calculated using the following balances and interest
rates:
<TABLE>
<CAPTION>
THREE YEAR
MONTHS ENDED ENDED
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
<S> <C> <C>
Invested Equity ........................... $453,062 $265,384
Interest Rate ............................. 7.40% 7.87%
Wideband Systems Allocated Purchase Price -- $214,927
Interest Rate.............................. -- 7.40%
</TABLE>
F-35
<PAGE>
LORAL ACQUIRED BUSINESSES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
8. COMMITMENTS AND CONTINGENCIES
The Businesses lease certain facilities and equipment under agreements
expiring at various dates through 2011. Leases covering major items of real
estate and equipment contain renewal and/or purchase options which may be
exercised by the Businesses. Rent expense for the three months ended March
31, 1996 was $1,063. Rent expense for the year ended December 31, 1995 was
$4,276.
Management is continually assessing its obligations with respect to
applicable environmental protection laws. While it is difficult to determine
the timing and ultimate cost to be incurred by the Businesses in order to
comply with these laws, based upon available internal and external
assessments, the Businesses believe that even without considering potential
insurance recoveries, if any, there are no environmental loss contingencies
that, individually or in the aggregate, would be material to the Businesses'
operations. The Businesses accrue for these contingencies when it is probable
that a liability has been incurred and the amount of the loss can be
reasonably estimated. The Businesses believe that it has adequately accrued
for future expenditures in connection with environmental matters and that
such expenditures will not have a material adverse effect on its financial
position or results of operations.
There are a number of lawsuits or claims pending against the Businesses
and incidental to its business. However, in the opinion of management, the
ultimate liability on these matters, if any, will not have a material adverse
effect on the financial position or results of operations of the Businesses.
9. PENSIONS AND OTHER EMPLOYEE BENEFITS
PENSIONS
The Businesses participate in various Loral-sponsored pension plans both
contributory and non-contributory covering certain employees. Eligibility for
participation in these plans varies, and benefits are generally based on
members' compensation and years of service. Loral's funding policy was
generally to contribute in accordance with cost accounting standards that
affect government contractors, subject to the Internal Revenue code and
regulations thereon. Since the aforementioned pension arrangements were part
of certain Loral defined benefit or defined contribution plans, no separate
actuarial data was available for the Businesses. The Businesses have been
allocated their share of pension costs based upon participation employee
headcount. Net pension expense, which approximates the amount funded,
included in the accompanying financial statements was $1,234 and $4,391 for
the three months ended March 31, 1996 and the year ended December 31, 1995,
respectively.
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
In addition to participating in Loral-sponsored pension plans, the
Businesses provide certain health care and life insurance benefits for
retired employees and dependents at certain locations. Participants are
eligible for these benefits when they retire from active service and meet the
pension plan eligibility requirements. These benefits are funded primarily on
a pay-as-you-go basis with the retiree generally paying a portion of the cost
through contributions, deductibles and coinsurance provisions. Since the
aforementioned postretirement benefits were part of certain Loral
postretirement arrangements, no separate actuarial data is available for the
Businesses. The Businesses have been allocated postretirement benefit costs
based upon participant employee headcount. Post-retirement benefits costs
included in the accompanying financial statements were $402 and $1,646 for
the three months ended March 31, 1996 and the year ended December 31, 1995,
respectively.
EMPLOYEE SAVINGS PLANS
Under various employee savings plans sponsored by Loral, the Businesses
matched the contributions of participating employees up to a designated
level. The extent of the match, vesting terms and the form
F-36
<PAGE>
LORAL ACQUIRED BUSINESSES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
of the matching contribution vary among the plans. Under these plans, the
matching contributions, in cash, common stock or both, for the three months
ended March 31, 1996 and the year ended December 31, 1995 were $634 and
$1,879, respectively.
10. SALES TO PRINCIPAL CUSTOMERS
The Businesses operate primarily in one industry segment, electronic
components and systems. Sales to principal customers are as follows:
<TABLE>
<CAPTION>
THREE YEAR
MONTHS ENDED ENDED
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
<S> <C> <C>
U.S. Government Agencies .................. $ 94,993 $328,476
Foreign (principally foreign governments) 16,838 62,549
Other (principally commercial) ............ 20,369 57,140
-------------- -----------------
$132,200 $448,165
============== =================
</TABLE>
Foreign sales comprise the following:
<TABLE>
<CAPTION>
THREE YEAR
MONTHS ENDED ENDED
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
<S> <C> <C>
Export sales
Asia ...................................... $ 4,056 $19,248
Middle East ............................... 3,648 4,147
Europe .................................... 6,275 26,283
Other ..................................... 2,859 12,871
-------------- ----------------
Total foreign
sales..................................... $16,838 $62,549
============== ================
</TABLE>
11. RELATED PARTY TRANSACTIONS
The Businesses had a number of transactions with Loral and its affiliates.
Management believes that the arrangements are as favorable to the Businesses
as could be obtained from unaffiliated parties. The following describe the
related party transactions.
Loral allocated certain operational, administrative, legal and other
services to the Businesses. Costs allocated to the Businesses were $1,827 and
$6,535 for the three months ended March 31, 1996 and the year ended December
31, 1995, respectively. The Businesses sold products to Loral and its
affiliates. Net sales to Loral were $14,840 for the three months ended March
31, 1996 and were $54,600 in 1995. Net sales to Space Systems/Loral were
$2,471 for the three months ended March 31, 1996 and were $4,596 in 1995. Net
sales to K&F Industries were $1,173 for the three months ended March 31, 1996
and were $2,415 in 1995.
F-37
<PAGE>
SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC.
UNAUDITED CONDENSED FINANCIAL STATEMENTS
As of December 31, 1997 and
for the six months ended December 31, 1996 and 1997
F-38
<PAGE>
SATELLITE TRANSMISSION SYSTEMS DIVISION OF
CALIFORNIA MICROWAVE, INC.
BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1997
(In Thousands)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Accounts receivable, less $554 allowance for doubtful
accounts .................................................... $ 22,204
Inventories .................................................. 10,382
----------
Total current assets .......................................... 32,586
Property, plant and equipment, at cost ........................ 21,663
Less accumulated depreciation and amortization ................ (14,467)
----------
Net property and equipment .................................... 7,196
Other assets .................................................. 15
----------
Total assets .................................................. $ 39,797
==========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable ............................................. $ 6,508
Accrued liabilities .......................................... 3,703
Current portion of long-term debt ............................ 200
----------
Total current liabilities ..................................... 10,411
Long-term debt ................................................ 1,330
----------
Total liabilities ............................................. 11,741
Commitments
Division equity ............................................... 28,056
----------
Total liabilities and Division equity ......................... $ 39,797
==========
</TABLE>
See accompanying notes.
F-39
<PAGE>
SATELLITE TRANSMISSION SYSTEMS DIVISION OF
CALIFORNIA MICROWAVE, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Net sales ........................... $24,551 $ 38,770
Cost of products sold ............... 23,226 42,530
---------- ----------
Gross margin ........................ 1,325 (3,760)
---------- ----------
Expenses:
Research and development ........... 712 721
Marketing and administration ...... 5,123 8,064
Amortization of intangible assets . -- 72
---------- ----------
Total expenses ...................... 5,835 8,857
---------- ----------
Operating loss ...................... (4,510) (12,617)
Interest expense .................... (43) (70)
Interest income ..................... -- 5
---------- ----------
Loss before income tax benefit ..... (4,553) (12,682)
Allocated benefit from income taxes 1,639 4,185
---------- ----------
Net loss ............................ $(2,914) $ (8,497)
========== ==========
</TABLE>
See accompanying notes.
F-40
<PAGE>
SATELLITE TRANSMISSION SYSTEMS DIVISION OF
CALIFORNIA MICROWAVE, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31
----------------------
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ........................................................ $(2,914) $ (8,497)
Adjustments for noncash items:
Amortization of intangible assets .............................. -- 72
Depreciation and amortization of property, plant and equipment 780 1,200
Loss on sale of assets ........................................ -- 151
Provision for doubtful accounts ............................... 66 750
Changes in asset and liability accounts:
Accounts receivable ............................................ 6,053 16,124
Inventories .................................................... (2,644) 6,789
Prepaid expenses and other assets .............................. 85 213
Accounts payable ............................................... (1,256) (10,238)
Accrued liabilities ............................................ 132 (208)
---------- ----------
Net cash provided by operations ................................. 302 6,356
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ............................................ (160) (1,072)
Proceeds from sale of building .................................. -- 1,617
---------- ----------
Net cash provided by (used in) investing activities ............ (160) 545
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt ...................................... (100) (200)
Net cash provided to CMI ........................................ (42) (6,701)
---------- ----------
Net cash used in financing activities ........................... (142) (6,901)
---------- ----------
Cash and cash equivalents ....................................... $ -- $ --
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the six month period for interest .............. $ 36 $ 32
========== ==========
</TABLE>
See accompanying notes.
F-41
<PAGE>
SATELLITE TRANSMISSION SYSTEMS DIVISION OF
CALIFORNIA MICROWAVE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited financial statements include the operations of
the Satellite Transmission Systems Division ("STS" or the "Division") of
California Microwave, Inc. ("CMI" or the "Company"). The Division is a global
satellite communication systems integrator providing hardware, software and
services for turnkey projects to large commercial customers, principally
domestic and foreign telephone companies and major common carriers and to the
U.S. and foreign governments.
These financial statements are presented as if the Division had existed as
an entity separate from CMI during the periods presented and include the
historical assets, liabilities, sales and expenses that are directly related
to the Division's operations. However, these financial statements are not
necessarily indicative of the financial position and results of operations
which would have occurred had the Division been an independent entity.
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six-month periods ended December 31, 1996 and 1997
are not necessarily indicative of the results that may be expected for the
years ended June 30, 1997 and 1998. For further information, refer to the
financial statements and footnotes thereto included in the Division's
financial statements for the year ended June 30, 1997.
USE OF ESTIMATES; RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Significant estimates are used in determining the
collectibility of accounts receivable, warranty costs, inventory realization,
profitability on long-term contracts, restructuring reserves, recoverability
of property, plant and equipment, and contingencies. Actual results could
differ from estimates.
INVENTORIES AND COST OF PRODUCTS SOLD
Inventories are recorded at the lower of cost or market. Project
inventories are transferred to cost of products sold at the time revenue is
recognized based on the estimated total manufacturing costs and total
contract prices under each contract. Losses on contracts are recognized in
full when the losses become determinable. The cost of other inventories is
generally based on standard costs which approximate actual costs determined
by the first-in, first-out method.
F-42
<PAGE>
SATELLITE TRANSMISSION SYSTEMS DIVISION OF
CALIFORNIA MICROWAVE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
(IN THOUSANDS)
<S> <C>
Projects in process..................................... $ 9,351
Less: progress billings................................. 1,547
--------------
7,804
Product inventories, principally materials and supplies. 2,578
--------------
Total................................................... $10,382
==============
</TABLE>
3. CORPORATE ALLOCATIONS
CMI allocates corporate expenses on a value-added basis to each division,
which CMI believes results in a reasonable allocation of such costs. The
accompanying financial statements reflect charges for general corporate
administrative expenses incurred by CMI which amounted to approximately
$832,000 and $793,000 for the six months ended December 31, 1996 and 1997,
respectively.
No interest is allocated by CMI to the Division.
The Division is charged for its proportional share of CMI's self-insured
medical plan. Such charges amounted to $1,015,000 and $732,000 for the six
months ended December 31, 1996 and 1997, respectively.
In addition, there were direct charges from CMI as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31,
--------------
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Marketing.......................................... $304 $389
General and administrative......................... -- 142
------ ------
Total.............................................. $304 $531
====== ======
</TABLE>
The Division believes that the direct charges from CMI were reasonable
during the periods presented.
4. RESTRUCTURING
During fiscal 1997, a comprehensive review of the Division's operations
was performed, including a review of inventory levels, product development
and migration plans and facility and personnel needs. It was determined to
focus the Division on potentially higher margin products. This resulted in
the write-down of certain inventories and the restructuring of the Division's
operations. During the six month period ended December 31, 1996 inventory and
other charges of $10,300,000, arising from this review, were included in cost
of products sold. During February 1997, additional charges of $800,000
relating to excess facilities and severance were recorded. There are no
remaining cash outlays associated with the restructuring at December 31,
1997.
F-43
<PAGE>
SATELLITE TRANSMISSION SYSTEMS DIVISION OF
CALIFORNIA MICROWAVE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. OTHER
In November 1997, the Division recorded a $1 million charge to cost of
sales relating to a contract with a customer in Sudan. The President of the
United States imposed economic sanctions on Sudan which banned U.S. companies
from doing business in Sudan and as a result, the Division could not continue
to perform under the existing contract. Based upon this, the contract was
terminated and the Division has been released from further performance
requirements.
On December 19, 1997, L-3 Communications Corporation, an unrelated party,
reached an agreement to purchase from CMI substantially all of the assets of
the Division, and to assume certain of the liabilities of the Division, for
approximately $27 million in cash. The final purchase price is subject to
adjustment based on the net assets of the Division at the closing date of the
transaction.
F-44
<PAGE>
SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC.
FINANCIAL STATEMENTS
As of June 30, 1997 and 1996 and for the
years ended June 30, 1997, 1996 and 1995
F-45
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
California Microwave, Inc.
We have audited the accompanying balance sheets of the Satellite
Transmission Systems Division of California Microwave, Inc. (the "Company")
as of June 30, 1997 and 1996, and the related statements of operations and
cash flows for each of the three years in the period ended June 30, 1997.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Satellite
Transmission Systems Division of California Microwave, Inc., as of June 30,
1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended June 30, 1997 in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Melville, New York
January 27, 1998
F-46
<PAGE>
SATELLITE TRANSMISSION SYSTEMS DIVISION OF
CALIFORNIA MICROWAVE, INC.
BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, less $140 and $508 allowance for doubtful
accounts in 1996 and 1997......................................... $ 28,323 $ 46,750
Inventories........................................................ 7,738 10,412
Prepaid expenses and other assets.................................. 77 121
---------- ----------
Total current assets................................................ 36,138 57,283
Property, plant and equipment, at cost.............................. 21,503 21,378
Less accumulated depreciation and amortization...................... (13,687) (12,984)
---------- ----------
Net property and equipment ......................................... 7,816 8,394
Intangible assets, net of accumulated amortization of $2,268 in
1996............................................................... -- 2,032
Other assets........................................................ 23 2,045
---------- ----------
Total assets ....................................................... $ 43,977 $ 69,754
========== ==========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable................................................... $ 7,764 $ 19,548
Accrued liabilities................................................ 3,571 3,584
Current portion of long-term debt.................................. 100 200
---------- ----------
Total current liabilities........................................... 11,435 23,332
Long-term debt...................................................... 1,530 1,630
---------- ----------
Total liabilities................................................... 12,965 24,962
Commitments
Division equity..................................................... 31,012 44,792
---------- ----------
Total liabilities and Division equity............................... $ 43,977 $ 69,754
========== ==========
</TABLE>
See accompanying notes.
F-47
<PAGE>
SATELLITE TRANSMISSION SYSTEMS DIVISION OF
CALIFORNIA MICROWAVE, INC.
STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------
1997 1996 1995
----------- ---------- ---------
<S> <C> <C> <C>
Net sales......................................... $ 68,037 $124,393 $94,271
Cost of products sold............................. 65,724 102,399 86,335
----------- ---------- ---------
Gross margin...................................... 2,313 21,994 7,936
----------- ---------- ---------
Expenses:
Research and development......................... 1,360 2,540 2,288
Marketing and administration..................... 14,154 13,295 12,655
Amortization and write-down of intangible
assets........................................... 2,032 171 171
Restructuring.................................... 800 -- 2,446
----------- ---------- ---------
Total expenses.................................... 18,346 16,006 17,560
----------- ---------- ---------
Operating (loss) income........................... (16,033) 5,988 (9,624)
Interest expense.................................. (65) (69) (98)
Interest income................................... 40 11 3
----------- ---------- ---------
(Loss) income before income tax benefit
(expense)........................................ (16,058) 5,930 (9,719)
Allocated benefit (expense) from income taxes .... 4,676 (2,135) 3,207
----------- ---------- ---------
Net (loss) income................................. $(11,382) $ 3,795 $(6,512)
=========== ========== =========
</TABLE>
See accompanying notes.
F-48
<PAGE>
SATELLITE TRANSMISSION SYSTEMS DIVISION OF
CALIFORNIA MICROWAVE, INC.
STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income................................... $(11,382) $ 3,795 $(6,512)
Adjustments for noncash items:
Amortization and write-down of intangible assets .. 2,032 171 171
Depreciation and amortization of property, plant
and equipment..................................... 1,639 1,746 1,848
Loss on sale of assets............................. 77 140 64
Provision for doubtful accounts.................... 750 100 150
Changes in asset and liability accounts:
Accounts receivable................................ 17,677 (17,019) 14,937
Inventories........................................ 2,674 12,243 (8,211)
Prepaid expenses and other assets.................. 449 1,449 5,627
Accounts payable................................... (11,783) 5,736 (3,747)
Accrued and other liabilities...................... (14) (1,697) 1,895
----------- ---------- ----------
Net cash provided by operations..................... 2,119 6,664 6,222
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................ (1,138) (1,099) (1,881)
Proceeds from sale of building...................... 1,617 -- --
----------- ---------- ----------
Net cash (used in) provided by investing
activities......................................... 479 (1,099) (1,881)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt.......................... (200) (100) (200)
Net cash provided to CMI............................ (2,398) (5,465) (4,141)
----------- ---------- ----------
Net cash used in financing activities............... (2,598) (5,565) (4,341)
----------- ---------- ----------
Cash and cash equivalents........................... $ -- $ -- $ --
=========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest.............. $ 38 $ 66 $ 70
=========== ========== ==========
</TABLE>
See accompanying notes.
F-49
<PAGE>
SATELLITE TRANSMISSION SYSTEMS DIVISION OF
CALIFORNIA MICROWAVE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements include the operations of the
Satellite Transmission Systems Division ("STS" or the "Division") of
California Microwave, Inc. ("CMI" or the "Company"). The Division is a global
satellite communication systems integrator providing hardware, software and
services for turnkey projects to large commercial customers, principally
domestic and foreign telephone companies and major common carriers and to the
U.S. and foreign governments.
These financial statements are presented as if the Division had existed as
an entity separate from CMI during the periods presented and include the
historical assets, liabilities, sales and expenses that are directly related
to the Division's operations. However, these financial statements are not
necessarily indicative of the financial position and results of operations
which would have occurred had the Division been an independent entity.
USE OF ESTIMATES; RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Significant estimates are used in determining the
collectibility of accounts receivable, warranty costs, inventory realization,
profitability on long-term contracts, restructuring reserves, recoverability
of property, plant and equipment, and contingencies. Actual results could
differ from estimates.
CASH AND CASH EQUIVALENTS
The Division participates in CMI's centralized cash management function;
accordingly, the Division does not maintain separate cash accounts, other
than payroll and foreign subsidiary accounts, which are deemed insignificant,
and its cash disbursements and collections are settled through Division
equity.
INVENTORIES AND COST OF PRODUCTS SOLD
Inventories are recorded at the lower of cost or market. Project
inventories are transferred to cost of products sold at the time revenue is
recognized based on the estimated total manufacturing costs and total
contract prices under each contract. Losses on contracts are recognized in
full when the losses become determinable. During the year ended June 30,
1995, the Division recognized losses of approximately $2,800,000 on such
contracts. The cost of other inventories is generally based on standard costs
which approximate actual costs determined by the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost, less accumulated
depreciation and amortization. Depreciation and amortization charges are
computed using the straight-line method based on the estimated useful lives
of the related assets.
INTANGIBLE ASSETS OF BUSINESS ACQUIRED
During 1997, CMI wrote off $1,888,000 of purchased intangible assets,
principally goodwill, relating to the original acquisition of STS by CMI,
which was pushed down to the Division's books. The intangible
F-50
<PAGE>
SATELLITE TRANSMISSION SYSTEMS DIVISION OF
CALIFORNIA MICROWAVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
assets consisted of the excess of the purchase price paid for STS over the
net tangible assets acquired and was amortized using the straight-line method
over 30 years. During 1997, CMI determined that the excess purchase price was
not recoverable due to a significant reduction in sales by the Division in
1997 as compared to prior periods and appropriately reduced the carrying
value.
OTHER LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed of," the Division records impairment losses on long-lived
assets used in operations when events and circumstances indicate that the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amount of such assets.
Other than as described above related to purchased intangibles, no such
losses have been incurred.
REVENUE RECOGNITION, RECEIVABLES AND CREDIT RISK
Revenue from product sales is recognized at the time of shipment. Sales on
certain long-term, small quantity, high unit value contracts are recognized
at the completion of significant project milestones, which are generally
contract line items. Scheduled billings and retainages under certain
contracts (principally export contracts) have deferred billing provisions
resulting in unbilled accounts receivable (included in accounts receivable)
of $7,426,000 and $4,425,000 at June 30, 1996 and 1997, respectively. The
unbilled receivable at June 30, 1997, is expected to be collected within one
year.
The Division manufactures and sells satellite communications products,
systems and turnkey telecommunications networks to large commercial
customers, principally domestic and foreign telephone companies and major
common carriers, and to the U.S. government. The Division generally requires
no collateral, but generally requires letters of credit, denominated in U.S.
dollars, from its foreign customers.
During 1996 and 1997, the Division periodically transferred certain
international accounts receivable to CMI. CMI insures these receivables under
a credit insurance program and then sells the receivables, without recourse,
at prevailing discount rates. The Division retains the responsibility to
collect and service these amounts. Outstanding customer receivables
transferred to CMI through Division equity amounted to approximately $421,000
and $2,100,000 during 1996 and 1997, respectively.
The Division charged to operations $150,000, $100,000 and $750,000 for its
provision for doubtful accounts in 1995, 1996 and 1997, respectively.
WARRANTY
The Company generally warrants its products for a period of 12 to 24
months from completion of contract or shipment. Warranty expense was
approximately $679,000, $753,000 and $688,000 for 1995, 1996 and 1997,
respectively.
INCOME TAXES
Income taxes reflect an allocation of CMI's income tax expense (benefit)
calculated based on CMI's effective tax rate. All deferred tax assets and
liabilities relating to the Division are included in intercompany balances
with CMI and are accounted for within Division equity (see Note 7). On a
stand-alone basis, income tax benefit (expense) for the year ended June 30,
1997 would not be material due to the existence of net operating loss
carryforwards at the Division level and the need for a full valuation
allowance on any resulting net deferred tax asset. Such net operating losses
have been fully utilized by CMI.
F-51
<PAGE>
SATELLITE TRANSMISSION SYSTEMS DIVISION OF
CALIFORNIA MICROWAVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FISCAL YEAR
The Division's fiscal year ends on the Saturday closest to June 30, and
includes 52 weeks in fiscal 1995, 1996 and 1997. For 1995, 1996 and 1997, the
fiscal years ended on July 1, 1995, June 29, 1996 and June 28, 1997,
respectively. For clarity of presentation, the financial statements are
reported as ending on a calendar month end.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
LIFE 1997 1996
---------- --------- --------
(IN YEARS) (IN THOUSANDS)
<S> <C> <C> <C>
Land........................... $ 950 $ 950
Buildings ..................... 30 3,559 3,559
Machinery and equipment ...... 3-5 8,780 9,256
Office and computer equipment 3-10 6,440 5,653
Building improvements.......... -- 1,721 1,813
Vehicles ...................... 5 53 147
--------- --------
$21,503 $21,378
========= ========
</TABLE>
Building improvements are depreciated over the shorter of the life of the
improvement or the remaining life of the building.
3. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Projects in process..................................... $6,484 $ 6,287
Less: progress billings................................. 2,544 1,991
-------- --------
3,940 4,296
Product inventories, principally materials and
supplies............................................... 3,798 6,116
-------- --------
Total................................................... $7,738 $10,412
======== ========
</TABLE>
F-52
<PAGE>
SATELLITE TRANSMISSION SYSTEMS DIVISION OF
CALIFORNIA MICROWAVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Salaries and bonuses ................................ $ 497 $1,381
Vacation............................................. 610 873
Other payroll related................................ 123 115
Warranties........................................... 899 758
Commissions.......................................... 813 --
Other................................................ 629 457
------- ------
$3,571 $3,584
======= ======
</TABLE>
5. LONG-TERM DEBT
The Division has industrial development bonds that are payable in annual
installments through November 9, 2007, may be prepaid at any time without
penalty and bear interest at 65% of the bank's floating rate (5.5% at June
30, 1997), based upon prevailing market conditions, which is redetermined
daily. The obligor of the industrial development bonds is a related entity,
and the bonds are secured by mortgages on the equipment and properties
involved.
At June 30, 1997, the annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998..................................................... $ 100,000
1999..................................................... 200,000
2000..................................................... 100,000
2001..................................................... 200,000
2002..................................................... 100,000
Thereafter............................................... 930,000
----------
1,630,000
Less current portion..................................... 100,000
----------
$1,530,000
==========
</TABLE>
6. COMMITMENTS
On November 15, 1996, the Division leased a facility under an 18-month
noncancelable operating lease. Rent expense was approximately $209,000,
$229,000 and $69,000 for 1995, 1996, and 1997, respectively.
Future minimum lease payments under the operating lease is $48,000 for
1998.
F-53
<PAGE>
SATELLITE TRANSMISSION SYSTEMS DIVISION OF
CALIFORNIA MICROWAVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. DIVISION EQUITY
A summary of the Division equity activity is as follows:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Beginning balance......................... $ 44,792 $46,462
Net income (loss)......................... (11,382) 3,795
Net cash provided to CMI.................. (2,398) (5,465)
---------- ---------
Ending balance............................ $ 31,012 $44,792
========== =========
</TABLE>
8. EMPLOYEE BENEFITS
The Division participates in the CMI defined contribution retirement plan
which covers substantially all of the employees of the Division. The
Division's contribution was $379,000, $700,000 and $180,000 for 1995, 1996
and 1997, respectively.
9. SIGNIFICANT CUSTOMERS AND SEGMENT INFORMATION
The Division operates in a single industry segment and is engaged in the
manufacture and sale of electronics equipment for satellite communications.
International sales were as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Asia Pacific...................... $22,333 $27,106 $17,164
Africa/Middle East................ 13,052 41,827 9,572
Latin America..................... 5,149 11,137 14,768
Europe............................ 7,828 15,984 9,784
Other............................. 1,391 2,973 4,312
--------- --------- ---------
$49,753 $99,027 $55,600
========= ========= =========
</TABLE>
The Division had revenues from one customer representing 17.3%, 31.5% and
11% of total revenues in 1995, 1996 and 1997, respectively.
10. CORPORATE ALLOCATIONS
CMI allocates corporate expenses on a value-added basis to each division,
which CMI believes results in a reasonable allocation of such costs. The
accompanying financial statements reflect charges for general corporate
administrative expenses incurred by CMI which amounted to approximately
$1,477,000, $1,555,000 and $1,663,000 in 1995, 1996 and 1997, respectively.
No interest is allocated by CMI to the Division.
The Division is charged for its proportional share of CMI's self-insured
medical plan. Such charges amounted to $944,000, $1,437,000 and $1,856,000 in
1995, 1996, and 1997, respectively.
F-54
<PAGE>
SATELLITE TRANSMISSION SYSTEMS DIVISION OF
CALIFORNIA MICROWAVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. CORPORATE ALLOCATIONS (Continued)
In addition, there were direct charges from CMI as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1997 1996 1995
-------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Marketing.............................. $ 889 -- $--
General and administrative............. 285 $508 --
-------- ------ ------
Total.................................. $1,174 $508 $--
======== ====== ======
</TABLE>
The Division believes that the direct charges from CMI were reasonable
during the periods presented.
11. RELATED PARTY TRANSACTIONS
Included in net sales are product sales to other divisions of CMI. These
sales totaled $3,584,000, $640,000 and $1,800,000 for 1995, 1996 and 1997,
respectively. In addition, there is approximately $2,363,000, $2,937,000 and
$776,000 of purchases from another division of CMI which is included in
ending inventory and $2,139,000, $3,576,000 and $1,129,000 due to this
division which is included in accounts payable at June 30, 1995, 1996 and
1997, respectively.
12. RESTRUCTURING
In June 1995, a decision was made to close the Division's Melbourne,
Florida facility as well as to perform a review of personnel needs at the
Division's operations. Pursuant to these decisions, approximately $2.4
million of restructuring charges were recorded, including approximately
$600,000 to reflect the facility at its net realizable value. There are no
remaining cash outlays associated with the restructuring at June 30, 1997.
In December 1996 and January 1997, a comprehensive review of the
Division's operations was performed, including a review of inventory levels,
product development and migration plans and facility and personnel needs. It
was determined to focus the Division on potentially higher margin products.
This resulted in the write-down of certain inventories and the restructuring
of the Division's operations. Inventory and other charges of $10,300,000,
arising from this review, were included in cost of products sold and excess
facilities and severance charges of $800,000 were included in restructuring.
There are no remaining cash outlays associated with the restructuring at June
30, 1997.
13. SUBSEQUENT EVENTS
In November 1997, the Division recorded a $1 million charge to cost of
sales relating to a contract with a customer in Sudan. The President of the
United States imposed economic sanctions on Sudan which banned U.S. companies
from doing business in Sudan, and as a result the Division could not continue
to perform under the existing contract. Based upon this, the contract was
terminated and the Division has been released from further performance
requirements.
On December 19, 1997, L-3 Communications Corporation, an unrelated party,
reached an agreement to purchase from CMI substantially all of the assets of
the Division, and to assume certain of the liabilities of the Division, for
approximately $27 million in cash. The final purchase price is subject to
adjustment based on the net assets of the Division at the closing date of the
transaction.
F-55
<PAGE>
ILEX SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
F-56
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
ILEX Systems, Inc.:
We have audited the accompanying consolidated balance sheet of ILEX
Systems, Inc. and subsidiary as of December 31, 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ILEX
Systems, Inc. and subsidiary as of December 31, 1997, and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
San Jose, California
February 9, 1998, except as to Note 9 which
is as of February 27, 1998
F-57
<PAGE>
ILEX SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................................... $ 4,919,548
Accounts receivable, net of allowance for doubtful accounts of $327,422 ...... 7,354,640
Unbilled accounts receivable .................................................. 4,868,453
Inventories ................................................................... 923,466
Deferred income taxes ......................................................... 13,000
Other current assets .......................................................... 278,771
-------------
Total current assets ......................................................... 18,357,878
Property, plant, and equipment:
Equipment ..................................................................... 2,343,643
Furniture, fixtures, and leasehold improvements ............................... 634,425
-------------
2,978,068
Accumulated depreciation and amortization ..................................... (2,031,763)
-------------
946,305
Goodwill, net of accumulated amortization of $117,940 .......................... 343,564
Deposits and other assets ...................................................... 138,730
-------------
$19,786,477
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ............................................. $ 62,833
Accounts payable .............................................................. 2,226,340
Accrued payroll and related expenses .......................................... 3,176,151
Deferred income ............................................................... 37,843
Distribution payable to shareholders .......................................... 2,216,877
Income taxes payable .......................................................... 80,552
Other current liabilities ..................................................... 175,011
-------------
Total current liabilities .................................................... 7,975,607
Other liabilities .............................................................. 18,678
-------------
Total liabilities ............................................................ 7,994,285
Shareholders' equity:
Common stock, no par value; 5,000,000 shares authorized; 1,317,605 shares
issued and outstanding ....................................................... 1,386,417
Retained earnings ............................................................. 10,405,775
-------------
Total shareholders' equity ................................................... 11,792,192
Commitments ....................................................................
-------------
$19,786,477
=============
</TABLE>
See accompanying notes to consolidated financial statements.
F-58
<PAGE>
ILEX SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Revenues:
Consulting fees ...................... $57,309,190
Equipment sales ...................... 6,213,038
-------------
63,522,228
-------------
Costs and expenses:
Cost of revenue, consulting .......... 41,852,031
Cost of sales, equipment ............. 3,314,614
Selling, general, and administrative 9,507,879
Research and development ............. 1,211,497
-------------
55,886,021
-------------
Operating income .................... 7,636,207
Other income (expense):
Interest income ...................... 135,114
Interest expense ..................... (8,579)
Loss on write-down of investment .... (250,000)
Other expense ........................ (108,000)
-------------
Income before income taxes .......... 7,404,742
Income taxes .......................... 550,000
-------------
Net income .......................... $ 6,854,742
=============
</TABLE>
See accompanying notes to consolidated financial statements.
F-59
<PAGE>
ILEX SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Balances as of December 31, 1996 ........ 1,315,720 $1,352,249 $10,606,517 $11,958,766
Issuance of common stock in exchange for
services ............................... 3,400 42,500 -- 42,500
Stock repurchase ........................ (1,515) (8,332) (6,060) (14,392)
Distributions to shareholders ........... -- -- (7,049,424) (7,049,424)
Net income .............................. -- -- 6,854,742 6,854,742
----------- ------------ ------------- ---------------
Balances as of December 31, 1997 ........ 1,317,605 $1,386,417 $10,405,775 $11,792,192
=========== ============ ============= ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-60
<PAGE>
ILEX SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income .......................................................................... $ 6,854,742
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ...................................................... 419,593
Allowance for doubtful accounts .................................................... (203,255)
Loss on write-down of investment ................................................... 250,000
Deferred income taxes .............................................................. 485,000
Issuance of common stock for services .............................................. 42,500
Changes in operating assets and liabilities:
Receivables ....................................................................... (1,267,205)
Inventories ....................................................................... 387,485
Other current assets .............................................................. (112,176)
Deposits and other assets ......................................................... 140,884
Accounts payable and accrued liabilities .......................................... 324,963
Deferred income ................................................................... (159,012)
Income taxes payable .............................................................. 80,552
Other liabilities ................................................................. (459,166)
-------------
Net cash provided by operating activities ........................................ 6,784,905
-------------
Cash flows used in investing activities--purchases of property, plant, and equipment (416,630)
-------------
Cash flows from financing activities:
Payments on debt .................................................................... (67,265)
Distributions paid to shareholders .................................................. (4,832,547)
Repurchase of common stock .......................................................... (14,392)
-------------
Net cash used in financing activities ............................................ (4,914,204)
-------------
Increase in cash and cash equivalents ................................................ 1,454,071
Cash and cash equivalents, beginning of year ......................................... 3,465,477
-------------
Cash and cash equivalents, end of year ............................................... $ 4,919,548
=============
Supplemental disclosures of cash flow information:
Cash paid during year:
Income taxes ....................................................................... $ 716,190
=============
Interest ........................................................................... $ 8,579
=============
Noncash investing and financing activities--distributions payable to shareholders .. $ 2,216,877
=============
</TABLE>
See accompanying notes to consolidated financial statements.
F-61
<PAGE>
ILEX SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
ILEX Systems, Inc. (the "Company") provides services and products
primarily in four areas: environmental consulting services to private and
public sector customers; software consulting services to the federal
government and its contractors; supervisory control and data acquisition
products and services to the electrical utility industry; and secured
communications products, principally to the federal government and its
agencies. The majority of the Company's revenues are derived from its
software consulting services.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the financial
statements of the Company and its wholly owned subsidiary. All significant
intercompany balances and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
The Company's consulting services are generally performed on time-and
materials-based contracts for the federal government and its contractors.
Accordingly, revenues are recognized as services are performed. Equipment
sales revenues are recognized upon shipment. Unbilled accounts receivable
comprise charges for services and materials provided to customers that have
not been invoiced.
The Company does not require collateral for its receivables. Reserves are
maintained for potential credit losses.
CASH EQUIVALENTS
Cash equivalents of $1,879,285 as of December 31, 1997, consist
principally of money market investments. For purposes of the accompanying
consolidated statement of cash flows, the Company considers all highly liquid
debt instruments with remaining maturities of three months or less when
acquired to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments in the Company's consolidated
financial statements approximates fair value due to the short-term maturities
of these instruments.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out basis) or
market.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful lives of
the assets (generally five years). Leasehold improvements are amortized
straight-line over the shorter of the lease term or the estimated useful life
of the asset.
GOODWILL
Goodwill, which represents the excess of purchase price over the fair
value of net assets acquired, is amortized on a straight-line basis over the
expected periods to be benefited of 10 to 15 years. The Company assesses the
recoverability of goodwill by determining whether the amortization of the
goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation.
F-62
<PAGE>
INCOME TAXES
The Company elected S corporation status on March 17, 1997, effective
January 1, 1997. Federal and the majority of state income taxes on the income
of S corporations are generally payable by the individual shareholders rather
than the Company.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
USE OF ESTIMATES
The Company's management has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(2) INVENTORIES
Inventories consisted of the following as of December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Raw materials and subassemblies ..... $833,945
Work in process...................... 89,521
----------
$923,466
==========
</TABLE>
(3) LINE OF CREDIT AND LONG-TERM DEBT
The Company has a $5,000,000 line of credit with a bank that is due on
demand. Interest is payable at the bank's prime rate (8.5% as of December 31,
1997) and is secured by trade accounts receivable, inventories, and other
assets. Borrowings outstanding under the line of credit were $-0-as of
December 31, 1997. The line of credit contains certain restrictive financial
covenants, including a minimum level of net worth and cash flow to debt
ratio. As of December 31, 1997, the Company was in compliance with all such
covenants.
The Company has an unsecured promissory note payable to a former
shareholder that was issued in conjunction with the repurchase of shares of
common stock in 1992. The note bears interest at 10% with payments of $6,000
per month, including interest, through December 1998. As of December 31,
1997, the principal balance of this note was $62,833.
(4) INCOME TAXES
The provision for income taxes for the year ended December 31, 1997,
consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Federal:
Current ............................ --
Deferred ........................... $388,000
----------
388,000
----------
State:
Current ............................ 65,000
Deferred ........................... 97,000
----------
162,000
----------
$550,000
==========
</TABLE>
F-63
<PAGE>
The provision for income taxes for the year ended December 31, 1997,
differs from the federal statutory rate, primarily due to the flow through
nature of income tax liability to the shareholders and reduction of the
federal and partial state deferred income tax assets and liabilities as of
December 31, 1996, resulting from the S corporation election as follows:
<TABLE>
<CAPTION>
<S> <C>
Federal income tax statutory rate ............ 34.0%
State income tax rate......................... 2.2
Benefit of federal S corporation election..... (28.8)
--------
7.4%
========
</TABLE>
The gross deferred tax assets were $13,000 as of December 31, 1997,
consisting of the state deferred income tax assets and liabilities for those
states who do not recognize S corporation status. Management considers
realization of the net deferred tax assets more likely than not due to
continued profitability of the Company and significant carryback
opportunities.
(5) EMPLOYEE BENEFIT PLANS
The Company has two Section 401(k) retirement savings plans (the Plans).
Under the terms of the Plans, employees may make contributions based on a
percentage of eligible earnings. Company contributions to the Plans are
discretionary and totaled $359,718 in 1997.
(6) STOCK OPTION PLAN
The Company has 100,000 shares of common stock reserved for issuance under
its 1992 Incentive Stock Option Plan (the "Plan"). Under the Plan, the
Company may grant options to employees, officers, and directors. Options are
granted at prices not less than the fair market value of the Company's common
stock as determined by the Board of Directors on the grant date. Options vest
ratably over 48 months and expire 49 months from the date of grant.
The Company applies Accounting Principles Board Opinion No. 25 (APB 25) in
accounting for its stock options. The exercise price for stock options
granted to employees in 1997 equaled the fair value of the Company's common
stock at the date of grant. Accordingly, in accordance with APB 25, no
compensation expense was recognized by the Company.
For purposes of pro forma disclosures required by Statement of Financial
Accounting Standards No. 123 (SFAS 123), the compensation cost of the options,
based on their estimated fair values, is amortized to expense over the vesting
periods of the options. The Company's net income for the year ended December
31, 1997 would have reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
<S> <C>
Net income:
As reported ............................. $6,854,742
============
Pro forma ................................ $6,838,958
============
</TABLE>
On January 1, 1997, the Company had no options outstanding. In July 1997,
the Company granted 25,000 options at an exercise price of $17.50, all of
which were outstanding but not exercisable as of December 31, 1997.
The weighted-average grant-date fair value of options granted during the
year ended December 31, 1997 was $3.05 per option. The weighted-average
remaining contract life of the Company's outstanding stock options was 3.5
years at December 31, 1997.
Pro forma information regarding net income as required by SFAS 123 has
been determined as if the Company had accounted for its employee stock
options under the fair value method. The fair value for the options was
estimated at the date of grant using the minimum value method prescribed in
SFAS 123, which does not consider the expected volatility of the Company
stock price, with the following weighted-average assumptions for 1997: risk
free interest rate of 6.06%; dividend yield of 0%; and weighted-average
expected option life of 3.25 years.
F-64
<PAGE>
(7) COMMITMENTS
The Company leases certain facilities under operating leases that expire
at various dates through 2001. The Company in turn subleases some of these
facilities. As of December 31, 1997, future minimum lease payments under
noncancelable operating leases, exclusive of the sublease rentals, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
--------------
<S> <C>
1998.............................. $1,474,448
1999.............................. 510,551
2000.............................. 292,096
2001.............................. 124,212
------------
$2,401,307
============
</TABLE>
Rent expense, exclusive of sublease rentals, was approximately $1,081,636
in 1997. Sublease rental income was approximately $186,733 in 1997.
(8) SIGNIFICANT CUSTOMERS
For the year ended December 31, 1997, sales to a single customer
represented 26% of revenues. The outstanding accounts receivable and unbilled
receivable balances for this customer as of December 31, 1997, were
$1,257,875 and $2,228,650, respectively.
(9) SUBSEQUENT EVENT
In January 1998, shareholders of the Company agreed to sell all of their
common stock for approximately $50,000,000, subject to certain adjustments,
plus additional consideration based on post-acquisition performance. The sale
closed on February 27, 1998.
F-65
<PAGE>
ALLIEDSIGNAL OCEAN SYSTEMS
A WHOLLY-OWNED OPERATION OF ALLIEDSIGNAL, INC.
COMBINED FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
F-66
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Management and Board of Directors
L-3 Communications Holdings, Inc.
We have audited the accompanying combined balance sheet of AlliedSignal
Ocean Systems, a wholly owned operation of AlliedSignal, Inc. ("Ocean
Systems"), as of December 31, 1997 and the related combined statements of
operations, equity and cash flows for the year then ended. These financial
statements are the responsibility of Ocean System's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Ocean Systems as
of December 31, 1997, and the combined results of their operations and cash
flows for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Los Angeles, California
February 23, 1998
F-67
<PAGE>
ALLIEDSIGNAL OCEAN SYSTEMS
(A WHOLLY-OWNED OPERATION OF ALLIEDSIGNAL, INC.)
COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Accounts receivable, net of allowances for doubtful accounts of $81 $13,313
Inventories ........................................................ 25,274
Contracts in progress .............................................. 793
Prepaid expenses and other current assets .......................... 1,743
---------
Total current assets .............................................. 41,123
Property, plant and equipment, net .................................. 16,845
Capitalized software, net ........................................... 2,248
Goodwill, net ....................................................... 1,820
Other assets ........................................................ 31
---------
Total assets ........................................................ $62,067
=========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable ................................................... $ 2,626
Accrued liabilities ................................................ 16,112
Advance payments ................................................... 16,162
---------
Total current liabilities ......................................... 34,900
Accrued pension and postretirement benefits ......................... 10,959
---------
Total liabilities ................................................... 45,859
---------
Commitment and contingencies
Equity:
Invested equity..................................................... 9,312
ELAC common stock .................................................. 3,424
ELAC retained earnings ............................................. 4,570
Cumulative translation adjustment .................................. (1,098)
---------
Total equity......................................................... 16,208
---------
Total liabilities and equity ........................................ $62,067
=========
</TABLE>
See accompanying notes to the combined financial statements
F-68
<PAGE>
ALLIEDSIGNAL OCEAN SYSTEMS
(A WHOLLY-OWNED OPERATION OF ALLIEDSIGNAL, INC.)
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
Sales ................................. $73,033
Cost of sales ......................... 56,049
---------
Gross profit ......................... 16,984
Operating expenses:
General and administrative ........... 11,981
Selling .............................. 5,933
Bid and proposal ..................... 2,053
Independent research and development 2,765
---------
Total operating expenses ............ 22,732
---------
Loss from operations .................. (5,748)
Interest expense, net ................. 490
Other income .......................... (185)
---------
Loss before income taxes .............. (6,053)
Benefit for income taxes .............. (2,378)
---------
Net loss ............................ $(3,675)
=========
</TABLE>
See accompanying notes to the combined financial statements
F-69
<PAGE>
ALLIEDSIGNAL OCEAN SYSTEMS
(A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.)
COMBINED STATEMENT OF EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
INVESTED ELAC ELAC CUMULATIVE
EQUITY IN OS COMMON RETAINED TRANSLATION TOTAL
(DEFICIT) STOCK EARNINGS ADJUSTMENT EQUITY
-------------- -------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ..... $ 8,298 $3,424 $6,403 $ 87 $18,212
Net loss .......................... (2,680) -- (995) -- (3,675)
Cumulative translation adjustment -- -- -- (1,185) (1,185)
Advances from (repayments to)
AlliedSignal ..................... 3,694 -- (838) -- 2,856
-------------- -------- ---------- ------------- ---------
Balance at December 31, 1997 ..... $ 9,312 $3,424 $4,570 $(1,098) $16,208
============== ======== ========== ============= =========
</TABLE>
See accompanying notes to the combined financial statements
F-70
<PAGE>
ALLIEDSIGNAL OCEAN SYSTEMS
(A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.)
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net loss ..................................................................... ($ 3,675)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation of property, plant and equipment ............................... 2,976
Amortization of capitalized software ........................................ 1,078
Amortization of intangible assets ........................................... 70
Loss on the disposal of property, plant and equipment ....................... 8
Changes in operating assets and liabilities:
Accounts receivable ........................................................ 13,561
Inventories ................................................................ (359)
Contracts in progress ...................................................... 1,666
Prepaid and other current assets ........................................... (220)
Accounts payable ........................................................... (1,976)
Accrued liabilities ........................................................ (10,472)
Advance payments ........................................................... (1,092)
Accrued pension and postretirement benefits ................................ (20)
----------
Net cash provided by operating activities ................................. 1,545
----------
Cash flows from investing activities:
Property, plant and equipment purchased ...................................... (3,090)
Software purchased ........................................................... (265)
----------
Net cash used in investing activities ..................................... (3,355)
----------
Cash flows from financing activities:
Advances from AlliedSignal, net .............................................. 3,198
----------
Net cash provided by financing activities ................................. 3,198
----------
Effect of foreign currency exchange rate changes on cash ..................... (1,388)
----------
Net change in cash ............................................................ --
Cash and cash equivalents at the beginning of the year ........................ --
----------
Cash and cash equivalents at the end of the year .............................. $ --
==========
Supplement disclosures of cash flow information:
Cash paid during the year for:
Interest--AlliedSignal ...................................................... $ 552
----------
</TABLE>
See accompanying notes to the combined financial statements
F-71
<PAGE>
ALLIEDSIGNAL OCEAN SYSTEMS
(A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
1. BACKGROUND AND DESCRIPTION OF BUSINESS
The Ocean Systems business ("Ocean Systems" or the "Company") is a wholly
owned operation of AlliedSignal Inc. ("AlliedSignal") comprised of the Ocean
Systems Division ("OS"), and AlliedSignal ELAC Nautik GmbH ("ELAC"). The OS
Division headquarters and principal operations, including one manufacturing
site, are located in Sylmar, California, a suburb of Los Angeles. OS also
operates marketing offices located in Canada ("ASCI") and England ("BOSL").
OS was acquired through AlliedSignal's merger with the Bendix Corporation in
1982. ELAC is a wholly owned subsidiary of AlliedSignal Deutschland ("AS
Deutschland") and is a separate legal entity located in Kiel, Germany. ELAC
was acquired from Honeywell Inc. in 1994.
On December 22, 1997, L-3 Communications Corporation, a wholly owned
subsidiary of L-3 Communications Holdings, Inc. ("L-3") entered into a
definitive Purchase Agreement with AlliedSignal to acquire substantially all
the net assets excluding land and buildings, and assumed certain of the
liabilities of OS and purchased the outstanding capital stock of ELAC from AS
Deutschland.
Ocean Systems develops, manufactures and sells sophisticated sonar
detection and tracking devices for underwater use. The Company's customers
include the U.S. Government, foreign governments, defense industry prime
contractors and commercial customers. The Company operates primarily in one
industry segment, electronic sonar components and systems.
All domestic government contracts and subcontracts of Ocean Systems are
subject to audit and various cost controls, and Government contracts and
related orders are subject to cancellation if funds for contract performance
for any subsequent year become unavailable. Foreign government contracts
generally include comparable provisions relating to termination for the
convenience of the foreign government.
The decline in the U.S. defense budget since the late 1980s has resulted
in program delays, cancellations and scope reduction for defense contracts in
general. These events may or may not have an effect on the Company's
programs; however, in the event that U.S. Government expenditures for
products of the type manufactured by the Company are reduced, and not offset
by greater foreign sales or other new programs or products, or acquisitions,
there may be a reduction in the volume of contracts or subcontracts awarded
to the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
BASIS OF PRESENTATION AND USE OF ESTIMATES
The accompanying combined financial statements reflect the assets,
liabilities and operations of Ocean Systems including OS and ELAC which are
combined herein as they are entities under common control and management. All
significant intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principals requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the combined financial statements and the reported amounts of revenue and
expenses during the reporting period. The most significant of these estimates
and assumptions relate to contract estimates of sales and costs, excess and
obsolete inventory reserves, warranty reserves, pension estimates and
recoverability of recorded amounts of fixed assets. Actual results could
differ from these estimates.
REVENUE RECOGNITION
Under fixed-price contracts, sales and related costs are recorded upon
delivery and customer acceptance. Sales and related costs under
cost-reimbursable contracts are recorded on the percentage of
F-72
<PAGE>
ALLIEDSIGNAL OCEAN SYSTEMS
(A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
completion method. Anticipated future losses on contracts are charged to
income when identified. Revisions in profit estimates are reflected in the
period in which the facts, which require the revision, become known.
ACCOUNTS RECEIVABLE
Management assesses the credit risk and records an allowance for
uncollectable accounts as considered necessary based on several factors
including, but not limited to, an analysis of specific customers, historical
trends, current economic conditions and other information. The U.S. Navy
comprises a significant portion of Ocean System's revenues. The Company's
other customers include the navies of many foreign countries. The Company's
credit risk is affected by conditions or occurrences within the U.S.
Government and economic conditions of the countries in which the Company
operates or has customers. Sales are made on unsecured, customer-specific
credit terms, which may include extended terms.
INVENTORIES
Inventories are valued at the lower of cost or market using the average
cost method. Inventories consist of raw materials and supplies, work in
process and finished goods. An excess and obsolete inventory reserve has been
established primarily for raw materials and parts that have not been
allocated to firm contracts. The excess and obsolete inventory reserve is
based on estimates of future usage of inventory on hand.
CONTRACTS IN PROCESS
Costs accumulated under cost-reimbursable contracts include direct costs,
as well as manufacturing overhead. In accordance with industry practice,
these amounts are included in current assets.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at historical cost net of
accumulated depreciation. For financial purposes, property, plant and
equipment is generally depreciated on the straight line method using
estimated useful lives ranging from 3 to 20 years. Leasehold improvements are
amortized over the shorter of the lease term or the estimated useful life of
the improvements. Interest costs incurred during the construction of plant
and equipment are capitalized using an imputed interest rate approximating
8%. Interest costs capitalized during 1997 amounted to $57.
CAPITALIZED SOFTWARE
Capitalized software primarily represents costs incurred related to the
purchase and implementation of the Company's MRP II business system.
Capitalized software is reported at historical cost less accumulated
amortization. Amortization is based on the estimated useful service life not
to exceed five years. Amortization of capitalized software was $1,078 for the
year ended December 31, 1997. Accumulated amortization was $2,368 at December
31, 1997.
GOODWILL
Goodwill represents the excess of the cost of the purchased business over
the net assets acquired and is being amortized on a straight-line basis over
40 years. This excess relates primarily to the allocated portion of goodwill
arising out of the AlliedSignal merger with Bendix in 1982 and was allocated
to OS
F-73
<PAGE>
ALLIEDSIGNAL OCEAN SYSTEMS
(A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
based on the proportionate percentage of OS pretax earnings to the total
Bendix Aerospace Group pretax earnings at the time of the AlliedSignal
acquisition from Bendix. Amortization expense was $70 for the year ended
December 31, 1997. Accumulated amortization was $980 at December 31, 1997.
The carrying amounts of intangible assets are reviewed if the facts and
circumstances indicate potential impairment of their carrying value. If this
review indicates that intangible assets are not recoverable, as determined
based on the undiscounted cash flows of the entity acquired over the
remaining amortization period, the Company's carrying values related to the
intangible assets are reduced to the fair value of the asset.
RESEARCH AND DEVELOPMENT AND SIMILAR COSTS
Research and development costs sponsored by the Company include research
and development and bid and proposal efforts related to government products
and services. Customer-sponsored research and development costs incurred are
included in contract costs.
FOREIGN OPERATIONS AND FOREIGN CURRENCY TRANSLATION
The Company's major foreign operation is ELAC located in Germany with the
Deutsche mark as its functional currency. Assets and liabilities are
translated at current exchange rates at the end of the period. Income and
expenses are translated using the monthly average exchange rates. The effect
of the unrealized rate fluctuations on translating foreign currency assets
and liabilities into U.S. dollars are accumulated as a separate component of
equity in the accompanying combined balance sheet.
There are no material foreign currency gains or losses for the year ended
December 31, 1997 as the Company's U.S. sales to foreign customers are
denominated in U.S. dollars. ASCI Canadian sales are denominated in Canadian
dollars and the ELAC foreign sales are denominated in Deutsche Marks.
FINANCIAL INSTRUMENTS
At December 31, 1997, the carrying value of the Company's financial
instruments, such as receivables, accounts payable and accrued liabilities,
approximate fair value, based on the short-term maturities of these
instruments.
INCOME TAXES
The benefit for income taxes for OS was computed by applying statutory tax
rates to the reported loss before income taxes after considering items that
do not enter into the determination of taxable income and tax credits
reflected in the consolidated provision of AlliedSignal which are related to
OS. Income taxes for OS are assumed to have been settled with AlliedSignal at
December 31, 1997 and there are no separate tax attributes related to OS. For
ELAC, separate tax attributes that relate specifically to ELAC have been
considered in computing taxes.
3. TRANSACTIONS WITH ALLIEDSIGNAL
Ocean Systems relies on AlliedSignal for certain services, including
treasury, cash management, employee benefits, taxes, risk management,
internal audit, financial reporting, legal, contract administration and
general corporate services. Although certain assets, liabilities and expenses
related to these services have been allocated to the Company, the combined
financial position, results of operations and cash flows presented in the
accompanying combined financial statements would not be the same as would
have occurred had the Company been an independent entity. The following
describes the related party transactions.
F-74
<PAGE>
ALLIEDSIGNAL OCEAN SYSTEMS
(A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
ALLOCATION OF CORPORATE EXPENSES
The amount of allocated corporate expenses reflected in these combined
financial statements has been estimated based primarily on an allocation
methodology prescribed by government regulations pertaining to government
contractors. Corporate expenses allocated to Ocean Systems were $2,258 for
the year ended December 31, 1997, and are included in general and
administrative expense in the accompanying combined statement of operations.
PENSIONS
Certain of the Company's employees participate in various AlliedSignal
sponsored pension plans covering certain employees. Eligibility for
participation in these plans varies, and benefits are generally based on
employees' compensation and years of service.
AlliedSignal funding policy is generally to contribute in accordance with
cost accounting standards that affect government contractors subject to the
Internal Revenue code and regulations. Although the aforementioned pension
arrangements are part of certain AlliedSignal defined benefit plans, separate
actuarial estimates were made for the portion allocable to the Company.
Pension expense included in the accompanying combined statement of operations
was $1,452 for the year ended December 31, 1997. The pension plan liability
at December 31, 1997 was fully funded. The Company also has a supplemental
pension plan for highly compensated employees as defined by IRS rules. The
liability reflected in the accompanying combined balance sheet was $650 at
December 31, 1997. Pension expense included in the combined statement of
operations for the supplemental pension plan was $24 for the year ended
December 31, 1997.
The Company's German employees of ELAC are covered by a separate pension
plan. Pension costs included the following components for the year ended
December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Service costs earned during the year ......... $163
Interest cost on projected benefit obligation 119
Actual return on plan assets .................. (92)
Amortization of unrecognized net obligation .. 24
------
Net periodic pension cost ..................... $214
======
</TABLE>
F-75
<PAGE>
ALLIEDSIGNAL OCEAN SYSTEMS
(A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
The following table sets forth the ELAC pension plan funded status and
amounts recognized in the Company's combined balance sheet at December 31,
1997:
<TABLE>
<CAPTION>
<S> <C>
Actuarial present value of benefit obligation
Vested ................................................ $1,067
Nonvested ............................................. 296
--------
Accumulated benefit obligation ....................... 1,363
========
Projected benefit obligation .......................... 1,919
Plan assets at fair value ............................. 1,422
--------
Projected benefit obligation in excess of plan assets 497
Unrecognized net loss ................................ 37
Unrecognized prior service costs .....................
Unrecognized net obligation .......................... (361)
--------
Accrued pension costs ............................... $ 173
========
Major assumptions were:
Discount Rate ................................... 6.8%
Expected long-term rate of return on assets .... 6.8%
Rate of increase in compensation levels ........ 4.0%
</TABLE>
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
In addition to participating in AlliedSignal pension plans, employees of
OS are provided varying levels of health care and life insurance benefits for
retired employees and dependents. Participants are eligible for these
benefits when they retire from active service and meet the pension plan
eligibility requirements. These benefits are funded primarily on a
pay-as-you-go basis with the retiree generally paying of the cost through
contributions, deductibles and coinsurance provisions.
Although the aforementioned postretirement benefits are part of certain
AlliedSignal postretirement arrangements, separate actuarial estimates were
made for the portion allocable to the Company. The weighted average discount
rate utilized in determining the accumulated postretirement benefit
obligation was 7.25% for 1997. Net postretirement benefit costs included in
the combined statements of operations was $1,072 for the year ended December
31, 1997.
The net postretirement benefit costs for 1997 included the following
components:
<TABLE>
<CAPTION>
<S> <C>
Service cost-benefits attributed to service during the period . $ 545
Interest cost on accumulated postretirement benefit obligation 704
Amortization of gain .......................................... (177)
=======
Net postretirement benefit cost .............................. $1,072
=======
</TABLE>
F-76
<PAGE>
ALLIEDSIGNAL OCEAN SYSTEMS
(A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
The funded status of the plan and related liability amounts recognized in
the accompanying combined balance sheet at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Accumulated postretirement benefit
obligation:
Fully eligible active plan participants .... $2,698
Other active plan participants .............. 7,049
--------
9,747
Unrecognized prior service costs ............. --
Unrecognized net gain (loss) ................. --
--------
Accrued postretirement benefit cost ........ $9,747
========
</TABLE>
EMPLOYEE SAVINGS PLANS
Ocean Systems North American operation also has a supplemental savings
plan in which the Company matches the contributions of participating
employees up to a designated level. Under this plan, the matching
contributions, in cash, were $54 for the year ended December 31, 1997 and the
liability recorded at December 31, 1997 was $562.
INTEREST EXPENSE
Interest expense has been allocated to the Company by applying
AlliedSignal's weighted average consolidated interest rate to the portion of
the beginning of the period equity account deemed to be financed by
consolidated debt, which has been determined based on AlliedSignal's debt to
equity ratio on such date. Management of the Company believes that this
allocation methodology is reasonable.
The allocated interest expense was calculated using the following equity
balance and interest rate, for the year ended December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Equity ................. $5,751
Interest Rate .......... 9.6%
</TABLE>
Allocated interest expense for the year ended December 31, 1997 amounted
to $552 and is included in interest expense, net in the accompanying combined
statement of operations.
INCOME TAXES
The Company will be included in the consolidated Federal income tax
return, foreign tax returns and certain combined and separate state and local
income tax returns of AlliedSignal for 1997. Income taxes for OS are
considered to have been settled with AlliedSignal at December 31, 1997 and
are recorded through the invested equity account with AlliedSignal as there
are no separate stand alone tax attributes related to OS.
ELAC participates in the AlliedSignal Deutschland GmbH profit pooling
agreement for corporate income tax and municipal trade tax. Since entering
into this agreement ELAC has not paid German taxes, as any profits or losses
of ELAC are transferred to AlliedSignal Deutschland. For purposes of these
combined financial statements, the tax attributes that relate to ELAC prior
to entering into the pooling agreement have been considered in computing the
separate ELAC tax computations as these attributes will remain with ELAC
after the termination of the pooling agreement after the acquisition by L-3.
F-77
<PAGE>
ALLIEDSIGNAL OCEAN SYSTEMS
(A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
STATEMENT OF CASH FLOWS
The company participates in the AlliedSignal cash management system, under
which all cash is received and payments are made by AlliedSignal. All
transactions between the Company and AlliedSignal have been accounted for as
settled in cash at the time such transactions were recorded by the Company.
4. INVENTORIES AND CONTRACTS IN PROCESS
Net inventories are comprised of the following components at December 31,
1997:
<TABLE>
<CAPTION>
<S> <C>
Raw materials and supplies ............ $14,894
Work in process ....................... 6,675
Finished goods ........................ 12,080
Excess and obsolete inventory reserve (7,772)
Net inventories ...................... 25,877
Less, unliquidated progress payments (603)
---------
$25,274
=========
</TABLE>
For the year ended December 31, 1997, there were no general and
administrative, independent research and development, or bid and proposal
costs charged to inventory.
Contracts in process, amounting to $793 as of December 31, 1997, include
accumulated inventoried costs and profits on cost or cost-reimbursement
contracts, principally with the U.S. Government. The U.S. Government has
title to, or a security interest in, inventories to which progress payments
are applied. The Company believes that substantially all such amounts will be
billed and collected within one year.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1997 are comprised of the
following components:
<TABLE>
<CAPTION>
<S> <C>
Buildings, building improvements and land
improvements ................................ $ 9,108
Machinery, equipment, furniture and fixtures 48,060
Leasehold improvements ....................... 300
----------
57,468
Less, accumulated depreciation and
amortization ................................ (43,324)
----------
14,144
Land ......................................... 388
Construction in progress ..................... 2,313
----------
$ 16,845
==========
</TABLE>
Depreciation and amortization expense was $2,976 for the year ended
December 31, 1997.
F-78
<PAGE>
ALLIEDSIGNAL OCEAN SYSTEMS
(A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
6. INCOME TAXES
The effective tax rate differs from the statutory federal income tax rate
for the following reasons:
<TABLE>
<CAPTION>
<S> <C>
Statutory federal income tax rate .... (35.0)%
State taxes net of federal benefit ... (6.0)%
Foreign losses with no tax benefit ... 6.7 %
Foreign sales corporation tax
benefit.............................. (4.5)%
Other, net............................ (0.5)%
---------
(39.3)%
=========
</TABLE>
At December 31, 1997, the German trade tax and corporate income tax net
operating loss ("NOL") carryovers amounted to $953 and $1,180, respectively,
and may be carried forward indefinitely.
At December 31, 1997, deferred tax assets related to ELAC's German trade
tax and corporate income tax NOL carryovers amounted to $468. A full
valuation is recorded against the deferred tax asset.
The valuation allowance for deferred taxes was based on ELAC's historical
losses from operations and its current year loss. In addition, certain
aspects of the acquisition could limit the utilization of a portion or all of
these NOL carryovers. Accordingly, management believes currently there is not
enough historical information to support that it is more likely than not that
ELAC will realize the future tax benefit of these NOL carryovers.
7. EQUITY
Invested equity represents the equity contributed to OS by AlliedSignal
and related accumulated results of operations of OS. ELAC common stock
represents the one share of common stock held by AS Deutschland. ELAC's
retained earnings includes the impact of ELAC's accumulated operating losses,
and repayments to AlliedSignal offset by the effects of the amortization of
negative goodwill associated with the ELAC acquisition from Honeywell.
8. SALES TO PRINCIPAL CUSTOMERS
The Company operates primarily in one industry segment, electronic sonar
components and systems. Sales to principal customers are as follows for the
year ended December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
U.S. Government agencies and prime contractors . $36,133
German government............................... 5,895
Other foreign governments....................... 24,883
Commercial customers............................ 6,122
---------
$73,033
=========
</TABLE>
F-79
<PAGE>
ALLIEDSIGNAL OCEAN SYSTEMS
(A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
Summarized data of the Company's operations by geographic area for the
year ended December 31, 1997 are as follows:
<TABLE>
<CAPTION>
NORTH REST OF
AMERICA GERMANY EUROPE ASIA OTHER ELIM TOTAL
--------- --------- --------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customer ............. $39,002 $ 8,146 $6,220 $18,611 $1,054 -- $73,033
Inter-area sales ...... 19,536 4,334 -- -- -- $(23,870) --
Loss from operations . (4,658) (1,090) -- -- -- -- (5,748)
Identifiable assets at
December 31, 1997 ... 51,613 10,454 -- -- -- -- 62,067
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment under agreements
expiring at various dates through 2011. At December 31, 1997, future minimum
payments for noncancellable operating leases with initial or remaining terms
in excess of one year are $933 for 1998, $340 for 1999, $161 for 2000, $35
for 2001 and $7 for 2002.
Leases covering major items of real estate and equipment contain renewal
and or purchase options which may be exercised by the company. Rent expense,
net of sublease income from other AlliedSignal entities, was $1,342 for the
year ended December 31, 1997.
Management is continually assessing the Company's obligations with respect
to applicable environmental protection laws. While it is difficult to
determine the timing and ultimate cost to be incurred by the Company in order
to comply with these laws, based upon available internal and external
assessments, with respect to those environmental loss contingencies of which
management of the Company is aware, the Company believes that even without
considering potential insurance recoveries, if any, there are no
environmental loss contingencies that individually or in the aggregate, would
be material to the Company's combined financial position, cash flows and
results of operations. The Company accrues for these contingencies when it is
probable that a liability has been incurred and the amount of the loss can be
reasonably estimated.
The Company is engaged in providing products and services under contracts
with the U.S. Government and foreign government agencies. All such contracts
are subject to extensive legal and regulatory requirements, and, from time to
time, agencies of the U.S. Government investigate whether such contracts were
and are being conducted in accordance with these requirements. Under
government procurement regulations, an indictment of the Company by a federal
grand jury could result in the Company being suspended for a period of time
from eligibility for awards of new government contracts. A conviction could
result in debarment from contracting with federal government for a specified
term.
The Company is also periodically subject to periodic review or audit by
agencies of the U.S. Government. At December 31, 1997, there are several
pending issues with these agencies that are incidental to the Company's
business. One of these reviews was critical of the Company's procedures for
maintaining control of Government owned property in the Company's custody.
The Company is responsible and liable for $93 million of Government-owned
property in its possession. With respect to this and other U.S. Government
matters, the Company's management believes the ultimate resolution of any
such matters will not have a material adverse effect on the combined
financial position, cash flows or results of operations of the Company.
F-80
<PAGE>
ALLIEDSIGNAL OCEAN SYSTEMS
(A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
The Company is periodically subject to litigation, claims or assessments
and various contingent liabilities (including environmental matters)
incidental to their business. With respect to those investigative actions,
items of litigation, claims or assessments of which they are aware,
management of the Company is of the opinion that the probability is remote
that, after taking into account certain provisions that have been made with
respect to these matters, the ultimate resolution of any such investigative
actions, items of litigation, claims or assessments will have a material
adverse effect on the combined financial position, cash flows or results of
operations of the Company.
F-81
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE NOTES OFFERED HEREBY NOR DOES IT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE
NOTES TO ANY PERSON IN ANY JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Available Information ............................. i
Prospectus Summary................................. 1
Risk Factors....................................... 10
Use of Proceeds ................................... 18
Capitalization..................................... 18
Unaudited Pro Forma Condensed Consolidated
Financial Information............................. 19
Selected Financial Information..................... 26
Management's Discussion and Analysis of
Financial Condition and Results of Operations .... 27
Business........................................... 36
Certain Relationships and Related Transactions .... 54
Management......................................... 56
Ownership of Capital Stock......................... 64
Description of Certain Indebtedness................ 64
Description of the Notes........................... 68
United States Federal Tax Considerations .......... 93
Underwriting....................................... 96
Legal Matters...................................... 97
Experts............................................ 97
Index to Financial Statements...................... F-1
</TABLE>
$
L-3 COMMUNICATIONS CORPORATION LOGO
L-3 COMMUNICATIONS
CORPORATION
% SENIOR SUBORDINATED NOTES
DUE 2008
--------------
PROSPECTUS
, 1998
--------------
LEHMAN BROTHERS
BANCAMERICA
ROBERTSON STEPHENS
<PAGE>
[ALTERNATE COVER FOR MARKET-MAKING PROSPECTUS]
PROSPECTUS
L-3 COMMUNICATIONS CORPORATION LOGO
L-3 COMMUNICATIONS CORPORATION
% SENIOR SUBORDINATED NOTES DUE 2008
--------------------
The % Senior Subordinated Notes due 2008 (the "Notes") of L-3
Communications Corporation (the "Company" or "L-3") have been issued by the
Company. The payment of principal, premium, if any, and interest on the Notes
is guaranteed (the "Guarantees") on a senior subordinated basis by all of L-3
Communications' Restricted Subsidiaries, including Hygienetics Environmental
Services, Inc., L-3 Communications ILEX Systems, Inc. and Southern California
Microwave, Inc. (the "Guarantors"), other than Foreign Subsidiaries.
Interest on the Notes will be payable semi-annually on and of
each year, commencing , 1998. The Notes will be redeemable at the option
of the Company, in whole or in part, at any time on or after , 2003, at the
redemption prices set forth herein, plus accrued and unpaid interest to the
date of redemption. In addition, prior to , 2001, the Company may redeem
up to 35% of the aggregate principal amount of Notes at the redemption price
set forth herein plus accrued and unpaid interest through the redemption date
with the net cash proceeds of one or more Equity Offerings. The Notes will
not be subject to any mandatory sinking fund. In the event of a Change of
Control, each holder of Notes will have the right, at the holder's option, to
require the Company to purchase such holder's Notes at a purchase price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest to
the date of purchase. See "Description of the Notes". The Company's ability
to pay cash to the holders of Notes upon a purchase may be limited by the
Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
purchases.
The Notes will be general unsecured obligations of the Company,
subordinate in right of payment to all existing and future Senior Debt of the
Company. As of December 31, 1997, after giving pro forma effect to the
Offerings, application of the net proceeds therefrom and borrowings under the
Senior Credit Facilities, the Company would have had approximately $433.6
million of indebtedness outstanding, of which $58.6 million would have been
Senior Debt (excluding letters of credit). See "Capitalization".
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE NOTES, SEE "RISK FACTORS" BEGINNING ON
PAGE 10.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This Prospectus has been prepared for and is to be used by Lehman Brothers
Inc. in connection with offers and sales in market-making transactions of the
Notes. The Company will not receive any of the proceeds of such sales. Lehman
Brothers Inc. may act as a principal or agent in such transactions. The Notes
may be offered in negotiated transactions or otherwise.
--------------------
LEHMAN BROTHERS
--------------------
The date of this Prospectus is , 1998
<PAGE>
THE NOTES OFFERING
Capitalized terms used under this heading "The Notes Offering" have been
defined under the heading "Description of the Notes -- Certain
Definitions."
Securities Offered ............ $150,000,000 aggregate principal amount of
% Senior Subordinated Notes due 2008 (the
"Notes").
Maturity ...................... , 2008.
Interest Payment Dates ........ and , commencing , 1998.
Guarantees .................... The Notes will be unconditionally guaranteed
on a senior subordinated basis by each
Restricted Subsidiary (as defined), other
than Foreign Subsidiaries (as defined). The
Guarantees will be unsecured senior
subordinated obligations of the Guarantors,
and will be subordinated in right of payment
to all existing and future Guarantor Senior
Debt (as defined) and will rank pari passu
with any senior subordinated Indebtedness of
the Guarantors and senior in right of
payment to all subordinated obligations of
the Guarantors.
Optional Redemption ........... The Notes may be redeemed at the option of
L-3 Communications, in whole or in part, on
or after , 2003, at the redemption
prices set forth herein, plus accrued and
unpaid interest, if any, to the date of
redemption.
In addition, prior to , 2001, L-3
Communications may redeem up to an aggregate
of 35% of the Notes originally issued at a
redemption price of % of the principal
amount thereof, plus accrued and unpaid
interest, if any, to the date of redemption,
with the net cash proceeds of one or more
Equity Offerings; provided, however, that at
least 65% in aggregate principal amount of
the Notes originally issued remain
outstanding following such redemption.
Change of Control ............. In the event of a Change of Control (as
defined), the holders of the Notes will have
the right to require L-3 Communications to
purchase their Notes at a price equal to
101% of the aggregate principal amount
thereof, plus accrued and unpaid interest,
if any, to the date of purchase.
Ranking ....................... The Notes will be general unsecured
obligations of L-3 Communications,
subordinate in right of payment to all
current and future Senior Debt including all
obligations of L-3 Communications and its
subsidiaries under the Senior Credit
Facilities (as defined). At December 31,
1997, on a pro forma basis after giving
effect to the 1998 Acquisitions and the
Offerings, L-3 Communications would have had
$433.6 million of indebtedness outstanding,
of which $58.6 million would have been
Senior Debt (excluding letters of credit).
Borrowings under the Senior Credit
Facilities will be secured by substantially
ALT-2
<PAGE>
[ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS]
all of the assets of L-3 Communications as
well as the capital stock of L-3
Communications and its subsidiaries. See
"Risk Factors -- Substantial Leverage" and
"--Subordination".
Covenants ..................... The Indenture pursuant to which the Notes
will be issued (the "Indenture") will
contain certain covenants that, among other
things, limit the ability of L-3
Communications and its Restricted
Subsidiaries to incur additional
Indebtedness and issue preferred stock, pay
dividends or make other distributions,
repurchase Equity Interests (as defined) or
subordinated Indebtedness, create certain
liens, enter into certain transactions with
affiliates, sell assets of L-3
Communications or its Restricted
Subsidiaries, issue or sell Equity Interests
of L-3 Communications' Restricted
Subsidiaries or enter into certain mergers
and consolidations. In addition, under
certain circumstances, L-3 Communications
will be required to offer to purchase Notes
at a price equal to 100% of the principal
amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase,
with the proceeds of certain Asset Sales (as
defined). See "Description of the Notes".
Use of Proceeds ............... This Prospectus is delivered in connection
with the sale of the Notes by Lehman
Brothers Inc. in market-making transactions.
The Company will receive no proceeds from
such transactions. See "Use of Proceeds."
RISK FACTORS
For a discussion of certain risk factors that should be considered in
connection with an investment in the Notes, see "Risk Factors".
ALT-3
<PAGE>
[ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS]
USE OF PROCEEDS
This Prospectus is delivered in connection with the sale of the Notes by
Lehman Brothers Inc. in market-making transactions. The Company will not
receive any of the proceeds from such transactions.
ALT-4
<PAGE>
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
AVAILABLE INFORMATION
L-3 Communications has filed with the Commission a Registration Statement
on Form S-1 (together with all amendments, exhibits, schedules and
supplements thereto, the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act") with respect to the Notes being
offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Company
and the Notes, reference is made to the Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and, where such contract or other
document is an exhibit to the Registration Statement, each such statement is
qualified by the provisions in such exhibit, to which reference is hereby
made. L-3 Communications is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). The Registration Statement, such
reports and other information can be inspected and copied at the Public
Reference Section of the Commission located at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington D.C. 20549 and at regional public
reference facilities maintained by the Commission located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material,
including copies of all or any portion of the Registration Statement, can be
obtained from the Public Reference Section of the Commission at prescribed
rates. Such material may also be accessed electronically by means of the
Commission's home page on the Internet (http://www.sec.gov).
So long as L-3 Communications is subject to the periodic reporting
requirements of the Exchange Act, it is required to furnish the information
required to be filed with the Commission to the Trustee and the holders of
the Notes. L-3 Communications has agreed that, even if it is not required
under the Exchange Act to furnish such information to the Commission, it will
nonetheless continue to furnish information that would be required to be
furnished by L-3 Communications by Section 13 of the Exchange Act to the
Trustee and the holders of the Notes as if it were subject to such periodic
reporting requirements.
ALT-5
<PAGE>
[ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS]
UNDERWRITING
This Prospectus is to be used by Lehman Brothers Inc. in connection with
offers and sales of the Notes in market-making transactions effected from
time to time. Lehman Brothers Inc. may act as a principal or agent in such
transactions, including as agent for the counterparty when acting as
principal or as agent for both counterparties, and may receive compensation
in the form of discounts and commissions, including from both counterparties
when it acts as agent for both. Such sales will be made at prevailing market
prices at the time of sale, at prices related thereto or at negotiated
prices.
Affiliates of Lehman Brothers Inc. currently own % of the Common Stock.
See "Ownership of Capital Stock". Lehman Brothers Inc. has informed the
Company that it does not intend to confirm sales of the Notes to any accounts
over which it exercises discretionary authority without the prior specific
written approval of such transactions by the customer.
The Company has been advised by Lehman Brothers Inc. that, subject to
applicable laws and regulations, Lehman Brothers Inc. currently intends to
make a market in the Notes following completion of the Notes Offering.
However, Lehman Brothers Inc. is not obligated to do so and any such
market-making may be interrupted or discontinued at any time without notice.
In addition, such market-making activity will be subject to the limits
imposed by the Securities Act and the Exchange Act. There can be no assurance
that an active trading market will develop or be sustained. See "Risk Factors
- -- Trading Market for the Notes".
Lehman Brothers Inc. has provided investment banking, financial advisor
and other services to the Company, for which services Lehman Brothers Inc.
has received fees. In addition, Lehman Brothers Inc. acted as the lead
underwriter in connection with the initial sale of the Notes and received an
underwriting discount of approximately $ million in connection therewith.
Lehman Brothers Commercial Paper Inc., an affiliate of Lehman Brothers Inc.,
is the Arranger and Syndication Agent under the Senior Credit Facilities. See
"Certain Relationship and Related Transactions".
ALT-6
<PAGE>
[ALTERNATE BACK COVER FOR MARKET-MAKING PROSPECTUS]
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Available Information ............................. i
Prospectus Summary................................. 1
Risk Factors....................................... 10
Use of Proceeds.................................... 18
Capitalization..................................... 18
Unaudited Pro Forma Condensed Consolidated
Financial Information............................. 19
Selected Financial Information..................... 26
Management's Discussion and Analysis of
Financial Condition and Results of Operations .... 27
Business........................................... 36
Certain Relationships and Related Transactions .... 54
Management......................................... 56
Ownership of Capital Stock......................... 64
Description of Certain Indebtedness................ 64
Description of The Notes........................... 68
United States Federal Tax Considerations .......... 93
Underwriting....................................... 96
Legal Matters...................................... 97
Experts............................................ 97
Index to Financial Statements...................... F-1
</TABLE>
L-3 COMMUNICATIONS CORPORATION LOGO
L-3 COMMUNICATIONS
CORPORATION
--------------------
PROSPECTUS
--------------------
% SENIOR SUBORDINATED
NOTES DUE 2008
LEHMAN BROTHERS
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
- --------------------------------------------------------------- -----------
<S> <C>
Securities and Exchange Commission registration fee ........... $44,250
National Association of Securities Dealers, Inc. filing fee ... 15,500
Legal fees and expenses ........................................ *
Accounting fees and expenses ................................... *
Printing and engraving fees and expenses ....................... *
Blue Sky fees and expenses ..................................... *
Trustee fees and expenses....................................... *
Miscellaneous expenses.......................................... *
-----------
Total......................................................... $ *
===========
</TABLE>
- ------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
for, among other things:
(i) permissive indemnification for expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by designated persons, including directors and officers of a
corporation, in the event such persons are parties to litigation other
than stockholder derivative actions if certain conditions are met;
(ii) permissive indemnification for expenses (including attorneys' fees)
actually and reasonably incurred by designated persons, including
directors and officers of a corporation, in the event such persons are
parties to stockholder derivative actions if certain conditions are met;
(iii) mandatory indemnification for expenses (including attorneys' fees)
actually and reasonably incurred by designated persons, including
directors and officers of a corporation, in the event such persons are
successful on the merits or otherwise in defense of litigation covered by
(i) and (ii) above; and
(iv) that the indemnification provided for by Section 145 is not deemed
exclusive of any other rights which may be provided under any by-law,
agreement, stockholder or disinterested director vote, or otherwise.
In addition to the indemnification provisions of the DGCL described above,
the Registrant's Certificate of Incorporation (the "Certificate of
Incorporation") provides that the Registrant shall, to the fullest extent
permitted by the DGCL, (i) indemnify its officers and directors and (ii)
advance expenses incurred by such officers or directors in relation to any
action, suit or proceeding.
The Registrant's Bylaws (the "Bylaws") require the advancement of expenses
to an officer or director (without a determination as to his conduct) in
advance of the final disposition of a proceeding if such person furnishes a
written affirmation of his good faith belief that he has met the applicable
standard of conduct and furnishes a written undertaking to repay any advances
if it is ultimately determined that he is not entitled to indemnification. In
connection with proceedings by or in the right of the Registrant, the Bylaws
provide that indemnification shall include not only reasonable expenses, but
also judgments, fines, penalties and amounts paid in settlement. The Bylaws
provide that the Registrant may, subject to authorization on a case by case
basis, indemnify and advance expenses to employees or agents to the same
extent as a director or to a lesser extent (or greater, as permitted by law)
as determined by the Board of Directors.
II-1
<PAGE>
The Bylaws purport to confer upon officers and directors contractual
rights to indemnification and advancement of expenses as provided therein.
The Certificate of Incorporation limits the personal liability of
directors to the Registrant or its stockholders for monetary damages for
breach of the fiduciary duty as a director, other than liability as a
director (i) for breach of duty of loyalty to the Registrant or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL (certain illegal distributions) or (iv) for any transaction for
which the director derived an improper personal benefit.
The Registrant maintains officers' and directors' insurance covering
certain liabilities that may be incurred by officers and directors in the
performance of their duties.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On April 30, 1997, L-3 Communications issued 100 shares of its common
stock to Holdings for aggregate consideration of $125 million. The securities
were sold directly by L-3 Communications and did not involve any underwriter.
L-3 Communications considers these securities to have been offered and sold
in a transaction not involving any public offering and, therefore, to be
exempted from registration under Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The following exhibits are filed pursuant to Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- --------------------------------------------------------------------------------------------
<S> <C>
*1.1 Form of Underwriting Agreement among L-3 Communications Corporation and the Underwriters
named therein
*3.1 Certificate of Incorporation.
*3.2 By-Laws of L-3 Communications Corporation.
*4.1 Form of Indenture between L-3 Communications Corporation and the Trustee, including the form
of Note.
*5 Opinion of Simpson Thacher & Bartlett.
10.1 Credit Agreement, dated as of April 30, 1997 among L-3 Communications Corporation and
lenders named therein, as amended.
10.2 Indenture dated as of April 30, 1997 between L-3 Communications Corporation and The Bank of
New York, as Trustee.
10.3 Stockholders Agreement dated as of April 30, 1997 among L-3 Communications Corporation and
the stockholders parties thereto.
10.4 Transaction Agreement dated as of March 28, 1997, as amended, among Lockheed Martin
Corporation, Lehman Brothers Capital Partners III, L.P., Frank C. Lanza, Robert V. LaPenta
and L-3 Communications Holdings, Inc.
10.5 Employment Agreement dated April 30, 1997 between Frank C. Lanza and L-3 Communications
Holdings, Inc.
10.51 Employment Agreement dated April 30, 1997 between Robert V. LaPenta and L-3 Communications
Holdings, Inc.
10.6 Lease dated as of April 29, 1997 among Lockheed Martin Tactical Systems, Inc., L-3
Communications Corporation and KSL, Division of Bonneville International.
10.61 Lease dated as of April 29, 1997 among Lockheed Martin Tactical Systems, L-3 Communications
Corporation and Unisys Corporation.
10.62 Sublease dated as of April 29, 1997 among Lockheed Martin Tactical Systems, Inc., L-3
Communications Corporation and Unisys Corporation.
II-2
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- --------------------------------------------------------------------------------------------
10.7 Limited Noncompetition Agreement dated April 30, 1997 between Lockheed Martin Corporation
and L-3 Communications Corporation.
10.8 Asset Purchase Agreement dated as of December 19, 1997 between L-3 Communications
Corporation and California Microwave, Inc.
10.81 Asset Purchase Agreement dated as of February 10, 1998 between FAP Trust and L-3
Communications Corporation.
10.82 Asset Purchase Agreement dated as of March 30, 1998 among AlliedSignal Inc., AlliedSignal
Technologies, Inc., AlliedSignal Deutschland GMBH and L-3 Communications Corporation.
10.9 Form of Stock Option Agreement for Employee Options.
10.91 Form of 1997 Stock Option Plan for Key Employees.
*10.10 L-3 Communications Corporation Pension Plan.
12 Ratio of earnings to fixed charges.
*23.1 Consent of Simpson Thacher & Bartlett (included as part of its opinion filed as Exhibit 5
hereto).
**23.2 Consent of Coopers & Lybrand L.L.P., independent certified public accountants.
**23.3 Consent of Ernst & Young LLP, independent certified public accountants.
**23.31 Consent of Ernst & Young LLP, independent certified public accountants.
**23.4 Consent of KPMG Peat Marwick LLP, independent certified public accountants.
**24 Powers of Attorney of L-3 Communication Corporation.
24.1 Power of Attorney of Hygienetics Environmental Services, Inc., L-3 Communications
ILEX Sytems, Inc. and Southern California Microwave, Inc. (included in signature
page).
*25 Statement of Eligibility of Trustee on Form T-1.
</TABLE>
- ------------
* To be provided by amendment.
** Previously filed.
(b) Financial Statement Schedules
Not applicable
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused the Registration Statement or amendments thereto to be signed on
its behalf by the undersigned, thereunto duly authorized, on April 3, 1998.
L-3 COMMUNICATIONS CORPORATION
By: /s/ Christopher C. Cambria
-----------------------------------
Vice President, Secretary and
General Counsel
Pursuant to the requirements of the Securities Act, the Registration
Statement has been signed on the 3rd day of April, 1998 by the following
persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------- ----------------------------------------------------------
<S> <C>
*
-------------------------- Chairman, Chief Executive Officer and Director (Principal
Frank C. Lanza Executive Officer)
*
-------------------------- President, Chief Financial Officer (Principal Financial
Robert V. LaPenta Officer) and Director
*
-------------------------- Vice President--Finance and Controller (Principal
Michael T. Strianese Accounting Officer)
*
--------------------------
David J. Brand Director
*
--------------------------
Thomas A. Corcoran Director
*
--------------------------
Alberto M. Finali Director
*
--------------------------
Eliot M. Fried Director
*
--------------------------
Frank H. Menaker, Jr. Director
*
--------------------------
Robert B. Millard Director
*
--------------------------
John E. Montague Director
*
--------------------------
Alan H. Washkowitz Director
By:/s/ Christopher C. Cambria
--------------------------
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused the Registration Statement or amendments thereto to be signed on
its behalf by the undersigned, thereunto duly authorized, on April 3, 1998.
HYGIENETICS ENVIRONMENTAL SERVICES, INC.
By: /s/ Christopher C. Cambria
---------------------------------
Vice President, Secretary
and Director
Pursuant to the requirements of the Securities Act, the Registration
Statement has been signed on the 3rd day of April, 1998 by the following
persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------- ----------------------------------------------------------
<S> <C>
*
-------------------------- Chief Executive Officer and Director (Principal
Frank C. Lanza Executive Officer)
*
-------------------------- Chief Financial Officer (Principal Financial
Robert V. LaPenta Officer) and Director
*
-------------------------- Vice President and Principal Accounting Officer
Michael T. Strianese
/s/ Christopher C. Cambria Director
--------------------------
Christopher C. Cambria
*By:/s/ Christopher C. Cambria
--------------------------
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused the Registration Statement or amendments thereto to be signed on
its behalf by the undersigned, thereunto duly authorized, on April 3, 1998.
L-3 COMMUNICATIONS ILEX SYSTEMS, INC.
By: /s/ Christopher C. Cambria
-------------------------------
Vice President, Secretary
and Director
Pursuant to the requirements of the Securities Act, the Registration
Statement has been signed on the 3rd day of April, 1998 by the following
persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------- ----------------------------------------------------------
<S> <C>
*
-------------------------- Chief Executive Officer and Director (Principal
Frank C. Lanza Executive Officer)
*
-------------------------- Chief Financial Officer (Principal Financial
Robert V. LaPenta Officer) and Director
*
-------------------------- Vice President and Principal Accounting Officer
Michael T. Strianese
/s/ Christopher C. Cambria
-------------------------- Director
Christopher C. Cambria
*By:/s/ Christopher C. Cambria
--------------------------
Attorney-in-Fact
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused the Registration Statement or amendments thereto to be signed on
its behalf by the undersigned, thereunto duly authorized, on April 3, 1998.
SOUTHERN CALIFORNIA MICROWAVE, INC.
By: /s/ Christopher C. Cambria
-----------------------------------
Vice President, Secretary
and Director
Pursuant to the requirements of the Securities Act, the Registration
Statement has been signed on the 3rd day of April, 1998 by the following
persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------- ----------------------------------------------------------
<S> <C>
*
-------------------------- Chief Executive Officer and Director (Principal
Frank C. Lanza Executive Officer)
*
-------------------------- Chief Financial Officer (Principal Financial
Robert V. LaPenta Officer) and Director
*
-------------------------- Vice President and Principal Accounting Officer
Michael T. Strianese
/s Christopher C. Cambria
-------------------------- Director
Christopher C. Cambria
*
-------------------------- Director
William Kirk
*By:/s/ Christopher C. Cambria
--------------------------
Attorney-in-Fact
</TABLE>
II-8
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of Hygienetics Environmental
Services, Inc., do hereby constitute and appoint Christopher C. Cambria and
Michael T. Strianese, or any of them, our true and lawful attorneys and
agents, to do any and all acts and things in our name and on our behalf in
our capacities as directors and officers and to execute any and all
instruments for us and in our names in the capacities indicated below, which
said attorneys and agents, or either of them, may deem necessary or advisable
to enable said Corporation to comply with the Securities Act of 1933 and any
rules, regulations and requirements of the Securities and Exchange
Commission, in connection with this Registration Statement, including
specifically, but without limitation, power and authority to sign for us or
any of us in our names in the capacities indicated below, any and all
amendments (including post-effective amendments) hereto and we do hereby
ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed on the 3rd day of April,
1998 by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ ----------------------------------------------------------
<S> <C>
/s/ Frank C. Lanza
-------------------------- Chief Executive Officer and Director (Principal
Frank C. Lanza Executive Officer)
/s/ Robert V. LaPenta
-------------------------- Chief Financial Officer (Principal Financial
Robert V. LaPenta Officer) and Director
/s/ Michael T. Strianese
-------------------------- Vice President and Principal Accounting Officer
Michael T. Strianese
/s/ Christopher C. Cambria
-------------------------- Director
Christopher C. Cambria
</TABLE>
II-9
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of L-3 Communications ILEX
Systems, Inc., do hereby constitute and appoint Christopher C. Cambria and
Michael T. Strianese, or any of them, our true and lawful attorneys and
agents, to do any and all acts and things in our name and on our behalf in
our capacities as directors and officers and to execute any and all
instruments for us and in our names in the capacities indicated below, which
said attorneys and agents, or either of them, may deem necessary or advisable
to enable said Corporation to comply with the Securities Act of 1933 and any
rules, regulations and requirements of the Securities and Exchange
Commission, in connection with this Registration Statement, including
specifically, but without limitation, power and authority to sign for us or
any of us in our names in the capacities indicated below, any and all
amendments (including post-effective amendments) hereto and we do hereby
ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Amendment No. 1
to the Registration Statement has been signed on the 3rd day of April, 1998
by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ ----------------------------------------------------------
<S> <C>
/s/ Frank C. Lanza
-------------------------- Chief Executive Officer and Director (Principal
Frank C. Lanza Executive Officer)
/s/ Robert V. LaPenta
-------------------------- Chief Financial Officer (Principal Financial
Robert V. LaPenta Officer) and Director
/s/ Michael T. Strianese
-------------------------- Vice President and Principal Accounting Officer
Michael T. Strianese
/s/ Christopher C. Cambria
-------------------------- Director
Christopher C. Cambria
</TABLE>
II-10
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of Southern California
Microwave, Inc., do hereby constitute and appoint Christopher C. Cambria and
Michael T. Strianese, or any of them, our true and lawful attorneys and
agents, to do any and all acts and things in our name and on our behalf in
our capacities as directors and officers and to execute any and all
instruments for us and in our names in the capacities indicated below, which
said attorneys and agents, or either of them, may deem necessary or advisable
to enable said Corporation to comply with the Securities Act of 1933 and any
rules, regulations and requirements of the Securities and Exchange
Commission, in connection with this Registration Statement, including
specifically, but without limitation, power and authority to sign for us or
any of us in our names in the capacities indicated below, any and all
amendments (including post-effective amendments) hereto and we do hereby
ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Amendment No. 1
to the Registration Statement has been signed on the 3rd day of April, 1998
by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ ----------------------------------------------------------
<S> <C>
/s/ Frank C. Lanza
-------------------------- Chief Executive Officer and Director (Principal
Frank C. Lanza Executive Officer)
/s/ Robert V. LaPenta
-------------------------- Chief Financial Officer (Principal Financial
Robert V. LaPenta Officer) and Director
/s/ Michael T. Strianese
-------------------------- Vice President and Principal Accounting Officer
Michael T. Strianese
/s/ Christopher C. Cambria
-------------------------- Director
Christopher C. Cambria
/s/ William Kirk
-------------------------- Director
William Kirk
</TABLE>
II-11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- --------------------------------------------------------------------------------------------
<S> <C>
*1.1 Form of Underwriting Agreement among L-3 Communications Corporation and the Underwriters
named therein
*3.1 Certificate of Incorporation.
*3.2 By-Laws of L-3 Communications Corporation.
*4.1 Form of Indenture between L-3 Communications Corporation and the Trustee, including the form
of Note.
*5 Opinion of Simpson Thacher & Bartlett.
10.1 Credit Agreement, dated as of April 30, 1997 among L-3 Communications Corporation and
lenders named therein, as amended.
10.2 Indenture dated as of April 30, 1997 between L-3 Communications Corporation and The Bank of
New York, as Trustee.
10.3 Stockholders Agreement dated as of April 30, 1997 among L-3 Communications Corporation and
the stockholders parties thereto.
10.4 Transaction Agreement dated as of March 28, 1997, as amended, among Lockheed Martin
Corporation, Lehman Brothers Capital Partners III, L.P., Frank C. Lanza, Robert V. LaPenta
and L-3 Communications Holdings, Inc.
10.5 Employment Agreement dated April 30, 1997 between Frank C. Lanza and L-3 Communications
Holdings, Inc.
10.51 Employment Agreement dated April 30, 1997 between Robert V. LaPenta and L-3 Communications
Holdings, Inc.
10.6 Lease dated as of April 29, 1997 among Lockheed Martin Tactical Systems, Inc., L-3
Communications Corporation and KSL, Division of Bonneville International.
10.61 Lease dated as of April 29, 1997 among Lockheed Martin Tactical Systems, L-3 Communications
Corporation and Unisys Corporation.
10.62 Sublease dated as of April 29, 1997 among Lockheed Martin Tactical Systems, Inc., L-3
Communications Corporation and Unisys Corporation.
10.7 Limited Noncompetition Agreement dated April 30, 1997 between Lockheed Martin Corporation
and L-3 Communications Corporation.
10.8 Asset Purchase Agreement dated as of December 19, 1997 between L-3 Communications
Corporation and California Microwave, Inc.
10.81 Asset Purchase Agreement dated as of February 10, 1998 between FAP Trust and L-3
Communications Corporation.
10.82 Asset Purchase Agreement dated as of March 30, 1998 among AlliedSignal Inc., AlliedSignal
Technologies, Inc., AlliedSignal Deutschland GMBH and L-3 Communications Corporation.
10.9 Form of Stock Option Agreement for Employee Options.
10.91 Form of 1997 Stock Option Plan for Key Employees.
*10.10 L-3 Communications Corporation Pension Plan.
12 Ratio of earnings to fixed charges.
*23.1 Consent of Simpson Thacher & Bartlett (included as part of its opinion filed as Exhibit 5
hereto).
**23.2 Consent of Coopers & Lybrand L.L.P., independent certified public accountants.
**23.3 Consent of Ernst & Young LLP, independent certified public accountants.
**23.31 Consent of Ernst & Young LLP, independent certified public accountants.
**23.4 Consent of KPMG Peat Marwick LLP, independent certified public accountants.
**24 Powers of Attorney of L-3 Communications Corporation.
24.1 Power of Attorney of Southern California Microwave, Inc., L-3 Communications
ILEX Systems, Inc. and Hygienetics Environmental Services, Inc. (included in
signature page).
*25 Statement of Eligibility of Trustee on Form T-1.
</TABLE>
- ------------
* To be provided by amendment.
** Previously filed.
<PAGE>
===============================================================================
EXHIBIT 10.1
L-3 COMMUNICATIONS CORPORATION,
a Delaware corporation
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CREDIT AGREEMENT
dated as of April 30, 1997
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$275,000,000
Credit Facility
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LEHMAN COMMERCIAL PAPER INC.,
as Arranger, Syndication Agent and Documentation Agent,
and
BANK OF AMERICA NT & SA
as Administrative Agent
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TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . .
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . .
1.2 Other Definitional Provisions . . . . . . . . . . . . . . .
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS AND LOANS . . . . . . . . . .
2.1 Commitments . . . . . . . . . . . . . . . . . . . . . . . .
2.2 Procedure for Borrowing . . . . . . . . . . . . . . . . . .
2.3 Commitment Fee . . . . . . . . . . . . . . . . . . . . . .
2.4 Termination or Reduction of Revolving Credit
Commitments . . . . . . . . . . . . . . . . . . . . . .
2.5 Repayment of Loans; Evidence of Debt . . . . . . . . . . .
2.6 Optional Prepayments; Mandatory Prepayments and
Reduction of Commitments . . . . . . . . . . . . . . .
2.7 Conversion and Continuation Options . . . . . . . . . . . .
2.8 Minimum Amounts and Maximum Number of Tranches . . . . . .
2.9 Interest Rates and Payment Dates . . . . . . . . . . . . .
2.10 Computation of Interest and Fees . . . . . . . . . . . . .
2.11 Inability to Determine Interest Rate . . . . . . . . . . .
2.12 Pro Rata Treatment and Payments . . . . . . . . . . . . .
2.13 Illegality . . . . . . . . . . . . . . . . . . . . . . . .
2.14 Requirements of Law . . . . . . . . . . . . . . . . . . .
2.15 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
2.16 Indemnity . . . . . . . . . . . . . . . . . . . . . . . .
2.17 Replacement of Lenders . . . . . . . . . . . . . . . . . .
2.18 Certain Fees . . . . . . . . . . . . . . . . . . . . . . .
2.19 Certain Rules Relating to the Payment of Additional
Amounts . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 3. LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . .
3.1 L/C Commitment . . . . . . . . . . . . . . . . . . . . . .
3.2 Procedure for Issuance of Letters of Credit . . . . . . . .
3.3 Fees, Commissions and Other Charges . . . . . . . . . . . .
3.4 L/C Participation . . . . . . . . . . . . . . . . . . . . .
3.5 Reimbursement Obligation of the Borrower . . . . . . . . .
3.6 Obligations Absolute . . . . . . . . . . . . . . . . . . .
3.7 Letter of Credit Payments . . . . . . . . . . . . . . . . .
3.8 Application . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 4. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . .
4.1 Financial Condition . . . . . . . . . . . . . . . . . . . .
4.2 No Change . . . . . . . . . . . . . . . . . . . . . . . . .
4.3 Corporate Existence; Compliance with Law . . . . . . . . .
4.4 Corporate Power; Authorization; Enforceable Obligations . .
4.5 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . .
4.6 No Material Litigation . . . . . . . . . . . . . . . . . .
4.7 No Default . . . . . . . . . . . . . . . . . . . . . . . .
4.8 Ownership of Property; Liens . . . . . . . . . . . . . . .
4.9 Intellectual Property . . . . . . . . . . . . . . . . . . .
4.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
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4.11 Federal Regulations . . . . . . . . . . . . . . . . . . .
4.12 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . .
4.13 Investment Company Act; Other Regulations . . . . . . . .
4.14 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . .
4.15 Purpose of Loans . . . . . . . . . . . . . . . . . . . . .
4.16 Environmental Matters . . . . . . . . . . . . . . . . . .
4.17 Collateral Documents . . . . . . . . . . . . . . . . . . .
4.18 Accuracy and Completeness of Information . . . . . . . . .
4.19 Solvency. . . . . . . . . . . . . . . . . . . . . . . . .
4.20 Labor Matters . . . . . . . . . . . . . . . . . . . . . .
4.21 Transaction Documents . . . . . . . . . . . . . . . . . .
SECTION 5. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . .
5.1 Conditions to Initial Loans . . . . . . . . . . . . . . . .
5.2 Conditions to Each Extension of Credit . . . . . . . . . .
SECTION 6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . .
6.1 Financial Statements . . . . . . . . . . . . . . . . . . .
6.2 Certificates; Other Information . . . . . . . . . . . . . .
6.3 Payment of Obligations . . . . . . . . . . . . . . . . . .
6.4 Conduct of Business and Maintenance of Existence . . . . .
6.5 Maintenance of Property; Insurance . . . . . . . . . . . .
6.6 Inspection of Property; Books and Records; Discussions . .
6.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . .
6.8 Environmental Laws . . . . . . . . . . . . . . . . . . . .
6.9 Further Assurances . . . . . . . . . . . . . . . . . . . .
6.10 Additional Collateral . . . . . . . . . . . . . . . . . .
6.11 Interest Rate Protection . . . . . . . . . . . . . . . . .
6.12 Foreign Jurisdictions . . . . . . . . . . . . . . . . . .
6.13 Novation; Federal Assignment of Claims . . . . . . . . . .
6.14 Maintenance of Collateral; Alterations . . . . . . . . . .
6.15 Arrangements with the Seller . . . . . . . . . . . . . . .
SECTION 7. NEGATIVE COVENANTS
7.1 Financial Condition Covenants . . . . . . . . . . . . . . .
7.2 Limitation on Indebtedness . . . . . . . . . . . . . . . .
7.3 Limitation on Liens . . . . . . . . . . . . . . . . . . . .
7.4 Limitation on Guarantee Obligations . . . . . . . . . . . .
7.5 Limitation on Fundamental Changes . . . . . . . . . . . . .
7.6 Limitation on Sale of Assets . . . . . . . . . . . . . . .
7.7 Limitation on Dividends . . . . . . . . . . . . . . . . . .
7.8 Limitation on Capital Expenditures . . . . . . . . . . . .
7.9 Limitation on Investments, Loans and Advances . . . . . . .
7.10 Limitation on Optional Payments and Modifications of
Instruments and Agreements . . . . . . . . . . . . . .
7.11 Limitation on Transactions with Affiliates . . . . . . . .
7.12 Limitation on Sales and Leasebacks . . . . . . . . . . . .
7.13 Limitation on Changes in Fiscal Year . . . . . . . . . . .
7.14 Limitation on Negative Pledge Clauses . . . . . . . . . .
7.15 Limitation on Lines of Business . . . . . . . . . . . . .
7.16 Designated Senior Debt . . . . . . . . . . . . . . . . . .
SECTION 8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . .
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SECTION 9. THE AGENTS; THE ARRANGER . . . . . . . . . . . . . . . . . .
9.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . .
9.2 Delegation of Duties . . . . . . . . . . . . . . . . . . .
9.3 Exculpatory Provisions . . . . . . . . . . . . . . . . . .
9.4 Reliance by Agents . . . . . . . . . . . . . . . . . . . .
9.5 Notice of Default . . . . . . . . . . . . . . . . . . . . .
9.6 Non-Reliance on Agents and Other Lenders . . . . . . . . .
9.7 Indemnification . . . . . . . . . . . . . . . . . . . . . .
9.8 Agents, in Their Individual Capacities . . . . . . . . . .
9.9 Successor Administrative Agent . . . . . . . . . . . . . .
9.10 The Arranger . . . . . . . . . . . . . . . . . . . . . . .
SECTION 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . .
10.1 Amendments and Waivers . . . . . . . . . . . . . . . . .
10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . .
10.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . .
10.4 Survival of Representations and Warranties . . . . . . . .
10.5 Payment of Expenses and Taxes . . . . . . . . . . . . . .
10.6 Successors and Assigns; Participation and Assignments . .
10.7 Adjustments; Set-off . . . . . . . . . . . . . . . . . . .
10.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . .
10.9 Severability . . . . . . . . . . . . . . . . . . . . . . .
10.10 Integration . . . . . . . . . . . . . . . . . . . . . . .
10.11 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . .
10.12 SUBMISSION TO JURISDICTION; WAIVERS . . . . . . . . . . .
10.13 Acknowledgements . . . . . . . . . . . . . . . . . . . .
10.14 WAIVERS OF JURY TRIAL . . . . . . . . . . . . . . . . . .
10.15 Confidentiality . . . . . . . . . . . . . . . . . . . . .
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EXHIBITS
Exhibit A-1 Form of Tranche A Term Note
Exhibit A-2 Form of Tranche B Term Note
Exhibit A-3 Form of Tranche C Term Note
Exhibit A-4 Form of Revolving Credit Note
Exhibit A-5 Form of Swing Line Note
Exhibit B-1 Form of Parent Guarantee
Exhibit B-2 Form of Subsidiary Guarantees
Exhibit B-3 Form of Parent Pledge and Security Agreement
Exhibit B-4 Form of Borrower Pledge and Security Agreement
Exhibit B-5 Form of Subsidiary Pledge and Security Agreement
Exhibit C-1 Form of Mortgage
Exhibit C-2 Form of Deed of Trust
Exhibit D-1 Form of Legal Opinion of Simpson Thacher and
Bartlett
Exhibit D-2 Form of Legal Opinion of Fried, Frank, Harris,
Shriver & Jacobson
Exhibit E Form of Borrowing Certificate
Exhibit F Form of Certificate of Non-U.S. Lender
Exhibit G Form of Assignment and Acceptance
SCHEDULES
Schedule I Lenders and Commitments
Schedule II Pricing Grid
Schedule III Real Property to be Mortgaged
Schedule IV Transaction Documents
Schedule 4.4 Required Consents
Schedule 4.5 No Legal Bar
Schedule 4.6 Material Litigation
Schedule 4.8 Real Property
Schedule 4.9 Intellectual Property Claims
Schedule 4.10 Taxes
Schedule 4.14 Subsidiaries
Schedule 4.17 Filing Jurisdictions
Schedule 6.5 Insurance
Schedule 6.10 Certain Real Property
Schedule 7.2(f) Existing Indebtedness
Schedule 7.3(f) Existing Liens
Schedule 7.4 Existing Guarantee Obligations
Schedule 7.9(c) Officers
Schedule 7.9(g) Existing Investments
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CREDIT AGREEMENT, dated as of April 30, 1997, among L-3
Communications Corporation, a Delaware corporation (the "Borrower") which is
wholly owned by L-3 Communications Holdings, Inc., a Delaware corporation
("Holdings"), the several lenders from time to time parties hereto (the
"Lenders"), Lehman Commercial Paper Inc. ("LCPI") as arranger (in such
capacity, the "Arranger"), LCPI, as syndication agent (in such capacity, the
"Syndication Agent"), LCPI, as documentation agent (in such capacity, the
"Documentation Agent") and Bank of America NT & SA ("BOA"), as administrative
agent for the Lenders (in such capacity, the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Borrower is a party to the Transaction Agreement, dated
as of March 28, 1997 (as amended through the date hereof the "Transaction
Agreement"), by and among Lockheed Martin Corporation, a Maryland corporation
(the "Seller"), the Borrower, Lehman Brothers Capital Partners III, L.P.
("Capital Partners") and its Affiliates, Frank C. Lanza and Robert V. LaPenta;
WHEREAS, pursuant to the Transaction Agreement, on the Closing Date:
(i) the Seller, on behalf of itself and its various transferor subsidiaries,
will transfer (the "Asset Contribution") to the Borrower, on behalf of and at
the direction of Holdings, the Transferred Assets (as defined in the
Transaction Agreement); (ii) Holdings will issue to the Seller 6,980,000 shares
of its Class A Common Stock par value $.01 per share; (iii) Holdings will pay
the Seller $479,835,000 in cash (subject to adjustment as provided in the
Transaction Agreement) (the "Cash Consideration"); and (iv) the Borrower, on
behalf of and at the direction of Holdings, will assume the Assumed Liabilities
(as defined in the Transaction Agreement);
WHEREAS, Holdings' obligation to pay the Cash Consideration will be
financed with (i) an investment of not less than $79,835,000 in Holdings Class
A Common Stock (the "Equity Investment"), of which (x) $64,835,000 will be
provided by Capital Partners and (y) $7,500,000 will be provided by each of
Frank C. Lanza and Robert J. LaPenta, (ii) the issuance and sale by the
Borrower of senior subordinated debt securities for cash proceeds of at least
$225.0 million (the "Securities Offering") and (iii) senior debt financing;
WHEREAS, the Borrower has requested the Lenders to extend credit to
it (i) to finance a portion of the Cash Consideration to be paid by Holdings in
connection with the Asset Contribution and (ii) for working capital and general
corporate purposes of the Borrower and its Subsidiaries after the Closing Date;
and
WHEREAS, the Lenders are willing to extend such credit to the
Borrower upon and subject to the terms and conditions hereafter set forth;
NOW, THEREFORE, parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
1
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"Adjustment Date": the fifth day following the receipt by the
Administrative Agent of the financial statements for the most recently
completed fiscal period furnished pursuant to subsection 6.1(a) or (b), as
the case may be, and the compliance certificate with respect to such
financial statements furnished pursuant to subsection 6.2(c). For purposes
of determining the Applicable Margin and the Commitment Fee Rate, the
first "Adjustment Date" shall mean the date on which the financial
statements for the fiscal quarter ended September 30, 1997 furnished
pursuant to subsection 6.1(b) and the related compliance certificate
furnished pursuant to subsection 6.2(c) are delivered to the
Administrative Agent pursuant to subsection 6.1(b) and 6.2(c),
respectively.
"Affiliate": as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" of a Person
means the power, directly or indirectly, either to (a) vote 10% or more of
the securities having ordinary voting power for the election of directors
of such Person or (b) direct or cause the direction of the management and
policies of such Person, whether by contract or otherwise.
"Agents": the collective reference to the Syndication Agent, the
Documentation Agent and the Administrative Agent.
"Aggregate Outstanding Extensions of Credit": as to any Lender with
respect to any Type of Loan at any time, an amount equal to the sum of (a)
the aggregate principal amount of all Loans of such Type made by such
Lender then outstanding and (b) in the case of Revolving Credit Loans,
such Lender's Commitment Percentage of the L/C Obligations then
outstanding.
"Agreement": this Credit Agreement, as amended, restated,
supplemented or otherwise modified from time to time.
"Applicable Margin": at any time, the percentages set forth on
Schedule II under the relevant column heading opposite the level of the
Debt Ratio most recently determined; provided that (a) the Applicable
Margins commencing on the Closing Date shall be those set forth in
Schedule II opposite a Debt Ratio captioned "greater than or equal to
4.75" until the first Adjustment Date, (b) the Applicable Margins
determined for any Adjustment Date (including the first Adjustment Date)
shall remain in effect until a subsequent Adjustment Date for which the
Debt Ratio falls within a different level and (c) if the financial
statements and related compliance certificate for any fiscal period are
not delivered by the date due pursuant to subsections 6.1 and 6.2, the
Applicable Margins shall be (i) for the first 35 days subsequent to such
due date, the Applicable Margin in effect prior to such due date and (ii)
thereafter, those set forth opposite a Debt Ratio captioned "greater than
or equal to 4.75," in either case, until the date of delivery of such
financial statements and compliance certificate.
"Application": an application, in such form as the Issuing Lender
may specify from time to time, requesting the Issuing Lender to issue a
Letter of Credit.
2
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"Asset Contribution": as defined in the recitals to this
Agreement.
"Asset Sale": any sale, sale-leaseback, or other disposition by
any Person or any Subsidiary thereof of any of its property or assets,
including the stock of any Subsidiary of such Person, except sales and
dispositions permitted by subsection 7.6 other than subsection 7.6(b) or
(e).
"Assignee": as defined in subsection 10.6(c).
"Attributable Debt": in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the
rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments during
the remaining term of the lease included in such sale and leaseback
transaction (including any period for which such lease has been extended
or may, at the option of the lessor, be extended).
"Available Commitment": as to any Lender and any Type of Loan, at any
time, an amount equal to the excess, if any, of (a) such Lender's
Commitment with respect to such Type of Loan over (b) such Lender's
Aggregate Outstanding Extensions of Credit with respect to such Type of
Loan.
"Base Rate": means, for any day, the higher of: (a) 0.50% per annum
above the latest Federal Funds Rate; and (b) the rate of interest in
effect for such day as publicly announced from time to time by BOA in San
Francisco, California, as its "reference rate." (The "reference rate" is a
rate set by BOA based upon various factors including BOA's costs and
desired return, general economic conditions and other factors, and is used
as a reference point for pricing some loans, which may be priced at,
above, or below such announced rate.)
"Base Rate Loans": Loans the rate of interest applicable to which
is based upon the Base Rate.
"BOA": as defined in the recitals to this Agreement.
"Borrower Pledge and Security Agreement": the Borrower Pledge and
Security Agreement substantially in the form of Exhibit B-4, to be
executed and delivered by the Borrower, as the same may be amended,
supplemented or otherwise modified.
"Borrowing Date": any Business Day specified in a notice pursuant
to subsection 2.2 as a date on which the Borrower requests the Lenders
to make Loans hereunder.
"Business": as defined in subsection 4.16.
"Business Day": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City or San Francisco, California are
authorized or required by law to close and, if the applicable Business Day
relates to Eurodollar Loans, any day on which dealings are carried on in
the applicable London interbank market.
3
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"Capital Expenditures" shall mean, for any fiscal period, the
aggregate of all expenditures that, in conformity with GAAP (but excluding
capitalized interest), are or are required to be included as additions
during such period to property, plant or equipment reflected on the
consolidated balance sheet of the Borrower and its Subsidiaries, excluding
the expenditures relating to the Transaction.
"Capital Lease Obligations": of any Person as of the date of
determination, the aggregate liability of such Person under Financing
Leases reflected on a balance sheet of such Person under GAAP.
"Capital Partners": as defined in the recitals to this Agreement.
"Capital Stock": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person
(other than a corporation) and any and all warrants or options to
purchase any of the foregoing.
"Cash Consideration": as defined in the recitals to this
Agreement.
"Cash Equivalents": (a) securities with maturities of one year or
less from the date of acquisition issued or fully guaranteed or insured by
the United States Government or any agency thereof, (b) certificates of
deposit and time deposits with maturities of one year or less from the
date of acquisition and overnight bank deposits of any Lender or of any
commercial bank having capital and surplus in excess of $500,000,000, (c)
repurchase obligations of any Lender or of any commercial bank satisfying
the requirements of clause (b) of this definition, having a term of not
more than 90 days with respect to securities issued or fully guaranteed or
insured by the United States Government, (d) commercial paper of a
domestic issuer rated at least A-2 by Standard and Poor's Rating Group
("S&P") or P-2 by Moody's Investors Service, Inc. ("Moody's"), or carrying
an equivalent rating by a nationally recognized rating agency if both of
S&P and Moody's cease publishing ratings of investments, (e) securities
with maturities of one year or less from the date of acquisition issued or
fully guaranteed by any state, commonwealth or territory of the United
States, by any political subdivision or taxing authority of any such
state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political subdivision,
taxing authority or foreign government (as the case may be) are rated at
least A by S&P or A by Moody's, (f) securities with maturities of one year
or less from the date of acquisition backed by standby letters of credit
issued by any Lender or any commercial bank satisfying the requirements of
clause (b) of this definition or (g) shares of money market mutual or
similar funds which invest exclusively in assets satisfying the
requirements of clauses (a) through (f) of this definition.
"Change of Control": the occurrence of any of the following
events:
(i) the Principals and their Related Parties, as a whole, shall
at any time cease to own, directly or indirectly, 60% of the Capital
Stock of Holdings, determined on a fully diluted basis; or
4
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(ii) the Principals or their Related Parties, as a whole, shall
at any time cease to own, determined on a fully diluted basis,
sufficient shares of the Capital Stock of Holdings, determined on a
fully diluted basis, to elect a majority of the Board of Directors of
Holdings and the Borrower or otherwise cease to have the right or
ability, by voting power, contract or otherwise, to elect or
designate for election a majority of the Board of Directors of
Holdings and the Borrower; or
(iii) Holdings shall, at any time, cease to own 100% of the
Capital Stock of the Borrower; or
(iv) a "Change of Control" shall have occurred under the
Indenture.
"Class": (i) Lenders having Tranche A Term Loan Exposure and/or
Revolving Loan Exposure (taken together as a single class), (ii) Lenders
having Tranche B Term Loan Exposure and (iii) Lenders having Tranche C
Term Loan Exposure.
"Closing Date": the date on which the conditions precedent set
forth in subsection 5.1 shall be satisfied.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral": all assets of the Credit Parties, now owned or
hereinafter acquired, upon which a Lien is purported to be created by
any Security Document.
"Commitment": as to any Lender, such Lender's Tranche A Term Loan
Commitment, Tranche B Term Loan Commitment, Tranche C Term Loan
Commitment and Revolving Credit Commitment.
"Commitment Letter": the Commitment Letter, dated as of April 2,
1997, among Holdings, the Borrower and LCPI, as the same may be amended,
supplemented or otherwise modified from time to time.
"Commitment Fee Rate": at any time, the rates per annum set forth on
Schedule II under the relevant column heading opposite the level of the
Debt Ratio most recently determined; provided that (a) the Commitment Fee
Rate commencing on the Closing Date shall be that set forth in Schedule II
opposite a Debt Ratio captioned "greater than or equal to 4.75" until the
first Adjustment Date, (b) the Commitment Fee Rate determined for any
Adjustment Date (including the first Adjustment Date) shall remain in
effect until a subsequent Adjustment Date for which the Debt Ratio falls
within a different level and (c) if the financial statements and related
compliance certificate for any fiscal period are not delivered by the date
due pursuant to subsections 6.1 and 6.2, the Commitment Fee Rate shall be
(i) for the first 35 days subsequent to such due date, the Commitment Fee
Rate in effect prior to such due date and (ii) thereafter, that set forth
opposite a Debt Ratio captioned "greater than or equal to 4.75," in either
case, until the date of delivery of such financial statements and
compliance certificate.
5
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"Commitment Percentage": as to the Commitment of any Lender with
respect to any Type of Loan at any time, the percentage which the
Commitment of such Lender with respect to such Type of Loan then
constitutes of the aggregate Commitments with respect to such Type of Loan
(or, at any time after such Commitments shall have expired or terminated,
the percentage which the aggregate amount of the Aggregate Outstanding
Extensions of Credit of such Lender with respect to such Type of Loan
constitutes of the aggregate amount of the Aggregate Outstanding
Extensions of Credit of all Lenders with respect to such Type of Loan).
"Commitment Period": the period from and including the date hereof
to but not including the Revolving Loan Termination Date or such earlier
date on which the Revolving Credit Commitments shall terminate as
provided herein.
"Commonly Controlled Entity": an entity, whether or not incorporated,
which is under common control with the Borrower within the meaning of
Section 4001 of ERISA or is part of a group which includes the Borrower
and which is treated as a single employer under Section 414 (b) or (c) of
the Code.
"Consolidated EBITDA": as of the last day of any fiscal quarter,
Consolidated Net Income (excluding without duplication, (x) extraordinary
gains and losses in accordance with GAAP, (y) gains and losses in
connection with asset dispositions whether or not constituting
extraordinary gains and losses and (z) gains or losses on discontinued
operations) for such period, plus (i) Consolidated Cash Interest Expense
for such period, plus (ii) to the extent deducted in computing such
Consolidated Net Income, the sum of income taxes, depreciation and
amortization for the four fiscal quarters ended on such date; provided
that for any calculation of Consolidated EBITDA for any fiscal period
ending during the first three full fiscal quarters following March 31,
1997, Consolidated EBITDA shall be deemed to be Consolidated EBITDA from
March 31, 1997 to the last day of such period multiplied by a fraction the
numerator of which is 365 and the denominator of which is the number of
days from March 31, 1997 to the last day of such period.
"Consolidated Cash Interest Expense": as of the last day of any
fiscal quarter, the amount of interest expense, payable in cash, of the
Borrower and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP for the four fiscal quarters
ended on such date; provided that for any calculation of Consolidated Cash
Interest Expense for any fiscal period ending during the first three full
fiscal quarters following March 31, 1997, Consolidated Cash Interest
Expense shall be deemed to be Consolidated Cash Interest Expense from
March 31, 1997 to the last day of such period multiplied by a fraction the
numerator of which is 365 and the denominator of which is the number of
days from March 31, 1997 to the last day of such period.
"Consolidated Net Income": for any fiscal period, net income of
the Borrower and its Subsidiaries, determined on a consolidated basis in
accordance with GAAP.
"Consolidated Total Debt": at any date, all Indebtedness of the
Borrower and its Subsidiaries outstanding on such date for borrowed
money or the deferred purchase price of property, including, without
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limitation, in respect of Financing Leases but excluding Indebtedness
permitted pursuant to subsection 7.2(h).
"Consolidated Working Capital": at any date, the excess of (a) the
sum of all amounts (other than cash and Cash Equivalents) that would, in
accordance with GAAP, be set forth opposite the caption "total current
assets" (or any like caption) on a consolidated balance sheet of the
Borrower and its Subsidiaries at such date over (b) the sum of all amounts
that would, in accordance with GAAP, be set forth opposite the caption
"total current liabilities" (or any like caption) on a consolidated
balance sheet of the Borrower and its Subsidiaries on such date
(excluding, to the extent it would otherwise be included under current
liabilities, any short-term Consolidated Total Debt and the current
portion of any long-term Consolidated Total Debt).
"Constitutional Documents": as to any Person, the articles or
certificate of incorporation and by-laws, partnership agreement or other
organizational documents of such Person.
"Contingent Purchase Price Receipts": at any date, the aggregate
cash received by Holdings, the Borrower or any of their Subsidiaries in
respect of any purchase price adjustment made pursuant to, or in
connection with, the Transaction Agreement subsequent to the date
hereof.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Credit Documents": this Agreement, the Notes, the Applications,
the Guarantees and the Security Documents.
"Credit Parties": the Borrower, Holdings, and each Subsidiary of
the Borrower which is a party to a Credit Document.
"Debt Ratio": as at the last day of any fiscal quarter, the ratio
of (a) Consolidated Total Debt on such date to (b) Consolidated EBITDA.
"Default": any of the events specified in Section 8, whether or
not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"Dollars" and "$": dollars in lawful currency of the United States
of America.
"Environmental Laws": any and all laws, rules, orders, regulations,
statutes, ordinances, codes, decrees, or other legally enforceable
requirement (including, without limitation, common law) of any foreign
government, the United States, or any state, local, municipal or other
governmental authority, regulating, relating to or imposing liability or
standards of conduct concerning protection of the environment or of human
health as affected by the environment as has been, is now, or may at any
time hereafter be, in effect, including, but not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. Sections 9601 et seq.; the Toxic Substance
Control Act, 15 U.S.C. Sections 9601
7
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et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Section
1802 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C.
Sections 6901 et seq.; the Clean Water Act; 33 U.S.C. Sections 1251 et
seq.; the Clean Air Act, 42 U.S.C. Sections 7401 et seq.; or other similar
federal and/or state environmental laws.
"Environmental Permits": any and all permits, licenses,
registrations, notifications, exemptions and any other authorization
required under any applicable Environmental Law.
"Equity Documents": the Stockholder Agreement, the Subscription
Agreements and the Option Agreements.
"Equity Investment": as defined in the recitals to this Agreement.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurocurrency Reserve Requirements": means for any day for any
Interest Period the maximum reserve percentage (expressed as a decimal,
rounded upward to the next 1/100th of 1%) in effect on such day (whether
or not applicable to any Lender) under regulations issued from time to
time by the FRB for determining the maximum reserve requirement (including
any emergency, supplemental or other marginal reserve requirement) with
respect to Eurocurrency funding (currently referred to as "Eurocurrency
liabilities").
"Eurodollar Loans": Loans the rate of interest applicable to which
is based upon the Eurodollar Rate.
"Eurodollar Rate": means, for any Interest Period, with respect to
Eurodollar Loans comprising part of the same borrowing, the rate of
interest per annum (rounded upward to the next 1/16th of 1%) determined
by the Administrative Agent as follows:
Eurodollar Rate = LIBOR
1.00 - Eurodollar Reserve Percentage
"Eurodollar Reserve Percentage": for any day for any Interest Period
the maximum reserve percentage (expressed as a decimal, rounded upward to
the next 1/100th of 1%) in effect on such day (whether or not applicable
to any Lender) under regulations issued from time to time by the FRB for
determining the maximum reserve requirement (including any emergency,
supplemental or other marginal reserve requirement) with respect to
Eurocurrency funding (currently referred to as "Eurocurrency
liabilities").
"Event of Default": any of the events specified in Section 8,
provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"Excess Cash Flow": for any fiscal year of the Borrower, the excess
of (a) the sum, without duplication, of (i) Consolidated Net Income for
such fiscal year, (ii) the net decrease, if any, in Consolidated Working
Capital during such fiscal year, (iii) to the extent deducted in computing
such Consolidated Net Income, non-cash
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interest expense, depreciation and amortization for such fiscal year, (iv)
extraordinary non-cash losses during such fiscal year subtracted in the
determination of Consolidated Net Income for such fiscal year, (v) change
in deferred tax liability of the Borrower for such fiscal year, (vi)
non-cash losses in connection with asset dispositions whether or not
constituting extraordinary losses, (vii) non-cash ordinary losses and
(viii) Contingent Purchase Price Receipts in excess of $10,000,000 over
(b) the sum, without duplication, of (i) the aggregate amount of permitted
cash Capital Expenditures made by the Borrower and its Subsidiaries during
such fiscal year, (ii) the net increase, if any, in Consolidated Working
Capital during such fiscal year, (iii) the aggregate amount of payments of
principal in respect of any Indebtedness not prohibited hereunder during
such fiscal year (other than prepayments of Revolving Credit Loans not
accompanied by reductions of the Commitments), (iv) deferred income tax
credit of the Borrower for such fiscal year, (v) extraordinary non-cash
gains during such fiscal year added in the determination of Consolidated
Net Income for such fiscal year, (vi) non-cash gains in connection with
asset dispositions whether or not constituting extraordinary gains and
(vii) non-cash ordinary gains.
"Excess Cash Flow Payment Date": in respect of any fiscal year,
the date on which the Borrower is required to deliver audited financial
statements for such fiscal year to each Lender pursuant to subsection
6.1(a).
"Financing Lease": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.
"Final Maturity Date": March 31, 2006.
"Foreign Subsidiary": any Subsidiary which is organized under the
laws of any jurisdiction outside the United States or under the laws of
the U.S. Virgin Islands.
"FRB": means the Board of Governors of the Federal Reserve System,
and any governmental authority succeeding to any of its principal
functions.
"GAAP": generally accepted accounting principles in the United
States of America in effect from on the Closing Date.
"GC Notice Recipient": with respect to any Government Contract,
the true and correct (x) contracting officer, or the head of the
respective U.S. government department or agency, (y) surety or sureties
upon the bond or bonds, if any, in connection with such Government
Contract, and (z) disbursing officer, if any designated in such
Government Contract to make payment.
"Governmental Authority": any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another
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<PAGE>
Person (including, without limitation, any bank under any letter of
credit) to induce the creation of which the guaranteeing person has issued
a reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends
or other obligations (the "primary obligations") of any other third Person
(the "primary obligor") in any manner, whether directly or indirectly,
including, without limitation, reimbursement obligations under letters of
credit and any obligation of the guaranteeing person, whether or not
contingent, (i) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to advance or
supply funds (1) for the purchase or payment of any such primary
obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assure or hold harmless the owner
of any such primary obligation against loss in respect thereof; provided,
however, that the term Guarantee Obligation shall not include endorsements
of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing
person shall be deemed to be the lower of (a) an amount equal to the
stated or determinable amount of the primary obligation in respect of
which such Guarantee Obligation is made and (b) the maximum amount for
which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary
obligation and the maximum amount for which such guaranteeing person may
be liable are not stated or determinable, in which case the amount of such
Guarantee Obligation shall be such guaranteeing person's maximum
reasonably anticipated liability in respect thereof as determined by the
Borrower in good faith.
"Guarantees": the Parent Guarantee and the Subsidiary Guarantees.
"Indebtedness": of any Person at any date, (a) all indebtedness of
such Person for borrowed money or for the deferred purchase price of
property or services (other than current trade liabilities incurred in the
ordinary course of business and payable in accordance with customary
practices and accrued expenses incurred in the ordinary course of
business), (b) any other indebtedness of such Person which is evidenced by
a note, bond, debenture or similar instrument, (c) all obligations of such
Person under Financing Leases, (d) all obligations of such Person in
respect of acceptances issued or created for the account of such Person,
(e) all liabilities secured by any Lien on any property owned by such
Person even though such Person has not assumed or otherwise become liable
for the payment thereof and (f) all Attributable Debt of such Person with
respect to sale and leaseback transactions of such Person.
"Indenture": the Indenture between the Borrower and The Bank of
New York, as trustee, pursuant to which the Subordinated Notes are
issued.
"Insolvency": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section 4245
of ERISA.
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"Insolvent": pertaining to a condition of Insolvency.
"Interest Payment Date": (a) as to any Base Rate Loan, the last
Business Day of each March, June, September and December, (b) as to any
Eurodollar Loan having an Interest Period of three months or less, the
last Business Day of such Interest Period, and (c) as to any Eurodollar
Loan having an interest period longer than three months, (i) each Business
Day which is three months or a whole multiple thereof after the first day
of such Interest Period and (ii) the last Business Day of such Interest
Period.
"Interest Period": with respect to any Eurodollar Loan:
(a) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such Eurodollar
Loan and ending one, two, three or six months thereafter, as selected
by the Borrower in its notice of borrowing or notice of conversion,
as the case may be, given with respect thereto; and
(b) thereafter, each period commencing on the last day of the
preceding Interest Period applicable to such Eurodollar Loan and
ending one, two, three or six months thereafter, as selected by the
Borrower by irrevocable notice to the Administrative Agent not less
than three Business Days prior to the last day of the then current
Interest Period with respect thereto;
provided that, all of the foregoing provisions relating to Interest
Periods are subject to the following:
(i) if any Interest Period pertaining to a Eurodollar Loan would
otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless
the result of such extension would be to carry such Interest Period
into another calendar month, in which event such Interest Period
shall end on the immediately preceding Business Day;
(ii) any Interest Period for any Loan that would otherwise
extend beyond the Termination Date of such Loan shall end on the
Termination Date of such Loan;
(iii) any Interest Period pertaining to a Eurodollar Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
in which such Interest Period would otherwise be scheduled to end)
shall end on the last Business Day of the appropriate calendar month;
and
(iv) no Interest Period with respect to any portion of any Type
of Term Loan shall extend beyond a date on which the Borrower is
required to make a scheduled payment of principal of Term Loans of
such Type unless the sum of (a) the aggregate principal amount of
Term Loans of such Type that are Base Rate Loans plus (b) the
aggregate principal amount of Term Loans of such Type that are
Eurodollar Rate Loans with Interest Periods expiring on or before
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such date equals or exceeds the principal amount required to be paid
on Term Loans of such Type on such date.
"Interest Rate Agreement": any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other
similar agreement or arrangement.
"Interest Rate Agreement Obligations": the obligations of the
Borrower or any of its Subsidiaries to make payments to counterparties
under Interest Rate Agreements in the event of the occurrence of a
termination event thereunder.
"Issuing Lender": BOA, in its capacity as issuer of any Letter of
Credit or, at the election of BOA, such other Lender or Lenders that
agree to act as Issuing Lender at the request of the Company.
"LCPI": as defined in the recitals to this Agreement.
"L/C Commitment": $15,000,000.
"L/C Fee Payment Date": the last Business Day of each March, June,
September and December.
"L/C Obligations": at any time, an amount equal to the sum of (a) the
aggregate then undrawn and unexpired amount of the then outstanding
Letters of Credit and (b) the aggregate amount of drawings under Letters
of Credit which have not then been reimbursed pursuant to subsection 3.5.
"L/C Participants": the collective reference to all the Revolving
Credit Lenders other than the Issuing Lender.
"Lender" and "Lenders": the persons identified as Lenders and listed
on the signature pages of this Agreement (including the Issuing Bank and
the Swing Line Lender), together with their successors and permitted
assigns pursuant to subsection 10.6; provided that the term "Lenders",
when used in the context of a particular Commitment, shall mean Lenders
having that Commitment.
"Letters of Credit": as defined in subsection 3.1.
"LIBOR": the rate of interest per annum determined by the
Administrative Agent to be the arithmetic mean (rounded upward to the next
1/16th of 1%) of the rates of interest per annum notified to the
Administrative Agent by each Reference Bank as the rate of interest at
which dollar deposits in the approximate amount of the amount of the Loan
to be made or continued as, or converted into, a Eurodollar Rate Loan by
such Reference Bank and having a maturity comparable to such Interest
Period would be offered to major banks in the London interbank market at
their request at approximately 11:00 a.m. (London time) two Business Days
prior to the commencement of such Interest Period.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title
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retention agreement and any Financing Lease having substantially the same
economic effect as any of the foregoing).
"Loan": any loan made by any Lender pursuant to this Agreement.
"Lockheed Martin Predecessor Businesses": the businesses to be
transferred by the Seller and its Subsidiaries to the Borrower
pursuant to the Transaction Agreement.
"Loral Acquired Businesses": that portion of the Lockheed Martin
Predecessor Businesses consisting of the Seller's Wide Band Systems
Division and Products Group, comprised of ten autonomous operations,
acquired by the Seller effective April 1, 1996, as part of the
acquisition by the Seller of the defense electronics business of
Loral Corporation.
"Material Adverse Effect": a material adverse effect on (a) the
business, assets, operations, property or condition (financial or
otherwise) of Holdings and its Subsidiaries taken as a whole, (b) the
validity or enforceability of this or any of the other Credit Documents or
the rights or remedies of the Agents or the Lenders hereunder or
thereunder or (c) the Transaction.
"Materials of Environmental Concern": any hazardous or toxic
substances, materials or wastes, defined or regulated as such in or under,
or that could give rise to liability under, any applicable Environmental
Law, including, without limitation, asbestos, polychlorinated biphenyls,
urea-formaldehyde insulation, gasoline or petroleum (including crude oil
or any fraction thereof) or petroleum products.
"Mortgages": the collective reference to the mortgages and deeds of
trust to be executed and delivered by the Borrower or the appropriate
Subsidiary, substantially in the forms of Exhibit C-1 and C-2 (with such
changes therein as may be required to reflect different laws and practices
in the various jurisdictions in which the Mortgages are to be recorded),
covering the parcels of real property identified in Schedule III, as the
same may be amended, supplemented or otherwise modified from time to time.
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Proceeds": the aggregate cash proceeds (including Cash
Equivalents) received by Holdings or any of its Subsidiaries in respect
of:
(a) any issuance by the Borrower or any of its Subsidiaries
of Indebtedness after the Closing Date;
(b) any Asset Sale; and
(c) any cash payments received in respect of promissory notes or
other evidences of indebtedness delivered to Holdings or such
Subsidiary in respect of an Asset Sale;
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in each case net of (without duplication) (i), (A) in the case of an Asset
Sale, the amount required to repay any Indebtedness (other than the Loans)
secured by a Lien on any assets of Holdings or a Subsidiary of Holdings
that are sold or otherwise disposed of in connection with such Asset Sale
and (B) reasonable and appropriate amounts established by Holdings or such
Subsidiary, as the case may be, as a reserve against liabilities
associated with such Asset Sale and retained by Holdings or such
Subsidiary, (ii) the reasonable expenses (including legal fees and
brokers' and underwriters' commissions, lenders fees, credit enhancement
fees, accountants' fees, investment banking fees, survey costs, title
insurance premiums and other customary fees, in any case, paid to third
parties or, to the extent permitted hereby, Affiliates) incurred in
effecting such issuance or sale and (iii) any taxes reasonably
attributable to such sale and reasonably estimated by Holdings or such
Subsidiary to be actually payable.
"Non-Excluded Taxes": as defined in subsection 2.15.
"Non-U.S. Lender": as defined in subsection 2.15(b).
"Notes": The Tranche A Term Notes, the Tranche B Term Notes, the
Tranche C Term Notes, the Revolving Credit Notes and the Swing Line Note
(or any of them).
"Novation Agreement": as defined in the Transaction Agreement.
"Obligations": as defined in the Guarantees and the Security
Documents.
"Option Agreements": the Option Agreements between Holdings and
each of Frank C. Lanza and Robert V. LaPenta, each dated as of the
Closing Date.
"Parent Distributions": as defined in the Parent Guarantee.
"Parent Guarantee": the Parent Guarantee substantially in the form
of Exhibit B-1, to be executed and delivered by Holdings, as the same
may be amended, supplemented or otherwise modified.
"Parent Pledge and Security Agreement": the Parent Pledge and
Security Agreement substantially in the form of Exhibit B-3, to be
executed and delivered by Holdings, as the same may be amended,
supplemented or otherwise modified.
"Participant": as defined in subsection 10.6(b).
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA, or any successor thereto.
"Permitted Liens": Liens permitted to exist under subsection 7.3.
"Permitted Stock Payments": (A) dividends by the Borrower to Holdings
in amounts equal to the amounts required for Holdings to pay franchise
taxes and other fees required to maintain its legal existence and provide
for other operating costs of up to $1,000,000 per fiscal year, (B)
dividends by the Borrower to Holdings in amounts equal to amounts required
for Holdings to pay federal, state and local income
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taxes to the extent such income taxes are actually due and owing; provided
that the aggregate amount paid under this clause (B) does not exceed the
amount that the Borrower would be required to pay in respect of the income
of the Borrower and its Subsidiaries if the Borrower were a stand alone
entity that was not owned by Holdings, and (C) from and after May 1, 1999,
dividends by the Borrower to Holdings payable solely out of Excess Cash
Flow which is not required to be applied to the prepayment of Loans and
the permanent reduction of Commitments pursuant to subsection 2.6(a)(iii),
provided that (i) as of the last day of the most recently completed fiscal
quarter the Debt Ratio is less than or equal to 3.5 to 1, (ii) the
aggregate amount of dividends paid by the Borrower to Holdings under this
clause (C) since the date of this Agreement does not exceed $5,000,000 and
(iii) Holdings promptly uses the proceeds of such dividends to repurchase
Capital Stock of Holdings.
"Person": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan covered by
ERISA and in respect of which the Borrower or any Commonly Controlled
Entity maintains, administers, contributes to or is required to
contribute to, or under which the Borrower or any Commonly Controlled
Entity may incur any liability.
"Principals": each of Lehman Brothers Holdings, Inc., Capital
Partners, the Seller, Frank C. Lanza and Robert V. LaPenta.
"Pro Forma Financial Statements": as defined in subsection 4.1(c).
"Properties": as defined in subsection 4.17.
"Purchase Agreement": the Purchase Agreement, dated as of April
25, 1997, among the Borrower and each of Lehman Brothers, Inc. and
BancAmerica Securities, Inc.
"Receivables": as defined in the Security Documents.
"Reference Bank": the Bank of America NT & SA.
"Register": as defined in subsection 10.6(d).
"Registration Rights Agreement": the Registration Rights
Agreement, dated as of April 30, 1997, among the Borrower and each of
Lehman Brothers, Inc. and BancAmerica Securities, Inc.
"Regulation U": Regulation U of the Board of Governors of the
Federal Reserve System as in effect from time to time.
"Reimbursement Obligation": the obligation of the Borrower to
reimburse the Issuing Lender pursuant to subsection 3.5 for amounts
drawn under Letters of Credit.
"Refunded Swing Line Loan": as defined in subsection 2.1(b)(iii).
"Related Party": with respect to the Principals, (a) any
controlling stockholder, 51% (or more) owned Subsidiary, or spouse or
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immediate family member (in the case of an individual) of such Principal
or (b) a trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding an 51% or more controlling interest of which consist of the
Principals and/or such other Persons referred to in the immediately
preceding clause (a).
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(c)
of ERISA, other than those events as to which the thirty-day notice
period is waived under the regulations of the PBGC.
"Required Lenders": at any time, Lenders the Commitment
Percentages for all Types of Loans of which aggregate more than 50%.
"Requirement of Law": as to any Person, the Constitutional Documents
of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Requisite Class Lenders": at any time, (a) for the Class Lenders
having Tranche A Term Loan Exposure, Lenders having or holding 66 2/3% of
the aggregate Tranche A Term Loan Exposure of all Lenders, (b) for the
Class Lenders having Revolving Credit Loan Exposure, Lenders having or
holding 66 2/3% of the aggregate Revolving Credit Loan Exposure of all
Lenders, (c) for the Class Lenders having Tranche B Term Loan Exposure,
Lenders having or holding 66 2/3% of the aggregate Tranche B Term Loan
Exposure of all Lenders and (d) for the Class Lenders having Tranche C
Term Loan Exposure, Lenders having or holding 66 2/3% of the aggregate
Tranche C Term Loan Exposure of all Lenders.
"Responsible Officer": the chief executive officer, the president
or vice president of the Borrower or, with respect to financial matters,
the chief financial officer, vice president--finance or treasurer of the
Borrower.
"Restricted Government Contracts": as defined in the Security
Documents.
"Revolving Credit Commitment": the commitment of a Lender, as set
forth on Schedule I hereto, to make Revolving Credit Loans to the Borrower
pursuant to Subsection 2.1(a)(iv) and, to issue and/or purchase
participations in Letters of Credit pursuant to Section 3; and "Revolving
Credit Commitments" means such commitments of all Lenders in the
aggregate, which shall initially be $100,000,000.
"Revolving Credit Lender": any Lender or Lenders having a Revolving
Credit Commitment or a Revolving Credit Loan outstanding.
"Revolving Credit Loans": the Loans made by Revolving Credit
Lenders to the Borrower pursuant to Subsection 2.1(a)(iv).
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"Revolving Credit Loan Exposure": with respect to any Lender as of
date of determination, (i) if there are no outstanding Letters of Credit
or Revolving Credit Loans, that Lender's Revolving Credit Commitment, and
(ii) otherwise, the sum of (a) the aggregate outstanding principal amount
of the Revolving Credit Loans of that Lender plus (b) in the event that
Lender is an Issuing Lender, the aggregate Letter of Credit Usage in
respect of all Letters of Credit issued by that Lender (in each case net
of any participations purchased by other Lenders in such Letters of Credit
or any unreimbursed drawings thereunder) plus (c) in the event that such
Lender is the Swing Line Lender, the aggregate principal amount of Swing
Line Loans made by such Lender then outstanding (net of any participations
purchased by other Lenders in such Swing Line Loans) plus (d) the
aggregate amount of all participations purchased by that Lender in any
outstanding Swing Line Loans or Letters of Credit or any unreimbursed
drawings under any Letters of Credit.
"Revolving Credit Notes": (i) the promissory notes of the Borrower
issued pursuant to subsection 2.5(i)(iv) on the Closing Date to evidence
the Revolving Credit Loans of any Lender and (ii) any promissory notes
issued by the Borrower pursuant to Section 10.6(d) in connection with
assignments of the Revolving Credit Commitments and Revolving Credit Loans
of any Lenders, in each case substantially in the form of Exhibit A-4
annexed hereto, as they may be amended, supplemented or otherwise modified
from time to time.
"Revolving Loan Termination Date": March 31, 2003.
"Security Documents": the collective reference to the Parent Pledge
and Security Agreement, the Borrower Pledge and Security Agreement and the
Subsidiary Pledge and Security Agreement, the Mortgages and all other
security documents hereafter delivered to the Administrative Agent
granting a Lien on any asset or assets of any Person to secure the
obligations and liabilities of the Borrower hereunder and under any of the
other Credit Documents or to secure any guarantee of any such obligations
and liabilities.
"Securities Offering": as defined in the recitals to this
Agreement.
"Seller": as defined in the recitals to this Agreement.
"Similar Business": a business, at least a majority of whose revenues
in the most recently ended calendar year were derived from (i) the sale of
defense products, electronics, communications systems, aerospace products,
avionics products and/or communications products, (ii) any services
related thereto, (iii) any business or activity that is reasonably similar
thereto or a reasonable extension, development or expansion thereof or
ancillary thereto, and (iv) any combination of any of the foregoing.
"Single Employer Plan": any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"Stockholders Agreement": the Stockholders Agreement, dated as of
April 30, 1997, by and among the Borrower, Holdings, the Seller, the
Principals and any other party that may from time to time become a party
17
<PAGE>
thereto as provided therein, as the same may be amended, supplemented or
otherwise modified from time to time.
"Subordinated Debt": indebtedness outstanding under the
Subordinated Notes.
"Subordinated Debt Documents": the Indenture, the Registration
Rights Agreement, the Purchase Agreement and the Subordinated Notes.
"Subordinated Notes": the Borrower's 10 3/8% Senior Subordinated
Notes, due 2007 (the "Initial Subordinated Notes"), issued on the Closing
Date, and the subordinated notes of the Borrower, having the same terms as
the Initial Subordinated Notes, issued in exchange for the Initial
Subordinated Notes as contemplated by the Subordinated Debt Documents.
"Subscription Agreements": the Common Stock Subscription
Agreements between Holdings and each of Frank C. Lanza, Robert V.
LaPenta, Capital Partners and the Seller, each dated as of the Closing
Date.
"Subsidiary": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, directly
or indirectly, by such Person. Unless otherwise qualified, all references
to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Borrower.
"Subsidiary Guarantees": the Subsidiary Guarantees substantially
in the form of Exhibit B-2, to be executed and delivered by the
Borrower's Subsidiaries, as the same may be amended, supplemented or
otherwise modified.
"Subsidiary Pledge and Security Agreement": the Subsidiary Pledge
and Security Agreement substantially in the form of Exhibit B-5, to be
executed and delivered by the Borrower's Subsidiaries, as the same may
be amended, supplemented or otherwise modified.
"Swing Line Lender": means Bank of America NT & SA.
"Swing Line Loans": as defined in Section 2.1(b).
"Term Loan Commitment or Term Loan Commitments": the commitments
of a Lender to make any Term Loans pursuant to subsection 2.1(a); and
Term Loan Commitments means such commitments of all Lenders in the
aggregate, which shall initially be $175,000,000.
"Term Loan Exposure": with respect to a Lender of a Type of Term Loan
as of any date of determination, (i) prior to the termination of all of a
Lender's Commitment with respect to the Term Loans of such Type, that
Lender's Commitment with respect to Term Loans of such Type (or any
portion thereof that has not been terminated) plus the outstanding
principal amount of the Term Loan of such Type of that Lender, and (ii)
after the termination of all of a Lender's Commitment
18
<PAGE>
with respect to the Term Loans of such Type, the outstanding principal
amount of the Term Loan of such Type of that Lender.
"Term Loans": one or more of the Tranche A Term Loans, the Tranche
B Term Loans or the Tranche C Term Loans.
"Termination Date": (i) with respect to Tranche A Term Loans, March
31, 2003; (ii) with respect to Tranche B Term Loans, March 31, 2005; (iii)
with respect to Tranche C Term Loans, March 31, 2006; and (iv) with
respect to Revolving Credit Loans and Swing Line Loans, the Revolving
Credit Termination Date.
"Tranche": the collective reference to Eurodollar Loans the then
current Interest Periods with respect to all of which begin on the same
date and end on the same later date (whether or not such Loans shall
originally have been made on the same day); Tranches may be identified as
"Eurodollar Tranches".
"Tranche A Term Lender": any Lender having a Tranche A Term Loan
Commitment or a Tranche A Term Loan outstanding.
"Tranche A Term Loans": the Loans made by Tranche A Term Lenders
to the Borrower pursuant to subsection 2.1(a)(i).
"Tranche A Term Loan Commitment": the commitment of a Tranche A Term
Lender, as set forth on Schedule I hereto, to make a Tranche A Term Loan
to the Borrower pursuant to subsection 2.1(a)(i); and "Tranche A Term Loan
Commitments" means such commitments of all Tranche A Term Lenders in the
aggregate, which shall initially be $100,000,000.
"Tranche A Term Notes": (i) the promissory notes of the Borrower
issued pursuant to subsection 2.5(i)(i) on the Closing Date to evidence
the Tranche A Term Loans of any Lender and (ii) any promissory notes
issued by the Borrower pursuant to subsection 10.6(d) in connection with
assignments of the Tranche A Term Loan Commitments and Tranche A Term
Loans of any Lender, in each case substantially in the form of Exhibit A-1
annexed hereto, as they may be amended, supplemented or otherwise modified
from time to time.
"Tranche B Term Lenders": any Lender having a Tranche B Term Loan
Commitment or a Tranche B Term Loan outstanding.
"Tranche B Term Loans": the Loans made by Tranche B Term Lenders
to the Borrower pursuant to subsection 2.1(a)(ii).
"Tranche B Term Loan Commitment": the commitment of a Tranche B Term
Lender to make a Tranche B Term Loan to the Borrower pursuant to
subsection 2.1(a)(ii); and "Tranche B Term Loan Commitments" means such
commitments of all Tranche B Term Lenders in the aggregate, which shall
initially be $45,000,000.
"Tranche B Term Notes": (i) the promissory notes of the Borrower
issued pursuant to subsection 2.5(i)(ii) on the Closing Date to evidence
the Tranche B Term Loans of any Lender and (ii) any promissory notes
issued by the Borrower pursuant to subsection 10.6(d) in connection with
assignments of the Tranche B Term Loan Commitments and Tranche B Term
Loans of any Lender, in each case substantially in the form of
19
<PAGE>
Exhibit A-2 annexed hereto, as they may be amended, supplemented or
otherwise modified from time to time.
"Tranche C Term Lender": any Lender having a Tranche C Term Loan
Commitment or a Tranche C Term Loan outstanding.
"Tranche C Term Loan Commitment": the commitment of a Tranche C Term
Lender, as set forth on Schedule I hereto, to make a Tranche C Term Loan
to the Borrower pursuant to subsection 2.1(a)(iii); and "Tranche C Term
Loan Commitments" means such commitments of all Tranche C Term Lenders in
the aggregate, which shall initially be $30,000,000.
"Tranche C Term Loans": the Loans made by Tranche C Term Lenders to
the Borrower pursuant to subsection 2.1(a)(iii).
"Tranche C Term Notes": (i) the promissory notes of the Borrower
issued pursuant to subsection 2.5(i)(iii) on the Closing Date to evidence
the Tranche C Term Loans of any Lender and (ii) any promissory notes
issued by the Borrower pursuant to subsection 10.6(d) in connection with
assignments of the Tranche C Term Loan Commitments and Tranche C Term
Loans of any Lender, in each case substantially in the form of Exhibit A-3
annexed hereto, as they may be amended, supplemented or otherwise modified
from time to time.
"Transaction": the transactions contemplated by the Transaction
Documents.
"Transaction Agreement": as defined in the recitals to this
Agreement.
"Transaction Documents": (i) the Transaction Agreement, the
Schedules thereto and the documents set forth on Schedule IV hereto,
(ii) the Equity Documents and (iii) the Subordinated Debt Documents.
"Transferee": as defined in subsection 10.6(f).
"Type": a Revolving Loan, a Tranche A Term Loan, a Tranche B Term
Loan, a Tranche C Term Loan or a Swing Line Loan.
"Uniform Customs": the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be amended from time to time.
"U.S. Taxes": any tax, assessment, or other charge or levy and any
liabilities with respect thereto, including any penalties, additions to
tax, fines or interest thereon, imposed by or on behalf of the United
States or any taxing authority thereof.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in any Credit Document or any certificate or other document made or
delivered pursuant hereto.
(b) As used herein and in any Credit Document, and any certificate or
other document made or delivered pursuant hereto, accounting terms relating to
the Borrower and its Subsidiaries not defined in subsection 1.1
20
<PAGE>
and accounting terms partly defined in subsection 1.1, to the extent not
defined, shall have the respective meanings given to them under GAAP.
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS AND LOANS
2.1 Commitments. (a) Subject to the terms and conditions hereof, each
Lender severally agrees to make the loans described in this Section 2.1(a) as
applicable to the Borrower.
(i) Tranche A Term Loans. Each Tranche A Term Lender severally
agrees to make a term loan to the Borrower on the Closing Date in an
aggregate principal amount which does not exceed the amount of such
Lender's Tranche A Term Loan Commitment. Amounts borrowed under this
subsection 2.1(a)(i) and subsequently repaid may not be reborrowed.
(ii) Tranche B Term Loans. Each Tranche B Term Lender severally
agrees to make a term loan to the Borrower on the Closing Date in an
aggregate principal amount which does not exceed the amount of such
Lender's Tranche B Term Loan Commitment. Amounts borrowed under this
subsection 2.1(a)(ii) and subsequently repaid may not be reborrowed.
(iii) Tranche C Term Loans. Each Tranche C Term Lender severally
agrees to make a term loan to the Borrower on the Closing Date in an
aggregate principal amount which does not exceed the amount of such
Lender's Tranche C Term Loan Commitment. Amounts borrowed under this
subsection 2.1(a)(iii) and subsequently repaid may not be reborrowed.
(iv) Revolving Credit Loans. Each Revolving Credit Lender
severally agrees to make revolving credit loans to the Borrower, from
time to time during the Commitment Period, in an aggregate principal
amount at any one time outstanding which, when added to the aggregate
principal amount of outstanding Swing Line Loans made by such Lender
(or in which such Lender has purchased a participation) and such
Lender's Revolving Credit Commitment Percentage of the then
outstanding L/C Obligations, does not exceed the amount of such
Lender's Revolving Credit Commitment. During the Commitment Period,
the Borrower may use the Revolving Credit Commitments by borrowing,
prepaying the Revolving Credit Loans, in whole or in part, and
reborrowing, all in accordance with the terms and conditions hereof.
(b) (i) Subject to the terms and conditions hereof, the Swing Line
Lender agrees to make swing line loans (individually, a "Swing Line Loan";
collectively, the "Swing Line Loans") to the Borrower from time to
21
<PAGE>
time during the Commitment Period in an aggregate principal amount at any one
time outstanding not to exceed $10,000,000; provided, that no Swing Line Loan
shall be made if, after giving effect thereto and to the simultaneous use of
the proceeds thereof, the aggregate principal amount of Revolving Credit Loans
then outstanding plus the aggregate principal amount of Swing Line Loans then
outstanding, plus the aggregate amount of L/C Obligations then outstanding
would exceed the Revolving Credit Commitments of the Revolving Credit Lenders.
Amounts borrowed by the Borrower under this subsection 2.1(b) may be repaid
and, through but excluding the Termination Date, reborrowed. All Swing Line
Loans shall be made as Base Rate Loans and may not be converted into Eurodollar
Loans. In order to borrow a Swing Line Loan, the Borrower shall give the Swing
Line Lender, with a copy to the Administrative Agent, irrevocable notice (which
notice must be received by the Swing Line Lender prior to 12:00 Noon, New York
City time) on the requested Borrowing Date specifying the amount of the
requested Swing Line Loan which shall be in a minimum amount of $500,000 or
whole multiples of $100,000 in excess thereof. The proceeds of the Swing Line
Loan will be made available by the Swing Line Lender to the Borrower at the
office of the Swing Line Lender by crediting the account of the Borrower at
such office with such proceeds.
(ii) The Swing Line Loans shall be evidenced by a promissory
note of the Borrower, substantially in the form of Exhibit A-5 (the "Swing Line
Note"), with appropriate insertions, payable to the order of the Swing Line
Lender and representing the obligation of the Borrower to pay the unpaid
principal amount of the Swing Line Loans, with interest thereon as prescribed
in subsection 2.9. The Swing Line Note shall (i) be dated the Closing Date,
(ii) be stated to mature on the Termination Date and (iii) bear interest,
payable on the dates specified in 2.9, for the period from the date thereof to
the Termination Date on the unpaid principal amount thereof from time to time
outstanding at the applicable interest rate per annum specified in subsection
2.9.
(iii) The Swing Line Lender, at any time in its sole and
absolute discretion, may on behalf of the Borrower (which hereby irrevocably
directs the Swing Line Lender to act on its behalf) request each Lender,
including the Swing Line Lender, to make a Revolving Credit Loan (which shall
be a Base Rate Loan) in an amount equal to such Lender's Commitment Percentage
with respect to Revolving Credit Loans of such Revolving Credit Loan (the
"Refunded Swing Line Loans") outstanding on the date such notice is given.
Unless any of the events described in subsection 8(f) shall have occurred (in
which event the procedures of subsection 2.1(b)(iv) shall apply) each Lender
shall, not later than 12:00 P.M., New York City time, on the Business Day next
succeeding the date on which such notice is given, make available to the Swing
Line Lender in immediately available funds the amount equal to the Revolving
Credit Loan to be made by such Lender. The proceeds of such Revolving Credit
Loans shall be immediately applied to repay the Refunded Swing Line Loans. Upon
any request by the Swing Line Lender to the Lender pursuant to this subsection
2.1(b)(iii), the Administrative Agent shall promptly give notice to the
Borrower of such request.
(iv) If prior to the making of a Revolving Credit Loan pursuant
to subsection 2.1(b)(iii) one of the events described in subsection 8(f) shall
have occurred, each Lender will, on the date such Loan was to have been made,
purchase an undivided participating interest in the Swing Line Loans in an
amount equal to its Commitment Percentage with respect to
22
<PAGE>
Revolving Credit Loans. Each Lender will immediately transfer to the Swing
Line Lender, in immediately available funds, the amount of its participation.
(v) Whenever, at any time after the Swing Line Lender has
received from any Lender such Lender's participating interest in a Swing Line
Loan, the Swing Line Lender receives any payment on account thereof, the Swing
Line Lender will distribute to such Lender its participating interest in such
amount (appropriately adjusted, in the case of interest payments, to reflect
the period of time during which such Lender's participating interest was
outstanding and funded); provided, however, that in the event that such payment
received by the Swing Line Lender is required to be returned, such Lender will
return to the Swing Line Lender any portion thereof previously distributed by
the Swing Line Lender to it.
(vi) Each Lender's obligation to purchase participating
interests pursuant to subsection 2.1(b)(iv) shall be absolute and unconditional
and shall not be affected by any circumstance, including, without limitation,
(a) any set-off, counterclaim, recoupment, defense or other right which such
Lender or the Borrower may have against the Swing Line Lender, any other Lender
or anyone else for any reason whatsoever, (b) the occurrence or continuance of
any Default or Event of Default; (c) any adverse change in the condition
(financial or otherwise) of the Borrower; (d) any breach of this Agreement by
the Borrower or any other Lender; or (e) any other circumstance, happening or
event whatsoever, whether or not similar to any of the foregoing.
(c) Except for Swing Line Loans, which shall be Base Rate Loans, the
Loans may from time to time be (i) Eurodollar Loans, (ii) Base Rate Loans or
(iii) a combination thereof, as determined by the Borrower and notified to the
Administrative Agent in accordance with subsections 2.2 and 2.7, provided that
no Revolving Credit Loan shall be made as a Eurodollar Loan after the day that
is one month prior to the Termination Date with respect to such Loan.
2.2 Procedure for Borrowing. The Borrower may borrow under the
Commitments during the Commitment Period on any Business Day, provided that the
Borrower shall give the Administrative Agent irrevocable notice (which notice
must be received by the Administrative Agent prior to (a) 11:00 A.M., New York
City time, three Business Days prior to the requested Borrowing Date, if all or
any part of the requested Loans are to be initially Eurodollar Loans, (b) 11:00
A.M., New York City time, on the requested Borrowing Date in the case of a
Swing Line Loan or a Base Rate Loan), specifying (i) the amount to be borrowed
of each Type of Loan, (ii) the requested Borrowing Date, (iii) whether the
borrowing is to be of Eurodollar Loans, Base Rate Loans or a combination
thereof and (iv) if the borrowing is to be entirely or partly of Eurodollar
Loans, the respective lengths of the initial Interest Periods therefor. Each
borrowing under the Commitments shall be in an amount equal to (x) in the case
of Base Rate Loans (other than Swing Line Loans), $2,000,000 or a whole
multiple of $500,000 in excess thereof (or, if the then Available Commitments
are less than $2,000,000, such lesser amount), (y) in the case of Swing Line
Loans, as provided in subsection 2.1(b)(i) and (z) in the case of Eurodollar
Loans, $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon
receipt of any such notice from the Borrower, the Administrative Agent shall
promptly notify each Lender thereof. Each Lender will make the amount of its
pro rata share of each borrowing available to the Administrative Agent for the
account of the Borrower at the office of the Administrative Agent specified in
subsection
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<PAGE>
10.2 prior to 11:00 A.M., New York City time (in the case of Eurodollar Loans)
or 2:30 P.M., New York City time (in the case of Base Rate Loans), on the
Borrowing Date requested by the Borrower in funds immediately available to the
Administrative Agent. Such borrowing will then be made available to the
Borrower by the Administrative Agent crediting the account of the Borrower on
the books of such office with the aggregate of the amounts made available to
the Administrative Agent by the Lenders and in like funds as received by the
Administrative Agent. All notices given by the Borrower under this subsection
2.2 may be made by telephonic notice promptly confirmed in writing.
2.3 Commitment Fee. The Borrower agrees to pay to the Administrative
Agent for the account of each Revolving Credit Lender a commitment fee for the
period from and including the first day of the Commitment Period to and
including the Revolving Loan Termination Date, computed at the Commitment Fee
Rate on the average daily amount of the Available Commitment of such Revolving
Credit Lender during the period for which payment is made, payable quarterly in
arrears on the last Business Day of each March, June, September and December
and on the Revolving Loan Termination Date, commencing on the first of such
dates to occur after the date hereof.
2.4 Termination or Reduction of Revolving Credit Commitments. The
Borrower shall have the right, upon not less than three Business Days' written
notice to the Administrative Agent, to terminate the Revolving Credit
Commitments or, from time to time, to reduce the amount of the Revolving Credit
Commitments ratably among the Revolving Credit Lenders; provided that no such
termination or reduction shall be permitted if, after giving effect thereto and
to any prepayments of the Revolving Credit Loans made on the effective date
thereof, the aggregate principal amount of the Revolving Credit Loans then
outstanding, when added to the then outstanding L/C Obligations and the
outstanding Swing Line Loans, would exceed the Revolving Credit Commitments
then in effect. Any such reduction shall be in an amount equal to $2,000,000 or
a whole multiple of $500,000 in excess thereof and shall reduce permanently the
Revolving Credit Commitments then in effect.
2.5 Repayment of Loans; Evidence of Debt.
(a) Scheduled Payments of Tranche A Term Loans. The Borrower
shall make principal payments on the Tranche A Term Loans on March 31, June 30,
September 30 and December 31 of each year, commencing on June 30, 1997, in the
amounts set forth opposite the corresponding Payment Period as follows:
Scheduled Repayment
Payment Period of Tranche A Term Loans
-------------- -----------------------
Closing Date - 6/30/97 $ 800,000
7/1/97 - 9/30/97 800,000
10/1/97 - 12/31/97 800,000
1/1/98 - 3/31/98 800,000
4/1/98 - 6/30/98 800,000
7/1/98 - 9/30/98 1,250,000
10/1/98 - 12/31/98 1,250,000
1/1/99 - 3/31/99 1,250,000
4/1/99 - 6/30/99 1,250,000
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7/1/99 - 9/30/99 3,750,000
10/1/99 - 12/31/99 3,750,000
1/1/00 - 3/31/00 3,750,000
4/1/00 - 6/30/00 3,750,000
7/1/00 - 9/30/00 5,250,000
10/1/00 - 12/31/00 5,250,000
1/1/01 - 3/31/01 5,250,000
4/1/01 - 6/30/01 5,250,000
7/1/01 - 9/30/01 6,750,000
10/1/01 - 12/31/01 6,750,000
1/1/02 - 3/31/02 6,750,000
4/1/02 - 6/30/02 6,750,000
7/1/02 - 9/30/02 9,333,333.33
10/1/02 - 12/31/02 9,333,333.33
1/1/03 - 3/31/03 9,333,333.34
$ 100,000,000;
provided that the scheduled installments of principal of the Tranche A Term
Loans set forth above shall be reduced in connection with any voluntary or
mandatory prepayments of the Term Loans in accordance with subsection 2.6 (as
provided in such subsection); and provided further that the Tranche A Term
Loans and all other amounts owed hereunder with respect to the Tranche A Term
Loans shall be paid in full no later than March 31, 2003, and the final
installment payable by the Borrower in respect of the Tranche A Term Loans on
such date shall be in an amount, if such amount is different from that
specified above, sufficient to repay all amounts owing by the Borrower under
this Agreement with respect to the Tranche A Term Loans.
(b) Scheduled Payments of Tranche B Term Loans. The Borrower
shall make principal payments on the Tranche B Term Loans on March 31, June 30,
September 30 and December 31 of each year, commencing on June 30, 1997, in the
amounts set forth opposite the corresponding Payment Period as follows:
Scheduled Repayment
Payment Period of Tranche B Term Loans
-------------- -----------------------
Closing Date - 6/30/97 $ 100,000
7/1/97 - 9/30/97 100,000
10/1/97 - 12/31/97 100,000
1/1/98 - 3/31/98 100,000
4/1/98 - 6/30/98 100,000
7/1/98 - 9/30/98 125,000
10/1/98 - 12/31/98 125,000
1/1/99 - 3/31/99 125,000
4/1/99 - 6/30/99 125,000
7/1/99 - 9/30/99 125,000
10/1/99 - 12/31/99 125,000
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<PAGE>
1/1/00 - 3/31/00 125,000
4/1/00 - 6/30/00 125,000
7/1/00 - 9/30/00 125,000
10/1/00 - 12/31/00 125,000
1/1/01 - 3/31/01 125,000
4/1/01 - 6/30/01 125,000
7/1/01 - 9/30/01 125,000
10/1/01 - 12/31/01 125,000
1/1/02 - 3/31/02 125,000
4/1/02 - 6/30/02 125,000
7/1/02 - 9/30/02 125,000
10/1/02 - 12/31/02 125,000
1/1/03 - 3/31/03 125,000
4/1/03 - 6/30/03 125,000
7/1/03 - 9/30/03 5,000,000
10/1/03 - 12/31/03 5,000,000
1/1/04 - 3/31/04 5,000,000
4/1/04 - 6/30/04 5,000,000
7/1/04 - 9/30/04 7,333,333.33
10/1/04 - 12/31/04 7,333,333.33
1/1/05 - 3/31/05 7,333,333.33
$ 45,000,000;
provided that the scheduled installments of principal of the Tranche B Term
Loans set forth above shall be reduced in connection with any voluntary or
mandatory prepayments of the Term Loans in accordance with subsection 2.6 (as
provided in such subsection); and provided further that the Tranche B Term
Loans and all other amounts owed hereunder with respect to the Tranche B Term
Loans shall be paid in full no later than March 31, 2005, and the final
installment payable by the Borrower in respect of the Tranche B Term Loans on
such date shall be in an amount, if such amount is different from that
specified above, sufficient to repay all amounts owing by the Borrower under
this Agreement with respect to the Tranche B Term Loans.
(c) Scheduled Payments of Tranche C Term Loans. The Borrower
shall make principal payments on the Tranche C Term Loans on March 31, June 30,
September 30 and December 31 of each year, commencing on June 30, 1997, in the
amounts set forth opposite the corresponding Payment Period as follows:
Scheduled Repayment
Payment Period of Tranche C Term Loans
-------------- -----------------------
Closing Date - 6/30/97 $ 100,000
7/1/97 - 9/30/97 100,000
10/1/97 - 12/31/97 100,000
1/1/98 - 3/31/98 100,000
4/1/98 - 6/30/98 100,000
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<PAGE>
7/1/98 - 9/30/98 125,000
10/1/98 - 12/31/98 125,000
1/1/99 - 3/31/99 125,000
4/1/99 - 6/30/99 125,000
7/1/99 - 9/30/99 125,000
10/1/99 - 12/31/99 125,000
1/1/00 - 3/31/00 125,000
4/1/00 - 6/30/00 125,000
7/1/00 - 9/30/00 125,000
10/1/00 - 12/31/00 125,000
1/1/01 - 3/31/01 125,000
4/1/01 - 6/30/01 125,000
7/1/01 - 9/30/01 125,000
10/1/01 - 12/31/01 125,000
1/1/02 - 3/31/02 125,000
4/1/02 - 6/30/02 125,000
7/1/02 - 9/30/02 125,000
10/1/02 - 12/31/02 125,000
1/1/03 - 3/31/03 125,000
4/1/03 - 6/30/03 125,000
7/1/03 - 9/30/03 125,000
10/1/03 - 12/31/03 125,000
1/1/04 - 3/31/04 125,000
4/1/04 - 6/30/04 125,000
7/1/04 - 9/30/04 125,000
10/1/04 - 12/31/04 125,000
1/1/05 - 3/31/05 125,000
4/1/05 - 6/30/05 125,000
7/1/05 - 9/30/05 8,666,666.66
10/1/05 - 12/31/05 8,666,666.67
1/1/06 - 3/31/06 8,666,666.67
$ 30,000,000;
provided that the scheduled installments of principal of the Tranche C Term
Loans set forth above shall be reduced in connection with any voluntary or
mandatory prepayments of the Term Loans in accordance with subsection 2.6 (as
provided in such subsection); and provided further that the Tranche C Term
Loans and all other amounts owed hereunder with respect to the Tranche C Term
Loans shall be paid in full no later than March 31, 2006, and the final
installment payable by the Borrower in respect of the Tranche C Term Loans on
such date shall be in an amount, if such amount is different from that
specified above, sufficient to repay all amounts owing by the Borrower under
this Agreement with respect to the Tranche C Term Loans.
(d) Payments on Revolving Credit and Swing Line Loans. The
Borrower hereby unconditionally promises to pay to the Administrative Agent on
the Revolving Credit Termination Date (or such earlier date on which the Loans
become due and payable pursuant to Section 8) (i) for the account of each
Revolving Credit Lender the then unpaid principal amount of each Revolving
Credit Loan of such Lender and (ii) for the account of the Swing
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Line Lender (and each other Revolving Credit Lender that has purchased a
participation in then outstanding Swing Line Loans) the then unpaid principal
amount of Swing Line Loans.
(e) Interest. The Borrower hereby further agrees to pay
interest on the unpaid principal amount of the Loans from time to time
outstanding from the date such Loans are made until payment in full thereof at
the rates per annum, and on the dates, set forth in subsection 2.9.
(f) Recording. Each Lender shall maintain in accordance with
its usual practice an account or accounts evidencing indebtedness of the
Borrower to such Lender resulting from each Loan of such Lender from time to
time, including the amounts of principal and interest payable and paid to such
Lender from time to time under this Agreement.
(g) Register. The Administrative Agent shall maintain the
Register pursuant to subsection 10.6(d), and a subaccount therein for each
Lender, in which shall be recorded (i) the amount of each Loan and each
Obligation evidenced by a Note made hereunder, the Type thereof, whether each
such Loan is a Base Rate Loan or a Eurodollar Loan and each Interest Period
applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to each Lender hereunder
and (iii) both the amount of any sum received by the Administrative Agent
hereunder from the Borrower and each Lender's share thereof.
(h) Prima Facie Evidence. The entries made in the Register and
the accounts of each Lender maintained pursuant to subsection 2.5(g) shall, to
the extent permitted by applicable law, be prima facie evidence of the
existence and amounts of the obligations of the Borrower therein recorded;
provided, however, that the failure of any Lender or the Administrative Agent
to maintain the Register or any such account, or any error therein, shall not
in any manner affect the obligation of the Borrower to repay (with applicable
interest) the Loans made to the Borrower by such Lender in accordance with the
terms of this Agreement.
(i) Notes. The Borrower agrees that the Borrower will execute
and deliver to each Lender a promissory note of the Borrower evidencing (i) the
Tranche A Term Loans of such Lender, substantially in the form of Exhibit A-1
with appropriate insertions as to date and principal amount (a "Tranche A Term
Note"), (ii) the Tranche B Term Loans of such Lender, substantially in the form
of Exhibit A-2 with appropriate insertions as to date and principal amount (a
"Tranche B Term Note"), (iii) the Tranche C Term Loans of such Lender
substantially in the form of Exhibit A-3 with appropriate insertions as to date
and principal amount (a "Tranche C Term Note") and (iv) the Revolving Credit
Loans of such Lender, substantially in the form of Exhibit A-4 with appropriate
insertions as to date and principal amount ("Revolving Credit Note"). A Note
and the Obligation evidenced thereby may be assigned or otherwise transferred
in whole or in part only by registration of such assignment or transfer of such
Note and the Obligation evidenced thereby in the Register (and each Note shall
expressly so provide). Any assignment or transfer of all or part of an
Obligation evidenced by a Note shall be registered in the Register only upon
surrender for registration of assignment or transfer of the Note evidencing
such Obligation, duly endorsed by (or accompanied by a written instrument of
assignment or transfer duly executed by) the holder thereof, and thereupon one
or more new Notes shall be issued to the designated Assignee and the old Note
shall be returned by the Administrative Agent to the Borrower marked
"cancelled." No
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assignment of a Note and the Obligation evidenced thereby shall be effective
unless it shall have been recorded in the Register by the Administrative Agent
as provided in this subsection 2.5(i).
2.6 Optional Prepayments; Mandatory Prepayments and Reduction
of Commitments. (a) Subject to subsection 2.16, the Borrower may at any time
and from time to time prepay any Loans, in whole or in part, without premium or
penalty, upon irrevocable notice to the Administrative Agent prior to 11:00
A.M., New York City time, three Business Days prior to the date of prepayment,
specifying the date and amount of prepayment, the Type of Loan to be prepaid
(which loans shall be prepaid on a pro rata basis among the applicable Lenders)
and whether the prepayment is of Eurodollar Loans, Base Rate Loans or a
combination thereof, and, if of a combination thereof, the amount allocable to
each. Upon receipt of any such notice the Administrative Agent shall promptly
notify each applicable Lender thereof. If any such notice is given, the amount
specified in such notice shall be due and payable on the date specified
therein, together with any amounts payable pursuant to subsection 2.16. Partial
prepayments shall be in an aggregate principal amount of $2,000,000 or a whole
multiple of $1,000,000 in excess thereof.
(b) (i) If, subsequent to the Closing Date, Holdings or any of
its Subsidiaries shall incur or permit the incurrence of any Indebtedness
(other than Indebtedness permitted pursuant to subsection 7.2) 100% of the Net
Proceeds thereof shall be promptly applied toward the prepayment of the Loans
and permanent reduction of the Commitments as set forth in clause (iv) of this
subsection 2.6(b). Nothing in this paragraph (b) shall be deemed to permit any
Indebtedness not permitted by subsection 7.2.
(ii) If, subsequent to the Closing Date, Holdings or any of
its Subsidiaries shall receive Net Proceeds from any Asset Sale, such Net
Proceeds shall be promptly applied toward the prepayment of the Loans and
permanent reduction of the Commitments as set forth in clause (iv) of this
subsection 2.6(b); provided that Net Proceeds from any Asset Sales shall not be
required to be so applied to the extent that such Net Proceeds are used by the
Borrower or such Subsidiary to acquire assets to be employed in the business of
the Borrower or its Subsidiaries within 365 days of receipt thereof, but if
such Net Proceeds are not so used, 100% of such Net Proceeds shall be applied
toward the prepayment of the Loans and the permanent reduction of the
Commitments as set forth in clause (iv) of this subsection 2.6(b) on the
earlier of (x) the 366th day after receipt of such Net Proceeds and (y) the
date on which the Borrower has determined that such Net Proceeds shall not be
so used.
(iii) If there is Excess Cash Flow for any fiscal year and
the Debt Ratio as of the last day of such fiscal year is greater than 3.5 to
1.0, 75% of such Excess Cash Flow shall be applied toward the prepayment of the
Loans and the permanent reduction of the Commitments as set forth in clause
(iv) of this subsection 2.6(b) on the Excess Cash Flow Payment Date for such
fiscal year. If there is Excess Cash Flow for any fiscal year and the Debt
Ratio as of the last day of such fiscal year is less than or equal to 3.5 to
1.0, 50% of such Excess Cash Flow shall be applied toward the prepayment of the
Loans and the permanent reduction of the Commitments as set forth in clause
(iv) of this subsection 2.6(b) on the Excess Cash Flow Payment Date for such
fiscal year.
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(iv) Any mandatory prepayments of the Loans pursuant to
subsection 2.6 shall be applied (x) to the Tranche A Term Loans, the Tranche B
Term Loans and the Tranche C Term Loans on a pro rata basis to reduce the
unpaid scheduled installments of principal of each such Tranche of Term Loans
on a pro rata basis, and (y) thereafter to the permanent reduction of the
Revolving Credit Commitment; provided that, in the case of Tranche B Term Loans
and Tranche C Term Loans, so long as any Tranche A Term Loans are outstanding,
each of the Tranche B Term Lenders and the Tranche C Term Lenders shall have
the right to waive such Lender's right to receive any portion of such
prepayment. The Administrative Agent shall notify the Tranche B Term Lenders
and the Tranche C Term Lenders of such receipt and the amount of the prepayment
to be applied to each such Lender's Term Loans; provided, that the Borrower
shall use its reasonable efforts to notify the Tranche B Term Lenders and the
Tranche C Term Lenders of such waivable mandatory prepayment three (3) Business
Days prior to the payment to the Administrative Agent of such waivable
mandatory prepayment (it being understood that the Borrower shall have no
liabilities for failing to so notify such Lenders). In the event any such
Tranche B Term Lender or Tranche C Term Lender desires to waive such Lender's
right to receive any such waivable mandatory prepayment, such Lender shall so
advise the Administrative Agent no later than the close of business on the
Business Day immediately following the date of such notice from the
Administrative Agent. In the event that any such Lender waives such Lender's
right to any such waivable mandatory prepayment, the Administrative Agent shall
apply 50% of the amount so waived by such Lender to prepay the Tranche A Term
Loans to reduce unpaid scheduled installments of principal of the Tranche A
Term Loans on a pro rata basis. The Administrative Agent shall return the
remainder of the amount so waived by such Lender to the Borrower. Revolving
Credit Commitment reductions made pursuant to subsections 2.6(b)(i), (ii) and
(iii) shall be applied to each Lender's Revolving Credit Commitment on a pro
rata basis and shall reduce permanently such Commitments.
(v) If after giving effect to any reduction of the Revolving
Credit Commitments under subsection 2.4, 2.5 or 2.6 the aggregate outstanding
principal amount of Swing Line Loans plus the aggregate outstanding principal
amount of Revolving Credit Loans plus the aggregate outstanding amount of L/C
Obligations shall exceed the aggregate amount of the Revolving Credit
Commitments, such reduction shall be accompanied by prepayment in the amount of
such excess to be applied (x) first, to the outstanding Swing Line Loans and
(y) second, to outstanding Revolving Credit Loans (in each case, together with
any amounts payable under subsection 2.16)); provided that if the aggregate
principal amount of Swing Line Loans and Revolving Credit Loans then
outstanding is less than the amount of such excess (because Letters of Credit
constitute a portion of such excess), the Borrower shall immediately, without
notice or demand, to the extent of the balance of such excess, replace
outstanding Letters of Credit and/or deposit an amount (but in no event greater
than such balance) in a cash collateral account satisfactory to the
Administrative Agent established for the benefit of the Revolving Credit
Lenders.
2.7 Conversion and Continuation Options. (a) The Borrower may
elect from time to time to convert Eurodollar Loans to Base Rate Loans, by
giving the Administrative Agent prior irrevocable notice of such election on or
before 11:00 A.M. New York City time, on the Business Day immediately preceding
the date of the proposed conversion and of the amount and Type of Loan to be
converted, provided that any such conversion of Eurodollar Loans may only be
made on the last day of an Interest Period with respect thereto.
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The Borrower may elect from time to time to convert Base Rate Loans (other than
Swing Line Loans) to Eurodollar Loans by giving the Administrative Agent prior
irrevocable notice of such election on or before 11:00 A.M., New York City
time, on the third Business Day immediately preceding the date of the proposed
conversion and of the amount and Type of Loan to be converted. Any such notice
of conversion to Eurodollar Loans shall specify the length of the initial
Interest Period or Interest Periods therefor. Upon receipt of any such notice
the Administrative Agent shall promptly notify each applicable Lender thereof.
All or any part of outstanding Eurodollar Loans and Base Rate Loans may be
converted as provided herein, provided that (i) no Loan may be converted into a
Eurodollar Loan when any Event of Default has occurred and is then continuing
and (ii) no Loan may be converted into a Eurodollar Loan after the date that is
one month prior to the Termination Date with respect to such Loan.
(b) Any Eurodollar Loans may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in subsection
1.1, of the length of the next Interest Period to be applicable to such Loans
and of the amount and Type of Loan to be converted, provided that no Eurodollar
Loan may be continued as such (i) when any Event of Default has occurred and is
then continuing or (ii) after the date that is one month prior to the
Termination Date with respect to such Loan and provided, further, that if the
Borrower shall fail to give such notice or if such continuation is not
permitted such Loans shall be automatically converted to Base Rate Loans on the
last day of such then expiring Interest Period.
(c) All notices given by Borrower under this subsection 2.7
may be made by telephonic notice promptly confirmed in writing.
2.8 Minimum Amounts and Maximum Number of Tranches. All
borrowings, conversions and continuations of Loans hereunder and all selections
of Interest Periods hereunder shall be in such amounts and be made pursuant to
such elections so that, after giving effect thereto, the aggregate principal
amount of the Loans comprising each Eurodollar Tranche shall be equal to
$5,000,000 or a whole multiple of $1,000,000 in excess thereof. In no event
shall there be more than 10 Eurodollar Tranches outstanding at any time.
2.9 Interest Rates and Payment Dates. (a) Each Eurodollar Loan
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such
day plus the Applicable Margin.
(b) Each Base Rate Loan shall bear interest at a rate per
annum equal to the Base Rate plus the Applicable Margin.
(c) If all or a portion of (i) any principal of any Loan, (ii)
any interest payable thereon, (iii) any commitment fee or (iv) any other amount
payable hereunder shall not be paid when due (whether at the stated maturity,
by acceleration or otherwise), the principal of the Loans and any such overdue
interest, commitment fee or other amount shall bear interest at a rate per
annum which is (x) in the case of principal, the rate that would otherwise be
applicable thereto pursuant to the foregoing provisions of this subsection plus
2% or (y) in the case of any such overdue interest, commitment fee or other
amount, the rate described in paragraph (b) of this
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subsection plus 2%, in each case from the date of such non-payment until such
overdue principal, interest, commitment fee or other amount is paid in full (as
well after as before judgment).
(d) Interest shall be payable with respect to each Loan in
arrears on each Interest Payment Date and on the Termination Date with respect
to such Loan, provided that interest accruing pursuant to paragraph (c) of this
subsection shall be payable from time to time on demand.
2.10 Computation of Interest and Fees. (a) Interest on Base
Rate Loans and fees shall be calculated on the basis of a 365- (or 366-, as the
case may be) day year for the actual days elapsed; all other interest shall be
calculated on the basis of a 360-day year for the actual days elapsed. The
Administrative Agent shall as soon as practicable notify the Borrower and the
Lenders of each determination of a Eurodollar Rate. Any change in the interest
rate on a Loan resulting from a change in the Base Rate or the Eurocurrency
Reserve Requirements shall become effective as of the opening of business on
the day on which such change becomes effective. The Administrative Agent shall
as soon as practicable notify the Borrower and the Lenders of the effective
date and the amount of each such change in interest rate.
(b) Each determination of an interest rate by the
Administrative Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower and the Lenders in the absence of
manifest error. The Administrative Agent shall, at the request of the Borrower,
deliver to the Borrower a statement showing the quotations used by the
Administrative Agent in determining any interest rate pursuant to subsection
2.9(a) or (c).
2.11 Inability to Determine Interest Rate. If prior to the
first day of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that,
by reason of circumstances affecting the eurodollar market, adequate
and reasonable means do not exist for ascertaining the Eurodollar Rate
for such Interest Period, or
(b) the Administrative Agent shall have received notice from
the Required Lenders that the Eurodollar Rate determined or to be
determined for such Interest Period will not adequately and fairly
reflect the cost to such Lenders (as conclusively certified by such
Lenders) of making or maintaining their affected Loans during such
Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to
the Borrower and the Lenders as soon as practicable thereafter. If such notice
is given (x) any Eurodollar Loans requested to be made on the first day of such
Interest Period shall be made as Base Rate Loans, (y) any Loans that were to
have been converted on the first day of such Interest Period to Eurodollar
Loans shall be converted to or continued as Base Rate Loans and (z) any
outstanding Eurodollar Loans shall be converted, on the first day of such
Interest Period, to Base Rate Loans. Until such notice has been withdrawn in
writing by the Administrative Agent (which the Administrative Agent agrees to
do when the Administrative Agent has determined, or has been instructed by the
Required Lenders that, the circumstances that prompted the
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delivery of such notice no longer exist), no further Eurodollar Loans shall be
made or continued as such, nor shall the Borrower have the right to convert
Loans to Eurodollar Loans.
2.12 Pro Rata Treatment and Payments. (a) Each borrowing by
the Borrower from the Revolving Credit Lenders hereunder, each payment by the
Borrower on account of any commitment fee hereunder and any reduction of the
Revolving Credit Commitments of Revolving Credit Lenders shall be made pro rata
according to the respective Commitment Percentages of the Revolving Credit
Lenders. Each payment (including each prepayment) by the Borrower on account of
principal of and interest on any Term Loans or the Revolving Credit Loans shall
be made pro rata according to the respective outstanding principal amounts of
such Loans then held by the Lenders. All payments (including prepayments) to be
made by the Borrower hereunder in respect of any Loan, whether on account of
principal, interest, Reimbursement Obligations, fees or otherwise, shall be
made without set off or counterclaim and shall be made prior to 11:00 A.M., New
York City time, on the due date thereof to the Administrative Agent, for the
account of the Lenders with respect to such Loans, at the Administrative
Agent's office specified in subsection 10.2, in Dollars and in immediately
available funds. The Administrative Agent shall distribute such payments to the
applicable Lenders promptly upon receipt in like funds as received. If any
payment hereunder becomes due and payable on a day other than a Business Day,
such payment shall be extended to the next succeeding Business Day, and, with
respect to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension.
(b) Unless the Administrative Agent shall have been notified
in writing by any Lender prior to a borrowing that such Lender will not make
the amount that would constitute its Commitment Percentage of such borrowing
available to the Administrative Agent, the Administrative Agent may assume that
such Lender is making such amount available to the Administrative Agent on such
Borrowing Date, and the Administrative Agent may, in reliance upon such
assumption, make available to the Borrower a corresponding amount. If such
amount is not made available to the Administrative Agent by the required time
on the Borrowing Date therefor, such Lender shall pay to the Administrative
Agent, on demand, such amount with interest thereon at a rate equal to the
daily average Federal Funds Effective Rate for the period until such Lender
makes such amount immediately available to the Administrative Agent. A
certificate of the Administrative Agent submitted to any Lender with respect to
any amounts owing under this subsection shall be conclusive in the absence of
manifest error. If such Lender's Commitment Percentage of such borrowing is not
made available to the Administrative Agent by such Lender within three Business
Days of such Borrowing Date, the Administrative Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
Base Rate Loans hereunder, on demand, from the Borrower. The failure of any
Lender to make any Loan to be made by it shall not relieve any other Lender of
its obligation hereunder to make its Loan on such Borrowing Date.
2.13 Illegality. Notwithstanding any other provision herein,
if the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof shall make it unlawful for any Lender to
make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the
commitment of such Lender hereunder to make Eurodollar Loans, continue
Eurodollar Loans as such and convert Base Rate Loans to Eurodollar Loans shall
forthwith be cancelled and (b) such Lender's Loans then outstanding as
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Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans
on the respective last days of the then current Interest Periods with respect
to such Loans or within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of
the then current Interest Period with respect thereto, the Borrower shall pay
to such Lender such amounts, if any, as may be required pursuant to subsection
2.16. If circumstances subsequently change so that any affected Lender shall
determine that it is no longer so affected, such Lender will promptly notify
the Borrower and the Administrative Agent, and upon receipt of such notice, the
obligations of such Lender to make or continue Eurodollar Loans or to convert
Base Rate Loans into Eurodollar Loans shall be reinstated.
2.14 Requirements of Law. (a) If the adoption of or any change
in any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind
whatsoever with respect to this Agreement, any Note, any Letter of
Credit, any Application or any Eurodollar Loan made by it, or change
the basis of taxation of payments to such Lender in respect thereof
(except for Non-Excluded Taxes covered by subsection 2.15 and changes
in the rate of net income taxes (including branch profits taxes and
minimum taxes) or franchise taxes (imposed in lieu of net income
taxes) of such Lender);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of such Lender which is not
otherwise included in the determination of the Eurodollar Rate
hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting
into, continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay such Lender
upon written demand such additional amount or amounts as will compensate such
Lender for such increased cost or reduced amount receivable; provided that
before making any such demand, each Lender agrees to use reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions and
so long as such efforts would not be disadvantageous to it, in its reasonable
discretion, in any legal, economic or regulatory manner) to designate a
different Eurodollar lending office if the making of such designation would
allow the Lender or its Eurodollar lending office to continue to perform its
obligations to make Eurodollar Loans or to continue to fund or maintain
Eurodollar Loans and avoid the need for, or reduce the amount of, such
increased cost. If any Lender becomes entitled to claim any additional amounts
pursuant to this subsection, it shall promptly notify the Borrower, through the
Administrative Agent, of the event by reason of which it has become so
entitled. If the Borrower so
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notifies the Administrative Agent within five Business Days after any Lender
notifies the Borrower of any increased cost pursuant to the foregoing
provisions of this Section, the Borrower may convert all Eurodollar Loans of
such Lender then outstanding into Base Rate Loans in accordance with the terms
hereof. Each Lender shall notify the Borrower within 120 days after it becomes
aware of the imposition of such costs; provided that if such Lender fails to so
notify the Borrower within such 120-day period, such Lender shall not be
entitled to claim any additional amounts pursuant to this subsection for any
period ending on a date which is prior to 120 days before such notification.
(b) If any Lender shall have determined that the adoption of
or any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under any Letter of Credit to a
level below that which such Lender or such corporation could have achieved but
for such adoption, change or compliance (taking into consideration such
Lender's or such corporation's policies with respect to capital adequacy) by an
amount deemed by such Lender to be material, then from time to time, after
submission by such Lender to the Borrower (with a copy to the Administrative
Agent) of a prompt written request therefor, the Borrower shall promptly pay to
such Lender such additional amount or amounts as will compensate such Lender
for such reduction. Each Lender shall notify the Borrower within 120 days after
it becomes aware of the imposition of such additional amount or amounts;
provided that if such Lender fails to so notify the Borrower within such
120-day period, such Lender shall not be entitled to claim any additional
amount or amounts pursuant to this subsection for any period ending on a date
which is prior to 120 days before such notification.
(c) If any Lender becomes entitled to claim any additional
amounts pursuant to this subsection, it shall promptly notify the Borrower
(with a copy to the Administrative Agent) of the event by reason of which it
has become so entitled. A certificate as to any additional amounts payable
pursuant to this subsection, showing the calculation thereof in reasonable
detail, submitted by such Lender to the Borrower (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. The
agreements in this subsection shall survive the termination of this Agreement
and the payment of the Loans and all other amounts payable hereunder.
2.15 Taxes. (a) Except as provided in this subsection 2.15,
all payments made by the Borrower under this Agreement and any Notes shall be
made free and clear of, and without deduction or withholding for or on account
of, any present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or hereafter imposed,
levied, collected, withheld or assessed by any Governmental Authority
("Taxes"), excluding Taxes on net income (including, without limitation, branch
profits taxes and minimum taxes) and franchise taxes (imposed in lieu of net
income taxes) imposed on any Agent or any Lender as a result of a present or
former connection between any Agent or such Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising solely
from such Agent or such Lender having
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executed, delivered or performed its obligations or received a payment under,
or enforced, this Agreement or any Note). If any such non-excluded taxes,
levies, imposts, duties, charges, fees deductions or withholdings
("Non-Excluded Taxes") are required to be withheld from any amounts payable to
any Agent or any Lender hereunder or under any Note, the amounts so payable to
such Agent or such Lender shall be increased to the extent necessary to yield
to such Agent or such Lender (after payment of all Non-Excluded Taxes) interest
or any such other amounts payable hereunder at the rates or in the amounts
specified in this Agreement, provided, however, that the Borrower shall not be
required to increase any such amounts payable to any Lender that is not
organized under the laws of the United States of America or a state thereof
with respect to any Taxes that are imposed on amounts payable to such Lender at
the time such Lender becomes a party to this Agreement or that are attributable
to such Lender's failure to comply with the requirements of paragraph (b) of
this subsection. Whenever any Non-Excluded Taxes are payable by the Borrower,
as promptly as possible thereafter, the Borrower shall send to the relevant
Agent for its own account or for the account of such Lender, as the case may
be, a certified copy of an original official receipt, if any, received by the
Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded
Taxes when due to the appropriate taxing authority or fails to remit to the
relevant Agent the required receipts or other required documentary evidence,
the Borrower shall indemnify the Agents and the Lenders for any incremental
taxes, interest or penalties that may become payable by any Agent or any Lender
as a result of any such failure. The agreements in this subsection shall
survive the termination of this Agreement and the payment of the Loans and all
other amounts payable hereunder.
(b) Each Lender, Assignee and Participant that is not a
citizen or resident of the United States of America, a corporation, partnership
created or organized in or under the laws of the United States of America, any
estate that is subject to U.S. federal income taxation regardless of the source
of its income or any trust which is subject to the supervision of a court
within the United States and the control of a United States fiduciary as
described in Section 7701(a)(30) of the Code (a "Non-U.S. Lender") shall
deliver to the Borrower and the Administrative Agent, and if applicable, the
assigning Lender (or, in the case of a Participant, to the Lender from which
the related participation shall have been purchased) on or before the date on
which it becomes a party to this Agreement (or, in the case of a Participant,
on or before the date on which such Participant purchases the related
participation) either:
(A) two duly completed and signed copies of either Internal
Revenue Service Form 1001 (relating to such Non-U.S. Lender and
entitling it to a complete exemption from withholding of U.S. Taxes on
all amounts to be received by such Non-U.S. Lender pursuant to this
Agreement and the other Credit Documents) or Form 4224 (relating to
all amounts to be received by such Non-U.S. Lender pursuant to this
Agreement and the other Credit Documents), or successor and related
applicable forms, as the case may be; or
(B) in the case of a Non-U.S. Lender that is not a "bank"
within the meaning of Section 881(c)(3)(A) of the Code and that does
not comply with the requirements of clause (A) hereof, (x) a statement
in the form of Exhibit F (or such other form of statement as shall be
reasonably requested by the Borrower from time to time) to the effect
that such Non-U.S. Lender is eligible for a complete
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exemption from withholding of U.S. Taxes under Code Section 871(h) or
881(c), and (y) two duly completed and signed copies of Internal
Revenue Service Form W-8 or successor and related applicable form (it
being understood and agreed that no Participant and, without the prior
written consent of the Borrower described in clause (B) of the proviso
to the first sentence of subsection 10.6(c), no Assignee shall be
entitled to deliver any forms or statements pursuant to this clause
(B), but rather shall be required to deliver forms pursuant to clause
(A) of this subsection 2.15(b)).
Further, each Non-U.S. Lender agrees (i) to deliver to the Borrower and the
Administrative Agent, and if applicable, the assigning Lender (or, in the case
of a Participant, to the Lender from which the related participation shall have
been purchased) two further duly completed and signed copies of such Forms 1001
or 4224, as the case may be, or successor and related applicable forms, on or
before the date that any such form expires or becomes obsolete and promptly
after the occurrence of any event requiring a change from the most recent
form(s) previously delivered by it to the Borrower (or, in the case of a
Participant, to the Lender from which the related participation shall have been
purchased) in accordance with applicable U.S. laws and regulations and (ii) in
the case of a Non-U.S. Lender that delivers a statement in the form of Exhibit
F (or such other form of statement as shall have been requested by the
Borrower), to deliver to the Borrower and the Administrative Agent, and if
applicable, the assigning Lender, such statement on an annual basis on the
anniversary of the date on which such Non-U.S. Lender became a party to this
Agreement and to deliver promptly to the Borrower and the Administrative Agent,
and if applicable, the assigning Lender, such additional statements and forms
as shall be reasonably requested by the Borrower from time to time unless, in
any such case, any change in law or regulation has occurred subsequent to the
date such Lender became a party to this Agreement (or in the case of a
Participant, the date on which such Participant purchased the related
participation) which renders all such forms inapplicable or which would prevent
such Lender (or Participant) from properly completing and executing any such
form with respect to it and such Lender promptly notifies the Borrower and the
Administrative Agent (or, in the case of a Participant, the Lender from which
the related participation shall have been purchased) if it is no longer able to
deliver, or if it is required to withdraw or cancel, any form or statement
previously delivered by it pursuant to this subsection 2.15(b). Each Non-U.S.
Lender agrees to indemnify and hold harmless the Borrower from and against any
taxes, penalties, interest or other costs or losses (including, without
limitation, reasonable attorneys' fees and expenses) incurred or payable by the
Borrower as a result of the failure of the Borrower to comply with its
obligations to deduct or withhold any U.S. Taxes from any payments made
pursuant to this Agreement to such Non-U.S. Lender or the Administrative Agent
which failure resulted from the Borrower's reliance on any form, statement,
certificate or other information provided to it by such Non-U.S. Lender
pursuant to clause (B) or clause (ii) of this subsection 2.15(b). The Borrower
hereby agrees that for so long as a Non-U.S. Lender complies with this
subsection 2.15(b), the Borrower shall not withhold any amounts from any
payments made pursuant to this Agreement to such Non-U.S. Lender, unless the
Borrower reasonably determines that it is required by law to withhold or deduct
any amounts from any payments made to such Non-U.S. Lender pursuant to this
Agreement. A Non-U.S. Lender shall not be required to deliver any form or
statement pursuant to the immediately preceding sentences in this subsection
2.15(b) that such Non-U.S. Lender is not legally able to deliver (it being
understood and agreed that the Borrower shall withhold or deduct such amounts
from any
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payments made to such Non-U.S. Lender that the Borrower reasonably determines
are required by law and that payments resulting from a failure to comply with
this paragraph (b) shall not be subject to payment or indemnity by the Borrower
pursuant to subsection 2.15(a)). If any Credit Party other than the Borrower
makes any payment to any Non-U.S. Lender under any Credit Document, the
foregoing provisions of this subsection 2.15 shall apply to such Non-U.S.
Lender and such Credit Party as if such Credit Party were the Borrower (but a
Non-U.S. Lender shall not be required to provide any form or make any statement
to any such Credit Party unless such Non-U.S. Lender has received a request to
do so from such Credit Party and has a reasonable time to comply with such
request).
(c) If a Lender shall become aware that it is entitled to
receive a refund (whether by way of a direct payment or by offset) in respect
of a Non-Excluded Tax paid by the Borrower, which refund, in the good faith
judgment of such Lender, is allocable to such payment made pursuant to this
Section, it shall promptly notify the Borrower of the availability of such
refund and shall, within 30 days after the receipt of a request from the
Borrower, apply for such refund at the Borrower's sole expense. If any Lender
receives such refund (as described in the preceding sentence), it shall repay
the amount of such refund (together with any interest received thereon) to the
Borrower if all the payments due under this Section has been paid in full.
2.16 Indemnity. The Borrower agrees to indemnify each Lender
and to hold each Lender harmless from any loss or expense which such Lender may
sustain or incur as a consequence of (a) default by the Borrower in making a
borrowing of, conversion into or continuation of Eurodollar Loans after the
Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (b) default by the Borrower in making any
prepayment after the Borrower has given a notice thereof in accordance with the
provisions of this Agreement or (c) the making of a prepayment of Eurodollar
Loans on a day which is not the last day of an Interest Period with respect
thereto (but excluding loss of margin). Such indemnification under this
subsection 2.16 may include an amount equal to the excess, if any, of (i) the
amount of interest which would have accrued on the amount so prepaid, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Loans
provided for herein (but excluding loss of margin) over (ii) the amount of
interest (as reasonably determined by such Lender) which would have accrued to
such Lender on such amount by placing such amount on deposit for a comparable
period with leading banks in the interbank eurodollar market. Each Lender
claiming any payment pursuant to this subsection 2.16 shall do so by giving
notice thereof to the Borrower and the Administrative Agent (showing
calculation of the amount claimed in reasonable detail) within 60 Business Days
after a failure to borrow, convert or continue Eurodollar Loans, or to prepay,
after notice or after a prepayment of Eurodollar Loans on a day which is not
the last day of an Interest Period therefor. This covenant shall survive the
termination of this Agreement and the payment of the Loans and all other
amounts payable hereunder.
2.17 Replacement of Lenders. If at any time (a) the Borrower
becomes obligated to pay additional amounts described in subsections 2.13, 2.14
or 2.15 as a result of any condition described in such
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subsections, or any Lender ceases to make Eurodollar Loans pursuant to
subsection 2.13, (b) any Lender becomes insolvent and its assets become subject
to a receiver, liquidator, trustee, custodian or other Person having similar
powers or (c) any Lender becomes a "Nonconsenting Lender" (hereinafter
defined), then the Borrower may, on ten Business Days' prior written notice to
the Administrative Agent and such Lender, replace such Lender by causing such
Lender to (and such Lender shall) assign pursuant to subsection 10.6 all of its
rights and obligations under this Agreement to a Lender or other entity
selected by the Borrower and acceptable to the Administrative Agent for a
purchase price equal to the outstanding principal amount of such Lender's Loans
and all accrued interest and fees and other amounts payable hereunder
(including amounts payable under subsection 2.16 as though such Loans were
being paid instead of being purchased); provided that (i) the Borrower shall
have no right to replace the Administrative Agent, (ii) neither the
Administrative Agent nor any Lender shall have any obligation to the Borrower
to find a replacement Lender or other such entity, (iii) in the event of a
replacement of a Nonconsenting Lender or a Lender to which the Borrower becomes
obligated to pay additional amounts pursuant to this subsection 2.17, in order
for the Borrower to be entitled to replace such a Lender, such replacement must
take place no later than 180 days after (A) the date the Nonconsenting Lender
shall have notified the Borrower and the Administrative Agent of its failure to
agree to any requested consent, waiver or amendment or (B) the Lender shall
have demanded payment of additional amounts under one of the subsections
described in this subsection 2.17, as the case may be, and (iv) in no event
shall the Lender hereby replaced be required to pay or surrender to such
replacement Lender or other entity any of the fees received by such Lender
hereby replaced pursuant to this Agreement. In the case of a replacement of a
Lender to which the Borrower becomes obligated to pay additional amounts
pursuant to this subsection 2.17, the Borrower shall pay such additional
amounts to such Lender prior to such Lender being replaced and the payment of
such additional amounts shall be a condition to the replacement of such Lender.
In the event that (x) the Borrower or the Administrative Agent has requested
the Lenders to consent to a departure or waiver of any provisions of the Credit
Documents or to agree to any amendment thereto, (y) the consent, waiver or
amendment in question requires the agreement of all Lenders in accordance with
the terms of subsection 10.1 and (z) the Required Lenders have agreed to such
consent, waiver or amendment, then any Lender who does not agree to such
consent, waiver or amendment shall be deemed a "Nonconsenting Lender."
2.18 Certain Fees. The Company agrees to pay to the
Administrative Agent, for its own account, a non-refundable administration fee
in an amount previously agreed to with the Administrative Agent, payable in
advance on the Closing Date and annually in advance on each anniversary thereof
prior to the earlier of (x) the Final Maturity Date and (y) the payment in full
of all Loans and all other amounts owing under this Agreement.
2.19 Certain Rules Relating to the Payment of Additional
Amounts. (a) Upon the request, and at the expense, of the Borrower, each Lender
to which the Borrower is required to pay any additional amount pursuant to
Section 2.14 or 2.15 shall reasonably afford the Borrower the opportunity to
contest, and reasonably cooperate with the Borrower in contesting, the
imposition of any Non-Excluded taxes giving rise to such payment; provided that
(i) such Lender shall not be required to afford the Borrower the opportunity to
so contest unless the Borrower shall have confirmed in writing to such Lender
its obligation to pay such amounts
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pursuant to this Agreement and (ii) the Borrower shall reimburse such Lender
for its reasonable attorneys' and accountants' fees and disbursements incurred
in so cooperating with the Borrower in contesting the imposition of such
Non-Excluded Taxes.
(b) Each Lender agrees that if it makes any demand for payment
under subsection 2.14 or 2.15(a), or if any adoption or change of the type
described in subsection 2.13 shall occur with respect to it, it will use
reasonable efforts (consistent with its internal policy and legal and
regulatory restrictions and so long as such efforts would not be
disadvantageous to it, as determined in its reasonable discretion) to designate
a different lending office if the making of such a designation would allow the
Lender to continue to make and maintain Eurodollar Loans and would reduce or
obviate the need for the Borrower to make payments under subsection 2.14 or
2.15(a), or would eliminate or reduce the effect of any adoption or change
described in subsection 2.13.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions
hereof, the Issuing Lender, in reliance on the agreements of the Revolving
Credit Lenders set forth in subsection 3.4(a), agrees to issue letters of
credit ("Letters of Credit") for the account of the Borrower on any Business
Day during the Commitment Period in such form as may be approved from time to
time by the Issuing Lender; provided that the Issuing Lender shall have no
obligation to issue any Letter of Credit if, after giving effect to such
issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the
Available Commitment with respect to Revolving Credit Loans of all Revolving
Credit Lenders less the aggregate principal amount of the Swing Line Loans then
outstanding would be less than zero.
(b) Each Letter of Credit shall (i) be denominated in Dollars,
(ii) be a standby letter of credit issued to support obligations of the
Borrower or any of its Subsidiaries, contingent or otherwise and (iii) expire
no later than the earlier of (x) the date that is 12 months after the date of
its issuance and (y) the fifth Business Day prior to the Revolving Loan
Termination Date; provided that any Letter of Credit with an expiration date
occurring up to twelve months after such Letter of Credit's date of issuance
may be automatically renewable for subsequent 12-month periods (but in no event
later than the fifth Business Day prior to the Revolving Loan Termination
Date).
(c) Each Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the State of
New York.
(d) The Issuing Lender shall not at any time be obligated to
issue any Letter of Credit hereunder if such issuance would conflict with, or
cause the Issuing Lender or any L/C Participant to exceed any limits imposed
by, any applicable Requirement of Law or any policies of the Issuing Lender.
3.2 Procedure for Issuance of Letters of Credit. The Borrower
may from time to time request that the Issuing Lender issue a Letter of Credit
at any time prior to the fifth Business Day prior to the Revolving Loan
Termination Date by delivering to the Issuing Lender with a copy to the
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Administrative Agent at its address for notices specified herein an Application
therefor, completed to the satisfaction of the Issuing Lender, and such other
certificates, documents and other papers and information as the Issuing Lender
may reasonably request. Upon receipt of any Application, the Issuing Lender
will process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other
papers and information relating thereto) by issuing the original of such Letter
of Credit to the beneficiary thereof or as otherwise may be agreed by the
Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of
such Letter of Credit to the Borrower and the Administrative Agent (with copies
for each Lender) promptly following the issuance thereof.
3.3 Fees, Commissions and Other Charges. (a) The Borrower
shall pay to the Administrative Agent, for the account of the Issuing Lender
and the L/C Participants, a letter of credit fee with respect to each Letter of
Credit, computed for the period from and including the date of issuance of such
Letter of Credit to the expiration date of such Letter of Credit at a rate per
annum equal to the Applicable Margin then in effect for Eurodollar Loans, of
the aggregate face amount of Letters of Credit outstanding, payable in arrears
on each L/C Fee Payment Date and on the Revolving Loan Termination Date. Such
fee shall be payable to the Administrative Agent to be shared ratably among the
Revolving Credit Lenders in accordance with their respective Commitment
Percentages with respect to Revolving Credit Loans. In addition, the Borrower
shall pay to the Administrative Agent, for the sole account of the Issuing
Lender, a fee equal to 0.1250% per annum of the aggregate face amount of
outstanding Letters of Credit payable quarterly in arrears on each L/C Fee
Payment Date and on the Revolving Loan Termination Date.
(b) In addition to the foregoing fees and commissions, the
Borrower shall pay or reimburse the Issuing Lender for such normal and
customary costs and expenses as are incurred or charged by the Issuing Lender
in issuing, effecting payment under, amending or otherwise administering any
Letter of Credit.
(c) The Administrative Agent shall, promptly following its
receipt thereof, distribute to the Issuing Lender and the L/C Participants all
fees and commissions received by the Administrative Agent for their respective
accounts pursuant to this subsection.
3.4 L/C Participation. (a) The Issuing Lender irrevocably
agrees to sell and hereby sells to each L/C Participant, and, to induce the
Issuing Lender to issue Letters of Credit hereunder, each L/C Participant
irrevocably agrees to accept and purchase and hereby accepts and purchases from
the Issuing Lender, on the terms and conditions hereinafter stated, for such
L/C Participant's own account and risk an undivided interest equal to such L/C
Participant's Commitment Percentage with respect to Revolving Credit Loans from
time to time in effect in the Issuing Lender's obligations and rights under
each Letter of Credit issued hereunder and the amount of each draft paid by the
Issuing Lender thereunder. Each L/C Participant unconditionally and irrevocably
agrees with the Issuing Lender that, if a draft is paid under any Letter of
Credit for which the Issuing Lender is not
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reimbursed in full by the Borrower in accordance with the terms of this
Agreement, such L/C Participant shall pay to the Issuing Lender upon demand at
the Issuing Lender's address for notices specified herein an amount equal to
such L/C Participant's then Commitment Percentage with respect to Revolving
Credit Loans of the amount of such draft, or any part thereof, which is not so
reimbursed; provided that, if such demand is made prior to 11:00 A.M., New York
City time, on a Business Day, such L/C Participant shall make such payment to
the Issuing Lender prior to the end of such Business Day and otherwise such L/C
Participant shall make such payment on the next succeeding Business Day.
(b) If any amount required to be paid by any L/C Participant
to the Issuing Lender pursuant to subsection 3.4(a) in respect of any
unreimbursed portion of any payment made by the Issuing Lender under any Letter
of Credit is paid to the Issuing Lender within three Business Days after the
date such payment is due, such L/C Participant shall pay to the Issuing Lender
on demand an amount equal to the product of (i) such amount, times (ii) the
daily average Federal funds rate, as quoted by the Issuing Lender, during the
period from and including the date such payment is required to the date on
which such payment is immediately available to the Issuing Lender, times (iii)
a fraction the numerator of which is the number of days that elapse during such
period and the denominator of which is 360. If any such amount required to be
paid by any L/C Participant pursuant to subsection 3.4(a) is not in fact made
available to the Issuing Lender by such L/C Participant within three Business
Days after the date such payment is due, the Issuing Lender shall be entitled
to recover from such L/C Participant, on demand, such amount with interest
thereon calculated from such due date at the rate per annum applicable to Base
Rate Loans hereunder. A certificate of the Issuing Lender submitted to any L/C
Participant with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Lender has made
payment under any Letter of Credit and has received from any L/C Participant
its pro rata share of such payment in accordance with subsection 3.4(a), the
Issuing Lender receives any payment related to such Letter of Credit (whether
directly from the Borrower or otherwise, including proceeds of collateral
applied thereto by the Issuing Lender), or any payment of interest on account
thereof, the Issuing Lender will, if such payment is received prior to 11:00
A.M., New York City time, on a Business Day, distribute to such L/C Participant
its pro rata share thereof prior to the end of such Business Day and otherwise
the Issuing Lender will distribute such payment on the next succeeding Business
Day; provided, however, that in the event that any such payment received by the
Issuing Lender and distributed to the L/C Participants shall be required to be
returned by the Issuing Lender, each such L/C Participant shall return to the
Issuing Lender the portion thereof previously distributed by the Issuing Lender
to it.
3.5 Reimbursement Obligation of the Borrower. (a) The Borrower
agrees to reimburse the Issuing Lender on the same Business Day on which the
Issuing Lender notifies the Borrower of the date and amount of a draft
presented under any Letter of Credit and paid by the Issuing Lender provided
such notice is received by 1:00 P.M., New York City time, on such Business Day,
and the next Business Day if such notice is received after such time. The
Issuing Lender shall provide notice to the Borrower on each Business Day on
which a draft is presented and paid by the Issuing Lender indicating the amount
of (i) such draft so paid and (ii) any taxes, fees,
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charges or other costs or expenses incurred by the Issuing Lender in connection
with such payment. Each such payment shall be made to the Issuing Lender at its
address for notices specified herein in lawful money of the United States of
America and in immediately available funds.
(b) Interest shall be payable on any and all amounts remaining
unpaid by the Borrower under this subsection from the date a draft presented
under any Letter of Credit is paid by the Issuing Lender until payment in full
(i) at the rate which would be payable on any Loans that are Base Rate Loans at
such time until such payment is required to be made pursuant to subsection
3.5(a), and (ii) thereafter, at the rate which would be payable on any Loans
that are Base Rate Loans at such time which were then overdue.
3.6 Obligations Absolute. (a) The Borrower's obligations under
subsection 3.5(a) shall be absolute and unconditional under any and all
circumstances and irrespective of any set-off, counterclaim or defense to
payment which the Borrower may have or have had against the Issuing Lender, any
L/C Participant or any beneficiary of a Letter of Credit.
(b) The Borrower also agrees with the Issuing Lender that the
Issuing Lender shall not be responsible for, and the Borrower's Reimbursement
Obligations under subsection 3.5(a) shall not be affected by, among other
things, (i) the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged (unless the Issuing Lender has knowledge of such
invalidity, fraud or forgery), or (ii) any dispute between or among the
Borrower and any beneficiary of any Letter of Credit or any other party to
which such Letter of Credit may be transferred or (iii) any claims whatsoever
of the Borrower against any beneficiary of such Letter of Credit or any such
transferee.
(c) Neither the Issuing Lender nor any L/C Participant shall
be liable for any error, omission, interruption or delay in transmission,
dispatch or delivery of any message or advice, however transmitted, in
connection with any Letter of Credit, except for errors or omissions caused by
the Issuing Lender's gross negligence or willful misconduct.
(d) The Borrower agrees that any action taken or omitted by
the Issuing Lender under or in connection with any Letter of Credit or the
related drafts or documents, if done in the absence of gross negligence or
willful misconduct and in accordance with the standards of care specified in
the Uniform Commercial Code of the State of New York, shall be binding on the
Borrower and shall not result in any liability of the Issuing Lender or any L/C
Participant to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented
for payment under any Letter of Credit, the Issuing Lender shall promptly
notify the Borrower and the Administrative Agent of the date and amount
thereof. If any draft shall be presented for payment under any Letter of
Credit, the responsibility of the Issuing Lender to the Borrower in connection
with such draft shall, in addition to any payment obligation expressly provided
for in such Letter of Credit, be limited to determining that the documents
(including each draft) delivered under such Letter of Credit in connection with
such presentment appear on their face to be in conformity with such Letter of
Credit.
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3.8 Application. To the extent that any provision of any
Application related to any Letter of Credit is inconsistent with the provisions
of this Section 3, the provisions of this Section 3 shall govern and control.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Agents, the Issuing Lender, the Swing Line
Lender and the Lenders to enter into this Agreement and to make the Loans and
issue or participate in the Letters of Credit, the Borrower hereby represents
and warrants to the Agents, the Issuing Lender, the Swing Line Lender and each
Lender that:
4.1 Financial Condition. (a) The combined balance sheets of
the Lockheed Martin Predecessor Businesses as at December 31, 1996 and December
31, 1995 and the related combined statements of operations and changes in
invested equity and cash flows for each of the three years in the period ended
December 31, 1996, audited by Coopers & Lybrand L.L.P., copies of which have
heretofore been furnished to each Lender, present fairly, in all material
respects, in accordance with GAAP the combined financial condition of the
Lockheed Martin Predecessor Businesses as of such dates, and the combined
results of their operations and changes in invested equity and cash flows for
each of the years in the period ended December 31, 1996. All such financial
statements have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as approved by such auditors and as
disclosed therein). To the best of the Borrower's knowledge, none of the
Lockheed Martin Predecessor Businesses had, at the date of each balance sheet
referred to above, any material Guarantee Obligation, contingent liability or
liability for taxes, or any long-term lease or unusual forward or long-term
commitment, including, without limitation, any material interest rate or
foreign currency swap or exchange transaction, which is not reflected in the
foregoing statements or in the notes thereto or expressly permitted to be
incurred hereunder. To the best of the Borrower's knowledge, during the period
from December 31, 1996 to and including the date hereof there has been no sale,
transfer or other disposition by the Lockheed Martin Predecessor Businesses of
any material part of its business or property (except as disclosed in the
Transaction Documents) other than pursuant to the Asset Contribution and no
purchase or other acquisition of any business or property (including any
capital stock of any other Person) material in relation to the consolidated
financial condition of the Lockheed Martin Predecessor Businesses at December
31, 1996.
(b) The combined statements of operations and cash flows for
the three months ended March 31, 1996 and the years ended December 31, 1995 and
1994 of the Loral Acquired Businesses, audited by Coopers & Lybrand L.L.P.,
copies of which have heretofore been furnished to each Lender, present fairly,
in all material respects, in accordance with GAAP the combined results of
operations and cash flows of the Loral Acquired Businesses for the three months
ended March 31, 1996, and the years ended December 31, 1995 and 1994. All such
financial statements have been prepared in accordance with GAAP applied
consistently throughout the periods involved (except as approved by such
accountants and as disclosed therein). To the best of the Borrower's knowledge,
during the period from December 31, 1996 to and including the date hereof,
there has been no sale, transfer or other disposition by any of the Loral
Acquired Businesses of any material part of its business or property (except as
disclosed in the Transaction Documents) other than pursuant to the Asset
Contribution and no purchase or other acquisition of any business or property
(including any capital stock of any
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other Person) material in relation to the consolidated financial condition of
Loral Acquired Businesses at December 31, 1996.
(c) The unaudited pro forma condensed consolidated financial
statements of the Borrower, as of December 31, 1996 and for the year then
ended, certified by a Responsible Officer (the "Pro Forma Financial
Statements"), copies of which have been furnished to each Lender, comprise the
unaudited combined financial statements of (x) the Lockheed Martin Predecessor
Businesses as of December 31, 1996 and for the year then ended and (y) the
Loral Acquired Businesses for the three months ended March 31, 1996, adjusted
to give effect (as if such events had occurred on such dates) to the Asset
Contribution and each of the other transactions contemplated by the Transaction
Documents. The Pro Forma Financial Statements have been prepared based on good
faith assumptions in accordance with Regulation S-X under the Securities
Exchange Act of 1934, as amended, and based on the best information available
to the Borrower, as of the date of delivery thereof, and reflect on a pro forma
basis the financial position and results of operations of the Borrower and its
Subsidiaries, as of December 31, 1996, and for the year then ended.
4.2 No Change. Since December 31, 1996 there has been no
development, event or circumstance which has had or could reasonably be
expected to have a Material Adverse Effect.
4.3 Corporate Existence; Compliance with Law. Each of
Holdings, the Borrower and its Subsidiaries (a) is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, (b) has the corporate power and authority, and the legal right,
to own and operate its property, to lease the property it operates as lessee
and to conduct the business in which it is currently engaged, (c) is, or will
be on or before the date set forth in subsection 6.12, duly qualified as a
foreign corporation and in good standing under the laws of each jurisdiction
where its ownership, lease or operation of property or the conduct of its
business requires such qualification, except to the extent that the failure to
so qualify could not, in the aggregate, reasonably be expected to have a
Material Adverse Effect and (d) is in compliance with all Requirements of Law
except to the extent that the failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations.
Each of Holdings, the Borrower and its Subsidiaries has the corporate power and
authority, and the legal right, to make, deliver and perform the Credit
Documents to which it is a party and, in the case of the Borrower, to borrow
hereunder and has taken all necessary corporate action to authorize the
borrowings on the terms and conditions of this Agreement and to authorize the
execution, delivery and performance of such Credit Documents and Transaction
Documents. No consent or authorization of, filing with, notice to or other act
by or in respect of, any Governmental Authority or any other Person is required
in connection with the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of the Credit Documents and Transaction
Documents to which the Borrower and each other Credit Party is a party, except
those referred to in subsections 4.17 and 6.13 and those set forth on Schedule
4.4. This Agreement has been, and each other Credit Document and Transaction
Document will be, duly executed and delivered on behalf of the Borrower and
each other Credit Party. This Agreement constitutes, and each other Credit
Document and Transaction Document to which it is a party when executed and
delivered will constitute,
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a legal, valid and binding obligation of each Credit Party thereto enforceable
against each such Credit Party, as the case may be, in accordance with its
terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered
in a proceeding in equity or at law) and an implied covenant of good faith and
fair dealing.
4.5 No Legal Bar. Except as set forth on Schedule 4.5 or as
could not reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect, the execution, delivery and performance of each Credit
Document, the borrowing and use of the proceeds of the Loans and the
consummation of the transactions contemplated by the Credit Documents and the
Transaction Documents: (a) will not violate any Requirement of Law or any
Contractual Obligation applicable to or binding upon Holdings, the Borrower or
any Subsidiary of the Borrower or any of their respective properties or assets
and (b) will not result in the creation or imposition of any Lien on any of its
properties or assets pursuant to any Requirement of Law applicable to it or any
of its Contractual Obligations, except for the Liens arising under the Security
Documents.
4.6 No Material Litigation. Except as set forth on Schedule
4.6, no litigation by, investigation by, or proceeding of or before any
arbitrator or any Governmental Authority is pending or, to the knowledge of the
Borrower, overtly threatened by or against the Borrower or any of its
Subsidiaries or against any of its or their respective properties or revenues
(including after giving effect to the Asset Contribution and the other
transactions contemplated by the Transaction Documents) with respect to any
Credit Document or any of the transactions contemplated hereby or thereby or
which could reasonably be expected to have a Material Adverse Effect.
4.7 No Default. Neither Holdings, the Borrower nor any of its
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect which could reasonably be expected to have a
Material Adverse Effect. No Default or Event of Default has occurred and is
continuing.
4.8 Ownership of Property; Liens. Each of Holdings, the
Borrower and its Subsidiaries (i) has good record and insurable title in fee
simple to all the real property listed on Schedule 4.8, (ii) has good record
and insurable title in fee simple to, or a valid leasehold interest in, all its
other material real property, (iii) has good title to, or a valid leasehold
interest in, all its other material property and (iv) none of such property in
clauses (i) through (iii) is or shall be subject to any Lien except as
permitted by subsection 7.3.
4.9 Intellectual Property. Holdings, the Borrower and each of
its Subsidiaries owns, or is licensed to use, all trademarks, tradenames,
copyrights, technology, know-how and processes necessary for the conduct of its
business as currently conducted except for those the failure to own or license
which could not reasonably be expected to have a Material Adverse Effect (the
"Intellectual Property"). To the best of the Borrower's knowledge, and except
as set forth on Schedule 4.9, no claim has been asserted and is pending by any
Person challenging or questioning the use of any such Intellectual Property or
the validity or effectiveness of any such Intellectual Property, nor does the
Borrower know of any valid basis for any such claim which could reasonably be
expected to have a Material Adverse
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Effect. The use of such Intellectual Property by Holdings, the Borrower and its
Subsidiaries does not infringe on the rights of any Person, except for such
claims and infringements that, in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
4.10 Taxes. Except as set forth on Schedule 4.10, each of
Holdings, the Borrower and its Subsidiaries has filed or caused to be filed all
material tax returns which, to the knowledge of the Borrower, are required to
be filed and has paid all taxes shown to be due and payable on said returns or
on any assessments made against it or any of its property and all other
material taxes, fees or other charges imposed on it or any of its property by
any Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of Holdings, the Borrower or its Subsidiaries, as the case may be); no
tax Lien has been filed, and, to the knowledge of the Borrower, no claim is
being asserted, with respect to any such tax, fee or other charge.
4.11 Federal Regulations. No part of the proceeds of any Loans
will be used for "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation G or
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect.
4.12 ERISA. The Borrower has provided to the Agents a true and
correct copy of all Agreements, arrangements and understandings relating to the
transfer of Plans from the Seller to the Borrower (the "Transfer Agreements").
The Transfer Agreements are in full force and effect and have not been waived
or modified without the consent of the Agents (which shall not be unreasonably
withheld) except to the extent any such waiver or modification, singly or in
the aggregate, could not be reasonably expected to have a Material Adverse
Effect. Except as could not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect, no Reportable Event has occurred
with respect to any Single Employer Plan, all contributions required to be made
with respect to a Plan have been timely made; none of the Borrower or any of
its Subsidiaries nor any Commonly Controlled Entity has incurred any material
liability to or on account of a Plan pursuant to Section 409, 502(i), 502(1),
515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29),
4971, 4975 or 4980 of the Code or expects to incur any liability (including any
indirect, contingent or secondary liability) under any of the foregoing
Sections with respect to any Plan; no termination or, or institution of
proceedings to terminate or appoint a trustee to administer, a Single Employer
Plan has occurred; and each Plan has complied in all material respects with the
applicable provisions of ERISA and the Code (except that with respect to any
Multiemployer Plan, such representation is deemed made only to the knowledge of
the Borrower). No "accumulated funding deficiency" (within the meaning of
Section 412 of the Code or Section 302 of ERISA), extension of any amortization
period (within the meaning of Section 412 of the Code) or Lien in favor of the
PBGC or a Plan has arisen or has occurred during the five-year period prior to
the date on which this representation is made or deemed made with respect to
any Single Employer Plan. As of the last annual valuation date prior to the
date on which this representation is made or deemed made, the fair market value
of the assets available for benefits under each Single Employer Plan did not
exceed the actuarial present value of all accumulated benefit obligations under
such Plan by more than $20,000,000, all
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as determined in accordance with Statement of Financial Accounting Standards
No. 87. Neither the Borrower nor any Commonly Controlled Entity has had a
complete or partial withdrawal from any Multiemployer Plan for which there is
any outstanding liability, and neither the Borrower nor any Commonly Controlled
Entity would become subject to any liability under ERISA if the Borrower or any
such Commonly Controlled Entity were to withdraw completely from all
Multiemployer Plans as of the valuation date most closely preceding the date on
which this representation is made or deemed made in an amount which would be
reasonably likely to have a Material Adverse Effect. To the best knowledge of
the Borrower, no such Multiemployer Plan is in Reorganization or Insolvent.
4.13 Investment Company Act; Other Regulations. None of the
Borrower or any of its Subsidiaries is an "investment company," or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended. None of the Borrower or any of its
subsidiaries is not subject to regulation under any Federal or State statute or
regulation (other than Regulation X of the Board of Governors of the Federal
Reserve System) which limits its ability to incur Indebtedness.
4.14 Subsidiaries. After giving effect to the consummation of
the Transaction, the Subsidiaries of the Borrower and their respective
jurisdictions of incorporation shall be as set forth on Schedule 4.14.
4.15 Purpose of Loans. The proceeds of the Loans shall be used
by the Borrower (i) to finance a portion of the Transaction and related fees
and expenses in an aggregate amount not to exceed $185,000,000 and (ii) for
working capital purposes in the ordinary course of business of the Borrower and
its Subsidiaries.
4.16 Environmental Matters.
Except insofar as any exception to any of the following, or
any aggregation of such exceptions, is not reasonably likely to result in a
Material Adverse Effect:
(a) The facilities and properties owned, leased or operated
Holdings, by the Borrower or any of its Subsidiaries (the
"Properties") do not contain, and have not previously contained, any
Materials of Environmental Concern in amounts or concentrations which
(i) constitute or constituted a violation of, or (ii) could reasonably
be expected to give rise to liability under, any applicable
Environmental Law.
(b) None of Holdings, the Borrower nor any of its Subsidiaries
has received any written notice of violation, alleged violation,
non-compliance, liability or potential liability regarding
environmental matters or compliance with Environmental Laws with
regard to any of the Properties or the Business, nor does the Borrower
have knowledge or reason to believe that any such notice will be
received or is being threatened.
(c) Materials of Environmental Concern have not been
transported or disposed of from the Properties in violation of, or in
a manner or to a location which could reasonably be expected to give
rise to liability under, any applicable Environmental Law, nor have
any Materials of Environmental Concern been generated, treated,
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stored or disposed of at, on or under any of the Properties in
violation of, or in a manner that could reasonably be expected to give
rise to liability under, any applicable Environmental Law.
(d) No judicial proceeding or governmental or administrative
action is pending or, to the knowledge of the Borrower, threatened,
under any Environmental Law to which Holdings, the Borrower or any
Subsidiary is or, to the knowledge of the Borrower, will be named as a
party or with respect to the Properties or the Business, nor are there
any consent decrees or other decrees, consent orders, administrative
orders or other orders, or other administrative or judicial
requirements outstanding under any Environmental Law with respect to
the Properties or the Business.
(e) There has been no release or threat of release of
Materials of Environmental Concern at or from the Properties, or
arising from or related to the operations of Holdings, the Borrower or
any Subsidiary in connection with the Properties or otherwise in
connection with the Business, in violation of or in amounts or in a
manner that could reasonably give rise to liability under any
applicable Environmental Laws.
(f) The Properties and all operations at the Properties are in
compliance, and have in the last 3 years been in compliance, in all
material respects with all applicable Environmental Laws, and there is
no contamination at, under or about the Properties or violation of any
applicable Environmental Law with respect to the Properties or the
business operated by Holdings, the Borrower or any of its Subsidiaries
(the "Business") which could materially interfere with the continued
operation of the Properties or materially impair the fair saleable
value thereof.
(g) Holdings, the Borrower and its Subsidiaries hold and are
in compliance with all Environmental Permits necessary for their
operations.
4.17 Collateral Documents. (a) Upon execution and delivery
thereof by the parties thereto, each of the Borrower Pledge and Security
Agreement, the Subsidiary Pledge and Security Agreement and the Parent Pledge
and Security Agreement will be effective to create in favor of the
Administrative Agent, for the ratable benefit of the Lenders, a legal, valid
and enforceable security interest in the pledged stock described therein and,
when stock certificates representing or constituting the pledged stock
described therein are delivered to the Administrative Agent, such security
interest shall, subject to the existence of Permitted Liens, constitute a
perfected first lien on, and security interest in, all right, title and
interest of the pledgor party thereto in the pledged stock described therein.
(b) Upon execution and delivery thereof by the parties
thereto, each of the Borrower Pledge and Security Agreement, the Subsidiary
Pledge and Security Agreement and the Parent Pledge and Security Agreement will
be effective to create in favor of the Administrative Agent, for the ratable
benefit of the Lenders, a legal, valid and enforceable security interest in the
collateral described therein. Uniform Commercial Code financing statements have
been filed in each of the jurisdictions listed on Schedule 4.17, each such
Agreement has been filed in each of the government
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offices listed on Schedule 4.17 or arrangements have been made for such filing
in such jurisdictions, and upon such filings, and upon the taking of possession
by the Administrative Agent of any such collateral the security interests in
which may be perfected only by possession, such security interests will,
subject to the existence of liens as permitted by the definition of Permitted
Liens, constitute perfected first priority liens on, and security interests in,
all right, title and interest of the debtor party thereto in the collateral
described therein, except, in the case of each of the Borrower Pledge and
Security Agreement, the Subsidiary Pledge and Security Agreement and the Parent
Pledge and Security Agreement, to the extent that a security interest cannot be
perfected therein by the filing of a financing statement or the taking of
possession under the Uniform Commercial Code of the relevant jurisdiction.
(c) Upon (a) execution and delivery of the Mortgages by the
parties thereto, (b) the recording of such Mortgages in the jurisdiction listed
on Schedule 4.17 and (c) the payment of any required mortgage recording taxes,
each of the Mortgages will be effective to create in favor of the
Administrative Agent, for the ratable benefit of the Lenders, a legal, valid
and enforceable lien on the real property described therein and such liens
will, as of the Closing Date, subject to the existence of liens as permitted by
clauses (a), (e), (f) and (g) of the definition of Permitted Liens, constitute
first priority liens on the real property described therein.
4.18 Accuracy and Completeness of Information. No fact is
known to Holdings, the Borrower or any of its Subsidiaries which has had or
could reasonably be expected to have a Material Adverse Effect, which has not
been disclosed to the Lenders by Holdings, the Borrower or its Subsidiaries in
writing prior to the date hereof. No document furnished or statement made in
writing to the Lenders by Holdings, the Borrower, any Subsidiary or any party
to any of the Transaction Documents in connection with the negotiation,
preparation or execution of this Agreement or any of the other Credit
Documents, taken as a whole, (including the Confidential Offering Memorandum
dated April 1997 relating to this facility but excluding all projections
(including industry forecasts and statistical data) and pro forma financial
statements (whether or not contained therein) which shall have been prepared in
good faith and based upon reasonable assumptions) contains any untrue statement
of a material fact or omits to state any such material fact necessary in order
to make the statements contained therein not misleading in the context in which
such statements are made. The Equity Documents constitute all of the agreements
relating to the Equity Investment and the Subordinated Debt Documents
constitute all of the agreements relating to the Subordinated Debt.
4.19 Solvency. On the Closing Date and after giving effect to
the Asset Contribution and the other transactions contemplated by the
Transaction Documents including borrowings hereunder on such date and the
incurrence of all other Indebtedness and Guarantee Obligations being incurred
on such date, the Borrower is "Solvent," in that (a) the property, at a fair
valuation, of Holdings and its Subsidiaries, individually and taken together as
a single entity, will exceed their debts, (b) the present fair salable value of
the assets of Holdings and its Subsidiaries, individually and taken together as
a single entity, is not less than the amount that will be required to pay their
probable liabilities as such debts become absolute and matured, and (c) the
Borrower does not intend to, and does not believe that Holdings and its
Subsidiaries, individually and taken together as a single
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entity, will, incur debts or liabilities beyond the their ability to pay as
such debts and liabilities mature. For purposes of this subsection, "debt"
means "liability on a claim" and "claim" means any (i) right to payment,
whether or not such a right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured, or unsecured or (ii) right to an equitable remedy for breach of
performance if such breach gives rise to a right to payment, whether or not
such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured.
4.20 Labor Matters. There are no strikes pending or, to the
Borrower's knowledge, overtly threatened against Holdings, the Borrower or any
of its Subsidiaries which, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect. The hours worked and payments
made to employees of Holdings, the Borrower and each of its Subsidiaries (and
their predecessors) have not been in violation of the Fair Labor Standards Act
or any other applicable Requirement of Law, except to the extent such
violations could not, or in the aggregate, be reasonably expected to have a
Material Adverse Effect.
4.21 Transaction Documents. To the best of the Borrower's
knowledge, the representations and warranties contained in the Transaction
Documents, taken as a whole, are true and correct in all material respects as
of the Closing Date. On the Closing Date, the Asset Contribution will have been
consummated in accordance with the Transaction Documents.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Loans. The agreement of each Lender
to make the initial extension of credit requested to be made by it is subject
to the satisfaction, immediately prior to or concurrently with the making of
such extension of credit (including the making of any Loan or the issuance of
any Letter of Credit) on the Closing Date, of the following conditions
precedent:
(a) Credit Documents. The Administrative Agent shall have
received (i) this Agreement, (ii) the Guarantees, (iii) the Mortgages
and (iv) the Security Documents, in each case executed, duly
acknowledged and delivered by duly authorized officers of each party
thereto, with a counterpart or a conformed copy for each Lender.
Notwithstanding the foregoing, no Foreign Subsidiary of Holdings or
the Borrower shall be required to execute a Subsidiary Guarantee or
Subsidiary Pledge and Security Agreement, and no more than 65% of the
capital stock of or equity interests in any Foreign Subsidiary of the
Borrower, Holdings or any of their Subsidiaries, or any other of their
Subsidiaries if more than 65% of the assets of such Subsidiary are
securities of foreign companies (such determination to be made on the
basis of fair market value), shall be required to be pledged
hereunder.
(b) Related Agreements. The Administrative Agent shall have
received, with a copy for each Lender, true and correct copies,
certified as to authenticity by the Borrower, of each of the
Transaction Documents and such other documents or instruments as may
be reasonably requested by the Administrative Agent, including,
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without limitation, a copy of any debt instrument, security agreement
or other material contract to which the Borrower or any of its
Subsidiaries may be a party (after giving effect to the Asset
Contribution).
(c) Asset Contribution. The Asset Contribution shall have been
consummated pursuant to the Transaction Agreement, and no material
provision of the Transaction Agreement shall have been amended,
supplemented, waived or otherwise modified without the prior written
consent of the Agents. The Agents shall be reasonably satisfied with
the aggregate amount of fees and expenses payable by the Borrower and
its Subsidiaries in connection with the transactions contemplated
hereby and by the Transaction Documents.
(d) Capitalization; Capital Structure (i) After giving effect
to the Asset Contribution and the other transactions contemplated by
the Transaction Documents, the Borrower shall have the capital
structure set forth in the Pro Forma Financial Statements.
(ii) The Subordinated Debt Documents shall have been
executed and delivered by the parties thereto (and shall be in form
and substance reasonably satisfactory to the Agents), shall be in full
force and effect and none of the provisions thereof shall have been
amended, waived, supplemented or otherwise modified without the prior
written consent of the Agents; and the Borrower shall have issued the
Subordinated Debt in a principal amount, and received gross proceeds
in the amount of $225,000,000.
(iii) The Equity Documents shall have been executed and
delivered by the parties thereto (and shall be in form and substance
reasonably satisfactory to the Agents), shall be in full force and
effect and none of the provisions thereof shall have been amended,
waived, supplemented or otherwise modified without the prior written
consent of the Agents; and the Borrower shall have received at least
$79,850,000 in net cash proceeds in accordance with the terms of the
Equity Documents.
(e) Fees. The Agents, the Arranger and the Lenders shall have
received all fees, expenses and other consideration required to be
paid on or before the Closing Date.
(f) Lien Searches. The Administrative Agent shall have
received the results of a search of Uniform Commercial Code, tax and
judgment filings made with respect to each of the Borrower and its
Subsidiaries (after giving effect to the Asset Contribution) and,
without duplication, the Lockheed Martin Predecessor Businesses and
the Loral Acquired Businesses in the jurisdictions set forth on
Schedule 4.17 together with copies of financing statements disclosed
by such searches, and such searches shall disclose no Liens on any
assets encumbered by any Security Document, except for Liens permitted
hereunder or, if unpermitted Liens are disclosed, the Administrative
Agent shall have received satisfactory evidence of the release of such
Liens.
(g) Consents, Authorizations and Filings, etc. Except for the
financing statements contemplated by the Security Documents and
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the filing of the Security Documents and the Assignment Consent, all
consents, authorizations and filings, if any, required in connection
with the execution, delivery and performance by the Credit Parties,
and the validity and enforceability against the Credit Parties, of the
Credit Documents to which any of them is a party, shall have been
obtained or made, and such consents, authorizations and filings shall
be in full force and effect, except such consents, authorizations and
filings, the failure to obtain which would not have a Material Adverse
Effect.
(h) Insurance. The Lenders shall have received (i) a
reasonably satisfactory schedule describing all insurance maintained
by the Borrower and its Subsidiaries (after giving effect to the Asset
Contribution) pursuant to subsection 6.5, and (ii) binders (or other
customary evidence as to the obtaining and maintenance by the Borrower
and its Subsidiaries of such insurance) for each policy set forth on
such schedule insuring against casualty and other usual and customary
risks.
(i) Litigation. On the Closing Date, there shall be no
actions, suits or proceedings pending or threatened against any Credit
Party (a) with respect to this Agreement or any other Credit Document
or any Transaction Document or the transactions contemplated hereby or
thereby (including the Asset Contribution) or (b) which the Agents or
the Required Lenders shall determine could reasonably be expected to
have a Material Adverse Effect.
(j) Borrowing Certificate. The Administrative Agent shall have
received, with a counterpart for each Lender, a certificate of the
Borrower, dated the Closing Date, substantially in the form of Exhibit
E, with appropriate insertions and attachments, reasonably
satisfactory in form and substance to the Administrative Agent,
executed by the President or any Vice President and the Secretary or
any Assistant Secretary of the Borrower.
(k) Corporate Proceedings of the Borrower. The Administrative
Agent shall have received, with a counterpart for each Lender, a copy
of the resolutions, in form and substance reasonably satisfactory to
the Administrative Agent, of the Board of Directors of the Borrower
authorizing (i) the execution, delivery and performance of the Credit
Documents to which it is a party, (ii) the borrowings contemplated
hereunder, (iii) the granting by it of the Liens created pursuant to
the Security Documents to which it is a party and (iv) the execution,
delivery and performance of the Transaction Documents to which it is a
party, certified by the Secretary or an Assistant Secretary of the
Borrower as of the Closing Date, which certificate shall be in form
and substance reasonably satisfactory to the Administrative Agent and
shall state that the resolutions thereby certified have not been
amended, modified, revoked or rescinded.
(l) Borrower Incumbency Certificate. The Administrative Agent
shall have received, with a counterpart for each Lender, a Certificate
of the Borrower, dated the Closing Date, as to the incumbency and
signature of the officers of the Borrower executing any Credit
Document reasonably satisfactory in form and substance to the
Administrative Agent, executed by the President or any Vice
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President and the Secretary or any Assistant Secretary of the
Borrower.
(m) Corporate Proceedings of Other Credit Parties. The
Administrative Agent shall have received, with a counterpart for each
Lender, a copy of the resolutions, in form and substance satisfactory
to the Administrative Agent, of the Board of Directors of each Credit
Party (other than the Borrower) authorizing (i) the execution,
delivery and performance of the Credit Documents to which it is a
party, (ii) the granting by it of the Liens created pursuant to the
Security Documents to which it is a party and (iii) the execution,
delivery and performance of the Transaction Documents to which it is a
party, certified by the Secretary or an Assistant Secretary of each
such Credit Party as of the Closing Date, which certificate shall be
in form and substance reasonably satisfactory to the Administrative
Agent and shall state that the resolutions thereby certified have not
been amended, modified, revoked or rescinded.
(n) Credit Party Incumbency Certificates. The Administrative
Agent shall have received, with a counterpart for each Lender, a
certificate of each Credit Party (other than the Borrower), dated the
Closing Date, as to the incumbency and signature of the officers of
such Credit Party executing any Credit Document, reasonably
satisfactory in form and substance to the Administrative Agent,
executed by the President or any Vice President and the Secretary or
any Assistant Secretary of each such Credit Party.
(o) Corporate Documents. The Administrative Agent shall have
received, with a counterpart for each Lender, true and complete copies
of the certificate of incorporation and by-laws of each Credit Party,
certified as of the Closing Date as complete and correct copies
thereof by the Secretary or an Assistant Secretary of the such Credit
Party.
(p) Legal Opinions. The Administrative Agent shall have
received, with a counterpart for each Lender, the following executed
legal opinions:
(i) the executed legal opinion of each of
Simpson Thacher and Bartlett and Fried, Harris, Shriver &
Jacobson, counsel to the Borrower and the other Credit
Parties, substantially in the form of Exhibits D-1 and D-2,
respectively; and
(ii) the executed legal opinions of each of
Simpson Thacher and Bartlett and Miles & StockBridge, counsel
to the Seller delivered pursuant to the Transaction Agreement,
each accompanied by a reliance letter in favor of the Lenders.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Agents may
reasonably require.
(q) Pledged Stock; Stock Powers. The Administrative Agent
shall have received the certificates representing the shares pledged
pursuant to each of the Security Documents together with an undated
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stock power for each such certificate executed in blank by a duly
authorized officer of the pledgor thereof.
(r) Actions to Perfect Liens. (i) The Administrative Agent
shall have received evidence in form and substance reasonably
satisfactory to it that all filings, recordings, registrations and
other actions, including, without limitation, the filing of duly
executed financing statements on form UCC-1, necessary or, in the
opinion of the Administrative Agent, desirable to perfect the Liens
created by the Security Documents shall have been completed. The
Borrower shall have delivered to the Administrative Agent (A) each
Mortgage, each executed and delivered by a duly authorized officer of
the mortgagor party thereto, with a counterpart or a conformed copy
for each Lender and (B) legal opinions from local counsel in the
jurisdictions of such Mortgage relating to such Mortgage and the
perfection of Liens created by the Security Documents on personal
property located in such jurisdiction, which opinions shall be in form
and substance, and from counsel, reasonably satisfactory to the
Administrative Agent.
(ii) The Borrower shall have delivered to the
Administrative Agent and the title insurance company issuing
the policy referred to below (the "Title Insurance Company")
maps or plats of an as-built survey of the sites of the
property covered by each Mortgage (other than as set forth on
Schedule 6.10) certified to the Administrative Agent and the
Title Insurance Company in a manner satisfactory to them,
dated a date reasonably satisfactory to the Administrative
Agent and the Title Insurance Company by an independent
professional licensed land surveyor reasonably satisfactory to
the Administrative Agent and the Title Insurance Company,
which maps or plats and the surveys on which they are based
shall be made in accordance with the Minimum Standard Detail
Requirements for Land Title Surveys jointly established and
adopted by the American Land Title Association and the
American Congress on Surveying and Mapping in 1992, and,
without limiting the generality of the foregoing, there shall
be surveyed and shown on such maps, plats or surveys the
following: (A) the locations on such sites of all the
buildings, structures and other improvements and the
established building setback lines; (B) the lines of streets
abutting the sites and width thereof; (C) all access and other
easements appurtenant to the sites or necessary or desirable
to use the sites; (D) all roadways, paths, driveways,
easements, encroachments and overhanging projections and
similar encumbrances affecting the site, whether recorded,
apparent from a physical inspection of the sites or otherwise
known to the surveyor; (E) any encroachments on any adjoining
property by the building structures and improvements on the
sites; and (F) if the site is described as being on a filed
map, a legend relating the survey to said map.
(iii) The Borrower shall deliver to the
Administrative Agent in respect of each parcel covered by each
Mortgage (other than as set forth on Schedule 6.10) a
mortgagee's title policy (or policies) or marked up
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unconditional binder for such insurance dated a date
reasonably satisfactory to the Agents. Each such policy shall
(A) be in an amount reasonably satisfactory to the Agents; (B)
be issued at ordinary rates; (C) insure that the Mortgage
insured thereby creates a valid first Lien on such parcel free
and clear of all defects and encumbrances, except for liens
permitted by clauses (a), (e), (f) and (g) of the definition
of Permitted Liens and such other liens and defects as may be
approved by the Agents; (D) name the Administrative Agent for
the benefit of the Lenders as the insured thereunder; (E) be
in the form of ALTA Loan Policy - 1992; (F) contain such
endorsements and affirmative coverage as the Agents may
reasonably request and (G) be issued by title companies
satisfactory to the Agents (including any such title companies
acting as co-insurers or reinsures, at the option of the
Agents). The Administrative Agent shall have received evidence
reasonably satisfactory to it that all premiums in respect of
each such policy, and all charges for mortgage recording tax,
if any, have been paid.
(iv) If required pursuant to Regulation H of the
Board of Governors of the Federal Reserve System ("Regulation
H") the Borrower shall deliver to the Administrative Agent (A)
a policy of flood insurance which (1) covers any parcel of
improved real property which is encumbered by any Mortgage,
(2) is written in an amount not less than the outstanding
principal amount of the indebtedness secured by such Mortgage
which is reasonably allocable to such real property or the
maximum limit of coverage made available with respect to the
particular type of property under the National Flood Insurance
Act of 1968, whichever is less, and (3) has a term ending not
earlier than the maturity of the indebtedness secured by such
Mortgage and (B) confirmation that the Borrower has received
the notice required pursuant to Section 208(e)(3) of
Regulation H.
(v) The Borrower shall deliver to the
Administrative Agent a copy of all recorded documents referred
to, or listed as exceptions to title in, the title policy or
policies referred to in this subsection 3.1(r) and a copy,
certified by such parties as the Agents may reasonably deem
appropriate, of all other documents affecting the property
covered by each Mortgage (other than as set forth on Schedule
6.10).
(vi) With respect to any parcel of real property
owned in fee by the Borrower or any Subsidiary on which
fixtures having an aggregate book value exceeding $250,000 are
located, take all actions that the Agents may reasonably
require, including (if such property is not covered by a
recorded Mortgage) the filing of UCC fixture filing financing
statements, to cause the security interest created by the
Security Documents in such fixtures to be perfected and with
respect to any parcel of real property leased by the Borrower
or any Subsidiary on which fixtures having an aggregate book
value exceeding $250,000 are
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located, use commercially reasonable efforts to obtain the
consent of the landlord of such property to the filing of UCC
fixture filing financing statements and make such filings if
such consent is obtained.
(s) Solvency Opinion. The Administrative Agent shall have
received, with a counterpart for each Lender, a solvency opinion
reasonably satisfactory to the Agents from an independent valuation
firm reasonably satisfactory to the Agents which shall document the
solvency of Holdings and its Subsidiaries (including the Borrower)
individually and taken together as a single entity, after giving
effect to the Asset Contribution, the making of the Loans, the
issuance of the Subordinated Debt and the other transactions
contemplated hereby and by the Transaction Documents.
(t) Environmental Report. The Administrative Agent shall have
received an environmental report prepared by H2M Associates, Inc.,
dated April 1997, regarding Holdings and its Subsidiaries, and a
letter that entitles the Administrative Agent, the other Agents and
the Lenders to rely on such report as if prepared for and addressed to
each of them.
(u) Business Plan. The Lenders shall have received a
reasonably satisfactory business plan for Holdings and its
Subsidiaries for the period beginning January 1, 1997 and ending
December 31, 2006, which plan shall include a written analysis of the
business and prospects of Holdings and its Subsidiaries.
5.2 Conditions to Each Extension of Credit. The agreement of
each Lender to make any extension of credit requested to be made by it on any
date (including, without limitation, its initial Loan but excluding Revolving
Credit Loans made to repay Refunded Swing Line Loans) is subject to the
satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by the Borrower and each Credit
Party in or pursuant to the Credit Documents shall be true and correct
in all material respects on and as of such date as if made on and as
of such date, except for any representation and warranty which is
expressly made as of an earlier date, which representation and
warranty shall have been true and correct in all material respects as
of such earlier date.
(b) No Default. No Default or Event of Default shall have
occurred and be continuing on such date or will occur or exist after
giving effect to the extensions of credit requested to be made on such
date.
(c) Additional Matters. All corporate and other proceedings,
and all documents, instruments and other legal matters in connection
with the transactions contemplated by this Agreement and the other
Credit Documents shall be satisfactory in form and substance to the
Agents, and the Administrative Agent shall have received such other
documents and legal opinions in respect of any aspect or consequence
of the transactions contemplated hereby or thereby as it shall
reasonably request.
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Each borrowing by, and each Letter of Credit issued on behalf of, the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date thereof that the conditions contained in this subsection have been
satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments
remain in effect or any amount is owing to any Lender or any Agent hereunder or
under any other Credit Document, the Borrower shall and (except in the case of
delivery of financial information, reports and notices) shall cause each of its
Subsidiaries to:
6.1 Financial Statements. Furnish to the Administrative
Agent with copies for each Lender:
(a) as soon as available, but in any event within 90 days
after the end of each fiscal year of the Borrower, (i) a copy of the
consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such year and the related consolidated
statements of income and retained earnings and of cash flows for such
year, setting forth in each case in comparative form the figures for
the previous year, reported on without a "going concern" or like
qualification or exception, or qualification arising out of the scope
of the audit, by independent certified public accountants of
nationally recognized standing and (ii) an unaudited unconsolidated
balance sheet of Holdings prepared on an equity basis (without
footnote disclosure) certified by a Responsible Officer of Holdings as
being fairly stated in all material respects;
(b) as soon as available, but in any event not later than 45
days after the end of each of the first three quarterly periods of
each fiscal year of the Borrower, the unaudited consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at the end
of such quarter and the related unaudited consolidated statements of
income and retained earnings and of cash flows of the Borrower and its
consolidated Subsidiaries for such quarter and the portion of the
fiscal year through the end of such quarter, setting forth in each
case in comparative form the figures for the previous year, certified
by a Responsible Officer as being fairly stated in all material
respects (subject to normal year-end audit adjustments).
All such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
6.2 Certificates; Other Information. Furnish to the
Administrative Agent with copies for each Lender:
(a) concurrently with the delivery of the financial statements
referred to in subsection 6.1(a), a certificate of the independent
certified public accountants reporting on such financial statements
stating that, in performing their audit, nothing came to their
attention that caused them to believe that the Borrower failed
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to comply with the provisions of subsection 7.1, except as specified
in such certificate;
(b) concurrently with the delivery of the financial statements
referred to in subsections 6.1(a) and (b), a certificate of a
Responsible Officer stating that, to the best of such Officer's
knowledge, during such period (i) no Subsidiary has been formed or
acquired (or, if any such Subsidiary has been formed or acquired, the
Borrower has complied with the requirements of subsection 6.10 with
respect thereto), (ii) none of Holdings, the Borrower nor any of its
Subsidiaries has changed its name, its principal place of business,
its chief executive office or the location of any material item of
tangible Collateral without complying with the requirements of this
Agreement and the Security Documents with respect thereto and (iii)
such Officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate;
(c) concurrently with the delivery of financial statements
pursuant to subsection 6.1(a) or (b), a certificate of the chief
financial officer of the Borrower setting forth, in reasonable detail,
the computations, as applicable, of (i) the Debt Ratio, (ii) Excess
Cash Flow and (iii) the financial covenants set forth in subsection
7.1, as of such last day or for the fiscal period then ended, as the
case may be;
(d) not later than 60 days after the end of each fiscal year
of the Borrower, a copy of the projections by the Borrower of the
operating budget and cash flow budget of the Borrower and its
Subsidiaries for the succeeding fiscal year, such projections to be
accompanied by a certificate of a Responsible Officer to the effect
that such projections have been prepared on the basis of sound
financial planning practice and that such Officer has no reason to
believe they are incorrect or misleading in any material respect;
(e) within five days after the same are sent, copies of all
financial statements and reports which the Borrower or Holdings sends
to its stockholders, and within five days after the same are filed,
copies of all financial statements and other reports which the
Borrower or Holdings may make to, or file with, the Securities and
Exchange Commission or any successor or analogous Governmental
Authority; and
(f) promptly, such additional financial and other information
as any Lender may from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all its material obligations of whatever nature, except where the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto have been
provided on the books of the Borrower or its Subsidiaries, as the case may be;
provided that, notwithstanding the foregoing, the Borrower and each of its
Subsidiaries shall have the right not to pay any such obligation and in good
faith contest, by proper legal actions or proceedings, the invalidity or amount
of such claims.
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6.4 Conduct of Business and Maintenance of Existence. Except
as permitted by subsection 7.5 and subsection 7.6, continue to engage in
business of the same general type as now conducted by it (after giving effect
to the Transaction); preserve, renew and keep in full force and effect its
corporate existence and take all reasonable action to maintain all rights,
privileges and franchises necessary or desirable in the normal conduct of its
business; and keep all property useful and necessary in its business in good
working order and condition except if (i) in the reasonable business judgment
of the Borrower or such Subsidiary, as the case may be, it is in its best
economic interest not to preserve and maintain such rights, privileges or
franchises, and (ii) such failure to preserve and maintain such privileges,
rights or franchises would not materially adversely affect the rights of the
Lenders hereunder or the value of the Collateral, and except as otherwise
permitted pursuant to subsection 7.5; comply with all Contractual Obligations
and Requirements of Law except to the extent that failure to comply therewith
could not, in the aggregate, be reasonably expected to have a Material Adverse
Effect.
6.5 Maintenance of Property; Insurance. (a) Maintain with
financially sound and reputable insurance companies insurance on all its
property in at least such amounts and against at least such risks (but
including in any event public liability, cargo loss and business interruption)
as are usually insured against in the same general area by companies engaged in
the same or a similar business; and furnish to the Administrative Agent with
copies for each Lender, upon written request, full information as to the
insurance carried except to the extent that the failure to do any of the
foregoing with respect to any such property could not reasonably be expected to
materially adversely affect the value or usefulness of such property; provided
that in any event the Borrower will maintain, and will cause each of its
Subsidiaries to maintain, to the extent obtainable on commercially reasonable
terms, (i) property and casualty insurance on all real and personal property on
an all risks basis (including the perils of flood and quake), covering the
repair or replacement cost of all such property and consequential loss coverage
for business interruption and extra expense (which shall be limited to fixed
construction expenses and such other business interruption expenses as are
otherwise generally available to similar businesses), covering such risks, for
such amounts not less than those, and with deductible and self-insurance
amounts not greater than those, set forth in Schedule 6.5, (ii) public
liability insurance (including products liability coverage) covering such
risks, for such amounts no less than those, and with deductible amounts not
greater than those, set forth in Schedule 6.5 and (iii) such other insurance
coverage in such amounts and with respect to such risks as the Required Lenders
may reasonably request. All such insurance shall be provided by insurers or
reinsurers which (x) in the case of the United States insurers and reinsurers
have an A.M. Best policyholders rating of not less than A- with respect to
primary insurance and B+ with respect to excess insurance and (y) in the case
of non-United States insurers or reinsurers, the providers of at least 80% of
such insurance have either an ISI policyholders rating of not less than A, an
A.M. Best policyholders rating of not less than A- or a surplus of not less
than $500,000,000 with respect to primary insurance, and an ISI policyholders
rating of not less than BBB with respect to excess insurance, or, if the
relevant insurance is not available from such insurers, such other insurers as
the Administrative Agent may approve in writing. Such insurers may include a
Subsidiary of the Borrower; provided that such Subsidiary need not satisfy the
foregoing requirements if all but $15,000,000 of the insurance
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provided by such Subsidiary is reinsured by one or more reinsurers which
satisfy such requirements.
(b) The Borrower will deliver to the Administrative Agent on
behalf of the Lenders, (i) on the Closing Date, a certificate dated such date
showing the amount of coverage as of such date, (ii) upon request of any Lender
through the Administrative Agent from time to time full information as to the
insurance carried, (iii) promptly following receipt of notice from any insurer,
a copy of any notice of cancellation or material change in coverage from that
existing on the Closing Date, (iv) forthwith, notice of any cancellation or
nonrenewal of coverage by the Borrower or any Subsidiary, and (v) promptly
after such information is available to the Borrower, full information as to any
claim for an amount in excess of $2,500,000 which respect to any property and
casualty insurance policy maintained by the Borrower or any Subsidiary. The
Administrative Agent shall be named as additional insured on all property and
casualty insurance policies and a loss payee on all property insurance
policies. Any proceeds from any such insurance policy in respect of any claim,
or any condemnation award or other compensation in respect of a condemnation
(or any transfer or disposition of property in lieu of condemnation) for which
the Borrower or any of its Subsidiaries receives a condemnation award or other
compensation shall be paid to the Borrower or the Subsidiary; provided that:
(A) the Borrower or the Subsidiary will use such proceeds, condemnation award
or other compensation to repair, restore or replace the assets which were the
subject of such claim within 6 months (or in the case of real property, 12
months) after receipt thereof (and a Responsible Officer shall deliver a
certificate specifying in reasonable detail such usage not later than the last
day of such relevant period), and (B) if, at the time of the receipt of such
proceeds, condemnation award or other compensation, an Event of Default has
occurred and is continuing, the aggregate amount of all such proceeds,
condemnation award or other compensation shall be paid to the Administrative
Agent and held as collateral for application in accordance with the Security
Documents; and provided further that, to the extent that any amount of such
proceeds, condemnation award or other compensation are not used or committed
during the time periods specified in proviso (A) above, then, if requested by
notice from the Required Lenders to the Borrower, all such remaining
uncommitted proceeds, condemnation award or other compensation shall be paid to
the Administrative Agent and held as Collateral for application in accordance
with the Security Documents.
6.6 Inspection of Property; Books and Records; Discussions.
Keep proper books of records and account in which full, true and correct
entries in conformity with GAAP and all Requirements of Law shall be made of
all dealings and transactions in relation to its business and activities; and
permit representatives of any Lender to visit and inspect any of its properties
and examine and make abstracts from any of its books and records (except to the
extent any such access is restricted by a Requirement of Law) at any reasonable
time on a Business Day and as often as may reasonably be desired and to discuss
the business, operations, properties and financial and other condition of the
Borrower and its Subsidiaries with officers and employees of the Borrower and
its Subsidiaries and with its independent certified public accountants;
provided that the Administrative Agent or such Lender shall notify the Borrower
prior to any contact with such accountants and give the Borrower the
opportunity to participate in such discussions; provided, further, that the
Borrower shall notify the Administrative Agent of any such visits, inspections
or discussions prior to each occurrence thereof.
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6.7 Notices. Promptly give notice to the Administrative Agent
and each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries, (ii)
litigation, investigation or proceeding which may exist at any time
between the Borrower or any of its Subsidiaries and any Governmental
Authority, which in either case, if not cured or if adversely
determined, as the case may be, could reasonably be expected to have a
Material Adverse Effect or (iii) any material asset sale (describing
in reasonable detail the assets sold, the consideration received
therefor and the proposed use of the proceeds thereof);
(c) any other litigation or proceeding affecting the Borrower
or any of its Subsidiaries in which the amount involved is $7,500,000
or more and not covered by insurance or in which injunctive or similar
relief is sought; and
(d) the following events, as soon as possible and in any event
within 45 days after the Borrower knows or has reason to know thereof:
(i) the incurrence of an accumulated funding deficiency or the filing
of an application to the Secretary of the Treasury for a waiver or
modification of the minimum funding standard (including any required
installment payments) or an extension of any amortization period under
Section 412 of the Code with respect to a Plan, the creation of any
Lien in favor of the PBGC or a Plan, the occurrence of any "Trigger
Event" (as defined in the Transfer Agreements) and the reassumption by
the Seller of sponsorship of any Single Employer Plan, (ii) except
where such event or liability could not reasonably be expected to have
a Material Adverse Effect, the occurrence or expected occurrence of
any Reportable Event with respect to any Plan (other than a Multiple
Employer Plan), or any withdrawal from, or the termination,
Reorganization or Insolvency of, any Multiemployer Plan, or a failure
to make any required contribution to a Plan, (iii) the institution of
proceedings by the PBGC with respect to the withdrawal from, or the
terminating, Reorganization or Insolvency of, any Single Employer Plan
or Multiemployer Plan or (iv) except as could not reasonably be
expected to have a Material Adverse Effect, the institution of
proceedings or the taking of any other action with respect to the
withdrawal from or termination of any Single Employer Plan;
Each notice pursuant to this subsection shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the Borrower proposes to take with respect
thereto.
6.8 Environmental Laws. (a)(i) Comply in all material respects
with all Environmental Laws applicable to it, and obtain, comply in all
material respects with and maintain any and all material Environmental Permits
necessary for its operations as conducted and as planned; and (ii) take all
reasonable efforts to ensure that all of its tenants, subtenants, contractors,
subcontractors, and invitees comply in all material respects with all
applicable Environmental Laws, and obtain, comply in all material
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respects with and maintain any and all material Environmental Permits,
applicable to any of them. Notwithstanding the foregoing, upon learning of any
actual or suspected noncompliance, the Borrower or one or more of its
Subsidiaries, as appropriate, shall promptly undertake all reasonable efforts
to achieve material compliance.
(b) Conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions in each case required
under applicable Environmental Laws and promptly comply in all material
respects with all lawful orders and directives of all Governmental Authorities
regarding applicable Environmental Laws except to the extent that the same are
being contested in good faith by appropriate proceedings and the pendency of
such proceedings could not be reasonably expected to have a Material Adverse
Effect.
6.9 Further Assurances. Upon the reasonable request of the
Administrative Agent, promptly perform or cause to be performed any and all
acts and execute or cause to be executed any and all documents (including,
without limitation, financing statements and continuation statements) for
filing under the provisions of the Uniform Commercial Code or any other
Requirement of Law which are necessary or advisable to maintain in favor of the
Administrative Agent, for the benefit of the Lenders, Liens on the Collateral
that are duly perfected in accordance with all applicable Requirements of Law.
6.10 Additional Collateral. (a) With respect to any assets
acquired after the Closing Date by the Borrower or any of its Subsidiaries
(including the Stock of newly created or acquired Subsidiaries) that are
intended to be subject to the Lien created by any of the Security Documents but
which are not so subject (other than (x) any assets described in paragraph (b)
of this Section and (y) immaterial assets a Lien on which cannot be perfected
by filing UCC-1 financing statements), promptly (and in any event within 30
days after the acquisition thereof): (i) execute and deliver to the
Administrative Agent such amendments to the relevant Security Documents or such
other documents as the Administrative Agent shall deem necessary or advisable
to grant to the Administrative Agent, for the benefit of the Lenders, a Lien on
such assets, (ii) take all actions necessary or advisable to cause such Lien to
be duly perfected in accordance with all applicable Requirements of Law,
including, without limitation, the filing of financing statements in such
jurisdictions as may be requested by the Administrative Agent, and (iii) if
requested by the Administrative Agent, deliver to the Administrative Agent
legal opinions relating to the matters described in clauses (i) and (ii)
immediately preceding, which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the Administrative Agent.
(b) With respect to any Person that, subsequent to the Closing
Date, becomes a direct or indirect Subsidiary, promptly: (i) execute and
deliver to the Administrative Agent, for the benefit of the Lenders, such
amendments to the Subsidiary Pledge and Security Agreement as the
Administrative Agent shall deem necessary or advisable to grant to the
Administrative Agent, for the benefit of the Lenders, a Lien on the Capital
Stock of such Subsidiary which is owned by the Borrower or any of its
Subsidiaries, (ii) deliver to the Administrative Agent the certificates
representing such Capital Stock, together with undated stock powers executed
and delivered in blank by a duly authorized officer of the Borrower or such
Subsidiary, as the case may be, (iii) cause such new Subsidiary (A) to become
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a party to the Subsidiary Pledge and Security Agreement, the Subsidiary
Guarantee and the Mortgages delivered pursuant to clause (B) below, in each
case pursuant to documentation which is in form and substance reasonably
satisfactory to the Administrative Agent, (B) to deliver to the Documentation
Agent Mortgages in form and substance reasonably satisfactory to the
Documentation Agent with respect to all real property of such Subsidiary, and
(C) to take all actions necessary or advisable to cause each Lien created by
the Subsidiary Pledge and Security Agreement and the Mortgages delivered
pursuant to clause (B) above to be duly perfected in accordance with all
applicable Requirements of Law, including, without limitation, the filing of
financing statements in such jurisdictions as may be requested by the
Administrative Agent and (iv) if requested by the Administrative Agent, deliver
to the Administrative Agent legal opinions relating to the matters described in
clauses (i), (ii) and (iii) immediately preceding, which opinions shall be in
form and substance, and from counsel, reasonably satisfactory to the
Administrative Agent. Notwithstanding the foregoing, no Foreign Subsidiary of
Holdings or the Borrower shall be required to execute a Subsidiary Guarantee or
Subsidiary Pledge and Security Agreement, and no more than 65% of the capital
stock of or equity interests in any Foreign Subsidiary of the Borrower,
Holdings or any of their Subsidiaries, or any other of their Subsidiaries if
more than 65% of the assets of such Subsidiary are securities of foreign
companies (such determination to be made on the basis of fair market value),
shall be required to be pledged hereunder.
(c) As promptly as practicable, but in any event within 120
days following the Closing Date, the Borrower shall have delivered to the
Administrative Agent (A) a Mortgage with respect the real property described in
Part I of Schedule 6.10, executed and delivered by a duly authorized officer of
the mortgagor party thereto, with a counterpart or a conformed copy for each
Lender and (B) legal opinions from local counsel in the jurisdiction of such
Mortgage relating to such Mortgage and the perfection of Liens created by the
Security Documents on personal property located in such jurisdiction, which
opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
(d) As promptly as practical, but in any event within 120 days
following the Closing Date, the Borrower shall have delivered to the
Administrative Agent and the Title Insurance Company maps or plats of an
as-built survey of the sites of the property covered by each Mortgage set forth
on Part II of Schedule 6.10 certified to the Administrative Agent and the Title
Insurance Company in a manner satisfactory to them, dated a date reasonably
satisfactory to the Administrative Agent and the Title Insurance Company by an
independent professional licensed land surveyor reasonably satisfactory to the
Administrative Agent and the Title Insurance Company, which maps or plats and
the surveys on which they are based shall be made in accordance with the
Minimum Standard Detail Requirements for Land Title Surveys jointly established
and adopted by the American Land Title Association and the American Congress on
Surveying and Mapping in 1992, and, without limiting the generality of the
foregoing, there shall be surveyed and shown on such maps, plats or surveys the
following: (A) the locations on such sites of all the buildings, structures and
other improvements and the established building setback lines; (B) the lines of
streets abutting the sites and width thereof; (C) all access and other
easements appurtenant to the sites or necessary or desirable to use the sites;
(D) all roadways, paths, driveways, easements, encroachments and overhanging
projections and similar encumbrances affecting the site, whether recorded,
apparent from a physical inspection of the sites or otherwise known to the
surveyor; (E) any
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encroachments on any adjoining property by the building structures and
improvements on the sites; and (F) if the site is described as being on a filed
map, a legend relating the survey to said map.
(e) As promptly as practical, but in any event within 120 days
following the Closing Date, the Borrower shall deliver to the Administrative
Agent in respect of each parcel covered by each Mortgage set forth on Part II
Schedule 6.10 a mortgagee's title policy (or policies) or marked up
unconditional binder for such insurance dated a date reasonably satisfactory to
the Agents. Each such policy shall (A) be in an amount reasonably satisfactory
to the Agents; (B) be issued at ordinary rates; (C) insure that the Mortgage
insured thereby creates a valid first Lien on such parcel free and clear of all
defects and encumbrances, except for liens permitted by clauses (a), (e), (f)
and (g) of the definition of Permitted Liens and such other liens and defects
as may be approved by the Agents; (D) name the Administrative Agent for the
benefit of the Lenders as the insured thereunder; (E) be in the form of ALTA
Loan Policy - 1992; (F) contain such endorsements and affirmative coverage as
the Agents may reasonably request and (G) be issued by title companies
satisfactory to the Agents (including any such title companies acting as
co-insurers or reinsures, at the option of the Agents). The Administrative
Agent shall have received evidence reasonably satisfactory to it that all
premiums in respect of each such policy, and all charges for mortgage recording
tax, if any, have been paid.
(f) As promptly as possible, but in any event within 120 days
following the Closing Date, the Borrower shall deliver to the Administrative
Agent a copy of all recorded documents referred to, or listed as exceptions to
title in, the title policy or policies referred to in subsection 6.10(d) and a
copy, certified by such parties as the Agents may reasonably deem appropriate,
of all other documents affecting the property covered by each Mortgage set
forth on Schedule 6.10.
(g) As promptly as possible, but in any event within 120 days
following the Closing Date, if required pursuant to Regulation H of the Board
of Governors of the Federal Reserve System ("Regulation H") the Borrower shall
deliver to the Administrative Agent (A) a policy of flood insurance which (1)
covers the parcel of improved real property which is encumbered by the Mortgage
with respect to the real property set forth on Part I of Schedule 6.10, (2) is
written in an amount not less than the outstanding principal amount of the
indebtedness secured by such Mortgage which is reasonably allocable to such
real property or the maximum limit of coverage made available with respect to
the particular type of property under the National Flood Insurance Act of 1968,
whichever is less, and (3) has a term ending not earlier than the maturity of
the Indebtedness secured by such Mortgage and (B) confirmation that the
Borrower has received the notice required pursuant to Section 208(e)(3) of
Regulation H.
(h) As promptly as possible, but in any event within 120 days
following the Closing Date, with respect to the parcel of real property
described in Part I of Schedule 6.10, the Borrower shall take all actions that
the Agents may reasonably require, including (if such property is not covered
by a recorded Mortgage) the filing of UCC fixture filing financing statements,
to cause the security interest created by the Security Documents in such
fixtures to be perfected and with respect to any parcel of real property leased
by the Borrower or any Subsidiary on which fixtures having an aggregate book
value exceeding $250,000 are located, use commercially reasonable efforts to
obtain the consent of the landlord of such property to
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the filing of Ucc fixture filing financing statements and make such filings if
such consent is obtained.
(i) Use reasonable efforts to take any action reasonably
requested by the Agents with respect to any ground lease still in effect on the
real property described in Part III of Schedule 6.10.
6.11 Interest Rate Protection. Within 180 days after the
Closing Date, obtain interest rate protection for a period through June 30,
1999 for a notional amount of at least $59,000,000 on terms and conditions
reasonably satisfactory to the Agents.
6.12 Foreign Jurisdictions. Within 60 days following the
Closing Date, (i) be duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification, except to the extent that the failure to so qualify could not,
in the aggregate, reasonably be expected to have a Material Adverse Effect, and
(ii) deliver to the Administrative Agent certificates of good standing issued
by the Secretary of State (or other relevant officers) of each jurisdiction
referred to in clause (i) of this subsection 6.12.
6.13 Novation; Federal Assignment of Claims. (a) (i) Use
commercially reasonable efforts to cause the Seller to perform its obligations
under subsection 7.08 of the Transaction Agreement, (ii) use best efforts to
perform its obligations under subsection 8.07 of the Transaction Agreement and
(iii) use its best efforts to obtain as soon as practicable after the Closing
Date the completion and effectiveness of the novation of each Government
Contract (as defined in the Transaction Agreement) and the consent under the
Assignment of Claims Act to the security interest of the Agents and the Lenders
in all of the right, title and interest of the Borrower and its Subsidiaries in
the Government Contracts (other than the Restricted Government Contracts) sold,
assigned, transferred and conveyed by the Seller under the Transaction
Agreement.
(b) Within ninety (90) days of the creation of a Government
Contract or, upon the occurrence and during the continuance of a Default or an
Event of Default, the Borrower and its Subsidiaries shall notify the
Administrative Agent thereof, which notice shall set forth (i) each GC Notice
Recipient with respect to such Government Contract and (ii) the anticipated
annual gross revenue under such Government Contract and shall execute and
deliver to the Administrative Agent all documents, in form and substance
reasonably satisfactory to the Administrative Agent, and take all such other
action (other than the transmittal of the notice of assignment to the U.S.
Government) reasonably required by the Administrative Agent to assign the
Receivables arising under such Government Contract (other than any Restricted
Government Contract), to the Administrative Agent pursuant to the Assignment of
Claims Act. The Borrower agrees that promptly upon obtaining knowledge that any
of the information provided pursuant to the first sentence of subsection
6.13(b) has changed, it shall give written notice of such change to the
Administrative Agent. Upon the occurrence and during the continuance of an
Event of Default, the Administrative Agent may, and shall at the direction of
the Required Lenders, transmit any such notice of assignment received by it
from the Borrower and its Subsidiaries to the U.S. Government.
(c) The Borrower and its Subsidiaries shall apply for and
maintain all material facility security clearances and personnel security
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clearances required of the Borrower under all Requirements of Law to perform
and deliver under any and all Government Contracts and as otherwise may be
necessary to continue to perform the business of the Borrower and its
Subsidiaries.
6.14 Maintenance of Collateral; Alterations. Refrain from
committing any waste on any Collateral, except in the ordinary course of its
business, or make any material change in the use of any Collateral, provided
that any Credit Party may sell or lease to any other Person all or any portion
of any item of Collateral that the Borrower has determined in good faith is not
used or useful in such Credit Party's operating business. Each Credit Party
granting a security interest in Collateral constituting real property
represents and warrants that, to the best of its knowledge: (a) such Collateral
is served by all utilities required or necessary for the current use thereof;
(b) all streets (or public rights-of-way) necessary to serve such Collateral
are completed and serviceable and have been dedicated and accepted as such by
the appropriate governmental entities or such Collateral is served by insurable
easements (or rights-of-way) for ingress and egress to and from such streets
(or rights-of-way); and (c) such Credit Party has access to such Collateral
from public roads (or rights-of-way), either directly or by insurable easements
(or rights-of-way), sufficient to allow such Credit Parties to conduct its
business at such Collateral in accordance with sound commercial and industrial
practices. The Credit Parties shall, at all times, maintain all non-possessory
collateral and all real estate collateral that is materially useful or
necessary in their respective businesses, in good operating order, condition
and repair, ordinary wear and tear and damage by fire and/or other casualty or
taking by condemnation excepted, and in accordance with all applicable laws,
rules and regulations, (including, without limitation, Environmental Laws) the
failure to comply with which would have a material adverse effect on the value
or usefulness of such Collateral, except where the necessity of compliance
therewith is contested in good faith by appropriate proceedings. Each Credit
Party shall do what is deemed commercially reasonable to maintain and preserve
the value of the Collateral.
6.15 Arrangements with the Seller.
(a) As promptly as practicable, but in any event within 90
days following the Closing Date, the Borrower shall have delivered to
the Administrative Agent the Supply Agreement, the License Agreement
and the Interim Services Agreement (each as defined in the Transaction
Agreement) executed and delivered by the Seller and the Borrower which
shall be reasonably satisfactory in form and substance to the Agents;
and
(b) As promptly as practicable, but in any event within 120
days following the Closing Date, the Borrower shall have delivered to
the Administrative Agent the executed consents of the lessors of the
real property leased by the Seller (which leaseholds constitute
Transferred Assets (as defined in the Transaction Agreement)) to the
transfer of such leaseholds to the Borrower, which consents shall be
reasonably satisfactory in form and substance to the Agents.
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SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as any portion of the
Commitments remain in effect or any amount is owing to any Lender or any of the
Agents hereunder or under any other Credit Document, the Borrower shall not,
and (except with respect to subsection 7.1), shall not permit any of its
Subsidiaries to, directly or indirectly:
7.1 Financial Condition Covenants.
(a) Debt Ratio. Permit the Debt Ratio at the last day of any
fiscal quarter to be greater than the ratio set forth below opposite
the fiscal quarter during which such fiscal quarter occurs:
Fiscal Quarter Ending Ratio
--------------------- -----
September 30, 1997 5.75
December 31, 1997 5.50
March 31, 1998 5.50
June 30, 1998 5.50
September 30, 1998 5.25
December 31, 1998 5.25
March 31, 1999 5.25
June 30, 1999 5.25
September 30, 1999 4.75
December 31, 1999 4.75
March 31, 2000 4.75
June 30, 2000 4.75
September 30, 2000 4.25
December 31, 2000 4.25
March 31, 2001 4.25
June 30, 2001 4.25
September 30, 2001 3.60
December 31, 2001 3.60
March 31, 2002 3.60
June 30, 2002 3.60
September 30, 2002 3.10
December 31, 2002 3.10
March 31, 2003 3.10
June 30, 2003 3.10
September 30, 2003 3.10
December 31, 2003 3.10
March 31, 2004 3.10
June 30, 2004 3.10
September 30, 2004 3.10
December 31, 2004 3.10
March 31, 2005 3.10
June 30, 2005 3.10
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September 30, 2005 3.10
December 31, 2005 3.10
and thereafter
(b) Interest Coverage. Permit the ratio of (i) Consolidated
EBITDA to (ii) Consolidated Cash Interest Expense during any Test
Period to be less than the ratio set forth opposite such period below
(such ratio, the "Interest Coverage Ratio"):
Test Period Interest Coverage Ratio
----------- -----------------------
7/1/97 - 9/30/97 1.50
10/1/97 - 12/31/97 1.85
1/1/98 - 3/31/98 1.85
4/1/98 - 6/30/98 1.85
7/1/98 - 9/30/98 1.90
10/1/98 - 12/31/98 1.90
1/1/99 - 3/31/99 1.90
4/1/99 - 6/30/99 1.90
7/1/99 - 9/30/99 2.15
10/1/99 - 12/31/99 2.15
1/1/00 - 3/31/00 2.15
4/1/00 - 6/30/00 2.15
7/1/00 - 9/30/00 2.35
10/1/00 - 12/31/00 2.35
1/1/01 - 3/31/01 2.35
4/1/01 - 6/30/01 2.35
7/1/01 - 9/30/01 2.75
10/1/01 - 12/31/01 2.75
1/1/02 - 3/31/02 2.75
4/1/02 - 6/30/02 2.75
7/1/02 - 9/30/02 3.10
10/1/02 - and thereafter 3.10
7.2 Limitation on Indebtedness. Create, incur, assume or
suffer to exist any Indebtedness (including in respect of Interest
Rate Agreements, except:
(a) Indebtedness of the Borrower under this Agreement;
(b) Indebtedness of the Borrower incurred to finance the
acquisition of fixed or capital assets (whether pursuant to a loan, a
Financing Lease or otherwise) in an aggregate principal amount not
exceeding $15,000,000 at any time outstanding;
(c) Indebtedness of a corporation which becomes a Subsidiary
after the date hereof, provided that (i) such indebtedness existed at
the time such corporation became a Subsidiary and was not created in
anticipation thereof and (ii) immediately after giving
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effect to the acquisition of such corporation by the Borrower no
Default or Event of Default shall have occurred and be continuing;
(d) additional Indebtedness of the Borrower not exceeding
$15,000,000 in aggregate principal amount at any one time outstanding;
(e) Indebtedness of the Borrower in respect of not more than
$225,000,000 principal amount of Subordinated Debt issued on the
Closing Date;
(f) the Indebtedness of the Borrower and its Subsidiaries
outstanding on the Closing Date and reflected on Schedule 7.2(f), and
refundings or refinancings thereof, provided that no such refunding or
refinancing shall shorten the maturity or increase the principal
amount of the original Indebtedness;
(g) Indebtedness in respect of the Interest Rate Agreements
required by subsection 6.11;
(h) Guarantee Obligations permitted by subsection 7.4;
(i) the incurrence by any Credit Party of intercompany
Indebtedness between or among the Credit Parties; provided, however,
that if the Borrower is the obligor on such Indebtedness, such
Indebtedness is expressly subordinated to the prior payment in full in
cash of all Obligations;
(j) Indebtedness secured by Permitted Liens;
(k) Up to $25,000,000 of purchase money Indebtedness the
proceeds of which are utilized to acquire the real property (including
improvements thereon) and related assets currently utilized by the
Wide Band Systems division in Salt Lake City, Utah, on terms
reasonably satisfactory to the Lenders.
7.3 Limitation on Liens. Create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested
in good faith by appropriate proceedings, provided that adequate
reserves with respect thereto are maintained on the books of the
Borrower or its Subsidiaries, as the case may be, in conformity with
GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business which are not overdue for a period of more than 60 days or
which are being contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation and deposits securing liability to insurance carriers
under insurance or self-insurance arrangements;
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(d) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business;
(e) easements, rights-of-way, zoning restrictions, other
restrictions and other similar encumbrances previously or hereafter
incurred in the ordinary course of business which, in the aggregate,
are not substantial in amount and which do not in any case materially
detract from the value of the property subject thereto or materially
interfere with the ordinary conduct of the business of the Borrower or
such Subsidiary, or which are set forth in title insurance policies or
commitments delivered to Administrative Agent pursuant to the terms of
this Agreement;
(f) Liens in existence on the date hereof listed on Schedule
7.3(f), securing Indebtedness permitted by subsection 7.2(f), provided
that no such Lien is expanded to cover any additional property (other
than after-acquired title in or on such property and proceeds of the
existing collateral in accordance with the instrument creating such
Lien) after the Closing Date and that the amount of Indebtedness
secured thereby is not increased and extensions, renewals or
replacements thereof provided that no such extension, renewal or
replacement shall shorten the fixed maturity or increase the principal
amount of the original Indebtedness; and provided, further, that the
assets of the Borrower and its Subsidiaries encumbered by such Liens
are existing equipment and other existing tangible assets;
(g) Liens securing Indebtedness of the Borrower and its
Subsidiaries permitted by subsection 7.2(b) and subsection 7.2(k)
incurred to finance the acquisition of fixed or capital assets,
provided that (i) such Liens shall be created substantially
simultaneously with the acquisition of such fixed or capital assets,
(ii) such Liens do not at any time encumber any property other than
the property financed by such Indebtedness (other than after acquired
title in or on such property and proceeds of the existing collateral
in accordance with the instrument creating such Lien) and (iii) the
principal amount of Indebtedness secured by any such Lien shall at no
time exceed 100% of the original purchase price of such property of
such property at the time it was acquired;
(h) Liens on the property or assets of a corporation which
becomes a Subsidiary after the date hereof securing Indebtedness
permitted by subsection 7.2(c), provided that (i) such Liens existed
at the time such corporation became a Subsidiary and were not created
in anticipation thereof, (ii) any such Lien is not expanded to cover
any property or assets of such corporation after the time such
corporation becomes a Subsidiary (other than after acquired title in
or on such property and proceeds of the existing collateral in
accordance with the instrument creating such Lien), and (iii) the
amount of Indebtedness secured thereby is not increased;
(i) Liens (not otherwise permitted hereunder) which secure
obligations not exceeding (as to the Borrower and all Subsidiaries)
$2,500,000 in aggregate amount at any time outstanding;
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(j) Liens created pursuant to the Security Documents;
(k) Liens on the property of the Borrower or any of its
Subsidiaries in favor of landlords securing licenses, subleases or
leases entered into in the ordinary course of business;
(l) licenses, leases or subleases permitted hereunder granted
to other Persons not interfering in any material respect in the
business of the Borrower or any of its Subsidiaries;
(m) so long as no Default or Event of Default shall have
occurred and be continuing under subsection 8(h), attachment or
judgment Liens in an aggregate amount outstanding at any one time not
in excess of $7,500,000;
(n) Liens arising from precautionary Uniform Commercial Code
financing statement filings with respect to operating leases or
consignment arrangements entered into by the Borrower, or any of its
subsidiaries in the ordinary course of business; and
(o) Liens in favor of a banking institution arising by
operation of law encumbering deposits (including the right of set-off)
held by such banking institutions incurred in the ordinary course of
business and which are within the general parameters customary in the
banking industry.
7.4 Limitation on Guarantee Obligations. Create, incur, assume
or suffer to exist any Guarantee Obligation except:
(a) Guarantee Obligations in existence on the date hereof and
listed on Schedule 7.4 and extensions, renewals and replacements
thereof, provided, however, that no such extension, renewal or
replacement shall shorten the fixed maturity or increase the principal
amount of the Indebtedness guaranteed by the original guarantee;
(b) Guarantee Obligations incurred after the date hereof in an
aggregate amount not to exceed $15,000,000 at any one time outstanding
for the Borrower and its Subsidiaries;
(c) guarantees made by the Subsidiaries of the Borrower
pursuant to the Subordinated Debt Documents;
(d) Guarantee Obligations under the Credit Documents;
(e) the L/C Obligations;
(f) Guarantee Obligations of the Borrower or any Subsidiary in
respect of obligations of a Subsidiary permitted to be incurred by
such Subsidiary by this Agreement;
(g) Guarantee Obligations in respect of surety bonds which
shall not exceed $10,000,000 at any time;
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(h) indemnities in favor of the companies issuing title
insurance policies insuring the Mortgages to induce such issuance; and
(i) indemnities made in the Commitment Letter, the Credit
Documents and the Transaction Documents and in the Constitutional
Documents of the Borrower and its Subsidiaries.
7.5 Limitation on Fundamental Changes. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign,
transfer or otherwise dispose of, all or substantially all of its property,
business or assets, or make any material change in its present method of
conducting business, except:
(a) any Subsidiary of the Borrower may be merged or
consolidated with or into the Borrower (provided that the Borrower
shall be the continuing or surviving corporation) or with or into any
one or more wholly owned Subsidiaries of the Borrower (provided that
the wholly owned Subsidiary or Subsidiaries shall be the continuing or
surviving corporations);
(b) any wholly owned Subsidiary may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to the Borrower or any other wholly owned
Subsidiary of the Borrower that is a Credit Party; and
(c) the Asset Contribution.
7.6 Limitation on Sale of Assets. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, receivables and leasehold interests), whether
now owned or hereafter acquired, or, in the case of any Subsidiary, issue or
sell any shares of such Subsidiary's Capital Stock to any Person other than the
Borrower or any wholly owned Subsidiary, except:
(a) the sale or other disposition of obsolete or worn out
property in the ordinary course of business;
(b) the sale of any property or assets not otherwise permitted
by this Section 7.6; provided that the Net Proceeds thereof shall be
applied pursuant to subsection 2.6(b)(ii); provided, further, that (i)
the aggregate amount of proceeds of all such Asset Sales does not
exceed (x) $20,000,000 in fiscal year 1997 or (y) $30,000,000 since
the date of this Agreement and (ii) the aggregate amount of non-cash
consideration received from such Asset Sales under shall not exceed
$5,000,000 since the date of this Agreement;
(c) as permitted pursuant to subsection 7.5(b);
(d) the sale, lease, transfer or exchange of inventory in the
ordinary course of business;
(e) subject to subsection 6.5, transfers resulting from any
casualty or condemnation of property or assets;
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(f) intercompany sales or transfers of assets made in the
ordinary course of business;
(g) licenses, leases or subleases of tangible property in the
ordinary course of business;
(h) any consignment arrangements or similar arrangements for
the sale of assets in the ordinary course of business;
(i) the sale or discount of overdue accounts receivable
arising in the ordinary course of business, but only in connection
with the compromise or collection thereof; and
(j) (i) the sale of the real property used by the Borrower's
Aviation Recorder Division on the date hereof (including all
improvements thereto) in Sarasota, Florida, solely for cash proceeds
of at least $7,500,000 and (ii) the sale of all or substantially all
of the assets of the Borrower's Hycor Division (as constituted on the
date hereof) solely for cash proceeds of at least $5,000,000, provided
that (x) the first $20,000,000 of the proceeds of such sales are
applied pursuant to subsection 2.6(b)(ii) and (y) to the extent the
aggregate proceeds of asset sales permitted by this clause (j) exceed
$20,000,000, the Borrower shall utilize such excess proceeds for the
prepayment of Loans and the reduction of Commitments pursuant to
subsection 2.6(b)(ii) (without giving effect to the proviso thereto).
7.7 Limitation on Dividends. Declare or pay any dividend
(other than dividends payable solely in common stock of the Borrower) on, or
make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of Capital Stock of the Borrower or any
warrants or options to purchase any such Capital Stock, whether now or
hereafter outstanding, or make any other distribution in respect thereof,
either directly or indirectly, whether in cash or property or in obligations of
the Borrower or any Subsidiary other than Permitted Stock Payments.
7.8 Limitation on Capital Expenditures. Make or commit to make
(by way of the acquisition of securities of a Person or otherwise) any
expenditure in respect of the purchase or other acquisition of fixed or capital
assets (excluding any such asset acquired in connection with normal replacement
and maintenance programs properly charged to current operations) except for
capital expenditures in the ordinary course of business not exceeding, in the
aggregate for the Borrower and its Subsidiaries during any of the fiscal years
of the Borrower set forth below, the amount set forth opposite such fiscal year
below:
Fiscal Year Amount
----------- ------
1997 $18,500,000
1998 27,500,000
1999 27,500,000
2000 30,000,000
2001 32,500,000
2002 32,500,000
2003 35,000,000
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Text Limit > Table Limit >
2004 37,500,000
2005 and thereafter 40,000,000;
provided, that up to 25% of any such amount not so expended in the fiscal year
for which it is permitted above may be carried over for expenditure in the next
following fiscal year.
7.9 Limitation on Investments, Loans and Advances. Make any
advance, loan, extension of credit or capital contribution to, or purchase any
stock, bonds, notes, debentures or other securities of or any assets
constituting a business unit of, or make any other investment in, any Person
("Investments"), except :
(a) extensions of trade credit in the ordinary course of
business;
(b) investments in Cash Equivalents;
(c) loans to officers of the Borrower listed on Schedule
7.9(c) in aggregate principal amounts outstanding not to exceed the
respective amounts set forth for such officers on said Schedule;
(d) loans and advances to employees of the Borrower or its
Subsidiaries for travel, entertainment and relocation expenses in the
ordinary course of business in an aggregate amount for the Borrower
and its Subsidiaries not to exceed $1,000,000 at any one time
outstanding;
(e) investments by the Borrower in its Subsidiaries that are
Credit Parties and investments by such Subsidiaries in the Borrower
and in other Subsidiaries that are Credit Parties;
(f) so long as no Event of Default has occurred and is
continuing, loans by the Borrower to its employees (other than any
Principals or their Related Parties) in connection with (i) management
incentive plans and (ii) management stock purchase plans, in an
aggregate amount not to exceed $3,000,000;
(g) Investments in existence on the Closing Date set forth on
Schedule 7.9(g) and extensions, renewals, modifications or
restatements or replacements thereof; provided that no such extension,
renewal, modification or restatement shall increase the amount of the
original loan, advance or investment;
(h) promissory notes and other similar non-cash consideration
received by the Borrower and its Subsidiaries in connection with the
dispositions permitted by subsection 7.6(b);
(i) Investments required by subsection 6.11 and Investments
permitted by subsection 7.6(b) and subsection 7.6(j);
(j) Investments (including debt obligations and Capital Stock)
received in connection with the bankruptcy or reorganization of
suppliers and customers and in settlement of delinquent obligations
of, and other disputes with, customers and suppliers arising in the
ordinary course of business; and
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(k) so long as no Event of Default has occurred and is
continuing, in addition to the foregoing, Investments in an aggregate
amount not exceeding $15,000,000 (at cost, without regard to any write
down or write up thereof) at any one time outstanding.
7.10 Limitation on Optional Payments and Modifications of
Instruments and Agreements. (a) Make any optional payment or prepayment on or
redemption or purchase of, or deliver any funds to any trustee for the
prepayment, redemption or defeasance of, any Subordinated Debt or (b) amend,
modify or change, or consent or agree to any amendment, modification or change
to any of the material terms of any such Subordinated Debt Documents (other
than any such amendment, modification or change which would extend the maturity
or reduce the amount of any payment of principal thereof or which would reduce
the rate or extend the date for payment of interest thereon).
(b) Amend its Constitutional Documents in any manner which
could adversely affect the rights of the Lenders under the Credit Documents or
their ability to enforce the same.
(c) Modify or amend, or waive any provision or condition
contained in, any of the Transaction Documents in any manner that could
reasonably be expected to be adverse to the Lenders.
7.11 Limitation on Transactions with Affiliates. (a) Enter
into any transaction, including, without limitation, any purchase, sale, lease
or exchange of property or the rendering of any service, with any Affiliate
unless such transaction is (i) otherwise permitted under this Agreement, (ii)
in the ordinary course of the Borrower's or such Subsidiary's business and
(iii) upon fair and reasonable terms no less favorable to the Borrower or such
Subsidiary, as the case may be, than it would obtain in a comparable arm's
length transaction with a Person which is not an Affiliate.
(b) In addition, notwithstanding the foregoing, the Borrower
and its Subsidiaries shall be entitled to make the following payments and/or to
enter into the following transactions:
(i) the payment of reasonable and customary fees and
reimbursement of expenses payable to directors of the Borrower;
(ii) the employment arrangements with respect to the
procurement of services of directors, officers and employees in the
ordinary course of business and the payment of reasonable fees in
connection therewith;
(iii) payments to directors and officers of the Borrower
and its Subsidiaries in respect of the indemnification of such Persons
in such respective capacities from and against any and all
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements, as the case may
be, pursuant to the Constitutional Documents or other corporate action
of the Borrower or its Subsidiaries, respectively, or pursuant to
applicable law; and
(iv) transactions described in the Transaction Documents.
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7.12 Limitation on Sales and Leasebacks. Enter into any
arrangement with any Person providing for the leasing by the Borrower or any
Subsidiary of real or personal property which has been or is to be sold or
transferred by the Borrower or such Subsidiary to such Person or to any other
Person to whom funds have been or are to be advanced by such Person on the
security of such property or rental obligations of the Borrower or such
Subsidiary; provided that the Borrower may enter into a sale and leaseback
transaction if the Borrower could have (a) incurred Indebtedness in an amount
equal to the Attributable Debt relating to such sale and leaseback transaction
and (b) incurred a Lien to secure such Indebtedness, in each case in accordance
with the restrictions contained in this Agreement and the other Credit
Documents.
7.13 Limitation on Changes in Fiscal Year. Permit the fiscal
year of the Borrower to end on a day other than December 31.
7.14 Limitation on Negative Pledge Clauses. Enter into with
any Person any agreement, other than (a) this Agreement, (b) the Subordinated
Debt Documents and (c) any industrial revenue bonds, purchase money mortgages
or Financing Leases permitted by this Agreement (in which cases, any
prohibition or limitation shall only be effective against the assets financed
thereby other than after acquired title in or on such property and proceeds of
the existing collateral in accordance with the instrument creating such Lien),
which prohibits or limits the ability of the Borrower or any of its
Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of
its property, assets or revenues, whether now owned or hereafter acquired.
7.15 Limitation on Lines of Business. Enter into any business,
either directly or through any Subsidiary, except for Similar Businesses.
7.16 Designated Senior Debt. Designate any Indebtedness or
other obligation, other than Indebtedness under the Credit Documents, as
"Designated Senior Debt," as such term is defined in the Indenture as in effect
on the Closing Date, or any comparable designation that confers upon the
holders of such Indebtedness or other obligation (or any Person acting on their
behalf) the right to initiate blockage periods under the Indenture or any other
Indebtedness or other obligation of the Borrower and its Subsidiaries(other
than as a result of a payment default).
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan
or any Reimbursement Obligation when due in accordance with the terms
thereof or hereof; or the Borrower shall fail to pay any interest on
any Loan, or any other amount payable hereunder, within five days
after any such interest or other amount becomes due in accordance with
the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by the
Borrower or any other Credit Party herein or in any other Credit
Document or which is contained in any certificate, document or
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financial or other statement furnished by it at any time under or in
connection with this Agreement or any such other Credit Document shall
prove to have been incorrect in any material respect on or as of the
date made or deemed made; or
(c) The Borrower or any other Credit Party shall default in
the observance or performance of any agreement contained in Section 7
or subsection 6.5(a) of this Agreement, Section 4 of the Parent
Guarantee, Section 4 of the Subsidiary Guarantee, Section 4 of the
Parent Pledge and Security Agreement, Section 4 of the Borrower Pledge
and Security Agreement, or Section 4 of the Subsidiary Pledge and
Security Agreement; or
(d) The Borrower or any other Credit Party shall default in
the observance or performance of any other agreement contained in this
Agreement or any other Credit Document (other than as provided in
paragraphs (a) through (c) of this Section), and such default shall
continue unremedied for a period of 30 days; or
(e) The Borrower or any of its Subsidiaries shall (i) default
(x) in any payment of principal of or interest of any Indebtedness
(other than the Loans, the L/C Obligations and any intercompany debt)
or Interest Rate Agreement Obligations or (y) in the payment of any
Guarantee Obligation (excluding any guaranties of the Obligations),
beyond the period of grace, if any, provided in the instrument or
agreement under which such Indebtedness, Interest Rate Agreement
Obligation or Guarantee Obligation was created; or (ii) default in the
observance or performance of any other agreement or condition relating
to any such Indebtedness, Interest Rate Agreement Obligation or
Guarantee Obligation or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Guarantee
Obligation (or a trustee or agent on behalf of such holder or holders
or beneficiary or beneficiaries) to cause, with the giving of notice
if required, such Indebtedness to become due prior to its stated
maturity or such Guarantee Obligation to become payable; provided,
however, that no Default or Event of Default shall exist under this
paragraph unless (i) the aggregate amount of Indebtedness, Interest
Rate Agreement Obligations and/or Guarantee Obligations in respect of
which any default or other event or condition referred to in this
paragraph shall have occurred shall be equal to at least $7,500,000
and (ii) such default continues for a period in excess of 10 days; or
(f) (i) Holdings, the Borrower or any of its Subsidiaries
shall commence any case, proceeding or other action (A) under any
existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its
debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any
substantial part of its assets, or Holdings, the Borrower or any of
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its Subsidiaries shall make a general assignment for the benefit of
its creditors; or (ii) there shall be commenced against Holdings, the
Borrower or any of its Subsidiaries any case, proceeding or other
action of a nature referred to in clause (i) above which (A) results
in the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded for a
period of 60 days; or (iii) there shall be commenced against the
Holdings, Borrower or any of its Subsidiaries any case, proceeding or
other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of
its assets which results in the entry of an order for any such relief
which shall not have been vacated, discharged, or stayed or bonded
pending appeal within 60 days from the entry thereof; or (iv)
Holdings, the Borrower or any of its Subsidiaries shall take any
action in furtherance of, or indicating its consent to, approval of,
or acquiescence in, any of the acts set forth in clause (i), (ii), or
(iii) above; or (v) Holdings, the Borrower or any of its Subsidiaries
shall generally not, or shall be unable to, or shall admit in writing
its inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of
the Code) involving any Plan, (ii) any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not
waived, shall exist with respect to any Plan or any Lien in favor of
the PBGC or a Plan shall arise on the assets of the Borrower or any
Commonly Controlled Entity, (iii) a Reportable Event shall occur with
respect to, or proceedings shall commence to have a trustee appointed,
or a trustee shall be appointed, to administer or to terminate, any
Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion
of the Required Lenders, reasonably likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any
Single Employer Plan shall terminate for purposes of Title IV of
ERISA, (v) the Borrower or any Commonly Controlled Entity shall, or in
the reasonable opinion of the Required Lenders is likely to, incur any
liability in connection with a withdrawal from, or the Insolvency or
Reorganization of, a Multiemployer Plan or (vi) any other similar
event or condition shall occur or exist with respect to a Plan that is
not in the ordinary course; and in each case in clauses (i) through
(vi) above, such event or condition, together with all other such
events or conditions, if any, could reasonably be expected to have a
Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against
Holdings, the Borrower or any of its Subsidiaries involving in the
aggregate a liability (not paid or fully covered by insurance (which
coverage has been acknowledged by the appropriate insurers)) of
$7,500,000 or more, and all such judgments or decrees shall not have
been vacated, discharged, stayed or bonded pending appeal within 60
days from the entry thereof; or
(i) (i) Any of the Security Documents shall cease, for any
reason, to be in full force and effect (unless released by the
Administrative Agent at the direction of the requisite Lenders or as
otherwise permitted under this Agreement or the other Credit
Documents), or the Borrower or any other Credit Party which is a
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party to any of the Security Documents shall so assert or (ii) the
Lien created by any of the Security Documents shall cease to be
enforceable and of the same effect and priority purported to be
created thereby (and, if such invalidity is such so as to be amenable
to cure without materially disadvantaging the position of the
Administrative Agent and the Lenders, as the case may be, as secured
parties thereunder, the Credit Party shall have failed to cure such
invalidity within 30 days after notice from the Administrative Agent);
or
(j) the Guarantee Obligation of any Credit Party under the
Credit Documents shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full
force and effect or any Credit Party or any Person acting on behalf of
any Credit Party, shall deny or disaffirm its obligations under such
Guarantee Obligation;
(k) There shall have occurred a Change in Control; or
(l) either (i) the novation of any Government Contract
existing on the date of this Agreement shall not be complete and
effective prior to October 31, 1998 if such failures, individually or
in the aggregate, could reasonably be expected to have a Material
Adverse Effect, (ii) the consent to assignment of claims under any
Government Contract (other than any Restricted Government Contract)
existing on the date of this Agreement to the Administrative Agent on
behalf of the Lenders shall not have been obtained prior to October
31, 1998 if such failures, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect, or (iii) the
Governmental Authority authorized to approve any such novation or
consent to any such assignment requires a condition to the
effectiveness to any such novation or consent which, if agreed to by
the Company, could reasonably be expected to have a Material Adverse
Effect;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) of this Section above with respect to
the Borrower, automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement (including, without limitation, all amounts of L/C
Obligations, whether or not the beneficiaries of the then outstanding Letters
of Credit shall have presented the documents required thereunder) and the Notes
shall immediately become due and payable, and (B) if such event is any other
Event of Default, either or both of the following actions may be taken: (i)
with the consent of the Required Lenders, the Administrative Agent may, or upon
the request of the Required Lenders, the Administrative Agent shall, by notice
to the Borrower declare the Commitments to be terminated forthwith, whereupon
the Commitments shall immediately terminate; and (ii) with the consent of the
Required Lenders, the Administrative Agent may, or upon the request of the
Required Lenders, the Administrative Agent shall, by notice of default to the
Borrower, declare the Loans hereunder (with accrued interest thereon) and all
other amounts owing under this Agreement (including, without limitation, all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) and the Notes to be due and payable forthwith, whereupon the same
shall immediately become due and payable.
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With respect to all Letters of Credit with respect to which
presentment for honor shall not have occurred at the time of an acceleration
pursuant to the preceding paragraph, the Borrower shall at such time deposit in
a cash collateral account opened by the Administrative Agent an amount equal to
the aggregate then undrawn and unexpired amount of such Letters of Credit. The
Borrower hereby grants to the Administrative Agent, for the benefit of the
Issuing Lender and the L/C Participants, a security interest in such cash
collateral to secure all obligations of the Borrower under this Agreement and
the other Credit Documents. Amounts held in such cash collateral account shall
be applied by the Administrative Agent to the payment of drafts drawn under
such Letters of Credit, and the unused portion thereof after all such Letters
of Credit shall have expired or been fully drawn upon, if any, shall be applied
to repay other obligations of the Borrower hereunder and under the Notes. After
all such Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations
of the Borrower hereunder and under the Notes shall have been paid in full, the
balance, if any, in such cash collateral account shall be returned to the
Borrower. The Borrower shall execute and deliver to the Administrative Agent,
for the account of the Issuing Lender and the L/C Participants, such further
documents and instruments as the Administrative Agent may request to evidence
the creation and perfection of the within security interest in such cash
collateral account.
EXCEPT AS EXPRESSLY PROVIDED ABOVE IN THIS SECTION, PRESENTMENT,
DEMAND, PROTEST AND ALL OTHER NOTICES OF ANY KIND ARE HEREBY EXPRESSLY
WAIVED.
SECTION 9. THE AGENTS; THE ARRANGER
9.1 Appointment. Each Lender hereby irrevocably designates and
appoints each of the Agents as the agent of such Lender under this Agreement
and the other Credit Documents, and each such Lender irrevocably authorizes
each of the Agents, in such capacity, to take such action on its behalf under
the provisions of this Agreement and the other Credit Documents and to exercise
such powers and perform such duties as are expressly delegated to such Agent by
the terms of this Agreement and the other Credit Documents, together with such
other powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere in this Agreement, none of the Agents shall
have any duties or responsibilities, except those expressly set forth herein,
or any fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Credit Document or otherwise exist against any
of the Agents.
9.2 Delegation of Duties. The Agents may execute any of their
duties under this Agreement and the other Credit Documents by or through agents
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. None of the Agents shall be responsible for
the negligence or misconduct of any agents or attorneys in-fact selected by it
with reasonable care.
9.3 Exculpatory Provisions. Neither any of the Agents nor any
of their officers, directors, employees, agents, attorneys-in-fact or
Affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
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other Credit Document (except for its or such Person's own gross negligence or
willful misconduct) or (ii) responsible in any manner to any of the Lenders for
any recitals, statements, representations or warranties made by the Borrower or
any officer thereof contained in this Agreement or any other Credit Document or
in any certificate, report, statement or other document referred to or provided
for in, or received by such Agent under or in connection with, this Agreement
or any other Credit Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other
Credit Document or for any failure of the Borrower to perform its obligations
hereunder or thereunder. None of the Agents shall be under any obligation to
any Lender to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, this Agreement or any
other Credit Document, or to inspect the properties, books or records of the
Borrower.
9.4 Reliance by Agents. The Agents shall be entitled to rely,
and shall be fully protected in relying, upon any Note, writing, resolution,
notice, consent, certificate, affidavit, letter, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to
be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrower), independent accountants and other
experts selected by such Agent. The Agents may deem and treat the payee of any
Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with such
Agent. Except as expressly provided in this Agreement, the Agents shall be
fully justified in failing or refusing to take any action under this Agreement
or any other Credit Document unless it shall first receive such advice or
concurrence of the Required Lenders as it deems appropriate or it shall first
be indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Agents shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement and the other Credit
Documents in accordance with a request of the Required Lenders, and such
request and any action taken or failure to act pursuant thereto shall be
binding upon all the Lenders and all future holders of the Loans.
9.5 Notice of Default. No Agent shall be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless such Agent has received notice from a Lender or the Borrower
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that any Agent
receives such a notice, such Agent shall give notice thereof to the Lenders.
Each Agent shall take such action with respect to such Default or Event of
Default as shall be reasonably directed by the Required Lenders; provided that
unless and until such Agent shall have received such directions, such Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Default or Event of Default as it shall deem
advisable in the best interests of the Lenders.
9.6 Non-Reliance on Agents and Other Lenders. Each Lender
expressly acknowledges that neither any of the Agents nor any of their
officers, directors, employees, agents, attorneys-in-fact or Affiliates has
made any representations or warranties to it and that no act by any of the
Agents hereafter taken, including any review of the affairs of the Borrower,
shall be deemed to constitute any representation or warranty by any of the
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Agents to any Lender. Each Lender represents to each of the Agents that it has,
independently and without reliance upon any of the Agents or any other Lender,
and based on such documents and information as it has deemed appropriate, made
its own appraisal of and investigation into the business, operations, property,
financial and other condition and credit worthiness of the Borrower and made
its own decision to make its Loans hereunder and enter into this Agreement.
Each Lender also represents that it will, independently and without reliance
upon any of the Agents or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Credit Documents, and to make such investigation
as it deems necessary to inform itself as to the business, operations,
property, financial and other condition and credit worthiness of the Borrower.
Except for notices, reports and other documents expressly required to be
furnished to the Lenders by any of the Agents hereunder (or copies of which
have been provided to the Administrative Agent pursuant to this Agreement),
none of the Agents shall have any duty or responsibility to provide any Lender
with any credit or other information concerning the business, operations,
property, condition (financial or otherwise), prospects or credit worthiness of
the Borrower which may come into the possession of such Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates.
9.7 Indemnification. The Lenders agree to indemnify each of
the Agents in their respective capacities as such (to the extent not reimbursed
by the Borrower and without limiting the obligation of the Borrower to do so),
ratably according to their respective Commitment Percentages with respect to
all Types of Loans in effect on the date on which indemnification is sought,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever which may at any time (including, without limitation, at any
time following the payment of the Loans) be imposed on, incurred by or asserted
against any of the Agents in any way relating to or arising out of, the
Commitments, this Agreement, any of the other Credit Documents or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by any of the
Agents under or in connection with any of the foregoing provided that no Lender
shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting solely from such Agent's gross negligence
or willful misconduct. The agreements in this subsection shall survive the
payment of the Loans and all other amounts payable hereunder.
9.8 Agents, in Their Individual Capacities. The Agents and
their respective Affiliates may make loans to, accept deposits from and
generally engage in any kind of business with the Borrower as though the Agents
were not acting in such capacities hereunder and under the other Credit
Documents. With respect to the Loans made or renewed by it and any Note issued
to it and with respect to any Letter of Credit issued or participated in by it,
each Agent shall have the same rights and powers under this Agreement and the
other Credit Documents as any Lender and may exercise the same as though it
were not an Agent, and the terms "Lender" and "Lenders" shall include the
Agents in their individual capacities.
9.9 Successor Administrative Agent, Syndication Agents and
Documentation Agent. The Administrative Agent, the Syndication Agent or the
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Documentation Agent may resign as Administrative Agent, Syndication Agent or
Documentation Agent, as the case may be, upon 30 days' notice to the Lenders.
If the Administrative Agent shall resign as Administrative Agent under this
Agreement and the other Credit Documents or if Syndication Agent or the
Documentation Agent shall resign as Syndication Agent or Documentation Agent
under this Agreement and the other Credit Documents, then the Required Lenders
shall appoint from among the Lenders a successor agent for the Lenders, which
successor agent (provided that it shall have been approved by the Borrower,
which approval shall not be unreasonably withheld), shall succeed to the
rights, powers and duties of the Administrative Agent or a Syndication Agent or
the Documentation Agent, as the case may be, hereunder. Effective upon such
appointment and approval, the term "Administrative Agent" or a "Syndication
Agent" or "Documentation Agent," as the case may be, shall mean or include such
successor agent, and the former Administrative Agent's or Syndication Agent's
or Documentation Agent's, as the case may be, rights, powers and duties as
Administrative Agent or Syndication Agent or Documentation Agent, as the case
may be, shall be terminated, without any other or further act or deed on the
part of such former Administrative Agent or Syndication Agent or Documentation
Agent, as the case may be, or any of the parties to this Agreement or any
holders of the Loans. After any retiring Administrative Agent's or Syndication
Agent's or Documentation Agent's resignation as Administrative Agent or
Syndication Agent or Documentation Agent, as the case may be, the provisions of
this Section 9 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Administrative Agent or Syndication Agent or
Documentation Agent, as the case may be, under this Agreement and the other
Credit Documents.
9.10 The Arranger. Except as expressly set forth herein, the
Arranger, in its capacity as such, shall have no duties or responsibilities,
and shall incur no liabilities, under this Agreement or the other Credit
Documents.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement nor any
other Credit Document, nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of this
subsection. The Required Lenders may, or, with the written consent of the
Required Lenders, the Administrative Agent may, from time to time, (a) enter
into with the Borrower written amendments, supplements or modifications hereto
and to the other Credit Documents for the purpose of adding any provisions to
this Agreement or the other Credit Documents or changing in any manner the
rights of the Lenders or of the Borrower hereunder or thereunder or (b) waive,
on such terms and conditions as the Required Lenders or the Administrative
Agent, as the case may be, may specify in such instrument, any of the
requirements of this Agreement or the other Credit Documents or any Default or
Event of Default and its consequences; provided, however, that no such waiver
and no such amendment, supplement or modification shall (i) reduce the amount
or extend any scheduled date of maturity of any Loan, extend the expiration of
any Letter of Credit beyond the Revolving Credit Termination Date, or reduce
the stated rate of any interest or fee payable hereunder or extend the
scheduled date of any payment thereof, in each case without the consent of each
Lender affected thereby, or increase the commitment of any Lender or extend the
expiry of the commitment of any Lender without the consent of such Lender, or
(ii) amend, modify or waive any
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provision of this subsection or reduce the percentage specified in the
definition of Required Lenders or Requisite Class Lenders, or consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement and the other Credit Documents, in each case without the
written consent of all the Lenders, or (iii) release all or substantially all
of the Collateral or release all or substantially all of the Credit Parties
from their Guarantee Obligations under the Credit Document without the consent
of all Lenders, or (iv) amend, modify or waive any provision of Section 9
without the written consent of the then Agents, (v) amend, modify or waive any
provision of subsection 2.1(b), any other provision of this Agreement relating
to the Swing Line Loans or the Swing Line Note without the written consent of
the Swing Line Lender, or (vi) amend, modify or waive any provision of this
Agreement or any other Credit Document which would directly and adversely
affect the Arrangers or the Agents or the Issuing Lender or the Swing Line
Lender without the written consent of the Arranger, the Agents or the Issuing
Lender or the Swing Line Lender, as the case may be. In addition to the
foregoing, no amendment, modification, termination or waiver of any provision
of subsection 2.5 or subsection 2.6 which has the effect of changing any
interim scheduled payments, voluntary or mandatory prepayments (or the
applications thereof) or Commitment reductions applicable to any Class (an
"Affected Class") in a manner that disproportionately disadvantages such Class
relative to the other Class shall be effective without the written concurrence
of the Requisite Class Lenders of the Affected Class (it being understood and
agreed that any amendment, modification, termination or waiver of any provision
which only postpones or reduces any interim scheduled payment, voluntary or
mandatory prepayment or Commitment reduction from those set forth in subsection
2.6 with respect to only one Class shall be deemed to not disproportionately
disadvantage the other Class and, therefore, shall not require the consent of
Requisite Class Lenders of such other Class). Any such waiver and any such
amendment, supplement or modification shall apply equally to each of the
Lenders and shall be binding upon the Borrower, the Lenders, the Agents and the
Issuing Lender and all future holders of the Loans. Any extension of a Letter
of Credit by the Issuing Lender shall be treated hereunder as issuance of a new
Letter of Credit. In the case of any waiver, the Borrower, the Lenders and the
Agents and the Issuing Lender shall be restored to their former positions and
rights hereunder and under the other Credit Documents, and any Default or Event
of Default waived shall be deemed to be cured and not continuing; no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any right consequent thereon.
10.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission) and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made (a) in the case of delivery by hand,
when delivered, (b) in the case of delivery by mail, three days after being
deposited in the mails, postage prepaid, or (c) in the case of delivery by
facsimile transmission, when sent and receipt has been confirmed, addressed as
follows in the case of the Borrower, the Administrative Agent, the Syndication
Agent and the Documentation Agent, and as set forth in Schedule I in the case
of the other parties hereto, or to such other address as may be hereafter
notified by the respective parties hereto:
The Borrower or
any of its
Subsidiaries: L-3 Communications Corporation
600 Third Avenue, 34th Floor
New York, NY 10016
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Attention: Robert LaPenta
Fax: (212) 805-5470
Simpson Thacher & Bartlett
425 Lexington Avenue, 14th Floor
New York, NY 10017-3954
Attention: Marissa C. Wesely, Esq.
Fax: (212) 455-2502
The Administrative
Agent: Bank of America NT & SA
335 Madison Avenue
New York, NY 10017
Attention: Linda Carper
Fax: (212) 503-7502
The Documentation
Agent: Lehman Commercial Paper Inc.
3 World Financial Center, 9th Floor
New York, New York 10285
Attention: Michelle Swanson
Fax: (212) 528-0819
The Syndication
Agent: Lehman Commercial Paper Inc.
3 World Financial Center, 9th Floor
New York, New York 10285
Attention: Michelle Swanson
Fax: (212) 528-0819
provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders pursuant to subsection 2.2, 2.4, 2.6, 2.7, 2.12 or 3.2 shall not
be effective until received.
10.3 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of any Agent or any Lender, any right,
remedy, power or privilege hereunder or under the other Credit Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
10.4 Survival of Representations and Warranties. All
representations and warranties made hereunder, in the other Credit Documents
and in any document, certificate or statement delivered pursuant hereto or in
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connection herewith shall survive the execution and delivery of this Agreement
and the making of the Loans hereunder.
10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to
pay or reimburse each of the Agents for all its reasonable out-of-pocket costs
and expenses incurred in connection with the development, preparation and
execution of, and any amendment, supplement or modification to, this Agreement
and the other Credit Documents and any other documents prepared in connection
herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including, without limitation,
the reasonable fees, charges and disbursements of a single counsel for the
Lenders (in addition to any local counsel), (b) to pay or reimburse each Lender
and each Agent for all its costs and expenses incurred in connection with the
enforcement or preservation of any rights under this Agreement, the other
Credit Documents and any such other documents, including, without limitation,
the fees and disbursements of counsel to each Lender and of counsel to any
Agent, (c) to pay, indemnify, and hold each Lender and each Agent and each
Issuing Lender harmless from, any and all recording and filing fees and any and
all liabilities with respect to, or resulting from any delay in paying, stamp,
excise and other similar taxes, if any, which may be payable or determined to
be payable in connection with the execution and delivery of, or consummation or
administration of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement, the other Credit Documents and any such other documents, and
(d) to pay, indemnify, and hold each Lender and each Arranger, each Agent and
each Issuing Lender harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this
Agreement or the other Credit Documents or the use of the proceeds of the Loans
in connection with the Transaction, including, without limitation, any of the
foregoing relating to the violation of, noncompliance with or liability under,
any Environmental Law applicable to the operations of the Borrower, any of its
Subsidiaries or any of the Properties (all the foregoing in this clause (d),
collectively, the "indemnified liabilities"), it being understood that the
Borrower shall have an obligation hereunder to the Lender or any Agent with
respect to any indemnified liabilities incurred by any Agents, Arranger or the
Issuing Lender or any Lender as a result of any Materials of Environmental
Concern that are first manufactured, emitted, generated, treated, released,
spilled, stored or disposed of on, at or from any Property or any violation of
any Environmental Law, which in any case first occurs on or with respect to
such Property (i) after the Property is transferred to any Agent, Arranger,
Issuing Lender or any Lender or their successors or assigns by foreclosure
sale, deed in lieu of foreclosure, or similar transfer or, following such
transfer, (ii) in connection with, but prior to, the sale, leasing or other
transfer of such Property by such Agent, Arranger, Issuing Lender, or any
Lender or their successors or assigns to one or more third parties; provided,
however, that the Borrower shall have no obligation hereunder to any Agent or
the Issuing Lender or any Lender with respect to otherwise indemnified
liabilities arising from the gross negligence or willful misconduct of such
Agent or the Issuing Lender or any such Lender, or with respect to otherwise
indemnified liabilities following the sale, leasing or other transfer of such
Property to one or more third parties. The agreements in this subsection shall
survive repayment of the Loans and all other amounts payable hereunder.
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10.6 Successors and Assigns; Participation and Assignments.
(a) This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Lenders, the Agents and their respective successors and assigns,
except that the Borrower may not assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of each
Lender.
(b) Any Lender may, in the ordinary course of its business and
in accordance with applicable law, at any time sell to one or more banks or
other entities ("Participants") participating interests in any Loan owing to
such Lender or any other interest of such Lender hereunder and under the other
Credit Documents. In the event of any such sale by a Lender of a participating
interest to a Participant, such Lender's obligations under this Agreement to
the other parties to this Agreement shall remain unchanged, such Lender shall
remain solely responsible for the performance thereof, such Lender shall remain
the holder of any such Loan for all purposes under this Agreement and the other
Credit Documents, and the Borrower and the Agents shall continue to deal solely
and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Credit Documents. No Lender
shall be entitled to create in favor of any Participant, in the participation
agreement pursuant to which such Participant's participating interest shall be
created or otherwise, any right to vote on, consent to or approve any matter
relating to this Agreement or any other Credit Document except for those
specified in clauses (i) and (ii) of the proviso to subsection 10.1. The
Borrower agrees that if amounts outstanding under this Agreement are due or
unpaid, or shall have been declared or shall have become due and payable upon
the occurrence of an Event of Default, each Participant shall, to the maximum
extent permitted by applicable law, be deemed to have the right of setoff in
respect of its participating interest in amounts owing under this Agreement to
the same extent as if the amount of its participating interest were owing
directly to it as a Lender under this Agreement; provided that, in purchasing
such participating interest, such Participant shall be deemed to have agreed to
share with the Lenders the proceeds thereof as provided in subsection 10.7(a)
as fully as if it were a Lender hereunder. The Borrower also agrees that each
Participant shall be entitled to the benefits of Sections 2.14, 2.15 and 2.16
with respect to its participation in the Letters of Credit, the Commitments and
the Loans outstanding from time to time as if it was a Lender; provided that in
the case of subsection 2.15, such Participant shall have complied with the
requirements of said Section; provided, further, that no Participant shall be
entitled to receive any greater amount pursuant to any such subsection than the
transferor Lender would have been entitled to receive in respect of the amount
of the participation transferred by such transferor Lender to such Participant
had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its business and
in accordance with applicable law, at any time and from time to time assign to
any Lender, any affiliate thereof or, in the case of Lender that is an
investment fund which is regularly engaged in making, purchasing or investing
in loans or securities, any other such fund which is under common management
with such Lender, or, with the consent of the Borrower and the Agents (which in
each case shall not be unreasonably withheld), to an additional bank, fund
which is regularly engaged in making, purchasing or investing in loans or
securities, or financial institution (an "Assignee") all or any part of its
rights and obligations under this Agreement and the other Credit Documents
pursuant to an Assignment and Acceptance, substantially in the form of Exhibit
G, executed by such Assignee, such
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assigning Lender (and, in the case of an Assignee that is not then a Lender or
an affiliate thereof, by the Borrower and the Agents) and delivered to the
Administrative Agent for its acceptance and recording in the Register with a
copy to the Syndication Agent, provided that, in the case of any such
assignment to an additional bank or financial institution, (A) either (x) such
assignment is of all the rights and obligations of the assigning Lender or (y)
the sum of the aggregate principal amount of the Loans, the aggregate amount of
the L/C Obligations and the aggregate amount of the unused Commitments being
assigned and, if such assignment is of less than all of the rights and
obligations of the assigning Lender, the sum of the aggregate principal amount
of the Loans, the aggregate amount of the L/C Obligations and the aggregate
amount of the unused Commitments remaining with the assigning Lender are each
not less than $5,000,000 (or such lesser amount as may be agreed to by the
Borrower and the Agents) and (B) each Assignee which is a Non-U.S. Lender shall
comply with the provisions of clause (A) of subsection 2.15(b) hereof, or, with
the prior written consent of the Borrower, which shall not be unreasonably
withheld, the provisions of clause (B) of subsection 2.15(b) hereof (and, in
either case, with all of the other provisions of subsection 2.15(b) hereof).
Upon such execution, delivery, acceptance and recording, from and after the
effective date determined pursuant to such Assignment and Acceptance, (x) the
Assignee thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender
hereunder with a Commitment as set forth therein and (y) the assigning Lender
thereunder shall, to the extent provided in such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such assigning Lender
shall cease to be a party hereto). Notwithstanding any provision of this
paragraph (c) and paragraph (f) of this subsection, the consent of the Borrower
shall not be required for any assignment which occurs at any time when any of
the events described in Section 8(f) shall have occurred and be continuing.
(d) The Administrative Agent, on behalf of the Borrower, shall
maintain at the address of the Administrative Agent referred to in subsection
10.2 a copy of each Assignment and Acceptance delivered to it and a register
(the "Register") for the recordation of the names and addresses of the Lenders
and Commitments of and principal amounts of the Loans of each Type owing to,
each Lender from time to time and the registered owners of the Obligations
evidenced by the Notes. The entries in the Register shall be conclusive, in the
absence of manifest error, and the Borrower, the Administrative Agent and the
Lenders shall treat each Person whose name is recorded in the Register as the
owner of a Loan, a Note or other Obligation hereunder as the owner thereof for
all purposes of this Agreement and the other Credit Documents, notwithstanding
any notice to the contrary. Any assignment of any Loan or other obligation
evidenced by a Note shall be effective only upon appropriate entries with
respect thereto being made in the Register. Any assignment or transfer of all
or part of an Obligation evidenced by a Note shall be registered in the
Register only upon surrender for registration of assignment or transfer of the
Note evidencing such Obligation, duly endorsed by (or accompanied by a written
instrument of assignment or transfer duly executed by) the holder thereof, and
thereupon one or more new Notes shall be issued to the designated Assignee and
the old Note shall be returned by the Administrative Agent to the Borrower
marked "cancelled."
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(e) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender and an Assignee (and, in the case of an Assignee that is
not then a Lender or an affiliate thereof, by the Borrower and the Agents)
together with payment to the Administrative Agent of a registration and
processing fee of $3,000 (provided that no such payment shall be required
whenever LCPI or BOA is the assigning Lender), the Administrative Agent shall
(i) promptly accept such Assignment and Acceptance and (ii) on the effective
date determined pursuant thereto record the information contained therein in
the Register and give notice of such acceptance and recordation to the Lenders
and the Borrower.
(f) The Borrower authorizes each Lender to disclose to any
Participant or Assignee (each, a "Transferee") and any prospective Transferee,
subject to the provisions of subsection 10.15, any and all financial
information in such Lender's possession concerning the Borrower and its
Affiliates which has been delivered to such Lender by or on behalf of the
Borrower pursuant to this Agreement or which has been delivered to such Lender
by or on behalf of the Borrower in connection with such Lender's credit
evaluation of the Borrower and its Affiliates prior to becoming a party to this
Agreement.
(g) If, pursuant to this subsection 10.6, any interest in this
Agreement or any Loan is transferred to any Transferee which would be a
Non-U.S. Lender upon the effectiveness of such transfer, the assigning Lender
shall cause such Transferee, concurrently with the effectiveness of such
transfer, (i) to represent to the assigning Lender (for the benefit of the
assigning Lender, the Administrative Agent and the Borrower) that under
applicable law and treaties no U.S. Taxes will be required to be withheld by
the Administrative Agent, the Borrower or the assigning Lender with respect to
any payments to be made to such Transferee in respect of the Loans, (ii) to
furnish to the assigning Lender (and, in the case of any Assignee registered in
the Register, the Administrative Agent and the Borrower such Internal Revenue
Service Forms required to be furnished pursuant to subsection 2.15(b) and (iii)
to agree (for the benefit of the assigning Lender, the Administrative Agent and
the Borrower) to be bound by the provisions of subsection 2.15(b).
(h) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this subsection concerning assignments of
Loans and Notes relate only to absolute assignments and that such provisions do
not prohibit assignments creating security interests, including, without
limitation, any pledge or assignment by a Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
10.7 Adjustments; Set-off. (a) If any Lender (a "benefitted
Lender") shall at any time receive any payment of all or part of its Loans or
the Reimbursement Obligations owing to it, or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by
set-off, pursuant to events or proceedings of the nature referred to in Section
8(f), or otherwise), in a greater proportion than any such payment to or
collateral received by any other Lender, if any, in respect of such other
Lender's Loans or the Reimbursement Obligations owing to it, or interest
thereon, such benefitted Lender shall purchase for cash from the other Lenders
a participating interest in such portion of each such other Lender's Loans or
the Reimbursement Obligations owing to it, or shall provide such other Lenders
with the benefits of any such collateral, or the proceeds thereof, as shall be
necessary to cause such benefitted Lender to
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share the excess payment or benefits of such collateral or proceeds ratably
with each of the Lenders; provided, however, that if all or any portion of such
excess payment or benefits is thereafter recovered from such benefitted Lender,
such purchase shall be rescinded, and the purchase price and benefits returned,
to the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders
provided by law, each Lender shall have the right, without prior notice to the
Borrower, any such notice being expressly waived by the Borrower to the extent
permitted by applicable law, upon any amount becoming due and payable by the
Borrower hereunder (whether at the stated maturity, by acceleration or
otherwise) to set-off and appropriate and apply against such amount any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Lender or any branch or agency
thereof to or for the credit or the account of the Borrower. Each Lender agrees
promptly to notify the Borrower and the Administrative Agent after any such
set-off and application made by such Lender, provided that the failure to give
such notice shall not affect the validity of such set-off and application.
10.8 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts
(including by facsimile transmission), and all of said counterparts taken
together shall be deemed to constitute one and the same instrument. A set of
the copies of this Agreement signed by all the parties shall be lodged with the
Borrower and the Administrative Agent.
10.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement and the other Credit
Documents represent the agreement of the Borrower, the Agents and the Lenders
with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by any Agent or any Lender relative
to subject matter hereof not expressly set forth or referred to herein or in
the other Credit Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10.12 SUBMISSION TO JURISDICTION; WAIVERS. THE BORROWER
HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(a) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS
TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY
JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION
OF THE COURTS OF THE STATE OF NEW YORK, THE COURTS OF THE UNITED
STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE
COURTS FROM ANY THEREOF;
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(b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT
IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT
OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT
AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(c) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO THE BORROWER AT ITS ADDRESS SET FORTH IN SUBSECTION 10.2
OR AT SUCH OTHER ADDRESS OF WHICH THE ADMINISTRATIVE AGENT SHALL HAVE
BEEN NOTIFIED PURSUANT THERETO;
(d) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION; AND
(e) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY
RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR
PROCEEDING REFERRED TO IN THIS SUBSECTION ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES.
10.13 Acknowledgements. The Borrower hereby acknowledges
that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Credit
Documents;
(b) none of the Arrangers, the Agents nor any Lender has any
fiduciary relationship with or duty to the Borrower arising out of or
in connection with this Agreement or any of the other Credit
Documents, and the relationship between any of the Agents and the
Lenders, on one hand, and the Borrower, on the other hand, in
connection herewith or therewith is solely that of debtor and
creditor; and
(c) no joint venture is created hereby or by the other Credit
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among the Borrower and the
Lenders.
10.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS, THE
ARRANGERS, THE LENDERS AND THE OTHER PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN.
10.15 Confidentiality. Each Lender agrees to keep confidential
all non-public information provided to it by the Borrower pursuant to this
Agreement that is designated by the Borrower in writing as confidential;
provided that nothing herein shall prevent any Lender from disclosing any such
information (i) to any Agent or any other Lender or any of its Affiliates, (ii)
to any Transferee or prospective Transferee or to any direct or indirect
contractual counterparties in swap agreements or such contractual
counterparties' professional advisors which receives such information and
agrees to be bound by the confidentiality provisions hereof,
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(iii) to its employees, directors, agents, attorneys, accountants and other
professional advisors, (iv) upon the request or demand of any Governmental
Authority having jurisdiction over such Lender, (v) in response to any order of
any court or other Governmental Authority or as may otherwise be required
pursuant to any Requirement of Law, (vi) which has been publicly disclosed
other than in breach of this Agreement, or (vii) in connection with the
exercise of any remedy hereunder.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
L-3 Communications Corporation
By:__________________________________
Title:
Lehman Commercial Paper Inc.,
as Documentation Agent, Syndication Agent,
Arranger and as a Lender
By:__________________________________
Title:
Bank of America NT & SA
as Administrative Agent
and as a Lender
By:__________________________________
Title:
CITIBANK, N.A.
as a Lender
By:__________________________________
Title:
CREDIT LYONNAIS, NEW YORK BRANCH
as Co-Agent and as a Lender
By:__________________________________
Title:
FLEET NATIONAL BANK,
as Co-Agent and Lender
By:__________________________________
Name:
Title:
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MARINE MIDLAND BANK
as Co-Agent and as a Lender
By:__________________________________
Title:
BANK OF NOVA SCOTIA
as Co-Agent and as a Lender
By:__________________________________
Name:
Title:
BANKBOSTON, N.A.
By:__________________________________
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON
as Co-Agent and as a Lender
By:__________________________________
Title:
THE FIRST NATIONAL BANK OF CHICAGO
as Co-Agent and as a Lender
By:__________________________________
Title:
THE FUJI BANK, LIMITED NEW YORK BRANCH
as Co-Agent and as a Lender
By:__________________________________
Title:
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<PAGE>
CANADIAN IMPERIAL BANK OF COMMERCE
By:__________________________________
Name:
Title:
CITIBANK, N.A.
as Co-Agent and as a Lender
By:__________________________________
Title:
THE ING CAPITAL SENIOR SECURED
HIGH INCOME FUND, L.P.
as a Lender
By:__________________________________
Title:
KZH HOLDING CORPORATION II
By:__________________________________
Name:
Title:
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC., as a Lender
By:__________________________________
Title:
KZH HOLDING CORPORATION
By:__________________________________
Name:
Title:
METROPOLITAN LIFE INSURANCE COMPANY
By:__________________________________
Name:
Title:
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OAK HILL SECURITIES FUND, L.P.
By: Oak Hill Securities GenPar, L.P.
its General Partner
By: Oak Hill Securities MGP, Inc.,
its General Partner
By:__________________________________
Name:
Title:
OCTAGON CREDIT INVESTORS LOAN
PORTFOLIO (a unit of the Chase
Manhattan Bank)
By:__________________________________
Name:
Title:
PARIBAS CAPITAL FUNDING LLC
as a Lender
By:__________________________________
Title:
PILGRIM AMERICA PRIME RATE TRUST
as a Lender
By:__________________________________
Title:
PRIME INCOME TRUST
as a Lender
By:__________________________________
Title:
ROYALTON COMPANY
as a Lender
By:__________________________________
Title:
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<PAGE>
CRESCENT/MACHI PARTNERS L.P.
By TCW Asset Management Company
its Investment Manager,
as a Lender
By:__________________________________
Name:
Title:
TCW Asset Management Company
as Attorney-in Fact for United
Companies Life Insurance Company,
as a Lender
By:__________________________________
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By:__________________________________
Name:
Title:
BANK OF MONTREAL
as a Lender
By:__________________________________
Title:
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
as a Lender
By:__________________________________
Title:
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<PAGE>
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR
By:__________________________________
Name:
Title:
By:__________________________________
Name:
Title:
BHF BANK AKTIENGESELLSCHAFT
GRAND CAYMAN BRANCH
By:__________________________________
Name:
Title:
CORESTATES BANK, N.A.
as a Lender
By:__________________________________
Title:
GOLDMAN SACHS CREDIT PARTNERS, L.P.
as a Lender
By:__________________________________
Title:
PNC BANK, NATIONAL ASSOCIATION
as a Lender
By:__________________________________
Name:
Title:
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<PAGE>
SKANDINAVISKA ENSKILDA BANKEN
CORPORATION
as a Lender
By:__________________________________
Title:
SOCIETE GENERALE, NEW YORK BRANCH
By:__________________________________
Name:
Title:
THE SUMITOMO BANK, LIMITED
as a Lender
By:__________________________________
Title:
THE BANK OF NEW YORK
as a Lender
By:__________________________________
Title:
THE MITSUBISHI TRUST AND BANKING
CORPORATION
as a Lender
By:__________________________________
Title:
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By:__________________________________
Name:
Title:
U.S. BANK
as a Lender
By:__________________________________
Title:
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L-3 COMMUNICATIONS CORPORATION
FIRST AMENDMENT
TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT")
is dated as of August 13, 1997 and entered into by and among L-3
COMMUNICATIONS CORPORATION, a Delaware corporation (the "BORROWER") which is
wholly owned by L-3 COMMUNICATIONS HOLDINGS, INC., a Delaware corporation
("HOLDINGS"), the Lenders party to the Credit Agreement referred to below on
the date hereof (the "LENDERS"), LEHMAN COMMERCIAL PAPER INC. ("LCPI") as
arranger (in such capacity, the "ARRANGER"), LCPI, as syndication agent (in
such capacity, the "SYNDICATION AGENT"), LCPI, as documentation agent (in such
capacity, the "DOCUMENTATION AGENT") and BANK OF AMERICA NT & SA ("BOA"), as
administrative agent for the Lenders (in such capacity, the "ADMINISTRATIVE
AGENT"). All capitalized terms used herein without definition shall have the
same meanings herein as set forth in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders, the Arranger, the
Syndication Agent, the Documentation Agent and the Administrative Agent are
parties to the Credit Agreement dated as of April 30, 1997 (the "CREDIT
AGREEMENT"); and
WHEREAS, the parties hereto wish to amend the Credit
Agreement as herein provided.
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the parties hereto
agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT
1.1. The definition of L/C Commitment in Section 1.1 of the
Credit Agreement is hereby stricken and amended to read as follows:
""L/C Commitment": $30,000,000."
1.2. The second sentence of Section 2.2 of the Credit
Agreement is hereby stricken and amended to read as follows:
"Each borrowing under the Commitments shall be in
an amount equal to (x) in the case of Base Rate Loans (other than
Swing Line Loans), $2,000,000 or a whole multiple of $100,000 in
excess thereof (or, if the then Available Commitments are less than
$2,000,000, such lesser amount), (y) in the case of Swing Line Loans,
as provided in subsection 2.1(b)(i) and (z) in the case of Eurodollar
Loans, $5,000,000 or a whole multiple of $100,000 in excess thereof."
1.3. The last sentence of Section 2.6(a) of the Credit
Agreement is hereby stricken and amended to read as follows:
"Partial prepayments shall be in an aggregate
principal amount of $2,000,000 or a whole multiple of $100,000 in
excess thereof."
1.4. Section 2.6(b)(iv) of the Credit Agreement is hereby
amended by adding the
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following sentence to the end of the Section:
"Mandatory prepayments shall not be subject to any
minimum amount requirement."
1.5. Section 2.8 of the Credit Agreement is hereby stricken
and amended to read as follows:
"2.8 Minimum Amounts and Maximum Number of
Tranches. All borrowings, conversions and continuations of Loans
hereunder and all selections of Interest Periods hereunder shall be
in such amounts and be made pursuant to such elections so that, after
giving effect thereto, the aggregate principal amount of the Loans
comprising each Eurodollar Tranche shall be equal to $5,000,000 or a
whole multiple of $100,000 in excess thereof. All Loans hereunder may
be converted or continued into Base Rate Loans without reference to
the minimum principal amount requirements for new Base Rate
borrowings set forth in Section 2.2 above. In no event shall there be
more than 15 Eurodollar Tranches outstanding at any time.
1.6. The second sentence of Section 3.5(a) of the Credit
Agreement is hereby stricken and amended to read as follows:
"The Issuing Lender shall provide notice to the
Borrower on each Business Day on which a draft is presented
indicating the amount of (i) such draft so paid and (ii) any taxes,
fees, charges or other costs or expenses incurred by the Issuing
Lender in connection with such payment."
1.7. Section 6.1 of the Credit Agreement is hereby
stricken and amended to read as follows:
"(a) as soon as available, but in any event within
95 days after the end of each fiscal year of the Borrower, (i) a copy
of the consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of such year and the related
consolidated statements of income and retained earnings and of cash
flows for such year, setting forth in each case in comparative form
the figures for the previous year, reported on without a "going
concern" or like qualification or exception, or qualification arising
out of the scope of the audit, by independent certified public
accountants of nationally recognized standing and (ii) an unaudited
unconsolidated balance sheet of Holdings prepared on an equity basis
(without footnote disclosure) certified by a Responsible Officer of
Holdings as being fairly stated in all material respects;
(b) as soon as available, but in any event not
later than 50 days after the end of each of the first three quarterly
periods of each fiscal year of the Borrower, the unaudited
consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such quarter and the related unaudited
consolidated statements of income and retained earnings and of cash
flows of the Borrower and its consolidated Subsidiaries for such
quarter and the portion of the fiscal year through the end of such
quarter, setting forth in each case in comparative form the figures
for the previous year, certified by a Responsible Officer as being
fairly stated in all material respects (subject to normal year-end
audit adjustments)."
1.8. Exhibit G to the Credit Agreement is hereby stricken an
amended to read as Exhibit A hereto.
2
<PAGE>
SECTION 2. CONDITIONS TO EFFECTIVENESS
Section 1 of this Amendment shall become effective only upon
the satisfaction of all of the following conditions precedent (the date of
satisfaction of such conditions being referred to herein as the "FIRST
AMENDMENT EFFECTIVE DATE"):
2.1. On or before the First Amendment Effective Date, the
Borrower shall have delivered to Administrative Agent executed copies of this
Amendment.
2.2. On or before the First Amendment Effective Date, the
Required Lenders shall have delivered to the Administrative Agent an executed
original or facsimile of a counterpart of this Amendment.
2.3. The Boards of Directors of Holdings and the Borrower
shall have duly authorized the execution, delivery and performance of this
Amendment.
SECTION 3. BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment and
to amend the Credit Agreement in the manner provided herein, the Borrower
represents and warrants to each Lender that the following statements are true,
correct and complete:
3.1. Corporate Power and Authority. The Borrower has all
requisite corporate power and authority to enter into this Amendment and to
carry out the transactions contemplated by, and perform its obligations under,
the Credit Agreement as amended by this Amendment (the "AMENDED AGREEMENT").
3.2. Authorization of Amendment. The execution and delivery
of this Amendment has been duly authorized by all necessary corporate action
on the part of the Borrower.
3.3. No Conflict. The execution and delivery by the Borrower
of this Amendment and the performance by the Borrower of the Amended Agreement
by the Borrower does not and will not (i) violate any provision of any law or
any governmental rule or regulation applicable to the Borrower or any of its
Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of the
Borrower or any of its Subsidiaries or any order, judgment or decree of any
court or other agency of government binding on the Borrower or any of its
Subsidiaries, (ii) conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any contractual
obligation of the Borrower or any of its Subsidiaries, (iii) result in or
require the creation or of any Lien upon any of the properties or assets of
the Borrower or any of its Subsidiaries (other than Liens created under any of
the Credit Documents in favor of the Administrative Agent on behalf of
Lenders), or (iv) require any approval of stockholders or any approval or
consent of any Person under any contractual obligation of the Borrower or any
of its Subsidiaries.
3.4. Governmental Consents. The execution and delivery by
the Borrower of this Amendment and the performance by the Borrower of the
Amended Agreement by the Borrower does not and will not require any
registration with, consent or approval of, or notice to, or other action to,
with or by, any federal, state or other governmental authority or regulatory
body.
3.5. Binding Obligation. This Amendment and the Amended
Agreement have been
3
<PAGE>
duly executed and delivered by the Borrower and, when executed and delivered,
will be the legally valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their respective terms, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or limiting creditors' rights generally or by equitable
principles relating to enforceability.
3.6. Incorporation of Representations and Warranties From
Credit Agreement. The representations and warranties contained in Section 4 of
the Credit Agreement are and will be true, correct and complete in all
material respects on and as of the First Amendment Effective Date to the same
extent as though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date, in
which case they were true, correct and complete in all material respects on
and as of such earlier date.
3.7. Absence of Default. No event has occurred and is
continuing or will result from the consummation of the transactions
contemplated by this Amendment that would constitute an Event of Default or a
potential Event of Default.
SECTION 4. MISCELLANEOUS
4.1. Reference to and Effect on the Credit Agreement and the
other Credit Documents.
(a) On and after the First Amendment Effective
Date, each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import referring to
the Credit Agreement, and each reference in the other Credit
Documents to the "Credit Agreement", "thereunder", "thereof" or words
of like import referring to the Credit Agreement shall mean and be a
reference to the Amended Agreement.
(b) Except as specifically amended by this
Amendment, the Credit Agreement and the other Credit Documents shall
remain in full force and effect and are hereby ratified and
confirmed.
(c) The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein, constitute
a waiver of any provision of, or operate as a waiver of any right,
power or remedy of the Administrative Agent or any Lender under, the
Credit Agreement or any of the other Credit Documents.
4.2. Fees and Expenses. The Borrower acknowledges that all
costs, fees and expenses as described in Section 9 of the Credit Agreement
incurred by Administrative Agent and its counsel with respect to this
Amendment and the documents and transactions contemplated hereby shall be for
the account of the Borrower.
4.3. Headings. Section and subsection headings in this
Amendment are included herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose or be given any
substantive effect.
4.4. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
4
<PAGE>
4.5. SUBMISSION TO JURISDICTION; WAIVERS. THE BORROWER HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(a) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND THE OTHER
CREDIT DOCUMENTS TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE
GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE
COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF
NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;
(b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY
BE BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY
SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN
INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(c) AGREES THAT SERVICE OF PROCESS IN ANY SUCH
ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY
REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF
MAIL), POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS SET FORTH IN
SECTION 10.2 OF THE CREDIT AGREEMENT OR AT SUCH OTHER ADDRESS OF
WHICH THE ADMINISTRATIVE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT
THERETO;
(d) AGREES THAT NOTHING HEREIN SHALL AFFECT THE
RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION; AND
(e) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY
LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR
PROCEEDING REFERRED TO IN THIS SUBSECTION ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES.
4.6. Acknowledgements. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the
negotiation, execution and delivery of this Agreement;
(b) none of the Arrangers, the Agents nor any
Lender has any fiduciary relationship with or duty to the Borrower
arising out of or in connection with this Agreement, and the
relationship between any of the Agents and the Lenders, on one hand,
and the Borrower, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or otherwise
exists by virtue of the transactions contemplated hereby among the
Lenders or among the Borrower and the Lenders.
4.7. WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS, THE
ARRANGERS, THE LENDERS AND THE OTHER PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL
5
<PAGE>
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT
AND FOR ANY COUNTERCLAIM THEREIN.
4.8. Confidentiality. Each Lender agrees to keep
confidential all non-public information provided to it by the Borrower
pursuant to this Agreement that is designated by the Borrower in writing as
confidential (excluding any such information already in the possession of such
Lender or provided to such Lender by a third party not in violation of this
Agreement which, in either case, is not, to the knowledge of such Lender,
subject to a confidentiality agreement); provided that nothing herein shall
prevent any Lender from disclosing any such information (i) to any Agent or
any other Lender or any of its Affiliates, (ii) to any Transferee or
prospective Transferee or to any direct or indirect contractual counterparties
in swap agreements or such contractual counterparties' professional advisors
which receives such information and agrees to be bound by the confidentiality
provisions hereof, (iii) to its employees, directors, agents, attorneys,
accountants and other professional advisors, (iv) upon the request or demand
of any Governmental Authority having jurisdiction over such Lender, (v) in
response to any order of any court or other Governmental Authority or as may
otherwise be required pursuant to any Requirement of Law, (vi) which has been
publicly disclosed other than in breach of this Agreement, or (vii) in
connection with the exercise of any remedy hereunder.
4.9. Counterparts; Effectiveness. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but
one and the same instrument; signature pages may be detached from multiple
separate counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document. This Amendment
shall become effective upon the execution of a counterpart hereof by the
Borrower, the Required Lenders, the Arranger, the Syndication Agent, the
Documentation Agent and the Administrative Agent and receipt by the Borrower
and the Administrative Agent of written or telephonic notification of such
execution and authorization of delivery thereof.
6
<PAGE>
In WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
L-3 COMMUNICATIONS CORPORATION
By: /s/ Lawrence W. O'Brien
-----------------------
Name: Lawrence O'Brien
Title: Vice President & Treasurer
LEHMAN COMMERCIAL PAPER INC.,
as Documentation Agent, Syndication
Agent, Arranger and as a Lender
By: /S/ Michele Swenson
-----------------------
Name: Michele Swenson
Title: Authorized Signatory
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative
Agent
By: /s/ Dietmar Schiel
-----------------------
Name: Dietmar Schiel
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Lender
By: /s/ Linda A. Carper
-----------------------
Name: Linda A. Carper
Title: Managing Director
7
<PAGE>
CREDIT LYONNAIS, NEW YORK BRANCH
as Co-Agent and as a Lender
By: /s/ Attila Koc
-----------------------
Name: Attila Koc
Title:
FLEET NATIONAL BANK,
as Co-Agent and Lender
By: /s/ Roger C. Boucher
-----------------------
Name: ROGER C. BOUCHER
Title: VICE PRESIDENT
MARINE MIDLAND BANK
as Co-Agent and as a Lender
By:/s/ JB Lyons
-----------------------
Name: JB Lyons
Title:
BANK OF NOVA SCOTIA,
as Co-Agent and as a Lender
By: /s/ J.R. Trimble
-----------------------
Name: J.R. Trimble
Title: Senior Relationship Manager
KZH - CRESCENT CORPORATION
By: /s/ Virginia R. Conway
-----------------------
Name: Virginia R. Conway
Title: Authorized Agent
8
<PAGE>
BANKBOSTON, N.A.
By: /s/ Gregory R.D. Clark
-----------------------
Name: Gregory R.D. Clark
Title: Managing Director
THE FIRST NATIONAL BANK OF CHICAGO
as Co-Agent and as a Lender
By: /s/ Amy L. Golz
-----------------------
Name: Amy L. Golz
Title: Vice President
THE FUJI BANK, LIMITED NEW YORK BRANCH
as Co-Agent and as a Lender
By: /s/ Teiji Teramoto
-----------------------
Name: Teiji Teramoto
Title: Vice President & Manager
CITIBANK, N.A.
as Co-Agent and as a Lender
By: /s/ Hans L. Christensen
-----------------------
Name: Hans L. Christensen
Title: Vice President
9
<PAGE>
THE ING CAPITAL SENIOR SECURED
HIGH INCOME FUND, L.P.
as a Lender
By:
-----------------------
Name:
Title:
KZH - ING-1 CORPORATION
By: /s/ Virginia R. Conway
-----------------------
Name: Virginia R. Conway
Title: Authorized Agent
KZH - SOLEIL CORPORATION
By: /s/ Virginia R. Conway
-----------------------
Name: Virginia R. Conway
Title: Authorized Agent
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.,
as a Lender
By:
-----------------------
Name:
Title:
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/ James R. Dingler
-----------------------
Name: James R. Dingler
Title: Assistant Vice President
10
<PAGE>
OAK HILL SECURITIES FUND, L.P.
By: Oak Hill Securities GenPar, L.P.
its General Partner
By: Oak Hill Securities MGP, Inc.,
its General Partner
By:
-----------------------
Name:
Title:
OCTAGON CREDIT INVESTORS LOAN
PORTFOLIO (a unit of the Chase
Manhattan Bank)
By: /s/ Richard W. Stewart
-----------------------
Name: Richard W. Stewart
Title: Managing Director
PARIBAS CAPITAL FUNDING LLC
as a Lender
By:
-----------------------
Name:
Title:
PRIME INCOME TRUST
as a Lender
By:
-----------------------
Name:
Title:
11
<PAGE>
ROYALTON COMPANY, By Pacific
Investment Management Company, as its
Investment Advisor
By: /s/ Ray Kennedy
-----------------------
Name: Ray Kennedy
Title: Vice President
CRESCENT/MACHI PARTNERS L.P.
By: TCW Asset Management Company,
its Investment Manager,
as a Lender
By: /s/ Justin L. Driscoll
-----------------------
Name: Justin L. Driscoll
Title: Senior Vice President
TCW ASSET MANAGEMENT COMPANY
as Attorney-in-Fact for United
Companies Life Insurance Company, as
a Lender
By:
-----------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By: /s/ Jeffrey W. Maillet
-----------------------
Name: Jeffrey W. Maillet
Title: Senior Vice President & Director
12
<PAGE>
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
as a Lender
By: /s/ Paul P. Malecki
-----------------------
Name: Paul P. Malecki
Title: Vice President
NATEXIS BANQUE BFCE F/K/A
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR
By: G.K. DT
-----------------------
Name: Kevin Dooley
Title: Vice President
By: FL
-----------------------
Name: VP
Title: VP
BHF BANK AKTIENGESELLSCHAFT
GRAND CAYMAN BRANCH
By: /s/ John Sykes /s/ Hans Sholz
-----------------------------
Name: John Sykes Hans Sholz
Title: AVP AVP
CORESTATES BANK, N.A.
as a Lender
By: /s/ Matthew T. Panarzse
-----------------------
Name: Matthew T. Panarzse
Title: Vice President
13
<PAGE>
GOLDMAN SACHS CREDIT PARTNERS, L.P.
as a Lender
By:
-----------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
as a Lender
By:
-----------------------
Name:
Title:
SKANDINAVISKA ENSKILDA BANKEN
CORPORATION
as a Lender
By: /s/ Sveriger Johansson
-----------------------
Name: Sveriger Johansson
Title: Vice President
SOCIETE GENERALE, NEW YORK BRANCH
By: /s/ Alan ZJ Zinser
-----------------------
Name: Alan ZJ Zinser
Title: Vice President
THE SUMITOMO BANK, LIMITED
as a Lender
By: /s/ Suresh S. Tata
-----------------------
Name: Suresh S. Tata
Title: Senior Vice President
14
<PAGE>
THE BANK OF NEW YORK
as a Lender
By: /s/ Kenneth P. Sneider, Jr
--------------------------
Name: Kenneth P. Sneider, Jr
Title: Vice President
THE MITSUBISHI TRUST AND BANKING
CORPORATION
as a Lender
By: /s/ Toshihiro Hayashi
-----------------------
Name: Toshihiro Hayashi
Title: Senior Vice President
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Perry Vavoules
-----------------------
Name: Perry Vavoules
Title: Senior Vice President
U.S. BANK
as a Lender
By: /s/ Monica J. Treacy
-----------------------
Name: Monica J. Treacy
Title: Assistant Vice President
INDOSUEZ CAPITAL FUNDING II, LTD.
by Indosuez Capital as Portfolio Advisor
By: /s/ Francoise Berthelot
-----------------------
Name: Francoise Berthelot
Title: Vice President
15
<PAGE>
SENIOR DEBT PORTFOLIO
c/o BOSTON MANAGEMENT AND RESEARCH
as Investment Advisor
By: /s/ Payson F. Swaffield
-----------------------
Name: Payson F. Swaffield
Title: Vice President
PAMCO CAYMAN LTD.
By: Protective Asset Management, L.L.C.,
as Collateral Manager
By: /s/ James Dondero
-----------------------
Name: James Dondero
Title: CFA, CPA President Protective
Asset Management Company
FLOATING RATE PORTFOLIO
By: Chancellor LGT Senior Secured
Management, Inc., as attorney in
fact
By: /s/ Gregory L. Smith
-----------------------
Name: Gregory L. Smith
Title: Vice President
16
<PAGE>
[BANK OF AMERICA LOGO]
January 13, 1998
To: Lender Group Via Facsimile
Lawrence O'Brien, Vice President and Treasurer
L-3 Communications Corporation
REF: L-3 COMMUNICATIONS CORPORATION
Please be advised that the Second Amendment to the Credit Agreement dated
April 30, 1997 among L-3 Communications Corporation (the "Borrower"), the
Lenders party to the Credit Agreement,
Lehman Commercial Paper Inc. as Arranger, Syndication Agent and Documentation
Agent and Bank of America NT&SA as Administrative Agent, was executed by the
Required Lenders, the Borrower and the Agents and became effective as of
January 12, 1998.
An executed copy of the Second Amendment will be sent to you shortly.
Regards,
/s/ Dietmar Schiel
Dietmar Schiel
Vice President
(415) 436-2769
cc: Jacques McChesney, Latham & Watkins
<PAGE>
L-3 COMMUNICATIONS CORPORATION
SECOND AMENDMENT
TO CREDIT AGREEMENT
This SECOND AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT")
is dated as of January 12, 1998 and entered into by and among L-3
COMMUNICATIONS CORPORATION, a Delaware corporation (the "BORROWER") which is
wholly owned by L-3 COMMUNICATIONS HOLDINGS, INC., a Delaware corporation
("HOLDINGS"), the Lenders party to the Credit Agreement referred to below on
the date hereof (the "LENDERS"), LEHMAN COMMERCIAL PAPER INC. ("LCPI") as
arranger (in such capacity, the "ARRANGER"), LCPI, as syndication agent (in
such capacity, the "SYNDICATION AGENT"), LCPI, as documentation agent (in such
capacity, the "DOCUMENTATION AGENT") and BANK OF AMERICA NT & SA ("BOA"), as
administrative agent for the Lenders (in such capacity, the "ADMINISTRATIVE
AGENT"). All capitalized terms used herein without definition shall have the
same meanings herein as set forth in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders, the Arranger, the
Syndication Agent, the Documentation Agent and the Administrative Agent are
parties to the Credit Agreement dated as of April 30, 1997, as amended August
13, 1997, (the "CREDIT AGREEMENT"); and
WHEREAS, the parties hereto wish to amend the Credit
Agreement as herein provided.
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the parties hereto agree
as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT
1.1. The definition of L/C Commitment in Section 1.1 of the
Credit Agreement is hereby stricken and amended to read as follows:
""L/C Commitment": $50,000,000."
1.2. Section 7.9 of the Credit Agreement is hereby stricken
and amended to read as follows:
"7.9 Limitation on Investments, Loans and Advances. Make any
advance, loan, extension of credit or capital contribution to, or purchase any
stock, bonds, notes, debentures or other securities of or any assets
constituting a business unit of, or make any other investment in, any Person
("Investments"), except:
(a) extensions of trade credit in the ordinary course of
business;
(b) investments in Cash Equivalents;
<PAGE>
(c) loans to officers of the Borrower listed on Schedule
7.9(c) in aggregate principal amounts outstanding not to exceed the
respective amounts set forth for such officers on said Schedule;
(d) loans and advances to employees of the Borrower or its
Subsidiaries for travel, entertainment and relocation expenses in the
ordinary course of business in an aggregate amount for the Borrower
and its Subsidiaries not to exceed $1,000,000 at any one time
outstanding;
(e) investments by the Borrower in its Subsidiaries that are
Credit Parties and investments by such Subsidiaries in the Borrower
and in other Subsidiaries that are Credit Parties;
(f) so long as no Event of Default has occurred and is
continuing, loans by the Borrower to its employees (other than any
Principals or their Related Parties) in connection with (i) management
incentive plans and (ii) management stock purchase plans, in an
aggregate amount not to exceed $3,000,000;
(g) Investments in existence on the Closing Date set forth on
Schedule 7.9(g) and extensions, renewals, modifications or
restatements or replacements thereof; provided that no such extension,
renewal, modification or restatement shall increase the amount of the
original loan, advance or investment;
(h) promissory notes and other similar non-cash consideration
received by the Borrower and its Subsidiaries in connection with the
dispositions permitted by subsection 7.6(b);
(i) Investments required by subsection 6.11 and Investments
permitted by subsection 7.6(b) and subsection 7.6(j);
(j) Investments (including debt obligations and Capital
Stock) received in connection with the bankruptcy or reorganization of
suppliers and customers and in settlement of delinquent obligations
of, and other disputes with, customers and suppliers arising in the
ordinary course of business;
(k) so long as no Event of Default has occurred and is
continuing, in addition to the foregoing, Investments in an aggregate
amount not exceeding $15,000,000 (at cost, without regard to any write
down or write up thereof) at any one time outstanding;
(l) Investments in an aggregate amount not exceeding (i)
$80.0 million in cash and (ii) the assumption or replacement of $20.0
million of letters of credit for performance (in each case, at cost,
without regard to any write down or write up thereof) at any one time
outstanding made pursuant to the Asset Purchase Agreement dated
December 22, 1997 between the Borrower and Allied Signal pursuant to
which the Borrower is purchasing all of the assets of Ocean Systems, a
division of Allied Signal ("OCEAN SYSTEMS"); and
(m) Investments in an aggregate amount not exceeding (i)
$27.0 million in cash and (ii) the assumption or replacement of $22.0
million of letters of credit for performance (in each case, at cost,
without regard to any write down or write up thereof) at any one time
outstanding made pursuant to the Asset Purchase Agreement dated
December 19, 1997 between the Borrower and
2
<PAGE>
California Microwave Inc. pursuant to which the Borrower is purchasing
all of the assets of Satellite Transmission Systems, a division of
California Microwave Inc. ("TRANSMISSION SYSTEMS"); and
SECTION 2. CONDITIONS TO EFFECTIVENESS
Section 1 of this Amendment shall become effective only upon
the satisfaction of all of the following conditions precedent (the date of
satisfaction of such conditions being referred to herein as the "SECOND
AMENDMENT EFFECTIVE DATE"):
2.1. On or before the Second Amendment Effective Date, the
Borrower shall have delivered to Administrative Agent executed copies of this
Amendment.
2.2. On or before the Second Amendment Effective Date, the
Required Lenders shall have delivered to the Administrative Agent an executed
original or facsimile of a counterpart of this Amendment.
2.3 On or before the Second Amendment Effective Date, the
Borrower shall have delivered executed copies of all documents required in
order to comply with the requirements of Section 6.10 of the Credit Agreement
(without giving effect to the 30 day delivery period referenced in such Section
6.10).
2.4. The Boards of Directors of Holdings and the Borrower
shall have duly authorized the execution, delivery and performance of this
Amendment.
SECTION 3. BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment and
to amend the Credit Agreement in the manner provided herein, the Borrower
represents and warrants to each Lender that the following statements are true,
correct and complete:
3.1. Corporate Power and Authority. The Borrower has all
requisite corporate power and authority to enter into this Amendment and to
carry out the transactions contemplated by, and perform its obligations under,
the Credit Agreement as amended by this Amendment (the "AMENDED AGREEMENT").
3.2. Authorization of Amendment. The execution and delivery
of this Amendment has been duly authorized by all necessary corporate action on
the part of the Borrower.
3.3. No Conflict. The execution and delivery by the Borrower
of this Amendment and the performance by the Borrower of the Amended Agreement
by the Borrower does not and will not (i) violate any provision of any law or
any governmental rule or regulation applicable to the Borrower or any of its
Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of the
Borrower or any of its Subsidiaries or any order, judgment or decree of any
court or other agency of government binding on the Borrower or any of its
Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any contractual obligation of
the Borrower or any of its Subsidiaries, (iii) result in or require the
creation or of any Lien upon any of the properties or assets of
3
<PAGE>
the Borrower or any of its Subsidiaries (other than Liens created under any of
the Credit Documents in favor of the Administrative Agent on behalf of
Lenders), or (iv) require any approval of stockholders or any approval or
consent of any Person under any contractual obligation of the Borrower or any
of its Subsidiaries.
3.4. Governmental Consents. The execution and delivery by the
Borrower of this Amendment and the performance by the Borrower of the Amended
Agreement by the Borrower does not and will not require any registration with,
consent or approval of, or notice to, or other action to, with or by, any
federal, state or other governmental authority or regulatory body.
3.5. Binding Obligation. This Amendment and the Amended
Agreement have been duly executed and delivered by the Borrower and, when
executed and delivered, will be the legally valid and binding obligations of
the Borrower, enforceable against the Borrower in accordance with their
respective terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors'
rights generally or by equitable principles relating to enforceability.
3.6. Incorporation of Representations and Warranties From
Credit Agreement. The representations and warranties contained in Section 4 of
the Credit Agreement are and will be true, correct and complete in all material
respects on and as of the Second Amendment Effective Date to the same extent as
though made on and as of that date, except to the extent such representations
and warranties specifically relate to an earlier date, in which case they were
true, correct and complete in all material respects on and as of such earlier
date.
3.7. Absence of Default. No event has occurred and is
continuing or will result from the consummation of the transactions
contemplated by this Amendment that would constitute an Event of Default or a
potential Event of Default.
SECTION 4. MISCELLANEOUS
4.1. Reference to and Effect on the Credit Agreement and the
other Credit Documents.
(a) On and after the Second Amendment Effective
Date, each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import referring to
the Credit Agreement, and each reference in the other Credit Documents
to the "Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement shall mean and be a reference
to the Amended Agreement.
(b) Except as specifically amended by this
Amendment, the Credit Agreement and the other Credit Documents shall
remain in full force and effect and are hereby ratified and confirmed.
(c) The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein, constitute a
waiver of any provision of, or operate as a waiver of any right, power
or remedy of the Administrative Agent or any Lender under, the Credit
Agreement or any of the other Credit Documents.
4
<PAGE>
4.2. Fees and Expenses. The Borrower acknowledges that all
costs, fees and expenses as described in Section 9 of the Credit Agreement
incurred by Administrative Agent and its counsel with respect to this Amendment
and the documents and transactions contemplated hereby shall be for the account
of the Borrower.
4.3. Headings. Section and subsection headings in this
Amendment are included herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose or be given any
substantive effect.
4.4. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
4.5. SUBMISSION TO JURISDICTION; WAIVERS. THE BORROWER HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(a) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND THE OTHER CREDIT
DOCUMENTS TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT
OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE COURTS OF THE
UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND
APPELLATE COURTS FROM ANY THEREOF;
(b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY
BE BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY
SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN
INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(c) AGREES THAT SERVICE OF PROCESS IN ANY SUCH
ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY
REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF
MAIL), POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS SET FORTH IN
SECTION 10.2 OF THE CREDIT AGREEMENT OR AT SUCH OTHER ADDRESS OF WHICH
THE ADMINISTRATIVE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO;
(d) AGREES THAT NOTHING HEREIN SHALL AFFECT THE
RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION; AND
(e) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY
LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR
PROCEEDING REFERRED TO IN THIS SUBSECTION ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES.
5
<PAGE>
4.6. Acknowledgements. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement;
(b) none of the Arrangers, the Agents nor any Lender has any
fiduciary relationship with or duty to the Borrower arising out of or
in connection with this Agreement, and the relationship between any of
the Agents and the Lenders, on one hand, and the Borrower, on the
other hand, in connection herewith or therewith is solely that of
debtor and creditor; and
(c) no joint venture is created hereby or otherwise exists by
virtue of the transactions contemplated hereby among the Lenders or
among the Borrower and the Lenders.
4.7. WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS, THE
ARRANGERS, THE LENDERS AND THE OTHER PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN.
4.8. Confidentiality. Each Lender agrees to keep confidential
all non-public information provided to it by the Borrower pursuant to this
Agreement that is designated by the Borrower in writing as confidential
(excluding any such information already in the possession of such Lender or
provided to such Lender by a third party not in violation of this Agreement
which, in either case, is not, to the knowledge of such Lender, subject to a
confidentiality agreement); provided that nothing herein shall prevent any
Lender from disclosing any such information (i) to any Agent or any other
Lender or any of its Affiliates, (ii) to any Transferee or prospective
Transferee or to any direct or indirect contractual counterparties in swap
agreements or such contractual counterparties' professional advisors which
receives such information and agrees to be bound by the confidentiality
provisions hereof, (iii) to its employees, directors, agents, attorneys,
accountants and other professional advisors, (iv) upon the request or demand of
any Governmental Authority having jurisdiction over such Lender, (v) in
response to any order of any court or other Governmental Authority or as may
otherwise be required pursuant to any Requirement of Law, (vi) which has been
publicly disclosed other than in breach of this Agreement, or (vii) in
connection with the exercise of any remedy hereunder.
4.9. Counterparts; Effectiveness. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original (whether by facsimile or otherwise, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and
attached to a single counterpart so that all signature pages are physically
attached to the same document. This Amendment shall become effective upon the
execution of a counterpart hereof by the Borrower, the Required Lenders, the
Arranger, the Syndication Agent, the Documentation Agent and the Administrative
Agent and receipt by the Borrower and the Administrative Agent of written or
telephonic notification of such execution and authorization of delivery
thereof.
[Signature Page(s) Follow]
6
<PAGE>
L-3 COMMUNICATIONS CORPORATION
By: /s/ Lawrence W. O'Brien
----------------------------------------
Name: Lawrence W. O'Brien
Title: Vice President and Treasurer
LEHMAN COMMERCIAL PAPER INC.,
as Documentation Agent, Syndication Agent,
Arranger and as a Lender
By: /s/ Michele Swanson
----------------------------------------
Name: Michele Swanson
Title: Authorized Signatory
BANK OF AMERICA NT & SA
as Administrative Agent
and as a Lender
By: /s/ Linda A. Carper
----------------------------------------
Name: Linda a. Carper
Title: Managing Director
<PAGE>
BANKBOSTON N.A.
By: /s/ Gregory R.D. Clark
----------------------------------------
Name: Gregory R.D. Clark
Title: Managing Director
<PAGE>
THE BANK OF NEW YORK
as a Lender
By: /s/ Kenneth P. Sneider, Jr.
----------------------------------------
Name: Kenneth P. Sneider, Jr.
Title: Vice President
<PAGE>
BHF-BANK AKTIEGESELLSCHAFT
By: /s/ Dan Dobrjanskyj
----------------------------------------
Name: Dan Dobrjanskyj
Title: Assistant Vice President
By: /s/ Anthony Heyman
----------------------------------------
Name: Anthony Heyman
Title: A.T.
<PAGE>
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
as a Lender
By: /s/ David McLaughlin
----------------------------------------
Name: David Mclaughlin
Title: Vice President
<PAGE>
CITIBANK, N.A.
as Co-Agent and as a Lender
By: /s/ Hans L. Christensen
----------------------------------------
Name: Hans L. Christensen
Title: Vice President
<PAGE>
CORESTATES BANK, N.A.
as a Lender
By: /s/ John D. Brady
----------------------------------------
Name: John D. Brady
Title: Vice President
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
as Co-Agent and as a Lender
By: /s/ Vladimir Labun
----------------------------------------
Name: Vladimir Labun
Title: First Vice President-Manager
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
as Co-Agent and as a Lender
By: /s/ Amy L. Robbins
----------------------------------------
Name: Amy L. Robbins
Title: Vice President
<PAGE>
FLEET NATIONAL BANK
as Co-Agent and Lender
By: /s/ Roger C. Boucher
----------------------------------------
Name: Roger C. Boucher
Title: Vice President
<PAGE>
GOLDMAN SACHS CREDIT PARTNERS, L.P.
as a Lender
By: /s/ John Lubein
----------------------------------------
Name: John Lubein
Title:
<PAGE>
KZH-CRESCENT CORPORATION
By: /s/ Virginia R. Conway
----------------------------------------
Name: Virginia R. Conway
Title: Authorized Agent
<PAGE>
KZH-ING-1 CORPORATION (formerly
known as
KZH HOLDING CORPORATION II)
By: Virginia R. Conway
----------------------------------------
Name: Virginia R. Conway
Title: Aurthorized Agent
<PAGE>
KZH-SOLEIL CORPORATION (formerly
known as
KZH HOLDING CORPORATION)
By: Virginia R. Conway
----------------------------------------
Name: Virginia R. Conway
Title: Authorized Agent
<PAGE>
LEHMAN SYNDICATED LOANS, INC.
By: /s/ Dennis J. Dee
----------------------------------------
Name: Dennis J. Dee
Title: Vice President
<PAGE>
MARINE MIDLAND BANK
as Co-Agent and as a Lender
By: /s/ M.F. Brown
----------------------------------------
Name: M.F. Brown
Title: Authorized Signatory
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/ James R. Dingler
----------------------------------------
Name: James R. Dingler
Title: Director
<PAGE>
THE MITSUBISHI TRUST AND BANKING
CORPORATION
as a Lender
By: /s/ Beatrice Kossodo
----------------------------------------
Name: Beatrice Kossodo
Title: Senior Vice President
<PAGE>
NATEXIS BANQUE BFCE, Formerly
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR
By: /s/ G.K. DJ
--------------
Name: Kevin Dooley
Title: Vice President
By: /s/ Jordan Sadler
----------------------------------------
Name: Jordan Sadler
Title: Associate
<PAGE>
PAMCO CAYMAN LTD.
By: Protective Asset Management, L.L.C.,
as Collateral Manager
By: /s/ James Dondero
----------------------------------------
Name: James Dondero CFA, CPA
Title: President Protective Asset Management
Company
<PAGE>
PRIME INCOME TRUST
as a Lender
By: /s/
----------------------------------------
Name:
Title:
<PAGE>
ROYALTON COMPANY
as a Lender
By: /s/ Raymond Kennedy
----------------------------------------
Name: Raymond Kennedy
Title: Vice President
<PAGE>
SENIOR DEBT PORTFOLIO
c/o BOSTON MANAGEMENT AND RESEARCH
as Investment Advisor
By: /s/ Payson F. Swaffield
----------------------------------------
Name: Payson F. Swaffield
Title: Vice President
<PAGE>
SKANDINAVISKA ENSKILDA BANKEN
CORPORATION
as a Lender
By: /s/ Sveriger Johansson
----------------------------------------
Name: Sveriger Johansson
Title: Vice President
By: /s/ Philip A. Montenuero
----------------------------------------
Name: Philip A. Montenuero
Title: Vice President
<PAGE>
SOCIETE GENERALE, NEW YORK BRANCH
By: /s/ Alan Zinser
----------------------------------------
Name: Alan Zinser
Title: Vice President
<PAGE>
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Perry Vavoules
----------------------------------------
Name: Perry Vavoules
Title: Senior Vice President
<PAGE>
U.S. BANK National Association
as a Lender
By: /s/ Greg Wilson
----------------------------------------
Name: Greg Wilson
Title: Commercial Banking Officer
<PAGE>
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By: /s/ Jeffrey W. Maillet
----------------------------------------
Name: Jeffrey W. Maillet
Title: Senior Vice President & Director
<PAGE>
VAN KAMPEN CLO1, LIMITED
BY: VAN KAMPEN AMERICAN
CAPITAL MANAGEMENT, INC.
as Collateral Manager
By: /s/ Jeffrey W. Maillet
----------------------------------------
Name: Jeffrey W. Maillet
Title: Senior Vice President & Director
<PAGE>
L-3 COMMUNICATIONS CORPORATION
THIRD AMENDMENT
TO CREDIT AGREEMENT
This THIRD AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is dated
as of February 19, 1998 and entered into by and among L-3 COMMUNICATIONS
CORPORATION, a Delaware corporation (the "BORROWER"), certain of the Lenders
party to the Credit Agreement referred to below on the date hereof (the
"REQUIRED LENDERS"), LEHMAN COMMERCIAL PAPER INC. ("LCPI"), as arranger (in
such capacity, the "ARRANGER"), LCPI, as syndication agent (in such capacity,
the "SYNDICATION AGENT"), LCPI, as documentation agent (in such capacity, the
"DOCUMENTATION AGENT"), and BANK OF AMERICA NT & SA ("BOA"), as administrative
agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT") and as
Issuing Lender (in such capacity, the "Issuing Lender"). All capitalized terms
used herein without definition shall have the same meanings herein as set forth
in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders, the Arranger, the Syndication
Agent, the Documentation Agent, the Administrative Agent and the Issuing Lender
are parties to the Credit Agreement, dated as of April 30, 1997, as previously
amended by that certain First Amendment to Credit Agreement, dated as of August
13, 1997, and that certain Second Amendment to Credit Agreement, dated as of
January 12, 1998 (collectively, the "CREDIT AGREEMENT"); and
WHEREAS, the parties hereto wish to amend the Credit Agreement as
herein provided.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT
(a) The definition of "Business Day" in subsection 1.1 of the Credit
Agreement is hereby amended by adding the words "or Foreign L/Cs" after the
phrase "relates to Eurodollar Loans" therein.
(b) The definition of "Consolidated EBITDA" in subsection 1.1 of the
Credit Agreement is hereby stricken and amended to read as follows:
""Consolidated EBITDA": as of the last day of any fiscal quarter,
Consolidated Net Income of the Borrower, its Subsidiaries and, without
duplication, the Acquired Businesses (excluding, without duplication,
(x) extraordinary gains and losses in accordance with GAAP, (y) gains
and losses in connection with asset dispositions
<PAGE>
whether or not constituting extraordinary gains and losses and (z)
gains or losses on discontinued operations) for such period, plus (i)
Consolidated Interest Expense of the Borrower, its Subsidiaries and,
without duplication, the Acquired Businesses for such period, plus
(ii) to the extent deducted in computing such Consolidated Net Income
of the Borrower, its Subsidiaries and, without duplication, the
Acquired Businesses, the sum of income taxes, depreciation and
amortization for the four fiscal quarters ended on such date; provided
that for any calculation of Consolidated EBITDA for any fiscal period
ending during the first three full fiscal quarters following March 31,
1997, Consolidated EBITDA shall be deemed to be Consolidated EBITDA
from March 31, 1997 to the last day of such period multiplied by a
fraction the numerator of which is 365 and the denominator of which is
the number of days from March 31, 1997 to the last day of such
period."
(c) The definition of "Consolidated Net Income" in subsection 1.1 of
the Credit Agreement is hereby stricken and amended to read as follows:
""Consolidated Net Income": for any Person and for any fiscal period,
net income of such Person, determined on a consolidated basis in accordance
with GAAP."
(d) The definition of "Excess Cash Flow" in subsection 1.1 of the
Credit Agreement is hereby amended by deleting each reference to "Consolidated
Net Income" and inserting the words "Consolidated Net Income for the Borrower
and its Subsidiaries" therefor.
(e) The definition of "L/C Commitment" in subsection 1.1 of the Credit
Agreement is hereby stricken and amended to read as follows:
""L/C Commitment": $200,000,000."
(f) The definition of "L/C Obligations" in subsection 1.1 of the
Credit Agreement is hereby amended by inserting the words "the Dollar
Equivalent of" at the beginning of each of clause (a) and clause (b) of such
definition.
(g) The definition of "Revolving Credit Commitment" in subsection 1.1
of the Credit Agreement is hereby amended by (i) deleting the word "initially"
in the last line of such definition and (ii) deleting the reference to
"$100,000,000" in the last line of such definition and inserting "$200,000,000"
therefor.
(h) The definition of "Revolving Credit Loan Exposure" in subsection
1.1 of the Credit Agreement is hereby stricken and amended to read as follows:
""Revolving Credit Loan Exposure": with respect to any Lender as of
date of determination, (i) if there are no outstanding Letters of
Credit or Revolving Credit Loans, that Lender's Revolving Credit
Commitment, and (ii) otherwise, the sum of (a) the aggregate
outstanding principal amount of the Revolving Credit Loans of that
Lender
2
<PAGE>
plus (b) in the event that Lender is an Issuing Lender, the Dollar
Equivalent of the aggregate stated or face amount in respect of all
Letters of Credit issued by that Lender and outstanding (in each case
net of any participations purchased by other Lenders in such Letters
of Credit or any unreimbursed drawings thereunder) plus (c) in the
event that such Lender is the Swing Line Lender, the aggregate
principal amount of Swing Line Loans made by such Lender then
outstanding (net of any participations purchased by other Lenders in
such Swing Line Loans) plus (d) the Dollar Equivalent of the aggregate
amount of all participations purchased by that Lender in any
outstanding Swing Line Loans or Letters of Credit or any unreimbursed
drawings under any Letters of Credit."
(i) The definition of "Subordinated Debt" in subsection 1.1 of the
Credit Agreement is hereby amended by inserting at the end of such definition
the following: "and indebtedness outstanding under the New Subordinated Notes,
if any"
(j) The definition of "Transaction Documents" in subsection 1.1 of the
Credit Agreement is hereby stricken and amended to read as follows:
"Transaction Documents": (i) the Transaction Agreement, the
Schedules thereto and the documents set forth on Schedule IV hereto,
(ii) the Equity Documents, (iii) the Subordinated Debt Documents and
(iv) following the issuance of the New Subordinated Notes, the New
Subordinated Debt Documents."
(k) The following definitions are hereby inserted in subsection 1.1 of
the Credit Agreement in the appropriate alphabetical order:
""Acquired Business": a company or business unit acquired by the
Borrower or any of its Subsidiaries, provided that the Borrower has
delivered to the Administrative Agent historical financial statements
of such company or business unit prepared in accordance with GAAP.
""Agreement Currency": as defined in subsection 10.16(b)."
"Alternative Currency": any currency which as of the time of any
issuance or renewal, as applicable, of a Foreign L/C is freely
tradeable and convertible into Dollars and has been approved as an
"Alternative Currency" for the purposes of this Agreement by the
Issuing Bank."
"Applicable Creditor: as defined in subsection 10.16(b)."
"Calculation Date": with respect to each Foreign L/C, during the
period that such Foreign L/C is outstanding (or the Reimbursement
Obligation in connection therewith has not been fully satisfied) (i)
the last Business Day of a fiscal month, (ii) the date on which such
Letter of Credit is to be issued or renewed by the Issuing Bank, (iii)
the date on
3
<PAGE>
which any draft presented under such Letter of Credit is paid by the
Issuing Bank, (iv) such other dates as the Borrower may reasonably
request from time to time, and (v) such other dates as the Issuing
Bank or the Administrative Agent may select from time to time,
provided that the Borrower receives prompt notice thereof."
""Consolidated Interest Expense": for any Person, as of the last day
of any fiscal quarter, the amount of interest expense of such Person
for such period, determined on a consolidated basis in accordance
with GAAP for the four fiscal quarters ended on such date; provided
that for any calculation of Consolidated Interest Expense for any
fiscal period ending during the first three full fiscal quarters
following March 31, 1997, Consolidated Interest Expense shall be
deemed to be Consolidated Interest Expense from March 31, 1997 to the
last day of such period multiplied by a fraction the numerator of
which is 365 and the denominator of which is the number of days from
March 31, 1997 to the last day of such period."
""Dollar Equivalent": at any time, (a) as to any amount denominated
in Dollars, the amount thereof at such time, and (b) as to any amount
denominated in an Alternative Currency, the equivalent amount in
Dollars as determined on the basis of the Exchange Rate for the
purchase of Dollars with such Alternative Currency as of the most
recent Calculation Date."
""Domestic L/C": a Letter of Credit denominated in Dollars."
""Exchange Rate": on any day, with respect to any Alternative
Currency, the spot rate at which Dollars are offered on such day by
the Issuing Bank in San Francisco, California for such Alternative
Currency."
""Federal Funds Effective Rate": for any day, the rate set forth in
the weekly statistical release designated as H.15(519), or any
successor publication, published by the FRB (including any such
successor, "H.15(519)") for such day opposite the caption "Federal
Funds (Effective)". If on any relevant day the appropriate rate for
such previous day is not yet published in H.15(519), the rate for
such day will be the arithmetic mean of the rates for the last
transaction in overnight Federal funds arranged prior to 9:00 a.m.
(New York City time) on that day by each of three leading brokers of
Federal funds transactions in New York City selected by the
Administrative Agent."
""Foreign L/C": a Letter of Credit denominated in an Alternative
Currency."
""Foreign L/C Obligations": at any time, an amount equal to the sum
of (i) the Dollar Equivalent of the aggregate then undrawn and
unexpired face amount of all then outstanding Foreign L/Cs and (ii)
the Dollar Equivalent of the aggregate amount of all drawings under
Foreign L/Cs which have not then been reimbursed pursuant to
subsection 3.5.
4
<PAGE>
""Foreign L/C Overdrawn Amount": as defined in subsection 6.16."
""Foreign L/C Sublimit": $30,000,000."
""Judgment Currency": as defined in subsection 10.16 (b)."
""New Subordinated Debt Documents": the documents that govern the
terms of the New Subordinated Notes, if issued."
""New Subordinated Notes": the Borrower's (i) notes issued within six
months of February 19, 1998 pursuant to a public offering registered
under the Securities Act or (ii) notes ("Initial New Subordinated
Notes") issued within six months of February 19, 1998 pursuant to
Rule 144A under the Securities Act or similar exemption from the
registration requirements under the Securities Act and any notes,
having the same terms as the Initial New Subordinated Notes, issued
in exchange for the Initial New Subordinated Notes as contemplated by
the documents governing the issuance of the Initial New Subordinated
Notes, in each case expressly subordinate by their terms to the
obligations of the Credit Parties under this Agreement and each other
Credit Document and otherwise in form and substance satisfactory to
the Agents in all respects."
""Reimbursement Amount": as defined in subsection 3.5(a)."
""Securities Act": Securities Act of 1933, as amended."
""Wide Band Assets": as defined in subsection 7.2(k)."
(l) Subsection 2.6(b)(v) of the Credit Agreement is hereby stricken
and amended to read as follows:
"(v) If after giving effect to (i) any reduction of the
Revolving Credit Commitments under subsection 2.4, 2.5 or 2.6 or (ii)
any recalculation of the Exchange Rate pursuant to subsection 3.9, the
aggregate outstanding principal amount of Swing Line Loans plus the
aggregate outstanding principal amount of Revolving Credit Loans plus
the aggregate outstanding amount of L/C Obligations shall exceed the
aggregate amount of the Revolving Credit Commitments, such reduction
or recalculation shall be accompanied by prepayment in the amount of
such excess to be applied (x) first, to the outstanding Swing Line
Loans and (y) second, to outstanding Revolving Credit Loans (in each
case, together with any amounts payable under subsection 2.16));
provided that if the aggregate principal amount of Swing Line Loans
and Revolving Credit Loans then outstanding is less than the amount of
such excess (because Letters of Credit constitute a portion of such
excess), the Borrower shall immediately, without notice or demand, to
the extent of the balance of such excess, replace outstanding Letters
of Credit and/or deposit an amount (but in no event greater than such
balance) in a cash collateral account opened by the Administrative
Agent for the benefit of the Revolving Credit Lenders
5
<PAGE>
(such deposit to be in Dollars with respect to Domestic L/Cs and the
applicable Alternative Currency with respect to Foreign L/Cs). The
Borrower hereby grants to the Administrative Agent, for the benefit of
the Issuing Lender and the L/C Participants, a security interest in
such cash collateral to secure all obligations of the Borrower under
this Agreement and the other Credit Documents. Any amounts deposited
in such accounts shall be released to the Borrower on any Calculation
Date on which the aggregate outstanding principal amount of Swing Line
Loans plus the aggregate outstanding principal amount of Revolving
Credit Loans plus the aggregate outstanding amount of L/C Obligations
equals or is less than the aggregate amount of the Revolving Credit
Commitments; provided that no Default or Event of Default has occurred
and is continuing."
(m) Subsection 2.12(a) of the Credit Agreement is hereby amended by
(i) deleting the phrase ", fees or otherwise," in the third sentence of such
subsection and inserting the phrase "(whether in respect of Domestic L/Cs or
Foreign L/Cs), fees, expenses or otherwise," therefor and (ii) inserting at the
end of the third sentence of such subsection the phrase "; provided, that, with
respect to any Reimbursement Obligations of the Borrower arising from the
presentment to the Issuing Lender of a draft under a Foreign L/C, the Borrower
may make payment in the applicable Alternative Currency if such payment is
received by the Issuing Bank on the date such draft is paid by the Issuing
Bank".
(n) Section 3 of the Credit Agreement is hereby stricken in its
entirety and amended to read as follows:
"SECTION 3 LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and
conditions hereof, the Issuing Lender, in reliance on the agreements
of the Revolving Credit Lenders set forth in subsection 3.4(a), agrees
to issue letters of credit ("Letters of Credit") for the account of
the Borrower on any Business Day during the Commitment Period in such
form as may be approved from time to time by the Issuing Lender;
provided that the Issuing Lender shall have no obligation to issue any
Letter of Credit if, after giving effect to such issuance, (i) the L/C
Obligations would exceed the L/C Commitment, (ii) the Foreign L/C
Obligations would exceed the Foreign L/C Sublimit or (iii) the
Available Commitment with respect to Revolving Credit Loans of all
Revolving Credit Lenders less the aggregate principal amount of the
Swing Line Loans then outstanding would be less than zero.
(b) Each Domestic L/C shall (i) be denominated in
Dollars, (ii) be a standby letter of credit issued to support
obligations of the Borrower or any of its Subsidiaries, contingent or
otherwise and (iii) expire no later than the fifth Business Day prior
to the Revolving Loan Termination Date.
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(c) Each Foreign L/C shall (i) be denominated in an
Alternative Currency, (ii) be a standby letter of credit issued to
support obligations of the Borrower or any of its Subsidiaries,
contingent or otherwise, and (iii) expire no later than the fifth
Business Day prior to the Revolving Loan Termination Date. For
purposes of this Agreement, the amount deemed outstanding under each
Foreign L/C at any time, and the amount of the Borrower's
Reimbursement Obligations under subsection 3.5 for any amounts paid by
the Issuing Lender in connection with any Foreign L/C, shall be the
Dollar Equivalent, as determined on the most recent Calculation Date,
of (x) such Letter of Credit or (y) the Reimbursement Amount (as
defined in Subsection 3.5(a)), as applicable.
(d) Each Letter of Credit shall be subject to the
Uniform Customs and, to the extent not inconsistent therewith,
Domestic L/Cs shall also be subject to the laws of the State of New
York.
(e) The Issuing Lender shall not at any time be
obligated to issue any Letter of Credit hereunder if (i) such issuance
would conflict with, or cause the Issuing Lender or any L/C
Participant to exceed any limits imposed by, any applicable
Requirement of Law or any policies of the Issuing Lender or (ii) in
the case of any Foreign L/C, it has determined that it cannot provide
such Letter of Credit in the applicable Alternative Currency.
3.2 Procedure for Issuance of Letters of Credit. The
Borrower may from time to time request that the Issuing Lender issue a
Letter of Credit at any time prior to the fifth Business Day prior to
the Revolving Loan Termination Date by delivering to the Issuing
Lender with a copy to the Administrative Agent at its address for
notices specified herein an Application therefor, completed to the
satisfaction of the Issuing Lender, and such other certificates,
documents and other papers and information as the Issuing Lender may
reasonably request. Upon receipt of any Application, the Issuing
Lender will process such Application and the certificates, documents
and other papers and information delivered to it in connection
therewith in accordance with its customary procedures and shall
promptly issue the Letter of Credit requested thereby (but in no event
shall the Issuing Lender be required to issue any Letter of Credit
earlier than three Business Days after its receipt of the Application
therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such
Letter of Credit to the beneficiary thereof or as otherwise may be
agreed by the Issuing Lender and the Borrower. The Issuing Lender
shall furnish a copy of such Letter of Credit to the Borrower and the
Administrative Agent (with copies for each Lender) promptly following
the issuance thereof.
3.3 Fees, Commissions and Other Charges. (a) The
Borrower shall pay to the Administrative Agent, for the account of the
Issuing Lender and the L/C Participants, a letter of credit fee with
respect to each Letter of Credit, computed for the period from and
including the date of issuance of such Letter of Credit to the
expiration
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date of such Letter of Credit at a rate per annum equal to the
Applicable Margin then in effect for Eurodollar Loans, of the Dollar
Equivalent of the aggregate face amount of Letters of Credit
outstanding, payable in arrears on each L/C Fee Payment Date and on
the Revolving Loan Termination Date; provided, that, with respect to
any Foreign L/C, the Dollar Equivalent of the face amount of such
Letter of Credit shall be recalculated on each Calculation Date during
the period that such Letter of Credit is outstanding. Such fee shall
be payable to the Administrative Agent to be shared ratably among the
Revolving Credit Lenders in accordance with their respective
Commitment Percentages with respect to Revolving Credit Loans. In
addition, the Borrower shall pay to the Issuing Lender, for its sole
account, a fee equal to 0.1250% per annum of the Dollar Equivalent of
the aggregate face amount of outstanding Letters of Credit payable
quarterly in arrears on each L/C Fee Payment Date and on the Revolving
Loan Termination Date; provided, that, with respect to any Foreign
L/C, the Dollar Equivalent of the face amount of such Letter of Credit
shall be recalculated on each Calculation Date during the period that
such Letter of Credit is outstanding.
(b) In addition to the foregoing fees and
commissions, the Borrower shall pay or reimburse the Issuing Lender
for such normal and customary costs and expenses as are incurred or
charged by the Issuing Lender in issuing, effecting payment under,
amending or otherwise administering any Letter of Credit.
(c) The Administrative Agent shall, promptly
following its receipt thereof, distribute to the Issuing Lender and
the L/C Participants all fees and commissions received by the
Administrative Agent for their respective accounts pursuant to this
subsection.
3.4 L/C Participation. (a) The Issuing Lender
irrevocably agrees to sell and hereby sells to each L/C Participant,
and, to induce the Issuing Lender to issue Letters of Credit
hereunder, each L/C Participant irrevocably agrees to accept and
purchase and hereby accepts and purchases from the Issuing Lender, on
the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such
L/C Participant's Commitment Percentage with respect to Revolving
Credit Loans from time to time in effect in the Issuing Lender's
obligations and rights under each Letter of Credit issued hereunder
and the amount of each draft paid by the Issuing Lender thereunder.
Each L/C Participant unconditionally and irrevocably agrees with the
Issuing Lender that, if a draft is paid under any Letter of Credit for
which the Issuing Lender is not reimbursed in full by the Borrower in
accordance with the terms of this Agreement, such L/C Participant
shall pay to the Issuing Lender upon demand in Dollars at the Issuing
Lender's address for notices specified herein an amount equal to such
L/C Participant's then Commitment Percentage with respect to Revolving
Credit Loans of the Dollar Equivalent of the amount of such draft
(determined on the date such draft is paid), or any part thereof,
which is not so reimbursed; provided that, if such demand is made
prior to 11:00 A.M., New York City time, on a Business Day, such L/C
Participant shall make such payment to the Issuing Lender prior to the
end of
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such Business Day and otherwise such L/C Participant shall make such
payment on the next succeeding Business Day.
(b) If any amount required to be paid by any L/C
Participant to the Issuing Lender pursuant to subsection 3.4(a) in
respect of any unreimbursed portion of any payment made by the Issuing
Lender under any Letter of Credit is paid to the Issuing Lender within
three Business Days after the date such payment is due, such L/C
Participant shall pay to the Issuing Lender on demand an amount equal
to the product of (i) such amount, times (ii) the daily average
Federal Funds Effective Rate, as quoted by the Issuing Lender, during
the period from and including the date such payment is required to the
date on which such payment is immediately available to the Issuing
Lender, times (iii) a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is
360. If any such amount required to be paid by any L/C Participant
pursuant to subsection 3.4(a) is not in fact made available to the
Issuing Lender by such L/C Participant within three Business Days
after the date such payment is due, the Issuing Lender shall be
entitled to recover from such L/C Participant, on demand, such amount
with interest thereon calculated from such due date at the rate per
annum applicable to Base Rate Loans hereunder. A certificate of the
Issuing Lender submitted to any L/C Participant with respect to any
amounts owing under this subsection shall be conclusive in the absence
of manifest error.
(c) Whenever, at any time after the Issuing Lender
has made payment under any Letter of Credit and has received from any
L/C Participant its pro rata share of such payment in accordance with
subsection 3.4(a), the Issuing Lender receives any payment related to
such Letter of Credit (whether directly from the Borrower or
otherwise, including proceeds of collateral applied thereto by the
Issuing Lender), or any payment of interest on account thereof, the
Issuing Lender will, if such payment is received prior to 11:00 A.M.,
New York City time, on a Business Day, distribute to such L/C
Participant its pro rata share thereof prior to the end of such
Business Day and otherwise the Issuing Lender will distribute such
payment on the next succeeding Business Day; provided, however, that
in the event that any such payment received by the Issuing Lender and
distributed to the L/C Participants shall be required to be returned
by the Issuing Lender, each such L/C Participant shall return to the
Issuing Lender the portion thereof previously distributed by the
Issuing Lender to it.
3.5 Reimbursement Obligation of the Borrower. (a)
The Borrower agrees to reimburse the Issuing Lender on the same
Business Day on which the Issuing Lender notifies the Borrower of the
date and amount of a draft presented under any Letter of Credit and
paid by the Issuing Lender provided such notice is received by 1:00
P.M., New York City time, on such Business Day, and the next Business
Day if such notice is received after such time. The Issuing Lender
shall provide notice to the Borrower on each Business Day on which a
draft is presented indicating the Dollar Equivalent of the amount of
(i) such draft so paid (and, in the case of a Foreign L/C, the amount
of such draft so paid stated in the applicable Alternative Currency)
and (ii) any
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taxes, fees, charges or other costs or expenses incurred by the
Issuing Lender in connection with such payment ((i) and (ii)
collectively with any interest accruing pursuant to paragraph (b)
below, the "Reimbursement Amount"). Each such payment shall be made to
the Issuing Lender at its address for notices specified herein in
lawful money of the United States of America and in immediately
available funds; provided, that, with respect to any Reimbursement
Obligations of the Borrower arising from the presentment to the
Issuing Lender of a draft under a Foreign L/C, the Borrower may make
payment in the applicable Alternative Currency if such payment is
received by the Issuing Bank on the date such draft is paid by the
Issuing Bank.
(b) Interest shall be payable on the Dollar
Equivalent of any and all amounts remaining unpaid by the Borrower
under this subsection from the date a draft presented under any Letter
of Credit is paid by the Issuing Lender until payment in full (i) at
the rate which would be payable on any Loans that are Base Rate Loans
at such time until such payment is required to be made pursuant to
subsection 3.5(a), and (ii) thereafter, at the rate which would be
payable on any Loans that are Base Rate Loans at such time which were
then overdue.
(c) For the avoidance of doubt, subject to the
provisos in the third sentence of subsection 2.12(a) and the last
sentence of subsection 3.5(a) of this Agreement, all payments due from
the Borrower hereunder in respect of Foreign L/Cs (and Reimbursement
Obligations in connection therewith) shall be made in Dollars as
provided in subsection 2.12 of this Agreement.
3.6 Obligations Absolute. (a) The Borrower's
obligations under subsection 3.5(a) shall be absolute and
unconditional under any and all circumstances and irrespective of any
set-off, counterclaim or defense to payment which the Borrower may
have or have had against the Issuing Lender, any L/C Participant or
any beneficiary of a Letter of Credit.
(b) The Borrower also agrees with the Issuing Lender
that the Issuing Lender shall not be responsible for, and the
Borrower's Reimbursement Obligations under subsection 3.5(a) shall not
be affected by, among other things, (i) the validity or genuineness of
documents or of any endorsements thereon, even though such documents
shall in fact prove to be invalid, fraudulent or forged (unless the
Issuing Lender has knowledge of such invalidity, fraud or forgery),
(ii) any dispute between or among the Borrower and any beneficiary of
any Letter of Credit or any other party to which such Letter of Credit
may be transferred, or (iii) any claims whatsoever of the Borrower
against any beneficiary of such Letter of Credit or any such
transferee.
(c) Neither the Issuing Lender nor any L/C
Participant shall be liable for any error, omission, interruption or
delay in transmission, dispatch or delivery of any message or advice,
however transmitted, in connection with any Letter of Credit, except
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for errors or omissions caused by the Issuing Lender's gross
negligence or willful misconduct.
(d) The Borrower agrees that any action taken or
omitted by the Issuing Lender under or in connection with any Letter
of Credit or the related drafts or documents, if done in the absence
of gross negligence or willful misconduct and in accordance with the
standards of care specified in the Uniform Commercial Code of the
State of New York, shall be binding on the Borrower and shall not
result in any liability of the Issuing Lender or any L/C Participant
to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be
presented for payment under any Letter of Credit, the Issuing Lender
shall promptly notify the Borrower and the Administrative Agent of the
date and the Dollar Equivalent of the amount thereof (and, in the case
of a Foreign L/C, the amount thereof stated in the applicable
Alternative Currency). If any draft shall be presented for payment
under any Letter of Credit, the responsibility of the Issuing Lender
to the Borrower in connection with such draft shall, in addition to
any payment obligation expressly provided for in such Letter of
Credit, be limited to determining that the documents (including each
draft) delivered under such Letter of Credit in connection with such
presentment appear on their face to be in conformity with such Letter
of Credit.
3.8 Application. To the extent that any provision of
any Application related to any Letter of Credit is inconsistent with
the provisions of this Section 3, the provisions of this Section 3
shall govern and control.
3.9 Determination of Exchange Rate. On each
Calculation Date with respect to each outstanding Foreign L/C, the
Issuing Bank shall determine the Exchange Rate as of such Calculation
Date with respect to the applicable Alternative Currency and shall
promptly notify the Administrative Agent and the Borrower thereof and
of the Dollar Equivalent of all Foreign L/Cs outstanding on such
Calculation Date. The Exchange Rate so determined shall become
effective on such Calculation Date and shall remain effective until
the next succeeding Calculation Date."
(o) Subsection 4.21 of the Credit Agreement is hereby amended by
inserting at the end of the first sentence of such subsection the phrase "and,
upon consummation of the issuance of the New Subordinated Notes, the
representations and warranties contained in the New Subordinated Debt Documents
will be true and correct in all material respects as of the date of the
respective agreements".
(p) Subsection 5.2(a) of the Credit Agreement is hereby amended by
inserting immediately following the words "as if made on and as of such date"
in such subsection the parenthetical "(including, without limitation, the
representation and warranty set forth in subsection 4.7 of this Agreement with
respect to each of the Subordinated Debt Documents)".
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(q) Subsection 6.2(c) of the Credit Agreement is hereby amended by
deleting the reference to "the chief financial officer" therein and inserting
the words "a Responsible Officer" therefor.
(r) The following shall be added to the Credit Agreement as subsection
6.16 of the Credit Agreement:
"6.16 Foreign L/Cs. Within one (1) Business Day of any day
that the Foreign L/C Obligations exceed the Foreign L/C Sublimit based
on the most recent Calculation Date (such excess, the "Foreign L/C
Overdrawn Amount"), deposit an amount equal to the Foreign L/C
Overdrawn Amount in Dollars in a cash collateral account opened by the
Administrative Agent established for the benefit of the Revolving
Credit Lenders; provided, that the Borrower shall not be required to
make such deposits in such cash collateral account if (i) the Foreign
L/C Overdrawn Amount is equal to or less than 10% of the Foreign L/C
Sublimit, (ii) the Available Commitments with respect to Revolving
Credit Loans of all Revolving Credit Lenders less the aggregate
principal amount of the Swing Line Loans then outstanding exceeds such
Foreign L/C Overdrawn Amount and (iii) the Borrower is otherwise in
compliance with its obligations under this Agreement. The Borrower
hereby grants to the Administrative Agent, for the benefit of the
Issuing Lender and the L/C Participants, a security interest in such
cash collateral to secure all obligations of the Borrower under this
Agreement and the other Credit Documents. Any amounts deposited in
such accounts shall be released to the Borrower on any Calculation
Date on which the Foreign L/C Obligations equal or are less than the
Foreign L/C Sublimit."
(s) The following shall be added to the Credit Agreement as subsection
6.17 of the Credit Agreement:
"6.17 New Subordinated Debt Documents. At least ten Business
Days prior to the date of issuance of the New Subordinated Notes, the
Borrower shall deliver to the Agents copies of the New Subordinated
Debt Documents. The New Subordinated Debt Documents shall be in form
and substance satisfactory to the Agents."
(t) Subsection 7.2(e) of the Credit Agreement is hereby stricken and
amended to read as follows:
"(e) Indebtedness of the Borrower in respect of not more than
(i) $225,000,000 principal amount of Subordinated Notes issued on the
Closing Date and (ii) $150,000,000 principal amount of New
Subordinated Notes; provided that, to the extent that any of the Net
Proceeds of the New Subordinated Notes are used by the Borrower to
prepay any of the Loans, such prepayments shall be subject to the
provisions of Subsection 2.6(iv) of this Agreement (notwithstanding
the fact that such Net Proceeds are not otherwise required to be
applied to the prepayment of the Loans);"
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(u) Subsection 7.2(k) of the Credit Agreement is hereby stricken and
amended to read as follows:
"(k) Up to $30,000,000 of purchase money Indebtedness the
proceeds of which are utilized to acquire the real property (including
improvements thereon) and related assets currently utilized by the Wide Band
Systems division in Salt Lake City, Utah (the "Wide Band Assets"), on terms
reasonably satisfactory to the Agents."
(v) Subsection 7.4(c) of the Credit Agreement is hereby stricken and
amended to read as follows:
"(c) guarantees made by the Subsidiaries of the Borrower
pursuant to the Subordinated Debt Documents and the New Subordinated
Debt Documents; provided, that any guarantee of the New Subordinated
Notes shall be expressly subordinated to all obligations of the Credit
Parties under this Agreement and each other Credit Document;"
(w) Subsection 7.4(g) of the Credit Agreement is hereby amended by
deleting the reference to "$10,000,000" in the last line of such subsection and
inserting "$30,000,000" therefor.
(x) Subsection 7.8 of the Credit Agreement is hereby amended by
deleting the reference to "27,500,000" for Fiscal Year 1998 and inserting
"35,000,000" therefor.
(y) Subsection 7.9(l) of the Credit Agreement is hereby amended by (i)
deleting the words "for performance" in clause (ii) of such subsection, (ii)
adding at the end of such subsection the phrase "; provided, the aggregate
amount of the Investment pursuant to this subsection 7.9(l) (cash plus assumed
letters of credit and/or other indebtedness) may exceed $100.0 million by $10.0
million" immediately following the phrase "Allied Signal ("Ocean Systems")"
therein, and (iii) deleting the word "and".
(z) Subsection 7.9 of the Credit Agreement is hereby further amended
by (i) replacing the period at the end of subsection 7.9(m) with a semi-colon
and (ii) adding the following to the end of subsection 7.9:
"(n) Investments in an aggregate amount not exceeding $59.4
million (including all fees and expenses related thereto) made to
acquire substantially all of the assets of ILEX Systems Inc. pursuant
to the Asset Purchase Agreement between the Borrower and FAP Trust,
dated as of February 9, 1998;
(o) Investments in an aggregate amount not exceeding $30.0
million (including all fees and expenses related thereto) made to
acquire the Wide Band Assets, on terms reasonably satisfactory to the
Agents; and
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(p) Investments made to acquire (i) all of the Capital Stock,
or all or substantially all of the assets, of any Person (other than
the Borrower or any of its Subsidiaries) that is engaged in a Similar
Business, or (ii) all or substantially all of the assets of any
division of any Person (other than the Borrower or any of its
Subsidiaries) that is engaged in a Similar Business; provided, that at
the time of each such Investment (both before and after giving effect
to such Investment), there shall exist no Default or Event of Default
and the aggregate consideration paid in connection with all
Investments made pursuant to this subsection 7.9(p) shall not exceed
$100,000,000; provided, further, that in connection with each
individual, or series of related, Investments made pursuant to this
subsection 7.9(p) with an aggregate consideration (i) equal to or less
than $35,000,000, the Borrower shall deliver to the Administrative
Agent, on or prior to the date which is ten Business Days prior to the
consummation of such Investment or Investments, a certificate of a
Responsible Officer that sets forth calculations that demonstrate the
Borrower's compliance, after giving pro forma effect to such
Investment or Investments, with each of the covenants set forth in
this subsection 7 and (ii) greater than $35,000,000, the Borrower
shall provide the Lenders, on or prior to the consummation of such
Investment or Investments, with information and pro forma calculations
in connection with such Investment or Investments as the Lenders may
reasonably request and the Borrower shall have received the prior
written consent of the Required Lenders regarding the making of such
Investment or Investments."
(aa) Subsection 7.10(a) of the Credit Agreement is hereby amended by
(i) deleting the reference to "(b)" after the words "any Subordinated Debt or"
therein and (ii) inserting the words "or New Subordinated Debt Documents"
immediately following the reference to "Subordinated Debt Documents" therein.
(ab) Subsection 7.14 of the Credit Agreement is hereby amended by
inserting the words "and the New Subordinated Debt Documents" immediately
following the reference to "Subordinated Debt Documents" therein.
(ac) Subsection 7.16 of the Credit Agreement is hereby amended by
inserting the parenthetical "(including, without limitation, the New
Subordinated Debt Documents)" immediately following the fourth reference to
"Indebtedness" therein.
(ad) Subsection 8(c) of the Credit Agreement is hereby amended by
deleting the phrase "subsection 6.5(a)" therein and inserting the phrase
"subsections 6.5(a) or 6.16" therefor.
(ae) The penultimate paragraph of Section 8 of the Credit Agreement is
hereby amended by inserting the words "the Dollar Equivalent of" immediately
following the words "an amount equal to" in the first sentence of such
paragraph.
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(af) The following shall be added to the Credit Agreement as
subsection 10.16 thereof:
"10.16 Conversion of Currencies. (a) If, for the purpose of
obtaining judgment in any court, it is necessary to convert a sum
owing hereunder in one currency into another currency, each party
hereto agrees, to the fullest extent that it may effectively do so,
that the rate of exchange used shall be that at which in accordance
with normal banking procedures in the relevant jurisdiction the first
currency could be purchased with such other currency on the Business
Day immediately preceding the date on which final judgment is given.
(b) The obligations of the Borrower in respect of any sum due
to any party hereto or any holder of the obligations owing hereunder
(the "Applicable Creditor") shall, notwithstanding any judgment in a
currency (the "Judgment Currency") other than the currency in which
such sum is stated to be due hereunder (the "Agreement Currency"), be
discharged only to the extent that, on the Business Day following
receipt by the Applicable Creditor of any sum adjudged to be so due in
the Judgment Currency, the Applicable Creditor may in accordance with
normal banking procedures in the relevant jurisdiction purchase the
Agreement Currency with the Judgment Currency; if the amount of the
Agreement Currency so purchased is less than the sum originally due to
the Applicable Creditor in the Agreement Currency, the Borrower
agrees, as a separate obligation and notwithstanding any such
judgment, to indemnify the Applicable Creditor against such loss. The
obligations of the Borrower contained in this subsection 10.16 shall
survive the termination of this Agreement and the payment of all other
amounts owing hereunder."
(ag) Schedule I to the Credit Agreement is hereby replaced with the
amended Schedule I attached hereto.
SECTION 2. WAIVERS
The Required Lenders hereby waive compliance by the Borrower with (i)
the provisions of subsection 2.6(b)(iii) of the Credit Agreement for the fiscal
year of the Borrower ended December 31, 1997 and (ii) the Borrower's obligation
to deliver to the Administrative Agent the Supply Agreement and the Interim
Services Agreement pursuant to subsection 6.15(a) of the Credit Agreement.
SECTION 3. CONDITIONS TO EFFECTIVENESS
Sections 1 and 2 of this Amendment shall become effective only upon
the prior satisfaction of all of the following conditions precedent (the date
of satisfaction of such conditions being referred to herein as the "Third
Amendment Effective Date"):
(a) The Borrower shall have delivered to the Administrative Agent
executed copies of this Amendment.
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(b) The Required Lenders, the Agents and the Issuing Lender shall have
each delivered to the Administrative Agent an executed original or facsimile of
a counterpart of this Amendment.
(c) The Borrower shall have delivered to the Administrative Agent
executed copies of all documents, instruments and agreements, if any, required
in order for the Borrower and its Subsidiaries to be in full compliance with
the requirements of subsection 6.10 of the Credit Agreement as of the Third
Amendment Effective Date (without giving effect to the thirty (30) day delivery
period referenced in such subsection 6.10, but after giving effect to any
acquisitions that are consummated on or prior to such date); provided that (i)
any Mortgages (and related documentation), (ii) legal opinions and (iii)
security documentation regarding newly-acquired Intellectual Property required
to be delivered to the Administrative Agent pursuant to this subsection (c) may
be delivered to the Administrative Agent within thirty (30) days after the
Third Amendment Effective Date. Filings of UCC financing statements may also be
accomplished during such thirty (30) day period, provided that they are
executed and delivered to the Administrative Agent on or prior to the Third
Amendment Effective Date. The time periods set forth in this subsection (c) may
be extended by the Agents in their discretion, with notice thereof to each of
the Lenders.
(d) The Administrative Agent shall have received evidence satisfactory
to the Administrative Agent that the Boards of Directors of Holdings and the
Borrower have duly authorized the execution, delivery and performance of (i)
this Amendment, (ii) the acquisition of Southern California Microwave, Inc. and
the assets of the satellite transmission services division of California
Microwave, Inc. and (iii) any other agreements and documents to be delivered to
the Administrative Agent on the Third Amendment Effective Date.
(e) The Administrative Agent shall have received evidence satisfactory
to the Administrative Agent that the Board of Directors of Southern California
Microwave, Inc. has duly authorized the execution, delivery and performance of
the Subsidiary Guarantees and the Subsidiary Pledge and Security Agreement.
(f) The Administrative Agent shall have received a legal opinion
addressed to the Agents, the Arranger, the Lenders and the Issuing Bank from
Simpson Thacher & Bartlett, counsel to the Borrower, in form and substance
reasonably satisfactory to the Administrative Agent.
(g) The Borrower shall have executed Revolving Credit Notes for the
benefit of each Revolving Credit Lender in such amount as set forth across from
such Revolving Credit Lender's name on Schedule I to the Credit Agreement (as
amended pursuant to this Amendment).
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SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce the Required Lenders, the Agents and the Issuing
Lender to enter into this Amendment and to amend the Credit Agreement in the
manner provided herein, the Borrower represents and warrants to each Lender,
each Agent and the Issuing Lender that the following statements are true,
correct and complete:
(a) Corporate Power and Authority. The Borrower has all requisite
corporate power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement as amended by this Amendment (the "Amended Agreement").
(b) Authorization of Amendment. The execution and delivery of this
Amendment has been duly authorized by all necessary corporate action on the
part of the Borrower.
(c) No Conflict. The execution and delivery by the Borrower of this
Amendment and the performance by the Borrower of the Amended Agreement does not
and will not (i) violate any provision of any law or any governmental rule or
regulation applicable to the Borrower or any of its Subsidiaries, the
Certificate or Articles of Incorporation or Bylaws of the Borrower or any of
its Subsidiaries or any order, judgment or decree of any court or other agency
of government binding on the Borrower or any of its Subsidiaries, (ii) conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any contractual obligation of the Borrower or any of its
Subsidiaries (including, without limitation, the Indenture) or (iii) result in,
or require the creation of, any Lien upon any of the properties or assets of
the Borrower or any of its Subsidiaries (other than Liens created under any of
the Credit Documents in favor of the Administrative Agent on behalf of the
Lenders).
(d) Governmental Consents. The execution and delivery by the Borrower
of this Amendment and the performance by the Borrower of the Amended Agreement
by the Borrower does not and will not require any registration with, consent or
approval of, or notice to, or other action to, with or by, any federal, state
or other governmental authority or regulatory body.
(e) Binding Obligation. This Amendment and the Amended Agreement have
been duly executed and delivered by the Borrower and, when executed and
delivered, will be the legally valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered
in a proceeding in equity or at law) and an implied covenant of good faith and
fair dealing.
(f) Incorporation of Representations and Warranties From Credit
Agreement. The representations and warranties contained in Section 4 of the
Credit Agreement (as expressly amended hereby) are and will be true, correct
and complete in all material respects on and as of the Third Amendment
Effective Date to the same extent as though made on and as of that
17
<PAGE>
date, except to the extent such representations and warranties specifically
relate to an earlier date.
(g) Absence of Default. No event has occurred and is continuing or
will result from the consummation of the transactions contemplated by this
Amendment that would constitute an Event of Default or a potential Event of
Default.
SECTION 5. MISCELLANEOUS
(a) Effect of this Amendment. On and after the Third Amendment
Effective Date, each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import referring to the Credit
Agreement, and each reference in the other Credit Documents to the "Credit
Agreement", "thereunder", "thereof" or words of like import referring to the
Credit Agreement shall mean and be a reference to the Amended Agreement. Except
as specifically amended or waived by this Amendment, the Credit Agreement and
the other Credit Documents shall remain in full force and effect and are hereby
ratified and confirmed. The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein, constitute a waiver
of any provision of, or operate as a waiver of any right, power or remedy of
the Administrative Agent or any Lender under, the Credit Agreement or any of
the other Credit Documents.
(b) Fees and Expenses. The Borrower acknowledges that all costs, fees
and expenses as described in Section 9 of the Credit Agreement incurred by the
Agents and their counsel with respect to this Amendment and the documents and
transactions contemplated hereby shall be paid by the Borrower.
(c) Headings. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive
effect.
(d) GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK.
(e) SUBMISSION TO JURISDICTION; WAIVERS. THE BORROWER HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AMENDMENT AND THE OTHER CREDIT
DOCUMENTS TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT
OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE COURTS OF THE
18
<PAGE>
UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND
APPELLATE COURTS FROM ANY THEREOF;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY
BE BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY
SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN
INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH
ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY
REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF
MAIL), POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS SET FORTH IN
SUBSECTION 10.2 OF THE CREDIT AGREEMENT OR AT SUCH OTHER ADDRESS OF
WHICH THE ADMINISTRATIVE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT
THERETO;
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE
RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION; AND
(v) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY
LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR
PROCEEDING REFERRED TO IN THIS SUBSECTION ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES.
(f) Acknowledgements. The Borrower hereby acknowledges that:
(i) it has been advised by counsel in the
negotiation, execution and delivery of this Agreement;
(ii) none of the Arranger, the Agents nor any Lender
has any fiduciary relationship with or duty to the Borrower arising
out of or in connection with this Agreement, and the relationship
between any of the Agents and the Lenders, on one hand, and the
Borrower, on the other hand, in connection herewith or therewith is
solely that of debtor and creditor; and
(iii) no joint venture is created hereby or
otherwise exists by virtue of the transactions contemplated hereby
among the Lenders or among the Borrower and the Lenders.
19
<PAGE>
(g) WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS, THE ARRANGER, THE
LENDERS AND THE OTHER PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEG AL ACTION OR PROCEEDING RELATING TO THIS
AMENDMENT OR ANY OTH ER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
(h) Confidentiality. Each Lender agrees to keep confidential all
non-public information provided to it by the Borrower pursuant to this
Agreement that is designated by the Borrower in writing as confidential
(excluding any such information already in the possession of such Lender or
provided to such Lender by a third party not in violation of this Agreement
which, in either case, is not, to the knowledge of such Lender, subject to a
confidentiality agreement); provided that nothing herein shall prevent any
Lender from disclosing any such information (i) to any Agent or any other
Lender or any of its Affiliates, (ii) to any Transferee or prospective
Transferee or to any direct or indirect contractual counterparties in swap
agreements or such contractual counterparties' professional advisors which
receives such information and agrees to be bound by the confidentiality
provisions hereof, (iii) to its employees, directors, agents, attorneys,
accountants and other professional advisors, (iv) upon the request or demand of
any Governmental Authority having jurisdiction over such Lender, (v) in
response to any order of any court or other Governmental Authority or as may
otherwise be required pursuant to any Requirement of Law, (vi) which has been
publicly disclosed other than in breach of this Agreement, or (vii) in
connection with the exercise of any remedy hereunder.
(i) Counterparts; Effectiveness. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original (whether by facsimile or otherwise), but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document. This Amendment shall become effective upon the execution of a
counterpart hereof by the Borrower, the Required Lenders, the Syndication
Agent, the Documentation Agent, the Administrative Agent, the Arranger and the
Issuing Lender and receipt by the Borrower and the Administrative Agent of
written or telephonic notification of such execution and authorization of
delivery thereof.
[Signature Pages Follow]
20
<PAGE>
EXHIBIT 10.2
L-3 COMMUNICATIONS CORPORATION
As Issuer
$225,000,000
10 3/8% SENIOR SUBORDINATED NOTES DUE 2007
INDENTURE
Dated as of April 30, 1997
The Bank of New York,
As Trustee
<PAGE>
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE . . . . . . . . . . . . . 1
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Other Definitions . . . . . . . . . . . . . . . . . 17
Section 1.03. Incorporation by Reference of Trust Indenture Act . 17
Section 1.04. Rules of Construction . . . . . . . . . . . . . . . 17
ARTICLE 2
THE NOTES . . . . . . . . . . . . . . 18
Section 2.01. Form and Dating . . . . . . . . . . . . . . . . . . 18
Section 2.02. Execution and Authentication . . . . . . . . . . . 19
Section 2.03. Registrar and Paying Agent . . . . . . . . . . . . 20
Section 2.04. Paying Agent to Hold Money in Trust . . . . . . . . 20
Section 2.05. Holder Lists . . . . . . . . . . . . . . . . . . . 20
Section 2.06. Transfer and Exchange . . . . . . . . . . . . . . . 20
Section 2.07. Replacement Notes . . . . . . . . . . . . . . . . . 33
Section 2.08. Outstanding Notes . . . . . . . . . . . . . . . . . 33
Section 2.09. Treasury Notes . . . . . . . . . . . . . . . . . . 34
Section 2.10. Temporary Notes . . . . . . . . . . . . . . . . . . 34
Section 2.11. Cancellation . . . . . . . . . . . . . . . . . . . 34
Section 2.12. Defaulted Interest . . . . . . . . . . . . . . . . 34
Section 2.13. CUSIP Numbers . . . . . . . . . . . . . . . . . . . 35
ARTICLE 3
REDEMPTION AND PREPAYMENT . . . . . . . . . . 35
Section 3.01. Notices to Trustee . . . . . . . . . . . . . . . . 35
Section 3.02. Selection of Notes to Be Redeemed . . . . . . . . . 35
Section 3.03. Notice of Redemption . . . . . . . . . . . . . . . 36
Section 3.04. Effect of Notice of Redemption . . . . . . . . . . 36
Section 3.05. Deposit of Redemption Price . . . . . . . . . . . . 37
Section 3.06. Notes Redeemed in Part . . . . . . . . . . . . . . 37
Section 3.07. Optional Redemption . . . . . . . . . . . . . . . . 37
Section 3.08. Mandatory Redemption . . . . . . . . . . . . . . . 38
Section 3.09. Offer to Purchase by Application of Excess Proceeds 38
ARTICLE 4
COVENANTS . . . . . . . . . . . . . . 40
Section 4.01. Payment of Notes . . . . . . . . . . . . . . . . . 40
Section 4.02. Maintenance of Office or Agency . . . . . . . . . . 40
Section 4.03. Reports . . . . . . . . . . . . . . . . . . . . . . 40
Section 4.04. Compliance Certificate . . . . . . . . . . . . . . 41
Section 4.05. Taxes . . . . . . . . . . . . . . . . . . . . . . . 42
Section 4.06. [Intentionally Omitted] . . . . . . . . . . . . . . 42
Section 4.07. Restricted Payments . . . . . . . . . . . . . . . . 42
Section 4.08. Dividend and Other Payment Restrictions Affecting
Subsidiaries . . . . . . . . . . . . . . . . . . 45
Section 4.09. Incurrence of Indebtedness and Issuance of
Preferred Stock . . . . . . . . . . . . . . . . . 45
Section 4.10. Asset Sales . . . . . . . . . . . . . . . . . . . . 48
Section 4.11. Transactions with Affiliates . . . . . . . . . . . 49
Section 4.12. Liens . . . . . . . . . . . . . . . . . . . . . . . 50
Section 4.13. Future Subsidiary Guarantees . . . . . . . . . . . 50
Section 4.14. Corporate Existence . . . . . . . . . . . . . . . . 51
Section 4.15. Offer to Repurchase Upon Change of Control . . . . 51
2
<PAGE>
Section 4.16. No Senior Subordinated Debt . . . . . . . . . . . . 52
Section 4.17. Payments for Consent . . . . . . . . . . . . . . . 53
ARTICLE 5
SUCCESSORS . . . . . . . . . . . . . . 53
Section 5.01. Merger, Consolidation, or Sale of Assets . . . . . 53
Section 5.02. Successor Corporation Substituted . . . . . . . . . 54
ARTICLE 6
DEFAULTS AND REMEDIES . . . . . . . . . . . 54
Section 6.01. Events of Default . . . . . . . . . . . . . . . . . 54
Section 6.02. Acceleration . . . . . . . . . . . . . . . . . . . 56
Section 6.03. Other Remedies . . . . . . . . . . . . . . . . . . 56
Section 6.04. Waiver of Past Defaults . . . . . . . . . . . . . . 57
Section 6.05. Control by Majority . . . . . . . . . . . . . . . . 57
Section 6.06. Limitation on Suits . . . . . . . . . . . . . . . . 57
Section 6.07. Rights of Holders of Notes to Receive Payment . . . 58
Section 6.08. Collection Suit by Trustee . . . . . . . . . . . . 58
Section 6.09. Trustee May File Proofs of Claim . . . . . . . . . 58
Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . 58
Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . 59
ARTICLE 7
TRUSTEE . . . . . . . . . . . . . . 59
Section 7.01. Duties of Trustee . . . . . . . . . . . . . . . . . 59
Section 7.02. Rights of Trustee . . . . . . . . . . . . . . . . . 60
Section 7.03. Individual Rights of Trustee . . . . . . . . . . . 61
Section 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . 61
Section 7.05. Notice of Defaults . . . . . . . . . . . . . . . . 61
Section 7.06. Reports by Trustee to Holders of the Notes . . . . 62
Section 7.07. Compensation and Indemnity . . . . . . . . . . . . 62
Section 7.08. Replacement of Trustee . . . . . . . . . . . . . . 63
Section 7.09. Successor Trustee by Merger, etc. . . . . . . . . 64
Section 7.10. Eligibility; Disqualification . . . . . . . . . . . 64
Section 7.11. Preferential Collection of Claims Against Company . 64
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE . . . . . . 64
Section 8.01. Option to Effect Legal Defeasance or Covenant
Defeasance . . . . . . . . . . . . . . . . . . . 64
Section 8.02. Legal Defeasance and Discharge . . . . . . . . . . 65
Section 8.03. Covenant Defeasance . . . . . . . . . . . . . . . . 65
Section 8.04. Conditions to Legal or Covenant Defeasance . . . . 66
Section 8.05. Deposited Money and Government Securities to be
Held in Trust; Other Miscellaneous Provisions . . 67
Section 8.06. Repayment to Company . . . . . . . . . . . . . . . 67
Section 8.07. Reinstatement . . . . . . . . . . . . . . . . . . . 68
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER . . . . . . . . 68
Section 9.01. Without Consent of Holders of Notes . . . . . . . . 68
Section 9.02. With Consent of Holders of Notes . . . . . . . . . 69
Section 9.03. Compliance with Trust Indenture Act . . . . . . . . 70
Section 9.04. Revocation and Effect of Consents . . . . . . . . . 70
Section 9.05. Notation on or Exchange of Notes . . . . . . . . . 70
Section 9.06. Trustee to Sign Amendments, etc. . . . . . . . . . 71
3
<PAGE>
ARTICLE 10
SUBORDINATION . . . . . . . . . . . . . 71
Section 10.01. Agreement to Subordinate . . . . . . . . . . . . . 71
Section 10.02. Liquidation; Dissolution; Bankruptcy . . . . . . . 71
Section 10.03. Default on Designated Senior Debt . . . . . . . . . 71
Section 10.04. Acceleration of Securities . . . . . . . . . . . . 72
Section 10.05. When Distribution Must Be Paid Over . . . . . . . . 72
Section 10.06. Notice by Company . . . . . . . . . . . . . . . . . 73
Section 10.07. Subrogation . . . . . . . . . . . . . . . . . . . . 73
Section 10.08. Relative Rights . . . . . . . . . . . . . . . . . . 73
Section 10.09. Subordination May Not Be Impaired by Company . . . 74
Section 10.10. Distribution or Notice to Representative . . . . . 74
Section 10.11. Rights of Trustee and Paying Agent . . . . . . . . 74
Section 10.12. Authorization to Effect Subordination . . . . . . . 75
Section 10.13. Amendments . . . . . . . . . . . . . . . . . . . . 75
ARTICLE 11
MISCELLANEOUS . . . . . . . . . . . . . 75
Section 11.01. Trust Indenture Act Controls . . . . . . . . . . . 75
Section 11.02. Notices . . . . . . . . . . . . . . . . . . . . . . 75
Section 11.03. Communication by Holders of Notes with Other
Holders of Notes . . . . . . . . . . . . . . . . 76
Section 11.04. Certificate and Opinion as to Conditions Precedent 76
Section 11.05. Statements Required in Certificate or Opinion . . . 77
Section 11.06. Rules by Trustee and Agents . . . . . . . . . . . . 77
Section 11.07. No Personal Liability of Directors, Officers,
Employees and Stockholders . . . . . . . . . . . 77
Section 11.08. Governing Law . . . . . . . . . . . . . . . . . . . 77
Section 11.09. No Adverse Interpretation of Other Agreements . . . 77
Section 11.10. Successors . . . . . . . . . . . . . . . . . . . . 78
Section 11.11. Severability . . . . . . . . . . . . . . . . . . . 78
Section 11.12. Counterpart Originals . . . . . . . . . . . . . . . 78
Section 11.13. Table of Contents, Headings, etc. . . . . . . . . 78
4
<PAGE>
EXHIBITS
--------
EXHIBIT A-1 FORM OF NOTE (NON-REGULATION-S)
EXHIBIT A-2 FORM OF NOTE (REGULATION S)
EXHIBIT B FORM OF CERTIFICATE OF TRANSFER
EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE
EXHIBIT D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL
ACCREDITED INVESTORS
EXHIBIT E FORM OF SUPPLEMENTAL INDENTURE
EXHIBIT F FORM OF NOTATION ON SENIOR SUBORDINATED NOTE RELATING
TO SUBSIDIARY GUARANTEE
5
<PAGE>
CROSS-REFERENCE TABLE
Trust Indenture
Act Section Indenture Section
- --------------- -----------------
310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 10.03
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 7.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06;11.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03;11.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.02
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.03, 10.04,
10.05
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05,11.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316 (a)(last sentence) . . . . . . . . . . . . . . . . . . . . 2.09
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.12
317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
N.A. means not applicable.
- --------------------
This Cross-Reference Table is not part of the Indenture.
6
<PAGE>
This INDENTURE dated as of April 30, 1997, between L-3 Communications
Corporation, a Delaware corporation (the "Company"), and The
Bank of New York, as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the 10 3/8% Notes
due 2007 (the "Initial Notes") and the 10 3/8% Senior Notes due 2007 (the
"Exchange Notes" and, together with the Initial Notes, the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions
"144A Global Note" means the global note in the form of Exhibit A-1
hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with and registered in the name of the Depositary or its nominee that
will be issued in a denomination equal to the outstanding principal amount of
the Notes sold in reliance on Rule 144A.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer
or exchange.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback) other than sales of inventory in the ordinary course of
business consistent with past practices (provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of
the Company and its Restricted Subsidiaries taken as a whole shall be
7
<PAGE>
governed by the covenant contained in Section 4.15 and/or the covenant
contained in Section 5.01 and not by the covenant contained in Section 4.10),
and (ii) the issue or sale by the Company or any of its Subsidiaries of Equity
Interests of any of the Company's Restricted Subsidiaries, in the case of
either clause (i) or (ii), whether in a single transaction or a series of
related transactions (A) that have a fair market value in excess of $1.0
million or (B) for net proceeds in excess of $1.0 million. Notwithstanding the
foregoing: (i) a transfer of assets by the Company to a Restricted Subsidiary
or by a Restricted Subsidiary to the Company or to another Restricted
Subsidiary, (ii) an issuance of Equity Interests by a Restricted Subsidiary to
the Company or to another Restricted Subsidiary, (iii) a Restricted Payment
that is permitted by the covenant contained in Section 4.07 and (iv) a
disposition of Cash Equivalents in the ordinary course of business shall not be
deemed to be an Asset Sale.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP)
of the obligation of the lessee for net rental payments during the remaining
term of the lease included in such sale and leaseback transaction (including
any period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal
or state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company, or
any authorized committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital
lease that would at such time be required to be capitalized on a balance sheet
in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than one year from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of six months or less from the
date of acquisition, bankers' acceptances with maturities not exceeding six
months and overnight bank deposits, in each case with any domestic financial
institution to the Senior Credit Facilities or with any domestic commercial
bank having capital and surplus in excess of $500.0 million and a Thompson Bank
Watch Rating of "B" or better, (iv) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in
clauses (ii) and (iii) above entered into with any
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financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having the highest rating obtainable from Moody's
or S&P's and in each case maturing within six months after the date of
acquisition, (vi) investment funds investing 95% of their assets in securities
of the types described in clauses (i)-(v) above, and (vii) readily marketable
direct obligations issued by any State of the United States of America or any
political subdivision thereof having maturities of not more than one year from
the date of acquisition and having one of the two highest rating categories
obtainable from either Moody's or S&P.
"Cedel" means Cedel Bank, societe anonyme.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way
of merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act) other than the Principals or their Related
Parties (as defined below), (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above), other than the
Principals and their Related Parties, becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly
or indirectly, of more than 50% of the Voting Stock of the Company (measured by
voting power rather than number of shares) or (iv) the first day on which a
majority of the members of the Board of Directors of the Company are not
Continuing Directors.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i) an
amount equal to any extraordinary loss plus any net loss realized in connection
with an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such
Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued
and whether or not capitalized (including, without limitation, original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill, debt issuance costs and other intangibles
but excluding amortization of other prepaid cash expenses that were paid in a
prior period) and other non-cash expenses (excluding any such non-cash expense
to the extent that it represents an accrual of or reserve for cash expenses in
any future period or amortization of a prepaid cash expense that was paid in a
prior period) of such Person and its Restricted Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash expenses
were deducted in computing such Consolidated Net Income, minus (v) non-cash
items increasing such Consolidated Net Income for such period, in each case, on
a consolidated basis and determined in accordance with GAAP.
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"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof that is a Guarantor, (ii) the Net Income of any Restricted Subsidiary
shall be excluded to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in
a pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded, (v) the Net Income of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to the Company or one
of its Restricted Subsidiaries, and (vi) the Net Income of any Restricted
Subsidiary shall be calculated after deducting preferred stock dividends
payable by such Restricted Subsidiary to Persons other than the Company and its
other Restricted Subsidiaries.
"Consolidated Net Tangible Assets" means, as of any date of
determination, shareholders' equity of the Company and its Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP, less
goodwill and other intangibles (other than patents, trademarks, licenses,
copyrights and other intellectual property and prepaid assets).
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the Issue Date or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of
the Trustee specified in Section 11.02 hereof or such other address as to which
the Trustee may give notice to the Company.
"Credit Facilities" means, with respect to the Company, one or more
debt facilities (including, without limitation, the Senior Credit Facilities)
or commercial paper facilities with banks or other institutional lenders
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special
purpose entities formed to borrow from such lenders against such receivables)
or letters of credit, in each case, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Definitive Note" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Article 2 hereof,
substantially in the form of Exhibit A-1 hereto, except that such Note shall
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not bear the Global Note Legend and shall not have the "Schedule of Exchanges
of Interests in the Global Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" shall mean or include such successor.
"Designated Senior Debt" means (i) any Indebtedness outstanding under
the Senior Credit Facilities and (ii) any other Senior Debt permitted under
this Indenture the principal amount of which is $25.0 million or more and that
has been designated by the Company as "Designated Senior Debt".
"Disqualified Stock" means any Capital Stock that, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that if such Capital Stock is issued
to any plan for the benefit of employees of the Company or its Subsidiaries or
by any such plan to such employees, such Capital Stock shall not constitute
Disqualified Stock solely because it may be required to be repurchased by the
Company in order to satisfy applicable statutory or regulatory obligations.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any public or private sale of equity
securities (excluding Disqualified Stock) of the Company or Holdings, other
than any private sales to an Affiliate of the Company or Holdings.
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" means the Notes issued in the Exchange Offer
pursuant to Section 2.06(f).
"Exchange Offer" has the meaning set forth in the Registration Rights
Agreement has the meaning set forth in the Registration Rights Agreement.
"Existing Indebtedness" means any Indebtedness of the Company (other
than Indebtedness under the Senior Credit Facilities and the Notes) in
existence on the Issue Date, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the
sum, without duplication, of (i) the consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, original issue discount, non-cash
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interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations, but excluding amortization of debt issuance costs) and (ii) the
consolidated interest of such Person and its Restricted Subsidiaries that was
capitalized during such period, and (iii) any interest expense on Indebtedness
of another Person that is guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon)
and (iv) the product of (A) all dividend payments, whether or not in cash, on
any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable solely
in Equity Interests of the Company, times (B) a fraction, the numerator of
which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of such Person, expressed
as a decimal, in each case, on a consolidated basis and in accordance with
GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for
any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event that
the Company or any of its Restricted Subsidiaries incurs, assumes, Guarantees
or redeems any Indebtedness (other than revolving credit borrowings) or issues
preferred stock subsequent to the commencement of the period for which the
Fixed Charge Coverage Ratio is being calculated but on or prior to the date on
which the event for which the calculation of the Fixed Charge Coverage Ratio is
made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, Guarantee or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period. In addition, for purposes of making the computation referred
to above, (i) acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
four-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated without giving effect to clause (iii) of the proviso
set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable
to discontinued operations, as determined in accordance with GAAP, and
operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such Fixed
Charges shall not be obligations of the referent Person or any of its
Restricted Subsidiaries following the Calculation Date.
"Foreign Subsidiary" means a Restricted Subsidiary of the Company
that was not organized or existing under the laws of the United States, any
state thereof, the District of Columbia or any territory thereof.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
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American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the Issue Date.
"Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes, substantially in the
form of Exhibit A-1 or A-2 hereto issued in accordance with Article 2
hereof.
"Global Note Legend" means the legend set forth in Section
2.06(g)(ii) to be placed on all Global Notes issued under this Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Guarantors" means each Subsidiary of the Company that executes a
Subsidiary Guarantee in accordance with the provisions of this Indenture, and
their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) currency exchange or interest rate swap
agreements, interest rate cap agreements and currency exchange or interest rate
collar agreements and (ii) other agreements or arrangements designed to protect
such Person against fluctuations in currency exchange rates or interest rates.
"Holder" means a Person in whose name a Note is registered.
"Holdings" means L-3 Communications Holdings, Inc.
"IAI Global Note" means the global Note in the form of Exhibit A-1
hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with and registered in the name of the Depositary or its nominee that
will be issued in a denomination equal to the outstanding principal amount of
the Notes sold to Institutional Accredited Investors.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether
or not such indebtedness is assumed by such Person) and, to the
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extent not otherwise included, the Guarantee by such Person of any indebtedness
of any other Person. The amount of any Indebtedness outstanding as of any date
shall be (i) the accreted value thereof, in the case of any Indebtedness that
does not require current payments of interest, and (ii) the principal amount
thereof, together with any interest thereon that is more than 30 days past due,
in the case of any other Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Indirect Participant" means a Person who holds a beneficial interest
in a Global Note through a Participant.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel, moving and
similar loans or advances to officers and employees made in the ordinary course
of business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, together with all items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP. If the Company or any Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Subsidiary not
sold or disposed of in an amount determined as provided in the last paragraph
of the covenant contained in Section 4.07.
"Issue Date" means the closing date for the sale and original
issuance of the Notes under this Indenture.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in The City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Lehman Investor" means Lehman Brothers Holdings Inc. and any of
its Affiliates.
"Letter of Transmittal" means the letter of transmittal to be
prepared by the Company and sent to all Holders of the Initial Notes for use by
such Holders in connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give
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any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant
to Section 5 of the Registration Rights Agreement.
"Marketable Securities" means, with respect to any Asset Sale, any
readily marketable equity securities that are (i) traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market; and (ii)
issued by a corporation having a total equity market capitalization of not less
than $250.0 million; provided that the excess of (A) the aggregate amount of
securities of any one such corporation held by the Company and any Restricted
Subsidiary over (B) ten times the average daily trading volume of such
securities during the 20 immediately preceding trading days shall be deemed not
to be Marketable Securities; as determined on the date of the contract relating
to such Asset Sale.
"Moody's" means Moody's Investors Services, Inc.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain or loss,
together with any related provision for taxes thereon, realized in connection
with (A) any Asset Sale (including, without limitation, dispositions pursuant
to sale and leaseback transactions) or (B) the disposition of any securities by
such Person or any of its Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any
extraordinary gain or loss, together with any related provision for taxes on
such extraordinary gain or loss and (iii) the cumulative effect of a change in
accounting principles.
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (A) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (B) is directly or indirectly liable (as a guarantor
or otherwise), or (C) constitutes the lender; and (ii) no default with respect
to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
Indebtedness incurred under Credit Facilities) of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and (iii) as to which the lenders have been notified
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in writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Non-U.S. Person" means a person who is not a U.S. Person.
"Note Custodian" means the Trustee, as custodian with respect to the
Notes in global form, or any successor entity thereto.
"Obligations" means any principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization, whether or not a claim for post-filing
interest is allowed in such proceeding), penalties, fees, charges, expenses,
indemnifications, reimbursement obligations, damages (including Liquidated
Damages), guarantees and other liabilities or amounts payable under the
documentation governing any Indebtedness or in respect thereto.
"Offering" means the Offering of the Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary, any Assistant Secretary or any Vice-President
of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 11.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
11.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Participant" means, with respect to DTC, Euroclear or Cedel, a
Person who has an account with DTC, Euroclear or Cedel, respectively (and, with
respect to DTC, shall include Euroclear and Cedel).
"Permitted Investments" means (i) any Investment in the Company or in
a Restricted Subsidiary of the Company that is a Guarantor (ii) any Investment
in cash or Cash Equivalents; (iii) any Investment by the Company or any
Restricted Subsidiary of the Company in a Person, if as a result of such
Investment (A) such Person becomes a Restricted Subsidiary of the Company and a
Guarantor or (B) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary of the Company that is
a Guarantor; (iv) any Restricted Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant contained in Section 4.10 or any disposition of
assets not constituting an Asset sale; (v) any acquisition of assets solely in
exchange for the issuance of Equity Interests (other than Disqualified Stock)
of the Company; (vi) advances to employees not to exceed $2.5 million at any
one time outstanding; (vii) any Investment acquired in connection with or as a
result of a workout or bankruptcy of a customer or supplier; (viii) Hedging
Obligations permitted to be incurred under the covenant contained in Section
4.09; (ix) any Investment in a
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Similar Business that is not a Restricted Subsidiary; provided that the
aggregate fair market value of all Investments made pursuant to this clause
(ix) (valued on the date each such Investment was made and without giving
effect to subsequent changes in value) may not exceed 5% of the Consolidated
Net Tangible Assets of the Company; and (x) other Investments in any Person
having an aggregate fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this clause (x)
that are at the time outstanding, not to exceed $15.0 million.
"Permitted Junior Securities" means Equity Interests in the Company
or debt securities that are subordinated to all Senior Debt (and any debt
securities issued in exchange for Senior Debt) to substantially the same extent
as, or to a greater extent than, the Notes and the Subsidiary Guarantees are
subordinated to Senior Debt pursuant to Article 10 of this Indenture.
"Permitted Liens" means (i) Liens securing Senior Debt of the Company
or any Guarantor that was permitted by the terms of this Indenture to be
incurred; (ii) Liens in favor of the Company or any Guarantor; (iii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Restricted Subsidiary of the Company;
provided that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with the Company; (iv) Liens on property
existing at the time of acquisition thereof by the Company or any Subsidiary of
the Company, provided that such Liens were in existence prior to the
contemplation of such acquisition and do not extend to any other assets of the
Company or any of its Restricted Subsidiaries; (v) Liens to secure the
performance of statutory obligations, surety or appeal bonds, performance bonds
or other obligations of a like nature incurred in the ordinary course of
business; (vi) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (v) of the second paragraph of Section 4.09
covering only the assets acquired with such Indebtedness; (vii) Liens existing
on the Issue Date; (viii) Liens for taxes, assessments or governmental charges
or claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be required
in conformity with GAAP shall have been made therefor; (ix) Liens incurred in
the ordinary course of business of the Company or any Restricted Subsidiary of
the Company with respect to obligations that do not exceed $5.0 million at any
one time outstanding; (x) Liens on assets of Guarantors to secure Senior Debt
of such Guarantors that was permitted by this Indenture to be incurred; (xi)
Liens securing Permitted Refinancing Indebtedness, provided that any such Lien
does not extend to or cover any property, shares or debt other than the
property, shares or debt securing the Indebtedness so refunded, refinanced or
extended; (xii) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance and return of money bonds and other
obligations of a like nature, in each case incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money); (xiii)
Liens upon specific items of inventory or other goods and proceeds of any
Person securing such Person's obligations in respect of bankers' acceptances
issued or created for the account of such Person to facilitate the purchase,
shipment or storage of such inventory or other goods in the ordinary course of
business; (xiv) Liens encumbering customary initial deposits and margin
deposits, and other Liens
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incurred in the ordinary course of business that are within the general
parameters customary in the industry, in each case securing Indebtedness under
Hedging Obligations; and (xv) Liens encumbering deposits made in the ordinary
course of business to secure nondelinquent obligations arising from statutory
or regulatory, contractual or warranty requirements of the Company or its
Subsidiaries for which a reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Restricted Subsidiaries; provided
that: (i) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of (or
accreted value, if applicable), plus accrued interest on, the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses and prepayment premiums incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity
date no earlier than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Notes, such Permitted Refinancing Indebtedness is subordinated in right of
payment to the Notes on terms at least as favorable to the Holders of Notes as
those contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Permitted Securities" means, with respect to any Asset Sale, Voting
Stock of a Person primarily engaged in one or more Similar Businesses; provided
that after giving effect to the Asset Sale such Person shall become a
Restricted Subsidiary and a Guarantor.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or agency or political subdivision thereof (including any
subdivision or ongoing business of any such entity or substantially all of the
assets of any such entity, subdivision or business).
"Principals" means any Lehman Investor, Lockheed Martin
Corporation, Frank C. Lanza and Robert V. LaPenta
"Private Placement Legend" means the legend set forth in Section
2.07(g)(i) to be placed on all Notes issued under this Indenture except as
otherwise permitted by the provisions of this Indenture.
"Purchase Agreement" means the Purchase Agreement, dated April 25,
1997, among the Company, Lehman Brothers Inc. and BancAmerica Securities,
Inc.
"QIB" means a "qualified institutional buyer" as defined in Rule
144A.
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"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of April, 30 1997, by and among the Company, Lehman
Brothers Inc. and BancAmerica Securities, Inc., as such agreement may be
amended, modified or supplemented from time to time.
"Regulation S" means Regulation S promulgated under the Securities
Act.
"Regulation S Global Note" means a global Note bearing the Private
Placement Legend and deposited with and registered in the name of the
Depositary or its nominee that will be issued in a denomination equal to the
outstanding principal amount of the Notes sold in reliance on Regulation S, or
a Regulation S Temporary Global Note or Regulation S Permanent Global Note, as
appropriate.
"Regulation S Permanent Global Note" means a permanent global Note in
the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private
Placement Legend and deposited with and registered in the name of the
Depositary or its nominee that will be issued in a denomination equal to the
outstanding principal amount of the Regulation S Temporary Global Note upon
expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a single temporary global
Note in the form of Note attached hereto as Exhibit A-2 bearing the Private
Placement Legend and deposited with and registered in the name of the
Depositary or its nominee that will be issued in a denomination equal to the
outstanding principal amount of the Notes sold in reliance on Regulation S.
"Related Party" with respect to any Principal means (i) any
controlling stockholder, 50% (or more) owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of such Principal or (ii) any
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding a more than 50%
controlling interest of which consist of such Principal and/or such other
Persons referred to in the immediately preceding clause (i).
"Responsible Officer," when used with respect to the Trustee, means
any officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Representative" means the indenture trustee or other trustee, agent
or representative for any Senior Debt.
"Restricted Definitive Note" means a Definitive Note bearing the
Private Placement Legend.
"Restricted Global Notes" means the 144A Global Note, the IAI Global
Note and the Regulation S Global Notes, each of which shall bear the Private
Placement Legend.
"Restricted Investment" means an Investment other than a Permitted
Investment.
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"Restricted Period" means the 40-day restricted period as defined
in Regulation S.
"Restricted Subsidiary" means, with respect to any Person, each
Subsidiary of such Person that is not an Unrestricted Subsidiary.
"Rule 144" means Rule 144 under the Securities Act.
"Rule 144A" means Rule 144A under the Securities Act.
"Rule 903" means Rule 903 under the Securities Act.
"Rule 904" means Rule 904 under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Credit Facilities" means the credit agreement, dated as of
the Issue Date among the Company and a syndicate of banks and other financial
institutions led by Lehman Commercial Paper Inc., as syndication agent, and any
related notes, collateral documents, letters of credit and guarantees,
including any appendices, exhibits or schedules to any of the foregoing (as the
same may be in effect from time to time), in each case, as such agreements may
be amended, modified, supplemented or restated from time to time, or refunded,
refinanced, restructured, replaced, renewed, repaid or extended from time to
time (whether with the original agents and lenders or other agents and lenders
or otherwise, and whether provided under the original credit agreement or other
credit agreements or otherwise).
"Senior Debt" means (i) all Indebtedness of the Company or any of its
Restricted Subsidiaries outstanding under Credit Facilities and all Hedging
Obligations with respect thereto, (ii) any other Indebtedness permitted to be
incurred by the Company or any of its Restricted Subsidiaries under the terms
of this Indenture, unless the instrument under which such Indebtedness is
incurred expressly provides that it is on a parity with or subordinated in
right of payment to the Notes and (iii) all Obligations with respect to the
foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Debt shall not include (i) any liability for federal, state, local or other
taxes owed or owing by the Company, (ii) any Indebtedness of the Company to any
of its Subsidiaries or other Affiliates, (iii) any trade payables or (iv) any
Indebtedness that is incurred in violation of this Indenture.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Similar Business" means a business, a majority of whose revenues in
the most recently ended calendar year were derived from (i) the sale of defense
products, electronics, communications systems, aerospace products, avionics
products and/or communications products, (ii) any services related thereto,
(iii) any business or activity that is reasonably similar thereto or
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a reasonable extension, development or expansion thereof or ancillary thereto,
and (iv) any combination of any of the foregoing.
"Stated Maturity" means, with respect to any installment of interest
or principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (A) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (B) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"S&P" means Standard and Poor's Corporation.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"Transaction Documents" means this Indenture, the Notes, the
Purchase Agreement and the Registration Rights Agreement.
"Transfer Restricted Securities" means securities that bear or are
required to bear the Private Placement Legend set forth in Section 2.06(g)(i)
hereof.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Global Note" means one or more global Notes, in the
form of Exhibit A-1 attached hereto, that do not and are not required to bear
the Private Placement Legend and are deposited with and registered in the name
of the Depositary or its nominee.
"Unrestricted Definitive Note" means one or more Definitive Notes
that do not and are not required to bear the Private Placement Legend.
"Unrestricted Subsidiaries" means any Subsidiary that is designated
by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary: (i) has no
Indebtedness other than Non-Recourse Debt; (ii) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (iii) is a Person with respect
to which neither the Company nor any of its Restricted Subsidiaries
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has any direct or indirect obligation (A) to subscribe for additional Equity
Interests or (B) to maintain or preserve such Person's financial condition or
to cause such Person to achieve any specified levels of operating results; (iv)
has not guaranteed or otherwise directly or indirectly provided credit support
for any Indebtedness of the Company or any of its Restricted Subsidiaries; and
(v) has at least one director on its board of directors that is not a director
or executive officer of the Company or any of its Restricted Subsidiaries and
has at least one executive officer that is not a director or executive officer
of the Company or any of its Restricted Subsidiaries. Any such designation by
the Board of Directors shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by Section 4.07. If,
at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of
the Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.09, the Company shall be in default of
such covenant). The Board of Directors of the Company may at any time designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under Section 4.09, calculated on a pro forma basis
as if such designation had occurred at the beginning of the four-quarter
reference period, and (ii) no Default or Event of Default would be in existence
following such designation.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under
the Securities Act.
"Voting Stock" of any Person as of any date means the Capital Stock
of such Person that is at the time entitled to vote in the election of the
Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (A) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (B) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned" means, when used with respect to any Subsidiary or
Restricted Subsidiary of a Person, a Subsidiary (or Restricted Subsidiary, as
appropriate) of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Subsidiaries
(or Wholly Owned Restricted Subsidiaries, as appropriate) of such Person and
one or more Wholly Owned Subsidiaries (or Wholly Owned Restricted Subsidiaries,
as appropriate) of such Person.
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Section 1.02. Other Definitions.
Defined in
Term Section
"Affiliate Transaction" . . . . . . . . . . . . . 4.11
"Asset Sale Offer" . . . . . . . . . . . . . . . 3.09
"Bankruptcy Law" . . . . . . . . . . . . . . . . 4.01
"Change of Control Offer" . . . . . . . . . . . . 4.15
"Change of Control Payment" . . . . . . . . . . . 4.15
"Change of Control Payment Date" . . . . . . . . 4.15
"Covenant Defeasance" . . . . . . . . . . . . . . 8.03
"Event of Default" . . . . . . . . . . . . . . . 6.01
"Excess Proceeds" . . . . . . . . . . . . . . . . 4.10
"incur" . . . . . . . . . . . . . . . . . . . . . 4.09
"Legal Defeasance" . . . . . . . . . . . . . . . 8.02
"Offer Amount" . . . . . . . . . . . . . . . . . 3.09
"Offer Period" . . . . . . . . . . . . . . . . . 3.09
"Paying Agent" . . . . . . . . . . . . . . . . . 2.03
"Purchase Date" . . . . . . . . . . . . . . . . . 3.09
"Registrar" . . . . . . . . . . . . . . . . . . . 2.03
"Restricted Payments" . . . . . . . . . . . . . . 4.07
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company and any successor obligor
upon the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the
TIA have the meanings so assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
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(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act shall
be deemed to include substitute, replacement of successor sections or
rules adopted by the SEC from time to time.
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A-1 or A-2 hereto. The Notes may be issued
in the form of Definitive Notes or Global Notes, as specified by the Company.
The Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Note shall be dated the date of its
authentication. The Notes shall be in denominations of $1,000 and integral
multiples thereof.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby. However, to the extent any
provision of any Note conflicts with the express provisions of this Indenture,
the provisions of this Indenture shall govern and be controlling.
Notes issued in global form shall be substantially in the form of
Exhibit A-1 or A-2 attached hereto (including the Global Note Legend and the
"Schedule of Exchanges in the Global Note" attached thereto). Notes issued in
definitive form shall be substantially in the form of Exhibit A-1 or A-2
attached hereto (but without the Global Note Legend and without the "Schedule
of Exchanges of Interests in the Global Note" attached thereto). Each Global
Note shall represent such of the outstanding Notes as shall be specified
therein and each shall provide that it shall represent the aggregate principal
amount of outstanding Notes from time to time endorsed thereon and that the
aggregate principal amount of outstanding Notes represented thereby may from
time to time be reduced or increased, as appropriate, to reflect exchanges and
redemptions. Any endorsement of a Global Note to reflect the amount of any
increase or decrease in the aggregate principal amount of outstanding Notes
represented thereby shall be made by the Trustee or the Note Custodian, at the
direction of the Trustee, in accordance with instructions given by the Holder
thereof as required by Section 2.06 hereof.
Notes offered and sold in reliance on Regulation S shall be issued
initially in the form of the Regulation S Temporary Global Note (attached
hereto as Exhibit A-2 and bearing the legend set forth in Section
2.06(g)(iii) hereof), which shall be deposited on behalf of the purchasers of
the Notes represented thereby with the Trustee, at its New York office, as
custodian for the Depositary, and registered in the name of the Depositary or
the nominee of the Depositary for the accounts of designated agents holding
on behalf of Euroclear or Cedel Bank, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The Restricted Period
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shall be terminated upon the receipt by the Trustee of (i) a written
certificate from the Depositary, together with copies of certificates from
Euroclear and Cedel Bank certifying that they have received certification of
non-United States beneficial ownership of 100% of the aggregate principal
amount of the Regulation S Temporary Global Note (except to the extent of any
beneficial owners thereof who acquired an interest therein during the
Restricted Period pursuant to another exemption from registration under the
Securities Act and who will take delivery of a beneficial ownership interest in
a 144A Global Note or an IAI Global Note, all as contemplated by Section
2.06(a)(ii) hereof), and (ii) an Officers' Certificate from the Company.
Following the termination of the Restricted Period, beneficial interests in the
Regulation S Temporary Global Note shall be exchanged for beneficial interests
in Regulation S Permanent Global Notes pursuant to the Applicable Procedures.
Simultaneously with the authentication of Regulation S Permanent Global Notes,
the Trustee shall cancel the Regulation S Temporary Global Note. The aggregate
principal amount of the Regulation S Temporary Global Note and the Regulation S
Permanent Global Notes may from time to time be increased or decreased by
adjustments made on the records of the Trustee and the Depositary or its
nominee, as the case may be, in connection with transfers of interest as
hereinafter provided.
The provisions of the "Operating Procedures of the Euroclear System"
and "Terms and Conditions Governing Use of Euroclear" and the "General Terms
and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be
applicable to interests in the Regulation S Temporary Global Note and the
Regulation S Permanent Global Notes that are held by the Agent Members through
Euroclear or Cedel Bank.
Section 2.02. Execution and Authentication.
Two Officers shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Notes and
may be in facsimile form.
If an Officer whose signature is on a Note no longer holds that
office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers, authenticate Notes for original issue up to the aggregate principal
amount stated in paragraph 4 of the Notes. The aggregate principal amount of
Notes outstanding at any time may not exceed such amount except as provided in
Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.
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Section 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and
exchange. The Company may appoint one or more co-registrars and one or more
additional paying agents. The term "Registrar" includes any co-registrar and
the term "Paying Agent" includes any additional paying agent. The Company may
change any Paying Agent or Registrar without notice to any Holder. The Company
shall notify the Trustee in writing of the name and address of any Agent not a
party to this Indenture. If the Company fails to appoint or maintain another
entity as Registrar or Paying Agent, the Trustee shall act as such. The Company
or any of its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC")
to act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar
and Paying Agent and to act as Note Custodian with respect to the Global Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Liquidated Damages, if any, or interest on the Notes, and
will notify the Trustee of any default by the Company in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate
trust fund for the benefit of the Holders all money held by it as Paying Agent.
Upon any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Notes.
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, the Company shall furnish to the Trustee at least five
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA Section 312(a).
Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note may not
be transferred as a whole except by the Depositary to a nominee of the
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Depositary, by a nominee of the Depositary to the Depositary or to another
nominee of the Depositary, or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. All Global
Notes will be exchanged by the Company for Definitive Notes if (i) the Company
delivers to the Trustee notice from the Depositary that it is unwilling or
unable to continue to act as Depositary or that it is no longer a clearing
agency registered under the Exchange Act and, in either case, a successor
Depositary is not appointed by the Company within 120 days after the date of
such notice from the Depositary or (ii) the Company in its sole discretion
determines that the Global Notes (in whole but not in part) should be exchanged
for Definitive Notes and delivers a written notice to such effect to the
Trustee; provided that in no event shall the Regulation S Temporary Global Note
be exchanged by the Company for Definitive Notes prior to (x) the expiration of
the Restricted Period and (y) the receipt by the Registrar of any certificates
required pursuant to Rule 903 under the Securities Act. Upon the occurrence of
either of the preceding events in (i) or (ii) above, Definitive Notes shall be
issued in such names as the Depositary shall instruct the Trustee. Global Notes
also may be exchanged or replaced, in whole or in part, as provided in Sections
2.07 and 2.11 hereof. Every Note authenticated and made available for delivery
in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant
to Section 2.07 or 2.11 hereof, shall be authenticated and made available for
delivery in the form of, and shall be, a Global Note. A Global Note may not be
exchanged for another Note other than as provided in this Section 2.06(a),
however beneficial interests in a Global Note may be transferred and exchanged
as provided in Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global
Notes. The transfer and exchange of beneficial interests in the Global Notes
shall be effected through the Depositary, in accordance with the provisions of
this Indenture and the procedures of the Depositary therefor. Beneficial
interests in the Restricted Global Notes shall be subject to restrictions on
transfer comparable to those set forth herein to the extent required by the
Securities Act. The Trustee shall have no obligation to ascertain the
Depositary's compliance with any such restrictions on transfer. Transfers of
beneficial interests in the Global Notes also shall require compliance with
either subparagraph (i) or (ii) below, as applicable, as well as one or more of
the other following subparagraphs as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in
the same Restricted Global Note in accordance with the transfer
restrictions set forth in the Private Placement Legend; provided, however,
that prior to the expiration of the Restricted Period transfers of
beneficial interests in the Temporary Regulation S Global Note may not be
made to a U.S. Person or for the account or benefit of a U.S. Person
(other than an Initial Purchaser). Beneficial interests in any
Unrestricted Global Note may be transferred only to Persons who take
delivery thereof in the form of a beneficial interest in an Unrestricted
Global Note. No written orders or instructions shall be required to be
delivered to the Registrar to effect the transfers described in this
Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Notes. In connection with all transfers and exchanges of
beneficial interests (other than transfers of beneficial interests in a
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Global Note to Persons who take delivery thereof in the form of a
beneficial interest in the same Global Note), the transferor of such
beneficial interest must deliver to the Registrar either (A) (1) a written
order from a Participant or an Indirect Participant given to the
Depositary in accordance with the Applicable Procedures directing the
Depositary to credit or cause to be credited a beneficial interest in the
specified Global Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given in accordance with the
Applicable Procedures containing information regarding the Participant
account to be credited with such increase or (B) (1) a written order from
a Participant or an Indirect Participant given to the Depositary in
accordance with the Applicable Procedures directing the Depositary to
cause to be issued a Definitive Note in an amount equal to the beneficial
interest to be transferred or exchanged and (2) instructions given by the
Depositary to the Registrar containing information regarding the Person in
whose name such Definitive Note shall be registered to effect the transfer
ore exchange referred to in (1) above; provided that in no event shall
Definitive Notes be issued upon the transfer or exchange of beneficial
interests in the Regulation S Temporary Global Note prior to (x) the
expiration of the Restricted Period and (y) the receipt by the Registrar
of any certificates required pursuant to Rule 903 under the Securities
Act. Upon an Exchange Offer by the Company in accordance with Section
2.06(f) hereof, the requirements of this Section 2.06(b)(ii) shall be
deemed to have been satisfied upon receipt by the Registrar of the
instructions contained in the Letter of Transmittal delivered by the
Holder of such beneficial interests in the Restricted Global Notes. Upon
satisfaction of all of the requirements for transfer or exchange of
beneficial interests in Global Notes contained in this Indenture, the
Notes and otherwise applicable under the Securities Act, the Trustee shall
adjust the principal amount of the relevant Global Note(s) pursuant to
Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted Global
Note. Beneficial interests in any Restricted Global Note may be
transferred to Persons who take delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the Registrar
receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Note, then the transferor must
deliver a certificate in the form of Exhibit B hereto, including the
certifications in item (1) thereof;
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Temporary Global Note or the
Regulation S Global Note, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (2) thereof; and
(C) if the transferee will take delivery in the form of a
beneficial interest in the IAI Global Note, then the transferor must
deliver (x) a certificate in the form of Exhibit B hereto, including
the certifications in item (3) thereof, (y) to the extent required by
item 3(d) of Exhibit B hereto, an Opinion of Counsel in form
reasonably acceptable to the Company to the effect that such transfer
is in compliance with the Securities Act and such beneficial interest
is being transferred in compliance with any
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applicable blue sky securities laws of any State of the United States
and (z) if the transfer is being made to an Institutional Accredited
Investor and effected pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A under the
Securities Act, Rule 144 under the Securities Act or Rule 904 under
the Securities Act, a certificate from the transferee in the form of
Exhibit D hereto.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted
Global Note for Beneficial Interests in the Unrestricted Global Note.
Beneficial interests in any Restricted Global Note may be exchanged by any
holder thereof for a beneficial interest in the Unrestricted Global Note
or transferred to Persons who take delivery thereof in the form of a
beneficial interest in the Unrestricted Global Note if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder, in the case of an exchange, or the transferee, in the
case of a transfer, is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Participating Broker-
Dealer pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest
for a beneficial interest in the Unrestricted Global Note, a
certificate from such holder in the form of Exhibit C hereto,
including the certifications in item (1)(a) thereof;
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial interest
to a Person who shall take delivery thereof in the form of a
beneficial interest in the Unrestricted Global Note, a certificate
from such holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
(3) in each such case set forth in this subparagraph (D),
an Opinion of Counsel in form reasonably acceptable to the Registrar
to the effect that such exchange or transfer is in compliance with
the Securities Act, that the restrictions on transfer contained
herein and in the Private Placement Legend are not required in order
to maintain compliance with the Securities Act, and such beneficial
interest is being exchanged or transferred in compliance with any
applicable blue sky securities laws of any State of the United
States.
If any such transfer is effected pursuant to subparagraph (B) or
(D) above at a time when an Unrestricted Global Note has not yet been
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issued, the Company shall issue and, upon receipt of an authentication
order in accordance with Section 2.02 hereof, the Trustee shall
authenticate one or more Unrestricted Global Notes in an aggregate
principal amount equal to the principal amount of beneficial interests
transferred pursuant to subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the
form of, a beneficial interest in any Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive
Notes.
(i) If any holder of a beneficial interest in a Restricted Global
Note proposes to exchange such beneficial interest for a Definitive Note
or to transfer such beneficial interest to a Person who takes delivery
thereof in the form of a Definitive Note, then, upon receipt by the
Registrar of the following documentation (all of which may be submitted by
facsimile):
(A) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
Definitive Note, a certificate from such holder in the form of
Exhibit C hereto, including the certifications in item (2)(a)
thereof;
(B) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the
certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule
904 under the Securities Act, a certificate to the effect set forth
in Exhibit B hereto, including the certifications in item (2)
thereof;
(D) if such beneficial interest is being transferred pursuant to
an exemption from the registration requirements of the Securities Act
in accordance with Rule 144 under the Securities Act, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than those
listed in subparagraphs (B) through (D) above, a certificate to the
effect set forth in Exhibit B hereto, including the certifications in
item (3)(d) thereof, a certificate from the transferee to the effect
set forth in Exhibit D hereof and, to the extent required by item
3(d) of Exhibit B, an Opinion of Counsel from the transferee or the
transferor reasonably acceptable to the Company to the effect that
such transfer is in compliance with the Securities Act and such
beneficial interest is being transferred in compliance with any
applicable blue sky securities laws of any State of the United
States;
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(F) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item
(3)(b) thereof; or
(G) if such beneficial interest is being transferred pursuant to
an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable
Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof,
and the Company shall execute and the Trustee shall authenticate and
deliver to the Person designated in the instructions a Definitive Note in
the appropriate principal amount. Definitive Notes issued in exchange for
beneficial interests in a Restricted Global Note pursuant to this Section
2.06(c) shall be registered in such names and in such authorized
denominations as the holder shall instruct the Registrar through
instructions from the Depositary and the Participant or Indirect
Participant. The Trustee shall deliver such Definitive Notes to the
Persons in whose names such Notes are so registered. Definitive Notes
issued in exchange for a beneficial interest in a Restricted Global Note
pursuant to this Section 2.06(c)(i) shall bear the Private Placement
Legend and shall be subject to all restrictions on transfer contained
therein.
(ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a
beneficial interest in the Regulation S Temporary Global Note may not be
(A) exchanged for a Definitive Note prior to (x) the expiration of the
Restricted Period and (y) the receipt by the Registrar of any certificates
required pursuant to Rule 903 under the Securities Act or (B) transferred
to a Person who takes delivery thereof in the form of a Definitive Note
prior to the conditions set forth in clause (A) above or unless the
transfer is pursuant to an exemption from the registration requirements of
the Securities Act other than Rule 903 or Rule 904.
(ii) Notwithstanding 2.06(c)(i), a holder of a beneficial interest in
a Restricted Global Note may exchange such beneficial interest for an
Unrestricted Definitive Note or may transfer such beneficial interest to a
Person who takes delivery thereof in the form of an Unrestricted
Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder, in the case of an exchange, or the transferee, in the
case of a transfer, is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Participating Broker-
Dealer pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
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(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest
for a Definitive Note that does not bear the Private Placement
Legend, a certificate from such holder in the form of Exhibit C
hereto, including the certifications in item (1)(b) thereof;
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial interest
to a Person who shall take delivery thereof in the form of a
Definitive Note that does not bear the Private Placement Legend, a
certificate from such holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof; and
(3) in each such case set forth in this subparagraph (D),
an Opinion of Counsel in form reasonably acceptable to the Company,
to the effect that such exchange or transfer is in compliance with
the Securities Act, that the restrictions on transfer contained
herein and in the Private Placement Legend are not required in order
to maintain compliance with the Securities Act, and such beneficial
interest in a Restricted Global Note is being exchanged or
transferred in compliance with any applicable blue sky securities
laws of any State of the United States.
(iii) If any holder of a beneficial interest in an Unrestricted Global
Note proposes to exchange such beneficial interest for a Definitive Note
or to transfer such beneficial interest to a Person who takes delivery
thereof in the form of a Definitive Note, then, upon satisfaction of the
conditions set forth in Section 2.06(b)(ii), the Trustee shall cause the
aggregate principal amount of the applicable Global Note to be reduced
accordingly pursuant to Section 2.06(h) hereof, and the Company shall
execute and the Trustee shall authenticate and deliver to the Person
designated in the instructions a Definitive Note in the appropriate
principal amount. Definitive Notes issued in exchange for a beneficial
interest pursuant to this Section 2.06(c)(iii) shall be registered in such
names and in such authorized denominations as the holder shall instruct
the Registrar through instructions from the Depositary and the Participant
or Indirect Participant. The Trustee shall deliver such Definitive Notes
to the Persons in whose names such Notes are so registered. Definitive
Notes issued in exchange for a beneficial interest pursuant to this
section 2.06(c)(iii) shall not bear the Private Placement Legend.
Beneficial interests in an Unrestricted Global Note cannot be exchanged
for a Definitive Note bearing the Private Placement Legend or transferred
to a Person who takes delivery thereof in the form of a Definitive Note
bearing the Private Placement Legend.
(d) Transfer or Exchange of Definitive Notes for Beneficial
Interests.
(i) If any Holder of Restricted Definitive Notes proposes to exchange
such Notes for a beneficial interest in a Restricted Global Note or to
transfer such Definitive Notes to a Person who takes delivery thereof in
the form of a beneficial interest in a Restricted Global
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Note, then, upon receipt by the Registrar of the following documentation
(all of which may be submitted by facsimile):
(A) if the Holder of such Restricted Definitive Notes proposes
to exchange such Notes for a beneficial interest in a Restricted
Global Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (2)(b) thereof;
(B) if such Definitive Notes are being transferred to a QIB in
accordance with Rule 144A under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the
certifications in item (1) thereof;
(C) if such Definitive Notes are being transferred to a Non-
U.S. Person in an offshore transaction in accordance with Rule 904
under the Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (2) thereof;
(D) if such Definitive Notes are being transferred pursuant to
an exemption from the registration requirements of the Securities Act
in accordance with Rule 144 under the Securities Act, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(a) thereof;
(E) if such Definitive Notes are being transferred to an
Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than those
listed in subparagraphs (B) through (D) above, a certificate to the
effect set forth in Exhibit B hereto, including the certifications in
item (3)(d) thereof, a certificate from the transferee to the effect
set forth in Exhibit D hereof and, to the extent required by item
3(d) of Exhibit B, an Opinion of Counsel from the transferee or the
transferor reasonably acceptable to the Company to the effect that
such transfer is in compliance with the Securities Act and such
Definitive Notes are being transferred in compliance with any
applicable blue sky securities laws of any State of the United
States;
(F) if such Definitive Notes are being transferred to the
Company or any of its Subsidiaries, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item
(3)(b) thereof; or
(G) if such Definitive Notes are being transferred pursuant to
an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (3)(c) thereof,
the Trustee shall cancel the Definitive Notes, increase or cause to be
increased the aggregate principal amount of, in the case of clause (A)
above, the appropriate Restricted Global Note, in the case of clause (B)
above, the 144A Global Note, in the case of clause (C) above, the
Regulation S Global Note, and in all other cases, the IAI Global Note.
(ii) A Holder of Restricted Definitive Notes may exchange such Notes
for a beneficial interest in the Unrestricted Global Note or
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transfer such Restricted Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in the Unrestricted Global
Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in the
case of a transfer, is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Participating Broker-
Dealer pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes to
exchange such Notes for a beneficial interest in the Unrestricted
Global Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(c) thereof;
(2) if the Holder of such Definitive Notes proposes to
transfer such Notes to a Person who shall take delivery thereof in
the form of a beneficial interest in the Unrestricted Global Note, a
certificate from such Holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof; and
(3) in each such case set forth in this subparagraph (D),
an Opinion of Counsel in form reasonably acceptable to the Company to
the effect that such exchange or transfer is in compliance with the
Securities Act, that the restrictions on transfer contained herein
and in the Private Placement Legend are not required in order to
maintain compliance with the Securities Act, and such Definitive
Notes are being exchanged or transferred in compliance with any
applicable blue sky securities laws of any State of the United
States.
Upon satisfaction of the conditions of any of the subparagraphs in this
Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and
increase or cause to be increased the aggregate principal amount of the
Unrestricted Global Note.
(iii) A Holder of Unrestricted Definitive Notes may exchange such Notes
for a beneficial interest in the Unrestricted Global Note or transfer such
Definitive Notes to a Person who takes delivery thereof in the form of a
beneficial interest in the Unrestricted Global Note. Upon receipt of a
request for such an exchange or transfer, the Trustee shall cancel the
Unrestricted Definitive Notes and increase or cause to be increased the
aggregate principal amount of the Unrestricted Global Note.
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If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or
(iii) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an authentication order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of beneficial interests transferred pursuant to subparagraphs
(ii)(B), (ii)(D) or (iii) above.
(e) Transfer and Exchange of Definitive Notes. Upon request by a
Holder of Definitive Notes and such Holder's compliance with the provisions of
this Section 2.06(e), the Registrar shall register the transfer or exchange of
Definitive Notes. Prior to such registration of transfer or exchange, the
requesting Holder shall present or surrender to the Registrar the Definitive
Notes duly endorsed or accompanied by a written instruction of transfer in form
satisfactory to the Registrar duly executed by such Holder or by his attorney,
duly authorized in writing. In addition, the requesting Holder shall provide
any additional certifications, documents and information, as applicable,
pursuant to the provisions of this Section 2.06(e).
(i) Restricted Definitive Notes may be transferred to and registered
in the name of Persons who take delivery thereof if the Registrar receives
the following:
(A) if the transfer will be made pursuant to Rule 144A under the
Securities Act, then the transferor must deliver a certificate in the
form of Exhibit B hereto, including the certifications in item (1)
thereof;
(B) if the transfer will be made pursuant to Rule 904, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications in item (2) thereof; and
(C) if the transfer will be made pursuant to any other exemption
from the registration requirements of the Securities Act, then the
transferor must deliver (x) a certificate in the form of Exhibit B
hereto, including the certifications in item (3) thereof, (y) to the
extent required by item 3(d) of Exhibit B hereto, an Opinion of
Counsel in form reasonably acceptable to the Company to the effect
that such transfer is in compliance with the Securities Act and such
beneficial interest is being transferred in compliance with any
applicable blue sky securities laws of any State of the United States
and (z) if the transfer is being made to an Institutional Accredited
Investor and effected pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A under the
Securities Act, Rule 144 under the Securities Act or Rule 904 under
the Securities Act, a certificate from the transferee in the form of
Exhibit D hereto.
(ii) Restricted Definitive Notes may be exchanged by any Holder
thereof for an Unrestricted Definitive Note or transferred to Persons who
take delivery thereof in the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
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<PAGE>
and the holder, in the case of an exchange, or the transferee, in the
case of a transfer, is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Participating Broker-
Dealer pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for an Unrestricted Definitive Note,
a certificate from such Holder in the form of Exhibit C hereto,
including the certifications in item (1)(a) thereof;
(2) if the Holder of such Restricted Definitive Notes
proposes to transfer such Notes to a Person who shall take delivery
thereof in the form of an Unrestricted Definitive Note, a certificate
from such Holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof; and
(3) in each such case set forth in this subparagraph (D),
an Opinion of Counsel in form reasonably acceptable to the Company to
the effect that such exchange or transfer is in compliance with the
Securities Act, that the restrictions on transfer contained herein
and in the Private Placement Legend are not required in order to
maintain compliance with the Securities Act, and such Restricted
Definitive Note is being exchanged or transferred in compliance with
any applicable blue sky securities laws of any State of the United
States.
(iii) A Holder of Unrestricted Definitive Notes may transfer such Notes
to a Person who takes delivery thereof in the form of an Unrestricted
Definitive Note. Upon receipt of a request for such a transfer, the
Registrar shall register the Unrestricted Definitive Notes pursuant to the
instructions from the Holder thereof. Unrestricted Definitive Notes cannot
be exchanged for or transferred to Persons who take delivery thereof in
the form of a Restricted Definitive Note.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an authentication order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by persons
that are not (x) broker-dealers, (y) Persons participating in the distribution
of the Exchange Notes or (z) Persons who are affiliates (as defined in Rule
144) of the Company and accepted for exchange in the exchange Offer and (ii)
Definitive Notes in an aggregate principal amount equal to the principal amount
of the Restricted Definitive Notes accepted for exchange in the Exchange Offer.
Concurrent with the issuance of such Notes, the Trustee shall cause the
aggregate principal amount of the applicable Restricted
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Global Notes to be reduced accordingly, and the Company shall execute and the
Trustee shall authenticate and make available for delivery to the Persons
designated by the Holders of Definitive Notes so accepted Definitive Notes in
the appropriate principal amount.
(g) Legends. The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (b) below, each Global
Note and each Definitive Note (and all Notes issued in exchange
therefor or substitution thereof) shall bear the legend in
substantially the following form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED
IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE
SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISION OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE
BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1) (a) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT
OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL
IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
(B) Notwithstanding the foregoing, any Global Note or Definitive
Note issued pursuant to subparagraphs (b)(iv), (c)(ii), (c)(iii),
(d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section 2.06 (and
all Notes issued in exchange therefor or substitution thereof) shall
not bear the Private Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY
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MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF
THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN
PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE
MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11
OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A
SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY."
(iii) Regulation S Temporary Global Note Legend. The Regulation S
Temporary Global Note shall bear a legend in substantially the following
form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES,
ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER
NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL
BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON."
(h) Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
cancelled in whole and not in part, each such Global Note shall be returned to
or retained and cancelled by the Trustee in accordance with Section 2.11
hereof. At any time prior to such cancellation, if any beneficial interest in a
Global Note is exchanged for or transferred to a Person who will take delivery
thereof in the form of a beneficial interest in another Global Note or for
Definitive Notes, the principal amount of Notes represented by such Global Note
shall be reduced accordingly and an endorsement shall be made on such Global
Note, by the Trustee or by the Depositary at the direction of the Trustee, to
reflect such reduction; and if the beneficial interest is being exchanged for
or transferred to a Person who will take delivery thereof in the form of a
beneficial interest in another Global Note, such other Global Note shall be
increased accordingly and an endorsement shall be made on such Global Note, by
the Trustee or by the Depositary at the direction of the Trustee, to reflect
such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Global Notes and
Definitive Notes upon the Company's order or at the Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes
or similar governmental charge payable upon exchange or transfer pursuant
to Sections 2.10, 3.06, 4.10, 4.15 and 9.05 hereof).
(iii) The Registrar shall not be required to register the transfer of
or exchange any Note selected for redemption in whole or in part, except
the unredeemed portion of any Note being redeemed in part.
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(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive Notes
shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Global
Notes or Definitive Notes surrendered upon such registration of transfer
or exchange.
(v) The Company shall not be required (A) to issue, to register the
transfer of or to exchange Notes during a period beginning at the opening
of business 15 days before the day of any selection of Notes for
redemption under Section 3.02 hereof and ending at the close of business
on the day of selection, (B) to register the transfer of or to exchange
any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part or (C) to register
the transfer of or to exchange a Note between a record date and the next
succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer of
any Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Note is registered as the absolute owner of such
Note for the purpose of receiving payment of principal of and interest on
such Notes and for all other purposes, and none of the Trustee, any Agent
or the Company shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and Definitive Notes
in accordance with the provisions of Section 2.02 hereof.
Section 2.07. Replacement Notes.
If any mutilated Note is surrendered to the Trustee, or the Company
and the Trustee receives evidence to its satisfaction of the destruction, loss
or theft of any Note, the Company shall issue and the Trustee, upon the written
order of the Company signed by two Officers of the Company, shall authenticate
a replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that
is sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss that
any of them may suffer if a Note is replaced. The Company may charge for its
expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
Section 2.08. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note.
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If a Note is replaced pursuant to Section 2.07 hereof, it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
Section 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount
of Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or by any Person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Company, shall be
considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that a Trustee knows are so owned
shall be so disregarded.
Section 2.10. Temporary Notes.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes upon a written order
of the Company signed by two Officers of the Company. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall
prepare and the Trustee shall authenticate definitive Notes in exchange for
temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits
of this Indenture.
Section 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee and no one else shall cancel all Notes surrendered for registration
of transfer, exchange, payment, replacement or cancellation and shall destroy
cancelled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all cancelled Notes shall be
delivered to the Company. The Company may not issue new Notes to replace Notes
that it has paid or that have been delivered to the Trustee for cancellation.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
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Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee
in writing of the amount of defaulted interest proposed to be paid on each Note
and the date of the proposed payment. The Company shall fix or cause to be
fixed each such special record date and payment date, provided that no such
special record date shall be less than 10 days prior to the related payment
date for such defaulted interest. At least 15 days before the special record
date, the Company (or, upon the written request of the Company, the Trustee in
the name and at the expense of the Company) shall mail or cause to be mailed to
Holders a notice that states the special record date, the related payment date
and the amount of such interest to be paid.
Section 2.13. CUSIP Numbers.
The Company in issuing the Notes may use CUSIP numbers (if then
generally in use), and, if so, the Trustee shall use CUSIP numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Notes or as contained in any notice of a redemption
and that reliance may be placed only on the other identification numbers
printed on the Notes, and any such redemption shall not be affected by any
defect in or omission of such numbers. The Company will promptly notify the
Trustee of any change in the CUSIP numbers.
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant
to which the redemption shall occur, (ii) the redemption date, (iii) the
principal amount of Notes to be redeemed and (iv) the redemption price.
Section 3.02. Selection of Notes to Be Redeemed.
If less than all of the Notes are to be redeemed at any time,
selection of Notes for redemption shall be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which the Notes are listed, or, if the Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of Notes to be redeemed at its
registered address. Notices of redemption may not be conditional. If any Note
is to be redeemed in part only, the notice of redemption that relates to such
Note shall state the portion of the principal amount thereof to be redeemed. A
new Note in principal amount equal to the unredeemed portion thereof shall be
issued in the name of the Holder thereof upon cancellation of the original
Note. Notes called for redemption become due on the date fixed for redemption.
On and after the redemption date, interest ceases to accrue on Notes or
portions of them called for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for
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partial redemption, the principal amount thereof to be redeemed. Notes and
portions of Notes selected shall be in amounts of $1,000 or whole multiples of
$1,000; except that if all of the Notes of a Holder are to be redeemed, the
entire outstanding amount of Notes held by such Holder, even if not a multiple
of $1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
Section 3.03. Notice of Redemption.
Subject to the provisions of Section 3.09 hereof, at least 30 days
but not more than 60 days before a redemption date, the Company shall mail or
cause to be mailed, by first class mail, a notice of redemption to each Holder
whose Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed (including CUSIP
Numbers, if any) and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued upon
cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed;
and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that
the Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as
provided in the preceding paragraph.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
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redemption date at the redemption price. A notice of redemption may not be
conditional.
Section 3.05. Deposit of Redemption Price.
Prior to 11:00 a.m. on the Business Day prior to the redemption date,
the Company shall deposit with the Trustee or with the Paying Agent money
sufficient to pay the redemption price of and accrued interest on all Notes to
be redeemed on that date. The Trustee or the Paying Agent shall promptly return
to the Company any money deposited with the Trustee or the Paying Agent by the
Company in excess of the amounts necessary to pay the redemption price of, and
accrued interest on, all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.01 hereof.
Section 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon the Company's written request, the Trustee shall authenticate
for the Holder at the expense of the Company a new Note equal in principal
amount to the unredeemed portion of the Note surrendered.
Section 3.07. Optional Redemption.
(a) Except as set forth in clause (b) of this Section 3.7, the Notes
shall not be redeemable at the Company's option prior to May 1, 2002.
Thereafter, the Notes shall be subject to redemption at any time at the option
of the Company, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the applicable redemption date, if redeemed during the
twelve-month period beginning on May 1 of the years indicated below:
Year Percentage
---- ----------
2002 . . . . . . . . . . . . . . . . . 105.188%
2003 . . . . . . . . . . . . . . . . . 103.458%
2004 . . . . . . . . . . . . . . . . 101.729%
2005 and thereafter . . . . . . . . . 100.000%
(b) Notwithstanding the foregoing clause (a), during the first 36
months after the Issue Date, the Company may on any one or more occasions
redeem up to an aggregate of 35% of the Notes originally issued at a redemption
price of 109.375% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the redemption
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date, with the net cash proceeds of one or more Equity Offerings by the Company
or the net cash proceeds of one or more Equity Offerings by Holdings that are
contributed to the Company as common equity capital; provided that at least 65%
of the Notes originally issued remain outstanding immediately after the
occurrence of each such redemption; and provided, further, that any such
redemption must occur within 120 days of the date of the closing of such Equity
Offering.
Section 3.08. Mandatory Redemption.
Except as set forth under Sections 4.10 and 4.15, the Company is not
required to make mandatory redemption or sinking fund payments with respect to
the Notes.
Section 3.09. Offer to Purchase by Application of Excess Proceeds.
In the event that, pursuant to Section 4.10 hereof, the Company shall
be required to commence an offer to all Holders to purchase Notes (an "Asset
Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later than
five Business Days after the termination of the Offer Period (the "Purchase
Date"), the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Notes tendered in response to the Asset
Sale Offer. Payment for any Notes so purchased shall be made in the same manner
as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale
Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase
Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrete or accrue interest;
(d) that, unless the Company defaults in making such payment,
any Note accepted for payment pursuant to the Asset Sale Offer shall cease
to accrete or accrue interest after the Purchase Date;
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(e) that Holders electing to have a Note purchased pursuant to
an Asset Sale Offer may only elect to have all of such Note purchased and
may not elect to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to
any Asset Sale Offer shall be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Note completed, or transfer by book-entry transfer, to the Company, a
depositary, if appointed by the Company, or a Paying Agent at the address
specified in the notice at least three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if
the Company, the depositary or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that
such Holder is withdrawing his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered
by Holders exceeds the Offer Amount, the Company shall select the Notes to
be purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000,
or integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall
be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in
accordance with the terms of this Section 3.09. The Company, the Depositary or
the Paying Agent, as the case may be, shall promptly (but in any case not later
than five days after the Purchase Date) mail or deliver to each tendering
Holder an amount equal to the purchase price of the Notes tendered by such
Holder and accepted by the Company for purchase, and the Company shall promptly
issue a new Note, and the Trustee, upon written request from the Company shall
authenticate and mail or deliver such new Note to such Holder, in a principal
amount equal to any unpurchased portion of the Note surrendered. Any Note not
so accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company shall publicly announce the results of the Asset Sale
Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06 hereof.
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ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes.
The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on the Notes on the dates and in the manner provided in
the Notes. Principal, premium, if any, and interest shall be considered paid on
the date due if the Paying Agent, if other than the Company or a Subsidiary
thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by
the Company in immediately available funds and designated for and sufficient to
pay all principal, premium, if any, and interest then due. The Company shall
pay all Liquidated Damages, if any, in the same manner on the dates and in the
amounts set forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the applicable
interest rate on the Notes to the extent lawful; it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law)
on overdue installments of interest and Liquidated Damages (without regard to
any applicable grace period) at the same rate to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may
be served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York for such purposes. The Company shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03.
Section 4.03. Reports.
Whether or not required by the rules and regulations of the
Securities and Exchange Commission (the "Commission"), so long as any Notes are
outstanding, the Company shall furnish to the Holders of Notes:
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(a) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" that describes the financial condition and results of
operations of the Company and its consolidated Subsidiaries (showing in
reasonable detail, either on the face of the financial statements or in
the footnotes thereto and in Management's Discussion and Analysis of
Financial Condition and Results of Operations, the financial condition and
results of operations of the Company and its Restricted Subsidiaries
separately from the financial condition and results of operations of the
Unrestricted Subsidiaries of the Company) and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants, and
(b) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports,
in each case within the time periods specified in the Commission's rules
and regulations.
In addition, whether or not required by the rules and regulations of
the Commission, following the consummation of the Exchange Offer contemplated
by the Registration Rights Agreement, the Company shall file a copy of all such
information and reports with the Commission for public availability within the
time periods set forth in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available
to securities analysts and prospective investors upon request. In addition, the
Company and the Subsidiary Guarantors have agreed that, for so long as any
Notes remain outstanding and are required to bear the Private Placement Legend,
they shall furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
Subject to the provisions of Article 7, delivery of such reports,
information and documents to the Trustee is for informational proposes only and
the Trustee's receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Company's compliance with any of its covenants hereunder
(as to which the Trustee is entitled to rely exclusively on Officers'
Certificates).
Section 4.04. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 90 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during the preceding fiscal
year has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained
in this Indenture and is not in default in the performance or observance of any
of the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Company is
taking or proposes to take with
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respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of or interest, if any, on the Notes is prohibited or if such event
has occurred, a description of the event and what action the Company is taking
or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by
a written statement of the Company's independent public accountants (who shall
be a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, as soon as possible and in any event within five
Business Days after any Officer becoming aware of any Default or Event of
Default, an Officers' Certificate specifying such Default or Event of Default
and what action the Company is taking or proposes to take with
respect thereto.
Section 4.05. Taxes.
The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate
proceedings or where the failure to effect such payment is not adverse in any
material respect to the Holders of the Notes.
Section 4.06.
Intentionally omitted.
Section 4.07. Restricted Payments.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any other payment or distribution on account of the Company's or any of
its Restricted Subsidiaries' Equity Interests (including, without limitation,
any payment in connection with any merger or consolidation involving the
Company) or to the direct or indirect holders of the Company's or any of its
Restricted Subsidiaries' Equity Interests in their capacity as such (other than
(A) dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or (B) dividends or distributions by a
Restricted Subsidiary so long as, in the case of any dividend or distribution
payable on or in respect of any class or series of securities issued by a
Restricted Subsidiary other than a Wholly Owned Restricted Subsidiary, the
Company or a Restricted Subsidiary receives at least its pro rata share of such
dividend or distribution in accordance with its Equity Interests in such class
or series of securities); (ii) purchase, redeem or otherwise acquire or retire
for value (including without limitation, in connection with any merger or
consolidation involving the Company) any Equity Interests of the Company
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or any direct or indirect parent of the Company; (iii) make any payment on or
with respect to, or purchase, redeem, defease or otherwise acquire or retire
for value any Indebtedness that is subordinated to the Notes except a payment
of interest or principal at Stated Maturity; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i)
through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first paragraph
of Section 4.09; and
(c) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments permitted
by clauses (ii) through (vii) of the next succeeding paragraph), is less
than the sum of (i) 50% of the Consolidated Net Income of the Company for
the period (taken as one accounting period) from the beginning of the
first fiscal quarter commencing after the Issue Date to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate net cash proceeds received
by the Company from a contribution to its common equity capital or the
issue or sale since the Issue Date of Equity Interests of the Company
(other than Disqualified Stock) or of Disqualified Stock or debt
securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company and other
than Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock), plus (iii) to the extent that any
Restricted Investment that was made after the Issue Date is sold for cash
or otherwise liquidated or repaid for cash, the amount of cash received in
connection therewith (or from the sale of Marketable Securities received
in connection therewith), plus (iv) to the extent not already included in
such Consolidated Net Income of the Company for such period and without
duplication, (A) 100% of the aggregate amount of cash received as a
dividend from an Unrestricted Subsidiary, (B) 100% of the cash received
upon the sale of Marketable Securities received as a dividend from an
Unrestricted Subsidiary, and (C) 100% of the net assets of any
Unrestricted Subsidiary on the date that it becomes a Restricted
Subsidiary.
The foregoing provisions shall not prohibit: (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of, other Equity
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Interests of the Company (other than any Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (c) (ii) of the preceding paragraph; (iii) the defeasance, redemption,
repurchase or other acquisition of subordinated Indebtedness (other than
intercompany Indebtedness) in exchange for, or with the net cash proceeds from
an incurrence of, Permitted Refinancing Indebtedness; (iv) the repurchase,
retirement or other acquisition or retirement for value of common Equity
Interests of the Company or Holdings held by any future, present or former
employee, director or consultant of the Company or any Subsidiary or Holdings
issued pursuant to any management equity plan or stock option plan or any other
management or employee benefit plan or agreement; provided, however, that the
aggregate amount of Restricted Payments made under this clause (iv) does not
exceed $1.5 million in any calendar year and provided further that cancellation
of Indebtedness owing to the Company from members of management of the Company
or any of its Restricted Subsidiaries in connection with a repurchase of Equity
Interests of the Company shall not be deemed to constitute a Restricted Payment
for purposes of this covenant or any other provision of this Indenture; (v)
repurchases of Equity Interests deemed to occur upon exercise of stock options
upon surrender of Equity Interests to pay the exercise price of such options;
(vi) payments to Holdings (A) in amounts equal to the amounts required for
Holdings to pay franchise taxes and other fees required to maintain its legal
existence and provide for other operating costs of up to $500,000 per fiscal
year and (B) in amounts equal to amounts required for Holdings to pay federal,
state and local income taxes to the extent such income taxes are actually due
and owing; provided that the aggregate amount paid under this clause (B) does
not exceed the amount that the Company would be required to pay in respect of
the income of the Company and its Subsidiaries if the Company were a stand
alone entity that was not owned by Holdings; and (vii) other Restricted
Payments in an aggregate amount since the Issue Date not to exceed $20.0
million.
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the
extent repaid in cash) in the Subsidiary so designated shall be deemed to be
Restricted Payments at the time of such designation and shall reduce the amount
available for Restricted Payments under the first paragraph of this covenant.
All such outstanding Investments shall be deemed to constitute Investments in
an amount equal to the fair market value of such Investments at the time of
such designation. Such designation shall only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined by the
Board of Directors whose resolution with respect thereto shall be delivered to
the Trustee. Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by Section 4.07 were computed.
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Section 4.08. Dividend and Other Payment Restrictions Affecting
Subsidiaries.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(A) pay dividends or make any other distributions
to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (B) pay any indebtedness owed to the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries, or (iii) transfer any of its properties or assets
to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (A) the provisions
of security agreements that restrict the transfer of assets that are subject to
a Lien created by such security agreements, (B) the provisions of agreements
governing Indebtedness incurred pursuant to clause (v) of the second paragraph
of Section 4.09, (C) this Indenture and the Notes, (D) applicable law, (E) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was permitted by
the terms of this Indenture to be incurred, (F) by reason of customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices, (G) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions
of the nature described in this clause (iii) on the property so acquired, (H)
Permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced, (I) contracts for the sale of assets, including, without
limitation, customary restrictions with respect to a Subsidiary pursuant to an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary, (J)
agreements relating to secured Indebtedness otherwise permitted to be incurred
pursuant to 4.09 and 4.12 that limit the right of the debtor to dispose of the
assets securing such Indebtedness, (K) restrictions on cash or other deposits
or net worth imposed by customers under contracts entered into in the ordinary
course of business, or (L) customary provisions in joint venture agreements and
other similar agreements entered into in the ordinary course of business.
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect
to (collectively, "incur") any Indebtedness (including Acquired Debt) and that
the Company shall not issue any Disqualified Stock and shall not permit any of
its Subsidiaries to issue any shares of preferred stock; provided, however,
that the Company and any Restricted Subsidiary may incur Indebtedness
(including Acquired Debt) or issue shares of preferred stock if the Fixed
Charge Coverage Ratio for the Company's most recently ended four
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full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is
incurred or such preferred stock is issued would have been at least 2.0 to 1.0,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or
the preferred stock had been issued, as the case may be, at the beginning of
such four-quarter period.
The provisions of the first paragraph of this Section 4.09 shall not
apply to the incurrence of any of the following items of Indebtedness
(collectively, "Permitted Debt"):
(i) the incurrence by the Company of term Indebtedness under Credit
Facilities (and the guarantee thereof by the Guarantors); provided that
the aggregate principal amount of all term Indebtedness outstanding under
all Credit Facilities after giving effect to such incurrence, including
all Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any other Indebtedness incurred pursuant to this clause (i), does
not exceed an amount equal to $175.0 million less the aggregate amount of
all repayments, optional or mandatory, of the principal of any
Indebtedness under a Credit Facility (or any such Permitted Refinancing
Indebtedness) that have been made since the Issue Date;
(ii) the incurrence by the Company of revolving credit Indebtedness
and letters of credit (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company
and its Restricted Subsidiaries thereunder) under Credit Facilities (and
the guarantee thereof by the Guarantors); provided that the aggregate
principal amount of all revolving credit Indebtedness outstanding under
all Credit Facilities after giving effect to such incurrence, including
all Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any other Indebtedness incurred pursuant to this clause (ii), does
not exceed an amount equal to $100.0 million less the aggregate amount of
all Net Proceeds of Asset Sales applied to repay any such Indebtedness
(including any such Permitted Refinancing Indebtedness) pursuant to
Section 4.10;
(iii) the incurrence by the Company and its Restricted Subsidiaries
of the Existing Indebtedness;
(iv) the incurrence by the Company and the Guarantors of the Notes
and the Subsidiary Guarantees;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property, plant or equipment used in the
business of the Company or such Restricted Subsidiary, in an aggregate
principal amount, including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any other Indebtedness incurred
pursuant to this clause (v), not to exceed $30.0 million at any time
outstanding;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness in connection with the acquisition of
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assets or a new Restricted Subsidiary; provided that such Indebtedness was
incurred by the prior owner of such assets or such Restricted Subsidiary
prior to such acquisition by the Company or one of its Restricted
Subsidiaries and was not incurred in connection with, or in contemplation
of, such acquisition by the Company or one of its Restricted Subsidiaries;
and provided further that the principal amount (or accreted value, as
applicable) of such Indebtedness, together with any other outstanding
Indebtedness incurred pursuant to this clause (vi), does not exceed $10.0
million;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace,
Indebtedness that was permitted by this Indenture to be incurred;
(viii) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to
letters of credit issued in the ordinary course of business in respect of
workers' compensation claims or self-insurance, or other Indebtedness with
respect to reimbursement type obligations regarding workers' compensation
claims; provided, however, that upon the drawing of such letters of credit
or the incurrence of such Indebtedness, such obligations are reimbursed
within 30 days following such drawing or incurrence;
(ix) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or assumed
in connection with the disposition of any business, assets or a
Subsidiary, other than guarantees of Indebtedness incurred by any Person
acquiring all or any portion of such business, assets or a Subsidiary for
the purpose of financing such acquisition; provided, however, that (A)
such Indebtedness is not reflected on the balance sheet of the Company or
any Restricted Subsidiary (contingent obligations referred to in a
footnote to financial statements and not otherwise reflected on the
balance sheet shall not be deemed to be reflected on such balance sheet
for purposes of this clause (A)) and (B) the maximum assumable liability
in respect of all such Indebtedness shall at no time exceed the gross
proceeds including noncash proceeds (the fair market value of such noncash
proceeds being measured at the time received and without giving effect to
any subsequent changes in value) actually received by the Company and its
Restricted Subsidiaries in connection with such disposition;
(x) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Restricted Subsidiaries; provided, however, that (A) if the
Company is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
Obligations with respect to the Notes and (B)(1) any subsequent issuance
or transfer of Equity Interests that results in any such Indebtedness
being held by a Person other than the Company or one of its Restricted
Subsidiaries and (2) any sale or other transfer of any such Indebtedness
to a Person that is not either the Company or one of its Restricted
Subsidiaries shall be deemed, in each case, to constitute an incurrence of
such Indebtedness by the Company or such Restricted Subsidiary, as the
case may be;
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(xi) the incurrence by the Company or any of the Guarantors of Hedging
Obligations that are incurred for the purpose of (A) fixing, hedging or
capping interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of this Indenture to be outstanding or (B)
protecting the Company and its Restricted Subsidiaries against changes in
currency exchange rates;
(xii) the guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or a Restricted Subsidiary of the Company that
was permitted to be incurred by another provision of this Section
4.09;
(xiii) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company that was not permitted by this clause (xiii),
and the issuance of preferred stock by Unrestricted Subsidiaries;
(xiv) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted
Subsidiaries in the ordinary course of business; and
(xv) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount
(or accreted value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any other Indebtedness incurred pursuant to this clause (xv), not
to exceed $50.0 million.
For purposes of determining compliance with this Section 4.09, in the
event that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xv) above or is
entitled to be incurred pursuant to the first paragraph of this Section 4.09,
the Company shall, in its sole discretion, classify such item of Indebtedness
in any manner that complies with this covenant. Accrual of interest, the
accretion of accreted value and the payment of interest in the form of
additional Indebtedness shall not be deemed to be an incurrence of Indebtedness
for purposes of this Section 4.09.
Section 4.10. Asset Sales.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time
of such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 80% of the consideration therefor
received by the Company or such Restricted Subsidiary, as the case may be,
consists of cash, Cash Equivalents and/or Marketable Securities; provided,
however, that (A) the amount of any Senior Debt of the Company or such
Restricted Subsidiary that is assumed by the transferee in any such transaction
and (B) any consideration received by the Company or such Restricted
Subsidiary, as the case may be, that consists of (1) all or substantially all
of the assets of one or more Similar Businesses, (2) other
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long-term assets that are used or useful in one or more Similar Businesses and
(3) Permitted Securities shall be deemed to be cash for purposes of this
provision.
Within 365 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds, at its option, (i) to repay
Indebtedness under a Credit Facility, or (ii) to the acquisition of Permitted
Securities, all or substantially all of the assets of one or more Similar
Businesses, or the making of a capital expenditure or the acquisition of other
long-term assets in a Similar Business. Pending the final application of any
such Net Proceeds, the Company may temporarily reduce Indebtedness under a
Credit Facility or otherwise invest such Net Proceeds in any manner that is not
prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph shall
be deemed to constitute "Excess Proceeds". When the aggregate amount of Excess
Proceeds exceeds $10.0 million, the Company shall be required to make an offer
to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum
principal amount of Notes that may be purchased out of the Excess Proceeds, at
an offer price in cash in an amount equal to 100% of the principal amount
thereof plus accrued and unpaid interest and Liquidated Damages thereon, if
any, to the date of purchase, in accordance with the procedures set forth in
this Indenture. To the extent that the aggregate amount of Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of Notes surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes to be purchased
on a pro rata basis. Upon completion of such offer to purchase, the amount of
Excess Proceeds shall be reset at zero.
Section 4.11. Transactions with Affiliates.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(i) such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the
Trustee (A) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $3.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of
the disinterested members of the Board of Directors and (B) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking firm of national
standing.
The foregoing provisions shall not prohibit: (i) any employment
agreement entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business; (ii) any transaction with a Lehman
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Investor; (iii) any transaction between or among the Company and/or its
Restricted Subsidiaries; (iv) transactions between the Company or any of its
Restricted Subsidiaries, on the one hand, and Lockheed Martin or any of its
Subsidiaries, on the other hand, on terms that are not materially less
favorable to the Company or the applicable Restricted Subsidiary of the Company
than those that could have been obtained from an unaffiliated third party;
provided that (A) in the case of any such transaction or series of related
transactions pursuant to this clause (iv) involving aggregate consideration in
excess of $1.0 million but less than $25.0 million, such transaction or series
of transactions (or the agreement pursuant to which the transactions were
executed) was approved by the Company's Chief Executive Officer or Chief
Financial Officer and (B) in the case of any such transaction or series of
related transactions pursuant to this clause (iv) involving aggregate
consideration equal to or in excess of $25.0 million, such transaction or
series of related transactions (or the agreement pursuant to which the
transactions were executed) was approved by a majority of the disinterested
members of the Board of Directors; (v) any transaction pursuant to and in
accordance with the provisions of the Transaction Documents as the same are in
effect on the Issue Date; and (vi) any Restricted Payment that is permitted by
the provisions of Section 4.07.
Section 4.12. Liens.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien securing Indebtedness on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, except Permitted Liens.
Section 4.13. Future Subsidiary Guarantees
If the Company or any of its Subsidiaries shall acquire or create a
Subsidiary (other than a Foreign Subsidiary or an Unrestricted Subsidiary)
after the Issue Date, then such Subsidiary shall execute a Subsidiary
Guarantee, in the form of the Supplemental Indenture attached hereto as Exhibit
E, and the Form of Notation on Senior Subordinated Note, attached hereto as
Exhibit F, and deliver an opinion of counsel as to the validity of such
Subsidiary Guarantee, in accordance with the terms of this Indenture. The
Subsidiary Guarantee of each Guarantor will be subordinated to the prior
payment in full of all Senior Debt of such Guarantor, which would include the
guarantees of amounts borrowed under the Senior Credit Facilities. The
obligations of each Guarantor under its Subsidiary Guarantee will be limited so
as not to constitute a fraudulent conveyance under applicable law.
No Guarantor may consolidate with or merge with or into (whether or
not such Guarantor is the surviving Person) another Person (except the Company
or another Guarantor) unless (i) subject to the provisions of the following
paragraph, the Person formed by or surviving any such consolidation or merger
(if other than such Guarantor) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of such Guarantor pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under the Notes and this
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default exists; (iii) the Company (A) would be permitted by virtue
of the Company's pro forma Fixed Charge Coverage Ratio, immediately after
giving effect to such transaction, to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test
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set forth in Section 4.09 or (B) would have a pro forma Fixed Charge Coverage
Ratio that is greater than the actual Fixed Charge Coverage Ratio for the same
four-quarter period without giving pro forma effect to such transaction.
Notwithstanding the foregoing paragraph, (i) any Guarantor may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company and (ii) any Guarantor may merge with an Affiliate that
has no significant assets or liabilities and was incorporated solely for the
purpose of reincorporating such Guarantor in another State of the United States
so long as the amount of Indebtedness of the Company and its Restricted
Subsidiaries is not increased thereby.
In the event of a sale or other disposition of all of the assets of
any Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of any Guarantor, then such Guarantor
(in the event of a sale or other disposition, by way of such a merger,
consolidation or otherwise, of all of the capital stock of such Guarantor) or
the corporation acquiring the property (in the event of a sale or other
disposition of all of the assets of such Guarantor) will be released and
relieved of any obligations under its Subsidiary Guarantee; provided that the
Net Proceeds of such sale or other disposition are applied in accordance with
the applicable provisions of Section 4.10.
Section 4.14. Corporate Existence.
Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Restricted Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of the
Company or any such Restricted Subsidiary and (ii) the rights (charter and
statutory), licenses and franchises of the Company and its Restricted
Subsidiaries; provided, however, that the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any of its Restricted Subsidiaries, if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Restricted Subsidiaries,
taken as a whole, and that the loss thereof is not adverse in any material
respect to the Holders of the Notes.
Section 4.15. Offer to Repurchase Upon Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder of Notes
shall have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the
date of purchase (the "Change of Control Payment"). Within ten days following
any Change of Control, the Company shall mail a notice to each Holder
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Notes on the date specified in such notice,
which date shall be no earlier than 30 days and no later than 60 days from the
date such notice is mailed (the "Change of Control Payment Date"). Such notice,
which shall govern the terms of the Change of Control offer, shall state: (i)
that the Change of Control Offer is being made pursuant to
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this Section 4.15 and that all Notes tendered will be accepted for payment;
(ii) the purchase price and the purchase date; (iii) that any Note not tendered
will continue to accrue interest; (iv) that, unless the Company defaults in the
payment of the Change of Control Payment, all Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest after
the Change of Control Payment Date; (v) that Holders electing to have any Notes
purchased pursuant to a Change of Control Offer will be required to surrender
the Notes, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Notes completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the third Business Day preceding
the Change of Control Payment Date; (vi) that Holders will be entitled to
withdraw their election if the Paying Agent receives, not later than the close
of business on the second Business Day preceding the Change of Control Payment
Date, a telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have the Notes
purchased; and (vii) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof. The Company shall comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of Notes in connection with a
Change of Control.
(b) On the Change of Control Payment Date, the Company shall, to the
extent lawful, (i) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (iii) deliver or cause to be delivered to
the Trustee the Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of Notes or portions thereof being
purchased by the Company. The Paying Agent shall promptly mail to each Holder
of Notes so tendered the Change of Control Payment for such Notes, and the
Trustee shall promptly authenticate and mail (or cause to be transferred by
book entry) to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided that each such
new Note shall be in a principal amount of $1,000 or an integral multiple
thereof. Prior to mailing a Change of Control Offer, but in any event within 90
days following a Change of Control, the Company shall either repay all
outstanding Senior Debt or offer to repay all Senior Debt and terminate all
commitments thereunder of each lender who has accepted such offer or obtain the
requisite consents, if any, under all agreements governing outstanding Senior
Debt to permit the repurchase of Notes required by this Section 4.15. The
Company shall publicly announce the results of the Change of Control Offer on
or as soon as practicable after the Change of Control Payment Date.
Section 4.16. No Senior Subordinated Debt.
The Company shall not incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Senior Debt and senior in any respect in right of
payment to the Notes. No Guarantor shall incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinate
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or junior in right of payment to any Senior Debt of a Guarantor and senior in
any respect in right of payment to any of the Subsidiary Guarantees.
Section 4.17. Payments for Consent.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of this
Indenture or the Notes unless such consideration is offered to be paid or is
paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.
The Company may not consolidate or merge with or into (whether or not
the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another corporation, Person or
entity unless (i) the Company is the surviving corporation or the entity or the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of the Company under the Notes
and this Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction no
Default or Event of Default exists; and (iv) except in the case of a merger of
the Company with or into a Wholly Owned Restricted Subsidiary of the Company,
the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made, after giving pro forma effect to such transaction as if such transaction
had occurred at the beginning of the most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding such transaction either (A) would be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 4.09 or (B) would have a pro
forma Fixed Charge Coverage Ratio that is greater than the actual Fixed Charge
Coverage Ratio for the same four-quarter period without giving pro forma effect
to such transaction.
Notwithstanding clause (iv) in the immediately foregoing paragraph,
(i) any Restricted Subsidiary may consolidate with, merge into or transfer all
or part of its properties and assets to the Company and (ii) the Company may
merge with an Affiliate that has no significant assets or liabilities and was
incorporated solely for the purpose of reincorporating the Company in
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another State of the United States so long as the amount of Indebtedness of the
Company and its Restricted Subsidiaries is not increased thereby.
Section 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the
assets of the Company in accordance with Section 5.01 hereof, the successor
corporation formed by such consolidation or into or with which the Company is
merged or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the successor corporation and not to the Company), and may
exercise every right and power of the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein;
provided, however, that the predecessor Company shall not be relieved from the
obligation to pay the principal of and interest on the Notes except in the case
of a sale of all of the Company's assets that meets the requirements of Section
5.01 hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
An "Event of Default" occurs if:
(a) the Company defaults in the payment when due of interest on , or
Liquidated Damages, if any, with respect to, the Notes and such default
continues for a period of 30 days (whether or not prohibited by the
subordination provisions of this Indenture);
(b) the Company defaults in the payment when due of the principal of
or premium, if any, on the Notes (whether or not prohibited by the
subordination provisions of this Indenture);
(c) the Company fails to comply with any of the provisions of
Section 4.10, 4.15, or 5.01 hereof;
(d) the Company fails to observe or perform any other covenant,
representation, warranty or other agreement in this Indenture or the Notes for
60 days after notice to the Company by the Trustee or the Holders of at least
25% in aggregate principal amount of the Notes then outstanding;
(e) a default occurs under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries), whether such Indebtedness or guarantee now
exists, or is created after the date of this Indenture, which default results
in the acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness, together with the principal
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amount of any other such Indebtedness, the maturity of which has been so
accelerated, aggregates $10.0 million or more;
(f) the Company or any of its Restricted Subsidiaries is subject to a
final judgments aggregating in excess of $10.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days;
(g) the Company or any of its Significant Subsidiaries or any group
of Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary pursuant to or within the meaning of Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in an
involuntary case,
(iii) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(iv) makes a general assignment for the benefit of its creditors,
or
(v) generally is not paying its debts as they become due;
(h) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against the Company or any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary in an involuntary case;
(ii) appoints a Custodian of the Company or any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary or for all or substantially all of the
property of the Company or any of its Significant Subsidiaries or any
group of Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary; or
(iii) orders the liquidation of the Company or any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60
consecutive days; or
(i) Except as permitted herein, any Subsidiary Guarantee shall be
held in any judicial proceeding to be unenforceable or invalid.
The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all
of the Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the Notes.
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Section 6.02. Acceleration.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately; provided, however,
that so long as any Designated Senior Debt is outstanding, such declaration
shall not become effective until the earlier of (i) the day which is five
Business Days after receipt by the Representatives of Designated Senior Debt of
such notice of acceleration or (ii) the date of acceleration of any Designated
Senior Debt. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, with respect to the
Company or any Restricted Subsidiary, all outstanding Notes will become due and
payable without further action or notice. Holders of the Notes may not enforce
this Indenture or the Notes except as provided in this Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
In the case of any Event of Default occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding payment of the premium that the Company
would have had to pay if the Company then had elected to redeem the Notes
pursuant to the optional redemption provisions of this Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the Notes. If an Event of Default
occurs prior to May 1, 2002 by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Company with the intention of avoiding
the prohibition on redemption of the Notes prior to May 1, 2002, then the
premium specified below shall also become immediately due and payable to the
extent permitted by law upon the acceleration of the Notes during the
twelve-month period ending on May 1 of the years indicated below:
Year Percentage
---- ----------
1997 . . . . . . . . . . . . . . . . . 115.562%
1998 . . . . . . . . . . . . . . . . . 113.833%
1999 . . . . . . . . . . . . . . . . . 112.104%
2000 . . . . . . . . . . . . . . . . . 110.375%
2001 . . . . . . . . . . . . . . . . . 108.646%
2002 . . . . . . . . . . . . . . . . . 106.917%
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision
of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
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Section 6.04. Waiver of Past Defaults.
Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes by notice to the Trustee may on behalf of the
Holders of all of the Notes waive an existing Default or Event of Default and
its consequences hereunder, except a continuing Default or Event of Default in
the payment of the principal of, premium and Liquidated Damages, if any, or
interest on, the Notes (including in connection with an offer to purchase)
(provided, however, that the Holders of a majority in aggregate principal
amount at maturity of the then outstanding Notes may rescind an acceleration
and its consequences, including any related payment default that resulted from
such acceleration). Upon any such waiver, such Default shall cease to exist,
and any Event of Default arising therefrom shall be deemed to have been cured
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
Section 6.05. Control by Majority.
Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability.
Section 6.06. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
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Section 6.07. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, premium and Liquidated
Damages, if any, and interest on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or
to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of such
Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the extent
lawful, interest and such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Holders of the Notes allowed in any judicial proceedings relative to
the Company (or any other obligor upon the Notes), its creditors or its
property and shall be entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any such claims and any
custodian in any such judicial proceeding is hereby authorized by each Holder
to make such payments to the Trustee, and in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 7.07 hereof. To the extent that the
payment of any such compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof out of the estate in any such proceeding, shall be denied
for any reason, payment of the same shall be secured by a Lien on, and shall be
paid out of, any and all distributions, dividends, money, securities and other
properties that the Holders may be entitled to receive in such proceeding
whether in liquidation or under any plan of reorganization or arrangement or
otherwise. Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder, or to authorize the Trustee to vote in respect of the
claim of any Holder in any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
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First: to the Trustee, its agents and attorneys for amounts due
under Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium and Liquidated Damages, if any, and interest,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Notes for principal, premium and Liquidated Damages,
if any and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith or negligence on its part, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
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this Indenture (but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability
or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.02. Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in such document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall
not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
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(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
(g) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
(h) The Trustee shall not be deemed to have notice of any Default or
Event of Default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in fact such a
default is received by the Trustee at the Corporate Trust Office of the
Trustee, and such notice references the Notes and this Indenture.
(i) Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed in writing with the Company.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.
Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes
or any other document in connection with the sale of the Notes or pursuant to
this Indenture other than its certificate of authentication.
Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of
the Default or Event of Default within 90 days after it occurs. Except in
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the case of a Default or Event of Default in payment of principal of, premium,
if any, or interest on any Note, the Trustee may withhold the notice if and so
long as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of the Holders of the Notes.
Section 7.06. Reports by Trustee to Holders of the Notes.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA Section 313(a) (but if no event described
in TIA Section 313(a) has occurred within the twelve months preceding the
reporting date, no report need be transmitted). The Trustee also shall comply
with TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports
as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Notes are listed in accordance with TIA Section 313(d).
The Company shall promptly notify the Trustee when the Notes are listed on any
stock exchange.
Section 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation as the Company and the Trustee shall from time to time agree in
writing for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred
or made by it in addition to the compensation for its services. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
The Company shall indemnify the Trustee or any predecessor Trustee
against any and all losses, liabilities or expenses incurred by it arising out
of or in connection with the acceptance or administration of its duties under
this Indenture, including the costs and expenses of enforcing this Indenture
against the Company (including this Section 7.07) and defending itself against
any claim (whether asserted by the Company or any Holder or any other person)
or liability in connection with the exercise or performance of any of its
powers or duties hereunder, except to the extent any such loss, liability or
expense may be attributable to its negligence or bad faith. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company
of its obligations hereunder. The Company shall defend the claim and the
Trustee shall cooperate in the defense. The Trustee may have separate counsel
and the Company shall pay the reasonable fees and expenses of such counsel. The
Company need not pay for any settlement made without its consent, which consent
shall not be unreasonably withheld.
The Trustee shall have a lien prior to the Notes as to all property
and funds held by it hereunder for any amount owing it or any predecessor
Trustee pursuant to this Section 7.07, except with respect to funds held in
trust for the benefit of the Holders of particular Notes.
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The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and
the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section 313(b)(2)
to the extent applicable.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing.
The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10, such Holder of a Note may petition any court of competent
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jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
all sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07
hereof shall continue for the benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or
state authorities and that has a combined capital and surplus of at least $50
million as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
The Company may, at the option of its Board of Directors evidenced by
a resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8.
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Section 8.02. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall
be deemed to have paid and discharged the entire Indebtedness represented by
the outstanding Notes, which shall thereafter be deemed to be "outstanding"
only for the purposes of Section 8.05 hereof and the other Sections of this
Indenture referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall
survive until otherwise terminated or discharged hereunder: (a) the rights of
Holders of outstanding Notes to receive solely from the trust fund described in
Section 8.04 hereof, and as more fully set forth in such Section, payments in
respect of the principal of, premium, if any, and interest on such Notes when
such payments are due, (b) the Company's obligations with respect to such Notes
under Sections 2.06, 2.07, 2.10 and 4.02 hereof, (c) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and the Company's
obligations in connection therewith and (d) this Article 8. Subject to
compliance with this Article 8, the Company may exercise its option under this
Section 8.02 notwithstanding the prior exercise of its option under Section
8.03 hereof.
Section 8.03. Covenant Defeasance.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under Sections 4.03, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15
and 4.16 and Article 5 hereof with respect to the outstanding Notes on and
after the date the conditions set forth below are satisfied (hereinafter,
"Covenant Defeasance"), and the Notes shall thereafter be deemed not
"outstanding" for the purposes of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder (it being understood that such Notes shall not be deemed outstanding
for accounting purposes). For this purpose, Covenant Defeasance means that,
with respect to the outstanding Notes, the Company may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference
in any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 6.01 hereof, but, except as specified above, the remainder of
this Indenture and such Notes shall be unaffected thereby. In addition, upon
the Company's exercise under Section 8.01 hereof of the option applicable to
this Section 8.03 hereof, subject to the satisfaction of the conditions set
forth in Section 8.04 hereof, Sections 6.01(d) through 6.01(f) hereof shall not
constitute Events of Default.
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Section 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, cash in United States dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium and Liquidated Damages, if
any, and interest on the outstanding Notes on the stated date for payment
thereof or on the applicable redemption date, as the case may be;
(b) in the case of an election under Section 8.02 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the incurrence of Indebtedness all or a portion of the
proceeds of which will be used to defease the Notes pursuant to this Article 8
concurrently with such incurrence) or insofar as Sections 6.01(g) or 6.01(h)
hereof is concerned, at any time in the period ending on the 91st day after the
date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under, any material agreement
or instrument (other than this Indenture) to which the Company or any of its
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that on the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
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insolvency, reorganization or similar laws affecting creditors' rights
generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Section 8.05. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent
required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of the
outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.04(a) hereof), are in excess of the amount thereof
that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
Section 8.06. Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, if
any, or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as a
secured creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof,
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shall thereupon cease; provided, however, that the Trustee or such Paying
Agent, before being required to make any such repayment, may at the expense of
the Company cause to be published once, in the New York Times and The Wall
Street Journal (national edition), notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid to the Company.
Section 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02
or 8.03 hereof, as the case may be, by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
8.02 or 8.03 hereof, as the case may be; provided, however, that, if the
Company makes any payment of principal of, premium, if any, or interest on any
Note following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes.
Notwithstanding Section 9.02 of this Indenture, the Company and the
Trustee may amend or supplement this Indenture or the Notes without the consent
of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place
of certificated Notes;
(c) to provide for the assumption of the Company's obligations to
the Holders of the Notes in the case of a merger or consolidation pursuant to
Article 5 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the
legal rights hereunder of any Holder of the Note; or
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with the Company in
the execution of any amended or supplemental Indenture authorized or permitted
by the terms of this Indenture and to make any further appropriate agreements
and stipulations that may be therein contained, but the Trustee shall not be
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obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
Section 9.02. With Consent of Holders of Notes.
Except as provided below in this Section 9.02, the Company and the
Trustee may amend or supplement this Indenture (including Section 3.09, 4.10
and 4.15 hereof) and the Notes may be amended or supplemented with the consent
of the Holders of at least a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for the Notes), and, subject to Sections 6.04 and 6.07 hereof,
any existing Default or Event of Default (other than a Default or Event of
Default in the payment of the principal of, premium, if any, or interest on the
Notes, except a payment default resulting from an acceleration that has been
rescinded) or compliance with any provision of this Indenture or the Notes may
be waived with the consent of the Holders of a majority in principal amount of
the then outstanding Notes (including consents obtained in connection with a
tender offer or exchange offer for the Notes).
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as
aforesaid, and upon receipt by the Trustee of the documents described in
Section 7.02 hereof, the Trustee shall join with the Company in the execution
of such amended or supplemental Indenture unless such amended or supplemental
Indenture affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its discretion, but
shall not be obligated to, enter into such amended or supplemental Indenture.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Persons entitled to consent to any indenture
supplemental hereto. If a record date is fixed, the Holders on such record
date, or their duly designated proxies, and only such Persons, shall be
entitled to consent to such supplemental indenture, whether or not such Holders
remain Holders after such record date; provided, that unless such consent shall
have become effective by virtue of the requisite percentage having been
obtained prior to the date which is 180 days after such record date, any such
consent previously given shall automatically and without further action by any
Holder be cancelled and of no further effect.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding may waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Notes. However, without the consent
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of each Holder affected, an amendment or waiver may not (with respect to any
Notes held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note
or alter or waive any of the provisions with respect to the redemption of the
Notes except as provided above with respect to Sections 4.10 and 4.15 hereof;
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the then outstanding Notes and a waiver of the payment
default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of or interest on the Notes; or
(g) waive a redemption payment with respect to any Note (other than a
payment required by Sections 3.09, 4.10 and 4.15 hereof).
(h) make any change in Section 6.04 or 6.07 hereof or in the
foregoing amendment and waiver provisions.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall be
set forth in a amended or supplemental Indenture that complies with the TIA as
then in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment
becomes effective. An amendment, supplement or waiver becomes effective in
accordance with its terms and thereafter binds every Holder.
Section 9.05. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
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exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall
not affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01) shall be
fully protected in relying upon, an Officer's Certificate and an Opinion of
Counsel stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture.
ARTICLE 10
SUBORDINATION
Section 10.01. Agreement to Subordinate.
The Company agrees, and each Holder by accepting a Note agrees, that
the Indebtedness evidenced by the Notes is subordinated in right of payment, to
the extent and in the manner provided in this Article 10, to the prior payment
in full of all Senior Debt (whether outstanding on the date hereof or hereafter
created, incurred, assumed or guaranteed), and that the subordination is for
the benefit of the holders of Senior Debt.
Section 10.02. Liquidation; Dissolution; Bankruptcy.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of Senior Debt shall be entitled to receive
payment in full in cash of all Obligations due in respect of such Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt, whether or not an allowable claim in
any such proceeding) before the Holders of Notes will be entitled to receive
any payment with respect to the Notes, and until all Obligations with respect
to Senior Debt are paid in full, any distribution to which the Holders of Notes
would be entitled shall be made to the holders of Senior Debt (except, in each
case, that Holders of Notes may receive Permitted Junior Securities and
payments made from the trust described under Article 8).
Section 10.03. Default on Designated Senior Debt.
The Company may not make any payment or distribution to the Trustee
or any Holder in respect of Obligations with respect to the Notes and may not
acquire from the Trustee or any Holder any Notes for cash or property (other
than (i) securities that are subordinated to at least the same extent as the
Notes to (a) Senior Indebtedness and (b) any securities issued in exchange
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for Senior Indebtedness and (ii) payments and other distributions made from any
defeasance trust created pursuant to Section 8.01 hereof) until all principal
and other Obligations with respect to the Senior Indebtedness have been paid in
full if:
(i) a default in the payment of any principal or other Obligations
with respect to Designated Senior Indebtedness occurs and is continuing
beyond any applicable grace period in the agreement, indenture or other
document governing such Designated Senior Indebtedness; or
(ii) a default, other than a payment default, on Designated Senior
Indebtedness occurs and is continuing that then permits holders of the
Designated Senior Indebtedness to accelerate its maturity and the Trustee
receives a notice of the default (a "Payment Blockage Notice") from a
Representative with respect to such Designated Senior Debt. If the Trustee
receives any such Payment Blockage Notice, no subsequent Payment Blockage
Notice shall be effective for purposes of this Section unless and until
(i) at least 365 days shall have elapsed since the effectiveness of the
immediately prior Payment Blockage Notice and (ii) all scheduled payments
of principal, premium, if any, and interest on the Notes that have come
due have been paid in full in cash. No nonpayment default that existed or
was continuing on the date of delivery of any Payment Blockage Notice to
the Trustee shall be, or be made, the basis for a subsequent Payment
Blockage Notice unless such default shall have been waived or cured for a
period of not less than 180 days.
The Company may and shall resume payments on and distributions in
respect of the Notes and may acquire them upon the earlier of:
(1) the date upon which the default is cured or waived, or
(2) in the case of a default referred to in Section 10.03(ii) hereof,
179 days pass after notice is received if the maturity of such Designated
Senior Indebtedness has not been accelerated,
if this Article otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
Section 10.04. Acceleration of Securities.
If payment of the Securities is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Debt of the
acceleration.
Section 10.05. When Distribution Must Be Paid Over.
In the event that the Trustee or any Holder receives any payment of
any Obligations with respect to the Notes at a time when the Trustee or such
Holder, as applicable, has actual knowledge that such payment is prohibited by
Article 10 hereof, such payment shall be held by the Trustee or such Holder, in
trust for the benefit of, and shall be paid forthwith over and delivered, upon
written request, to, the holders of Senior Debt as their interests may appear
or their Representative under the indenture or other agreement (if any)
pursuant to which Senior Debt may have been issued, as their respective
interests may appear, for application to the payment of all Obligations with
respect to Senior Debt remaining unpaid to the extent
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necessary to pay such Obligations in full in accordance with their terms, after
giving effect to any concurrent payment or distribution to or for the holders
of Senior Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically
set forth in this Article 10, and no implied covenants or obligations with
respect to the holders of Senior Debt shall be read into this Indenture against
the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders or the Company
or any other Person money or assets to which any holders of Senior Debt shall
be entitled by virtue of this Article 10, except if such payment is made as a
result of the willful misconduct or negligence of the Trustee.
Section 10.06. Notice by Company.
The Company shall promptly notify the Trustee and the Paying Agent of
any facts known to the Company that would cause a payment of any Obligations
with respect to the Notes to violate this Article 10, but failure to give such
notice shall not affect the subordination of the Notes to the Senior Debt as
provided in this Article 10.
The Trustee shall be entitled to rely on the delivery to it of a
written notice by a person representing himself to be a holder of Senior
Indebtedness (or a trustee or agent on behalf of such holder) to establish that
such notice has been given by a holder of Senior Indebtedness (or a trustee or
agent on behalf of any such holder). In the event that the Trustee determines
in good faith that further evidence is required with respect to the right of
any person as holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article 10, the Trustee may request such person
to furnish evidence to the reasonable satisfaction of the Trustee as to the
amount of Senior Indebtedness held by such person, the extent to which such
person is entitled to participate in such evidence is not furnish, the Trustee
may defer any payment which it may be required to make for the benefit of such
person pursuant to the terms of this Indenture pending judicial determination
as to the rights of such person to receive such payment.
Section 10.07. Subrogation.
After all Senior Debt is paid in full and until the Notes are paid in
full, Holders of Notes shall be subrogated (equally and ratably with all other
Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt
to receive distributions applicable to Senior Debt to the extent that
distributions otherwise payable to the Holders of Notes have been applied to
the payment of Senior Debt. A distribution made under this Article 10 to
holders of Senior Debt that otherwise would have been made to Holders of Notes
is not, as between the Company and Holders, a payment by the Company on the
Notes.
Section 10.08. Relative Rights.
This Article 10 defines the relative rights of Holders of Notes and
holders of Senior Debt. Nothing in this Indenture shall:
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(1) impair, as between the Company and Holders of Notes, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Notes in accordance with their terms;
(2) affect the relative rights of Holders of Notes and creditors of
the Company other than their rights in relation to holders of Senior Debt;
or
(3) prevent the Trustee or any Holder of Notes from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders and owners of Senior Debt to receive distributions and
payments otherwise payable to Holders of Notes.
If the Company fails because of this Article 10 to pay principal of
or interest on a Note on the due date, the failure is still a Default or Event
of Default.
Section 10.09. Subordination May Not Be Impaired by Company.
No right of any holder of Senior Debt to enforce the subordination of
the Indebtedness evidenced by the Notes shall be impaired by any act or failure
to act by the Company or any Holder or by the failure of the Company or any
Holder to comply with this Indenture.
Section 10.10. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company referred to
in this Article 10, the Trustee and the Holders of Notes shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
of Notes for the purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of the Senior Debt and other Indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article
10.
Section 10.11. Rights of Trustee and Paying Agent.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless the Trustee shall have received at its
Corporate Trust Office at least three Business Days prior to the date of such
payment written notice of facts that would cause the payment of any Obligations
with respect to the Notes to violate this Article 10. Only the Company or a
Representative may give the notice. Nothing in this Article 10 shall impair the
claims of, or payments to, the Trustee under or pursuant to Section 7.07
hereof.
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The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights.
Section 10.12. Authorization to Effect Subordination.
Each Holder of Notes, by the Holder's acceptance thereof, authorizes
and directs the Trustee on such Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact
for any and all such purposes. If the Trustee does not file a proper proof of
claim or proof of debt in the form required in any proceeding referred to in
Section 6.09 hereof at least 30 days before the expiration of the time to file
such claim, the credit agents are hereby authorized to file an appropriate
claim for and on behalf of the Holders of the Notes.
Section 10.13. Amendments.
The provisions of this Article 10 shall not be amended or modified
without the written consent of the holders of at least 75% in aggregate
principal amount of the Notes then outstanding if such amendment would
adversely affect the rights of Holders of Notes.
ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by TIA Section 318(c), the imposed duties shall
control.
Section 11.02. Notices.
Any notice or communication by the Company or the Trustee to the
others is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telecopier or
overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company:
L-3 Communications Corporation
600 Third Avenue, 34th Floor,
New York, New York 10016
Attention: Vice President-Finance (Fax: 212-805-5470)
With a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Andrew R. Keller (Fax: 212-455-2502)
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If to the Trustee:
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Administration (Fax: 212-815-5915)
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the
next Business Day after timely delivery to the courier, if sent by overnight
air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first
class mail, certified or registered, return receipt requested, or by overnight
air courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed to
any Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
Section 11.03. Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection
of TIA Section 312(c).
Section 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
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Section 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of
TIA Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
Section 11.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting
of Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 11.07. No Personal Liability of Directors, Officers, Employees and
Stockholders.
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes and this Indenture or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
Section 11.08. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED
TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
Section 11.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.
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Section 11.10. Successors.
All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
Section 11.11. Severability.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 11.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
Section 11.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following pages]
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SIGNATURES
Dated as of April 30, 1997
L-3 Communications Corporation
By:____________________________
Name:
Title:
The Bank of New York
By: /s/ Marie E. Trimboli
Name: Marie E. Trimboli
Title: Assistant Treasurer
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Dated as of April 30, 1997
L-3 Communications Corporation
By: /s/ M.T. Strianese
Name: Michael T. Strianese
Title: Vice President and Controller
The Bank of New York
By:______________________________
Name:
Title:
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EXHIBIT A-1
(Face of Note)
CUSIP/CINS ____________
10 3/8% Senior Subordinated Notes due 2007
No. ___ $__________
L-3 COMMUNICATIONS CORPORATION
promises to pay to __________________________________________________
or registered assigns,
the principal sum of ________________________________________________
Dollars on May 1, 2007.
Interest Payment Dates: May 1, and November 1
Record Dates: April 15, and October 15
Dated: _______________, 199__
L-3 Communications Corporation
By:______________________________
Name:
Title:
By:______________________________
Name:
Title:
This is one of the [Global]
Notes referred to in the (SEAL)
within-mentioned Indenture:
Dated:
The Bank of New York,
as Trustee
By:__________________________________
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(Back of Note)
10 3/8% Senior Subordinated Notes due 2007
[THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY
BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE
MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE
INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL
NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN
CONSENT OF THE COMPANY.]
[THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISION OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY
EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY
MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) TO A PERSON WHOM
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN
PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF
THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.]
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
- --------------------
This paragraph should be included only if the Note is issued in global form.
This paragraph should be included only if applicable pursuant to the terms of
the Indenture.
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1. Interest. L-3 Communications Corporation, a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at 10
3/8% per annum from April 30, 1997 until maturity and shall pay the Liquidated
Damages payable pursuant to Section 5 of the Registration Rights Agreement
referred to below. The Company will pay interest and Liquidated Damages, if
any, semi-annually on May 1 and November 1 of each year, or if any such day is
not a Business Day, on the next succeeding Business Day (each an "Interest
Payment Date"), with the same force and effect as if made on the date for such
payment. Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to
on the face hereof and the next succeeding Interest Payment Date, interest
shall accrue from such next succeeding Interest Payment Date; provided,
further, that the first Interest Payment Date shall be November 1, 1997. The
Company shall pay interest (including post-petition interest in any proceeding
under any Bankruptcy Law) on overdue principal and premium, if any, from time
to time on demand at the rate then in effect to the extent lawful; it shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Notes (except
defaulted interest) and Liquidated Damages to the Persons who are registered
Holders of Notes at the close of business on the April 15 or October 15 next
(whether or not a Business Day) preceding the Interest Payment Date, even if
such Notes are cancelled after such record date and on or before such Interest
Payment Date, except as provided in Section 2.12 of the Indenture with respect
to defaulted interest. The Notes will be payable as to principal, premium and
Liquidated Damages, if any, and interest at the office or agency of the Company
maintained for such purpose within The City and State of New York, or, at the
option of the Company, payment of interest and Liquidated Damages may be made
by check mailed to the Holders at their addresses set forth in the register of
Holders, and provided that payment by wire transfer of immediately available
funds will be required with respect to principal of and interest, premium and
Liquidated Damages on, all Global Notes and all other Notes the Holders of
which shall have provided wire transfer instructions to the Company or the
Paying Agent if such Holders shall be registered Holders of at least $250,000
in principal amount of the Notes. Such payment shall be in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
3. Paying Agent and Registrar. Initially, The Bank of New York, the
Trustee under the Indenture, will act as Paying Agent and Registrar. The
Company may change any Paying Agent or Registrar without notice to any
Holder. The Company or any of its Subsidiaries may act in any such capacity.
4. Indenture. The Company issued the Notes under an Indenture dated as
of April 30, 1997 ("Indenture") between the Company and the Trustee. The
terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended
(15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such
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terms, and Holders are referred to the Indenture and such Act for a statement
of such terms. To the extent any provision of this Note conflicts with the
express provisions of the Indenture, the provisions of the Indenture shall
govern and be controlling. The Notes are obligations of the Company limited to
$225.0 million in aggregate principal amount, plus amounts, if any, issued to
pay Liquidated Damages on outstanding Notes as set forth in Paragraph 2 hereof.
5. Optional Redemption.
(a) Except as set forth in clause (b) of this paragraph 5, the Notes
shall not be redeemable at the Company's option prior to May 1, 2002.
Thereafter, the Notes shall be subject to redemption at any time at the option
of the Company, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the applicable redemption date, if redeemed during the
twelve-month period beginning on May 1 of the years indicated below:
Year Percentage
---- ----------
2002 . . . . . . . . . . . . . . . . . 105.188%
2003 . . . . . . . . . . . . . . . . . 103.458%
2004 . . . . . . . . . . . . . . . . 101.729%
2005 and thereafter . . . . . . . . . 100.000%
(b) Notwithstanding the foregoing, during the first 36 months after
the date of the Indenture, the Company may on any one or more occasions redeem
up to an aggregate of 35% of the Notes originally issued at a redemption price
of 109.375% of the principal amount thereof, plus accrued and unpaid interest
and Liquidated Damages thereon, if any, to the redemption date, with the net
cash proceeds of one or more Equity Offerings by the Company or the net cash
proceeds of one or more Equity Offerings by Holdings that are contributed to
the Company as common equity capital; provided that at least 65% of the Notes
originally issued remain outstanding immediately after the occurrence of each
such redemption; and provided, further, that any such redemption must occur
within 120 days of the date of the closing of such Equity Offering.
6. Mandatory Redemption.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption payments with respect to the Notes.
7. Repurchase at Option of Holder.
(a) If there is a Change of Control, the Company shall be required to make
an offer (a "Change of Control Offer") to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of each Holder's Notes at a purchase
price equal to 101% of aggregate principle amount thereof plus accrued and
unpaid interest, if any, to the date of purchase (in either case, the "Change
of Control Payment"). Within 10 days following any Change of Control, the
Company shall mail a notice to each Holder setting forth the procedures
governing the Change of Control Offer as required by the Indenture.
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(b) If the Company or a Subsidiary consummates any Asset Sales, within
five Business Days of each date on which the aggregate amount of Excess
Proceeds exceeds $10.0 million, the Company shall commence an offer to all
Holders of Notes (as "Asset Sale Offer") pursuant to Section 3.09 of the
Indenture to purchase the maximum principal amount of Notes that may be
purchased out of the Excess Proceeds at an offer price in cash in an amount
equal to 100% thereof on the date fixed for the closing of such offer or 100%
of the principal amount thereof plus accrued and unpaid interest, if any, to
the date fixed for the closing of such offer, in accordance with the procedures
set forth in the Indenture. To the extent that the aggregate amount of Notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company (or such Subsidiary) may use such deficiency for general corporate
purposes. If the aggregate principal amount of Notes surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes to be purchased on a pro rata basis. Holders of Notes that are the
subject of an offer to purchase will receive an Asset Sale Offer from the
Company prior to any related purchase date and may elect to have such Notes
purchased by completing the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Notes.
8. Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions
thereof called for redemption.
9. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000.
The transfer of Notes may be registered and Notes may be exchanged as provided
in the Indenture. The Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and
the Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date
and the corresponding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the then outstanding
Notes, and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. Without the consent
of any Holder of a Note, the Indenture or the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such
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Holder, or to comply with the requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture Act.
12. Defaults and Remedies. An "Event of Default" occurs if: (i) default
for 30 days in the payment when due of interest on, or Liquidated Damages with
respect to, the Notes (whether or not prohibited by the subordination
provisions of the Indenture); (ii) default in payment when due of the principal
of or premium, if any, on the Notes (whether or not prohibited by the
subordination provisions of the Indenture); (iii) failure by the Company to
comply with the covenants contained in sections 4.10, 4.15 or 5.10 of the
Indenture; (iv) failure by the Company for 60 days after notice to comply with
any of its other agreements in the Indenture or the Notes; (v) default under
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness for money borrowed by
the Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the Issue Date, which
default results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness the maturity
of which has been so accelerated, aggregates $10.0 million or more; (vi)
failure by the Company or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $10.0 million, which judgments are not paid,
discharged or stayed for a period of 60 days; (vii) certain events of
bankruptcy or insolvency with respect to the Company or any of its Significant
Subsidiaries; and (viii) except as permitted by the Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately; provided, however,
that so long as any Designated Senior Debt is outstanding, such declaration
shall not become effective until the earlier of (i) the day which is five
Business Days after receipt by the Representatives of Designated Senior Debt of
such notice of acceleration or (ii) the date of acceleration of any Designated
Senior Debt. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, with respect to the
Company or any Restricted Subsidiary, all outstanding Notes will become due and
payable without further action or notice. Holders of the Notes may not enforce
the Indenture or the Notes except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs
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prior to May 1, 2002 by reason of any willful action (or inaction) taken (or
not taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to May 1, 2002, then the premium
specified in the Indenture shall also become immediately due and payable to the
extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
13. Trustee Dealings with Company. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not the Trustee.
14. No Recourse Against Others. A director, officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obligations of the Company under the Notes or the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
15. Authentication. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. Additional Rights of Holders of Transfer Restricted Securities. In
addition to the rights provided to Holders of Notes under the Indenture,
Holders of Transferred Restricted Securities shall have all the rights set
forth in the A/B Exchange Registration Rights Agreement dated as of April 30,
1997, between the Company and the parties named on the signature pages thereof
(the "Registration Rights Agreement").
18. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
19. The internal law of the State of New York shall govern and be used to
construe this Note, without regard to the principles of conflicts of laws.
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The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
L-3 Communications Corporation
600 Third Avenue, 34th Floor,
New York, New York 10016
Attention: Vice President-Finance (Fax: 212-805-5470)
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Assignment Form
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- ----------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ____________________________________________ to
transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- ----------------------------------------------------------------------------
Date: _____________________________
Your Signature:____________________________________
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee.
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Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
/_/ Section 4.10 /_/ Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased: $___________
Date:____________________ Your Signature:________________________________
(Sign exactly as your name appears on the Note)
Tax Identification No.: _______________________
Signature Guarantee.
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SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note,
have been made:
Principal
Amount of Amount of Amount of this Signature of
decrease in increase in Global Note authorized
Principal Principal following such officer of
Date of Amount of this Amount of this decrease (or Trustee or Note
Exchange Global Note Global Note increase) Custodian
- -------- --------------- --------------- --------------- --------------
- --------------------
This should be included only if the Note is issued in global form.
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EXHIBIT A-2
(Face of Regulation S Temporary Global Note)
CUSIP/CINS __________
10 3/8% Senior Subordinated Notes due 2007
No. ___ $__________
L-3 Communications Corporation
promises to pay to ____________________________________________________
or registered assigns,
the principal sum of ___________________________________________________
Dollars on ___________, 2007.
Interest Payment Dates: May 1, and November 1
Record Dates: April 15, and October 15
Dated: _______________, 199__
L-3 Communications Corporation
By:______________________________
Name:
Title:
By:______________________________
Name:
Title:
This is one of the [Global]
Notes referred to in the (SEAL)
within-mentioned Indenture:
Dated:
The Bank of New York,
as Trustee
By:__________________________________
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(Back of Regulation S Temporary Global Note)
10 3/8% Senior Subordinated Notes due 2007
[THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON.]
[THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY
BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE
MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE
INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL
NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN
CONSENT OF THE COMPANY.]
[THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISION OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY
EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY
MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) TO A PERSON WHOM
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN
PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF
THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.]
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This paragraph should be included only if applicable pursuant to the terms of
the Indenture.
This paragraph should be included only if the Note is issued in global form.
This paragraph should be included only if applicable pursuant to the terms of
the Indenture.
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Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. Interest. L-3 Communications Corporation, a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at 10
3/8% per annum from April 30, 1997 until maturity and shall pay the Liquidated
Damages payable pursuant to Section 5 of the Registration Rights Agreement
referred to below. The Company will pay interest and Liquidated Damages, if
any, semi-annually on May 1 and November 1 of each year, or if any such day is
not a Business Day, on the next succeeding Business Day (each an "Interest
Payment Date"), with the same force and effect as if made on the date for such
payment. Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to
on the face hereof and the next succeeding Interest Payment Date, interest
shall accrue from such next succeeding Interest Payment Date; provided,
further, that the first Interest Payment Date shall be November 1, 1997. The
Company shall pay interest (including post-petition interest in any proceeding
under any Bankruptcy Law) on overdue principal and premium, if any, from time
to time on demand at the rate then in effect to the extent lawful; it shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
Until this Regulation S Temporary Global Note is exchanged for one or
more Regulation S Permanent Global Notes, the Holder hereof shall not be
entitled to receive payments of interest hereon; until so exchanged in full,
this Regulation S Temporary Global Note shall in all other respects be entitled
to the same benefits as other Senior Subordinated Notes under the Indenture.
2. Method of Payment. The Company will pay interest on the Notes (except
defaulted interest) and Liquidated Damages to the Persons who are registered
Holders of Notes at the close of business on the April 15 or October 15
(whether or not a Business Day) next preceding the Interest Payment Date, even
if such Notes are cancelled after such record date and on or before such
Interest Payment Date, except as provided in Section 2.12 of the Indenture with
respect to defaulted interest. The Notes will be payable as to principal,
premium, interest and Liquidated Damages at the office or agency of the Company
maintained for such purpose within The City and State of New York, or, at the
option of the Company, payment of interest and Liquidated Damages may be made
by check mailed to the Holders at their addresses set forth in the register of
Holders, and provided that payment by wire transfer of immediately available
funds will be required with respect to principal of and interest, premium and
Liquidated Damages on, all Global Notes and all other Notes the Holders of
which shall have provided wire transfer instructions to the Company or the
Paying Agent if such Holders shall be registered Holders of at least $25,000 in
principal amount of the Notes. Such payment shall be in such coin or currency
of the United States of America as at the time of payment is legal tender for
payment of public and private debts.
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3. Paying Agent and Registrar. Initially, The Bank of New York, the
Trustee under the Indenture, will act as Paying Agent and Registrar. The
Company may change any Paying Agent or Registrar without notice to any
Holder. The Company or any of its Subsidiaries may act in any such capacity.
4. Indenture. The Company issued the Notes under an Indenture dated as of
April 30, 1997 ("Indenture") between the Company and the Trustee. The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S.
Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of such
terms. To the extent any provision of this Note conflicts with the express
provisions of the Indenture, the provisions of the Indenture shall govern and
be controlling. The Notes are obligations of the Company limited to $225.0
million in aggregate principal amount, plus amounts, if any, issued to pay
Liquidated Damages on outstanding Notes as set forth in Paragraph 2 hereof.
5. Optional Redemption.
The Notes shall not be redeemable at the Company's option prior to
May 1, 2002. Thereafter, the Notes shall be subject to redemption at any time
at the option of the Company, in whole or in part, upon not less than 30 nor
more than 60 days' notice, at the redemption prices (expressed as percentages
of principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on May 1 of the years
indicated below:
Year Percentage
---- ----------
2002 . . . . . . . . . . . . . . . . . 105.188%
2003 . . . . . . . . . . . . . . . . . 103.458%
2004 . . . . . . . . . . . . . . . . 101.729%
2005 and thereafter . . . . . . . . . 100.000%
Notwithstanding the foregoing, during the first 36 months after the
date of the Indenture, the Company may on any one or more occasions redeem up
to an aggregate of 35% of the Notes originally issued at a redemption price of
109.375% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the redemption date, with the net cash
proceeds of one or more Equity Offerings by the Company or the net cash
proceeds of one or more Equity Offerings by Holdings that are contributed to
the Company as common equity capital; provided that at least 65% of the Notes
originally issued remain outstanding immediately after the occurrence of each
such redemption; and provided, further, that any such redemption must occur
within 120 days of the date of the closing of such Equity Offering.
6. Mandatory Redemption.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption payments with respect to the Notes.
7. Repurchase at Option of Holder.
(a) If there is a Change of Control, the Company shall be required to make
an offer (a "Change of Control Offer") to repurchase all or any part
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(equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a
purchase price equal to 101% thereof on the date of purchase or 101% of the
aggregate principal amount at maturity thereof plus accrued and unpaid
interest, if any, to the date of purchase (in either case, the "Change of
Control Payment"). Within 10 days following any Change of Control, the Company
shall mail a notice to each Holder setting forth the procedures governing the
Change of Control Offer as required by the Indenture.
(b) If the Company or a Subsidiary consummates any Asset Sales, within
five Business Days of each date on which the aggregate amount of Excess
Proceeds exceeds $10.0 million, the Company shall commence an offer to all
Holders of Notes (as "Asset Sale Offer") pursuant to Section 3.09 of the
Indenture to purchase the maximum principal amount of Notes that may be
purchased out of the Excess Proceeds at an offer price in cash in an amount
equal to 100% thereof on the date fixed for the closing of such offer or 100%
of the principal amount thereof plus accrued and unpaid interest, if any, to
the date fixed for the closing of such offer, in accordance with the procedures
set forth in the Indenture. To the extent that the aggregate amount of Notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company (or such Subsidiary) may use such deficiency for general corporate
purposes. If the aggregate principal amount of Notes surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes to be purchased on a pro rata basis. Holders of Notes that are the
subject of an offer to purchase will receive an Asset Sale Offer from the
Company prior to any related purchase date and may elect to have such Notes
purchased by completing the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Notes.
8. Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions
thereof called for redemption.
9. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000.
The transfer of Notes may be registered and Notes may be exchanged as provided
in the Indenture. The Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and
the Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date
and the corresponding Interest Payment Date.
This Regulation S Temporary Global Note is exchangeable in whole or
in part for one or more Global Notes only (i) on or after the termination of
the 40-day restricted period (as defined in Regulation S) and (ii) upon
presentation of certificates (accompanied by an Opinion of Counsel, if
applicable) required by Article 2 of the Indenture. Upon exchange of this
Regulation S Temporary Global Note for one or more Global Notes, the Trustee
shall cancel this Regulation S Temporary Global Note.
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10. Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the then outstanding
Notes, and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. Without the consent
of any Holder of a Note, the Indenture or the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, or to
comply with the requirements of the Commission in order to effect or maintain
the qualification of the Indenture under the Trust Indenture Act.
12. Defaults and Remedies. An "Event of Default" occurs if: (i) default
for 30 days in the payment when due of interest on, or Liquidated Damages with
respect to, the Notes (whether or not prohibited by the subordination
provisions of the Indenture); (ii) default in payment when due of the principal
of or premium, if any, on the Notes (whether or not prohibited by the
subordination provisions of the Indenture); (iii) failure by the Company to
comply with the covenants contained in sections 4.10, 4.15 or 5.10 of the
Indenture; (iv) failure by the Company for 60 days after notice to comply with
any of its other agreements in the Indenture or the Notes; (v) default under
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness for money borrowed by
the Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the Issue Date, which
default results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness the maturity
of which has been so accelerated, aggregates $10.0 million or more; (vi)
failure by the Company or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $10.0 million, which judgments are not paid,
discharged or stayed for a period of 60 days; (vii) certain events of
bankruptcy or insolvency with respect to the Company or any of its Significant
Subsidiaries; and (viii) except as permitted by the Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately; provided, however,
that so long as any Designated Senior Debt is outstanding, such declaration
shall not become effective until the earlier of (i) the day which is five
Business Days after receipt by the Representatives of Designated Senior Debt of
such notice of acceleration or (ii) the date of acceleration of any Designated
Senior Debt. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, with respect to the
Company or any Restricted Subsidiary, all outstanding
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Notes will become due and payable without further action or notice. Holders of
the Notes may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders of the Notes notice
of any continuing Default or Event of Default (except a Default or Event of
Default relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to May
1, 2002 by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to May 1, 2002, then the premium specified in the
Indenture shall also become immediately due and payable to the extent permitted
by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
13. Trustee Dealings with Company. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not the Trustee.
14. No Recourse Against Others. A director, officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obligations of the Company under the Notes or the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
15. Authentication. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. Additional Rights of Holders of Transfer Restricted Securities. In
addition to the rights provided to Holders of Notes under the Indenture,
Holders of Transferred Restricted Securities shall have all the rights set
forth in the A/B Exchange Registration Rights Agreement dated as of April 30,
1997, between the Company and the parties named on the signature pages thereof
(the "Registration Rights Agreement").
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18. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
19. The internal law of the State of New York shall govern and be used to
construe this Note, without regard to the principles of conflicts of laws.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
L-3 Communications Corporation
600 Third Avenue, 34th Floor,
New York, New York 10016
Attention: Vice President-Finance (Fax: 212-805-5470)
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Assignment Form
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- ----------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ______________________________________________ to
transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- ----------------------------------------------------------------------------
Your Signature:____________________________________
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee.
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Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
/_/ Section 4.10 /_/ Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased: $___________
Date:____________________ Your Signature:________________________________
(Sign exactly as your name appears on the Note)
Tax Identification No.: _______________________
Signature Guarantee.
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SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Regulation S Temporary
Global Note for an interest in another Global Note, or of other Restricted
Global Notes for an interest in this Regulation S Temporary Global Note, have
been made:
Principal
Amount of Amount of Amount of this Signature of
decrease in increase in Global Note authorized
Principal Principal following such officer of
Date of Amount of this Amount of this decrease (or Trustee or Note
Exchange Global Note Global Note increase) Custodian
- -------- --------------- --------------- --------------- --------------
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This should be included only if the Note is issued in global form.
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FORM OF CERTIFICATE OF TRANSFER
L-3 Communications Corporation
600 Third Avenue, 34th Floor,
New York, New York 10016
[Registrar address block]
Re: 10 3/8% Senior Subordinated Notes, Due 2007.
Reference is hereby made to the Indenture, dated as of April 30, 1997
(the "Indenture"), between L-3 Communications Corporation, as issuer (the
"Company"), and The Bank of New York, as trustee. Capitalized terms used but
not defined herein shall have the meanings given to them in the Indenture.
______________, (the "Transferor") owns and proposes to transfer the
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
to __________ (the "Transferee"), as further specified in Annex A hereto. In
connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. /_/ Check if Transferee will take delivery of Book-Entry Interests in the
144A Global Note or Definitive Notes Pursuant to Rule 144A. The Transfer is
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the Book-Entry
Interests or Definitive Notes are being transferred to a Person that the
Transferor reasonably believes is purchasing the Book-Entry Interests or
Definitive Notes for its own account, or for one or more accounts with respect
to which such Person exercises sole investment discretion, and such Person and
each such account is a "qualified institutional buyer" within the meaning of
Rule 144A in a transaction meeting the requirements of Rule 144A and such
Transfer is in compliance with any applicable blue sky securities laws of any
state of the United States. Upon consummation of the proposed Transfer in
accordance with the terms of the Indenture, the transferred Book-Entry
Interest or Definitive Note will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the 144A Global Note
and/or the Definitive Note and in the Indenture and the Securities Act.
2. /_/ Check if Transferee will take delivery of Book-Entry Interests in the
Temporary Regulation S Global Note, the Regulation S Global Note or Definitive
Notes pursuant to Regulation S. The Transfer is being effected pursuant to and
in accordance with Rule 903 or Rule 904 under the Securities Act and,
accordingly, the Transferor hereby further certifies that (i) the Transfer is
not being made to a person in the United States and (x) at the time the buy
order was originated, the Transferee was outside the United States or such
Transferor and any Person acting on its behalf reasonably believed and believes
that the Transferee was outside the United States or (y) the transaction was
executed in, on or through the facilities of a designated offshore securities
market and neither such Transferor nor any
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Person acting on its behalf knows that the transaction was prearranged with a
buyer in the United States, (ii) no directed selling efforts have been made in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S
under the Securities Act and (iii) the transaction is not part of a plan or
scheme to evade the registration requirements of the Securities Act and (iv) if
the proposed transfer is being made prior to the expiration of the Restricted
Period, the transfer is not being made to a U.S. Person or for the account or
benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation
of the proposed transfer in accordance with the terms of the Indenture, the
transferred Book-Entry Interest or Definitive Note will be subject to the
restrictions on Transfer enumerated in the Private Placement Legend printed on
the Regulation S Global Note and/or the Definitive Note and in the Indenture
and the Securities Act.
3. /_/ Check and complete if Transferee will take delivery of Book-Entry
Interests in the IAI Global Note or Definitive Notes pursuant to any provision
of the Securities Act other than Rule 144A or Regulation S. The Transfer is
being effected in compliance with the transfer restrictions applicable to
Book-Entry Interests in Restricted Global Notes and Definitive Notes bearing
the Private Placement Legend and pursuant to and in accordance with the
Securities Act and any applicable blue sky securities laws of any State of the
United States, and accordingly the Transferor hereby further certifies that
(check one):
(a) /_/ such Transfer is being effected pursuant to and in accordance
with Rule 144 under the Securities Act;
or
(b) /_/ such Transfer is being effected to the Company or a subsidiary
thereof,
or
(c) /_/ such Transfer is being effected pursuant to an effective
registration statement under the Securities Act;
or
(d) /_/ such Transfer is being effected to an Institutional Accredited
Investor and pursuant to an exemption from the registration requirements of the
Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor
hereby further certifies that the Transfer complies with the transfer
restrictions applicable to Book-Entry Interests in a Restricted Global Note or
Definitive Notes bearing the Private Placement Legend and the requirements of
the exemption claimed, which certification is supported by (x) if such Transfer
is in respect of a principal amount of Notes at the time of Transfer of
$250,000 or more, a certificate executed by the Transferee in the form of
Exhibit D to the Indenture, or (y) if such Transfer is in respect of a
principal amount of Notes at the time of transfer of less than $250,000, (1) a
certificate executed by the Transferee in the form of Exhibit D to the
Indenture and (2) an Opinion of Counsel provided by the Transferor or the
Transferee (a copy of which the Transferor has attached to this certification),
to the effect that (1) such Transfer is in compliance with the Securities Act
and (2) such Transfer complies with any applicable blue sky securities laws of
any state of the United States. Upon consummation of the proposed transfer in
accordance with the terms of the Indenture, the
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transferred Book-Entry Interest or Definitive Note will be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the IAI Global Note and/or the Definitive Notes and in the Indenture and the
Securities Act.
4. /_/ Check if Transferee will take delivery of Book-Entry Interests in
the Unrestricted Global Note or in Definitive Notes that do not bear the
Private Placement Legend.
(a) /_/ Check if Transfer is pursuant to Rule 144. (i) The Transfer is
being effected pursuant to and in accordance with Rule 144 under the Securities
Act and in compliance with the transfer restrictions contained in the Indenture
and any applicable blue sky securities laws of any state of the United States
and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred Book-Entry Interests or
Definitive Notes will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Definitive Notes bearing the Private Placement Legend and in the
Indenture.
(b) /_/ Check if Transfer is Pursuant to Regulation S. (i) The Transfer is
being effected pursuant to and in accordance with Rule 903 or Rule 904 under
the Securities Act and in compliance with the transfer restrictions contained
in the Indenture and any applicable blue sky securities laws of any state of
the United States and (ii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
Book-Entry Interests or Definitive Notes will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Definitive Notes bearing the Private Placement
Legend and in the Indenture.
(c) /_/ Check if Transfer is Pursuant to Other Exemption. (i) The Transfer
is being effected pursuant to and in compliance with an exemption from the
registration requirements of the Securities Act other than Rule 144, Rule 903
or Rule 904 and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred Book-Entry
Interests or Definitive Notes will not be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted
Global Notes or Definitive Notes bearing the Private Placement Legend and in
the Indenture.
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This certificate and the statements contained herein are made for
your benefit and the benefit of the Company.
------------------------------------
[Insert Name of Transferor]
By: _________________________
Name:
Title:
Dated: ______________, ____
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ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) /_/ Book-Entry Interests in the:
(i) /_/ 144A Global Note (CUSIP ________), or
(ii) /_/ Regulation S Global Note (CUSIP ________), or
(iii) /_/ IAI Global Note (CUSIP ________); or
(b) /_/ Restricted Definitive Notes.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) /_/ Book-Entry Interests in the:
(i) /_/ 144A Global Note (CUSIP ________), or
(ii) /_/ Regulation S Global Note (CUSIP ________), or
(iii) /_/ IAI Global Note (CUSIP ________); or
(iv) /_/ Unrestricted Global Note (CUSIP ________); or
(b) /_/ Restricted Definitive Notes; or
(c) /_/ Definitive Notes that do not bear the Private Placement
Legend,
in accordance with the terms of the Indenture.
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FORM OF CERTIFICATE OF EXCHANGE
L-3 Communications Corporation
600 Third Avenue, 34th Floor,
New York, New York 10016
Attention: Vice President-Finance (Fax: 212-805-5470)
Re:10 3/8% Senior Subordinated Notes, Due 2007
(CUSIP ________)
Reference is hereby made to the Indenture, dated as of April __, 1997
(the "Indenture"), between L-3 Communications Corporation, as issuer (the
"Company"), and The Bank of New York, as trustee. Capitalized terms used but
not defined herein shall have the meanings given to them in the Indenture.
______________, (the "Holder") owns and proposes to exchange the
Note[s] or interest in such Note[s] specified herein, in the principal amount
of $____________ in such Note[s] or interests (the "Exchange"). In connection
with the Exchange, the Holder hereby certifies that:
1. Exchange of Restricted Definitive Notes or Restricted Book-Entry
Interests for Definitive Notes that do not bear the Private Placement Legend
or Unrestricted Book-Entry Interests
(a) /_/ Check if Exchange is from Restricted Book-Entry Interest to
Unrestricted Book-Entry Interest. In connection with the Exchange of the
Holder's Restricted Book-Entry Interest for Unrestricted Book-Entry Interests
in an equal principal amount, the Holder hereby certifies (i) the Unrestricted
Book-Entry Interests are being acquired for the Holder's own account without
transfer, (ii) such Exchange has been effected in compliance with the transfer
restrictions applicable to the Global Notes and pursuant to and in accordance
with the United States Securities Act of 1933, as amended (the "Securities
Act"), (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act and (iv) the Unrestricted Book-Entry Interests are being
acquired in compliance with any applicable blue sky securities laws of any
state of the United States.
(b) /_/ Check if Exchange is from Restricted Book-Entry Interest to
Definitive Notes that do not bear the Private Placement Legend. In connection
with the Exchange of the Holder's Restricted Book-Entry Interests for
Definitive Notes that do not bear the Private Placement Legend, the Holder
hereby certifies (i) the Definitive Notes are being acquired for the Holder's
own account without transfer, (ii) such Exchange has been effected in
compliance with the transfer restrictions applicable to the Restricted Global
Notes and pursuant to and in accordance with the Securities Act, (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the Definitive Notes are being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
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(c) /_/ Check if Exchange is from Restricted Definitive Notes to
Unrestricted Book-Entry Interests. In connection with the Holder's Exchange of
Restricted Definitive Notes for Unrestricted Book-Entry Interests, (i) the
Unrestricted Book-Entry Interests are being acquired for the Holder's own
account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions
on transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Book-Entry Interests are being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
(d) /_/ Check if Exchange is from Restricted Definitive Notes to
Definitive Notes that do not bear the Private Placement Legend. In connection
with the Holder's Exchange of a Restricted Definitive Note for Definitive Notes
that do not bear the Private Placement Legend, the Holder hereby certifies (i)
the Definitive Notes that do not bear the Private Placement Legend are being
acquired for the Holder's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to
Restricted Definitive Notes and pursuant to and in accordance with the
Securities Act, (iii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the Notes are being acquired in
compliance with any applicable blue sky securities laws of any state of the
United States.
2. Exchange of Restricted Definitive Notes or Restricted Book-Entry
Interests for Restricted Definitive Notes or Restricted Book-Entry Interests
(a) /_/ Check if Exchange is from Restricted Book-Entry Interests to
Restricted Definitive Note. In connection with the Exchange of the Holder's
Restricted Book-Entry Interest for Restricted Definitive Notes with an equal
principal amount, (i) the Restricted Definitive Notes are being acquired for
the Holder's own account without transfer and (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the Securities
Act, and in compliance with any applicable blue sky securities laws of any
state of the United States. Upon consummation of the proposed Exchange in
accordance with the terms of the Indenture, the Restricted Definitive Notes
issued will be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the Restricted Definitive Notes and in the
Indenture and the Securities Act.
(b) /_/ Check if Exchange is from Restricted Definitive Notes to
Restricted Book-Entry Interests. In connection with the Exchange of the
Holder's Restricted Definitive Note for Restricted Book-Entry Interests in the
[CHECK ONE] /_/ 144A Global Note, /_/ Regulation S Global Note, /_/ IAI Global
Note with an equal principal amount, (i) the Definitive Notes are being
acquired for the Holder's own account without transfer and (ii) such Exchange
has been effected in compliance with the transfer restrictions applicable to
the Restricted Definitive Note and pursuant to and in accordance with the
Securities Act, and in compliance with any applicable blue sky securities laws
of any state of the United States. Upon consummation of the proposed Exchange
in accordance with the terms of the Indenture, the Book-Entry Interests issued
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed
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on the relevant Restricted Global Note and in the Indenture and the
Securities Act.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company.
------------------------------------
[Insert Name of Holder]
By: _________________________
Name:
Title:
Dated: _____________, ______
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FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
L-3 Communications Corporation
600 Third Avenue, 34th Floor,
New York, New York 10016
Attention: Vice President-Finance (Fax: 212-805-5470)
Re: 10 3/8% Senior Subordinated Notes, Due 2007
Reference is hereby made to the Indenture, dated as of April 30, 1997
(the "Indenture"), between L-3 Communications Corporation, as issuer (the
"Company"), and The Bank of New York, as trustee. Capitalized terms used but
not defined herein shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount at maturity of:
(a) /_/ Book-Entry Interests, or
(b) /_/ Definitive Notes,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes and any interest
therein may not be offered or sold except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for which
we are acting as hereinafter stated, that if we should sell the Notes or any
interest therein, we will do so only (A) to the Company or any subsidiary
thereof, (B) in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined therein), (C) to an institutional
"accredited investor" (as defined below) that, prior to such transfer,
furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and
to the Company a signed letter substantially in the form of this letter and, if
such transfer is in respect of a principal amount of Notes, at the time of
transfer of less than $250,000, an Opinion of Counsel in form reasonably
acceptable to the Company to the effect that such transfer is in compliance
with the Securities Act, (D) outside the United States in accordance with Rule
904 of Regulation S under the Securities Act, (E) pursuant to the provisions of
Rule 144 under the Securities Act or (F) pursuant to an effective registration
statement under the Securities Act, and we further agree to provide to any
person purchasing the Definitive Notes or Book-Entry Interests from us in a
transaction meeting the requirements of clauses (A) through (E) of this
paragraph a notice advising such purchaser that resales thereof are restricted
as stated herein.
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3. We understand that, on any proposed resale of the Notes or
Book-Entry Interests, we will be required to furnish to you and the Company
such certifications, legal opinions and other information as you and the
Company may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Notes purchased by
us will bear a legend to the foregoing effect. We further understand that any
subsequent transfer by us of the Notes or Book-Entry Interests therein acquired
by us must be effected through one of the Placement Agents.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting are each able to bear the economic
risk of our or its investment.
5. We are acquiring the Notes or Book-Entry Interests purchased by us
for our own account or for one or more accounts (each of which is an
institutional "accredited investor") as to each of which we exercise sole
investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby.
------------------------------------
[Insert Name of Accredited Investor]
By: _________________________
Name:
Title:
Dated: _____________, ______
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EXHIBIT E
Form of Supplemental Indenture to Be Delivered by Guaranteeing Subsidiary
Supplemental Indenture (this "Supplemental Indenture"), dated as of
________________, between __________________ (the "Guaranteeing Subsidiary"), a
subsidiary of L-3 Communications Corporation (or its permitted successor), a
Delaware corporation (the "Company"), and The Bank of New York, as trustee
under the indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of April 30, 1997 providing
for the issuance of an aggregate principal amount of up to $225,000,000 of
10 3/8% Senior Notes due 2007 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental
indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally
guarantee all of the Company's Obligations under the Notes and the Indenture on
the terms and conditions set forth herein (the "Subsidiary Guarantee"); and
WHEREAS, pursuant to Section 4.13 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees
as follows:
(a) The Guaranteeing Subsidiary, jointly and severally with all
other Guaranteeing Subsidiaries, if any, unconditionally
guarantees to each Holder of a Senior Note authenticated and
delivered by the Trustee and to the Trustee and its successors
and assigns, regardless of the validity and enforceability of
the Indenture, the Notes or the Obligations of the Company under
the Indenture or the Notes, that:
(i) the principal of, premium and interest on the Notes will be
promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the
overdue principal of, premium and interest on the Notes, to
the extent lawful, and all other Obligations of the Company to
the Holders or the Trustee thereunder or under the Indenture
will be promptly paid in full, all in accordance with the
terms thereof; and
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(ii) in case of any extension of time for payment or renewal of any
Notes or any of such other Obligations, that the same will be
promptly paid in full when due in accordance with the terms of
the extension or renewal, whether at stated maturity, by
acceleration or otherwise.
(b) Notwithstanding the foregoing, in the event that this Subsidiary
Guarantee would constitute or result in a violation of any
applicable fraudulent conveyance or similar law of any relevant
jurisdiction, the liability of the Guaranteeing Subsidiary under
this Supplemental Indenture and its Subsidiary Guarantee shall
be reduced to the maximum amount permissible under such
fraudulent conveyance or similar law.
3. Execution and Delivery of Subsidiary Guarantees.
(a) To evidence its Subsidiary Guarantee set forth in this
Supplemental Indenture, the Guaranteeing Subsidiary hereby
agrees that a notation of such Subsidiary Guarantee
substantially in the form of Exhibit F to the Indenture shall be
endorsed by an officer of such Guaranteeing Subsidiary on each
Senior Note authenticated and delivered by the Trustee after the
date hereof.
(b) Notwithstanding the foregoing, the Guaranteeing Subsidiary
hereby agrees that its Subsidiary Guarantee set forth herein
shall remain in full force and effect notwithstanding any
failure to endorse on each Senior Note a notation of such
Subsidiary Guarantee.
(c) If an Officer whose signature is on this Supplemental Indenture
or on the Subsidiary Guarantee no longer holds that office at
the time the Trustee authenticates the Senior Note on which a
Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall
be valid nevertheless.
(d) The delivery of any Senior Note by the Trustee, after the
authentication thereof under the Indenture, shall constitute due
delivery of the Subsidiary Guarantee set forth in this
Supplemental Indenture on behalf of the Guaranteeing
Subsidiary.
(e) The Guaranteeing Subsidiary hereby agrees that its obligations
hereunder shall be unconditional, regardless of the validity,
regularity or enforceability of the Notes or the Indenture,
the absence of any action to enforce the same, any waiver or
consent by any Holder of the Notes with respect to any
provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any
other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a guarantor.
(f) The Guaranteeing Subsidiary hereby waives diligence,
presentment, demand of payment, filing of claims with a court in
the event of insolvency or bankruptcy of the Company, any right
to require a proceeding first against the Company, protest,
notice and all demands whatsoever and covenants that
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its Subsidiary Guarantee made pursuant to this Supplemental
Indenture will not be discharged except by complete performance
of the obligations contained in the Notes and the Indenture.
(g) If any Holder or the Trustee is required by any court or
otherwise to return to the Company or the Guaranteeing
Subsidiary, or any Custodian, Trustee, liquidator or other
similar official acting in relation to either the Company or
the Guaranteeing Subsidiary, any amount paid by either to the
Trustee or such Holder, the Subsidiary Guarantee made pursuant
to this Supplemental Indenture, to the extent theretofore
discharged, shall be reinstated in full force and effect.
(h) The Guaranteeing Subsidiary agrees that it shall not be entitled
to any right of subrogation in relation to the Holders in
respect of any obligations guaranteed hereby until payment in
full of all obligations guaranteed hereby. The Guaranteeing
Subsidiary further agrees that, as between the Guaranteeing
Subsidiary, on the one hand, and the Holders and the Trustee, on
the other hand:
(i) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article 6 of the Indenture for
the purposes of the Subsidiary Guarantee made pursuant to
this Supplemental Indenture, notwithstanding any stay,
injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed
hereby; and
(ii) in the event of any declaration of acceleration of such
obligations as provided in Article 6 of the Indenture, such
obligations (whether or not due and payable) shall
forthwith become due and payable by the Guaranteeing
Subsidiary for the purpose of the Subsidiary Guarantee made
pursuant to this Supplemental Indenture.
(i) The Guaranteeing Subsidiary shall have the right to seek
contribution from any other non-paying Guaranteeing Subsidiary
so long as the exercise of such right does not impair the rights
of the Holders or the Trustee under the Subsidiary Guarantee
made pursuant to this Supplemental Indenture.
4. Guaranteeing Subsidiary May Consolidate, Etc. on Certain Terms.
(a) Except as set forth in Articles 4 and 5 of the Indenture,
nothing contained in the Indenture, this Supplemental
Indenture or in the Notes shall prevent any consolidation or
merger of the Guaranteeing Subsidiary with or into the Company
or any other Guaranteeing Subsidiary or shall prevent any
transfer, sale or conveyance of the property of the
Guaranteeing Subsidiary as an entirety or substantially as an
entirety, to the Company or any other Guaranteeing Subsidiary.
(b) Except as set forth in Article 4 of the Indenture, nothing
contained in the Indenture, this Supplemental Indenture or in
the Notes shall prevent any consolidation or merger of the
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Guaranteeing Subsidiary with or into a corporation or
corporations other than the Company or any other Guaranteeing
Subsidiary (in each case, whether or not affiliated with the
Guaranteeing Subsidiary), or successive consolidations or
mergers in which a Guaranteeing Subsidiary or its successor or
successors shall be a party or parties, or shall prevent any
sale or conveyance of the property of a Guaranteeing Subsidiary
as an entirety or substantially as an entirety, to a corporation
other than the Company or any other Guaranteeing Subsidiary (in
each case, whether or not affiliated with the Guaranteeing
Subsidiary) authorized to acquire and operate the same;
provided, however, that the Guaranteeing Subsidiary hereby
covenants and agrees that (i) subject to the Indenture, upon any
such consolidation, merger, sale or conveyance, the due and
punctual performance and observance of all of the covenants and
conditions of the Indenture and this Supplemental Indenture to
be performed by such Guaranteeing Subsidiary, shall be expressly
assumed (in the event that the Guaranteeing Subsidiary is not
the surviving corporation in the merger), by supplemental
indenture satisfactory in form to the Trustee, executed and
delivered to the Trustee, by the corporation formed by such
consolidation, or into which the Guaranteeing Subsidiary shall
have been merged, or by the corporation which shall have
acquired such property and (ii) immediately after giving effect
to such consolidation, merger, sale or conveyance no Default or
Event of Default exists.
(c) In case of any such consolidation, merger, sale or conveyance
and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee
and satisfactory in form to the Trustee, of the Subsidiary
Guarantee made pursuant to this Supplemental Indenture and the
due and punctual performance of all of the covenants and
conditions of the Indenture and this Supplemental Indenture to
be performed by the Guaranteeing Subsidiary, such successor
corporation shall succeed to and be substituted for the
Guaranteeing Subsidiary with the same effect as if it had been
named herein as the Guaranteeing Subsidiary; provided that,
solely for purposes of computing Consolidated Net Income for
purposes of clause (b) of the first paragraph of Section 4.07
in the Indenture, the Consolidated Net Income of any Person
other than Central Tractor Farm & Country, Inc. and its
Restricted Subsidiaries shall only be included for periods
subsequent to the effective time of such merger,
consolidation, combination or transfer of assets. Such
successor corporation thereupon may cause to be signed any or
all of the Subsidiary Guarantees to be endorsed upon the Notes
issuable under the Indenture which theretofore shall not have
been signed by the Company and delivered to the Trustee. All
the Subsidiary Guarantees so issued shall in all respects have
the same legal rank and benefit under the Indenture and this
Supplemental Indenture as the Subsidiary Guarantees
theretofore and thereafter issued in accordance with the terms
of the Indenture and this Supplemental Indenture as though all
of such Subsidiary Guarantees had been issued at the date of
the execution hereof.
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5. Releases.
(a) Concurrently with any sale of assets (including, if
applicable, all of the Capital Stock of the Guaranteeing
Subsidiary), all Liens, if any, in favor of the Trustee in the
assets sold thereby shall be released; provided that in the
event of an Asset Sale, the Net Proceeds from such sale or other
disposition are treated in accordance with the provisions of
Section 4.10 of the Indenture. If the assets sold in such sale
or other disposition include all or substantially all of the
assets of the Guaranteeing Subsidiary or all of the Capital
Stock of the Guaranteeing Subsidiary, then the Guaranteeing
Subsidiary (in the event of a sale or other disposition of all
of the Capital Stock of such Guaranteeing Subsidiary) or the
Person acquiring the property (in the event of a sale or other
disposition of all or substantially all of the assets of such
Guaranteeing Subsidiary) shall be released from and relieved of
its obligations under this Supplemental Indenture and its
Subsidiary Guarantee made pursuant hereto; provided that in the
event of an Asset Sale, the Net Proceeds from such sale or other
disposition are treated in accordance with the provisions of
Section 4.10 of the Indenture. Upon delivery by the Company to
the Trustee of an Officers' Certificate to the effect that such
sale or other disposition was made by the Company or the
Guaranteeing Subsidiary, as the case may be, in accordance with
the provisions of the Indenture and this Supplemental Indenture,
including without limitation, Section 4.10 of the Indenture, the
Trustee shall execute any documents reasonably required in order
to evidence the release of the Guaranteeing Subsidiary from its
obligations under this Supplemental Indenture and its Subsidiary
Guarantee made pursuant hereto. If the Guaranteeing Subsidiary
is not released from its obligations under its Subsidiary
Guarantee, it shall remain liable for the full amount of
principal of and interest on the Notes and for the other
obligations of such Guaranteeing Subsidiary under the Indenture
as provided in this Supplemental Indenture.
(b) Upon the designation of a Guaranteeing Subsidiary as an
Unrestricted Subsidiary in accordance with the terms of the
Supplemental Indenture, such Guaranteeing Subsidiary shall be
released and relieved of its obligations under its Subsidiary
Guarantee and this Supplemental Indenture. Upon delivery by the
Company to the Trustee of an Officers' Certificate and an
Opinion of Counsel to the effect that such designation of such
Guaranteeing Subsidiary as an Unrestricted Subsidiary was made
by the Company in accordance with the provisions of this
Supplemental Indenture, also including without limitation
Section 4.07 of the Indenture, the Trustee shall execute any
documents reasonably required in order to evidence the release
of such Guaranteeing Subsidiary from its obligations under its
Subsidiary Guarantee. Any Guaranteeing Subsidiary not released
from its obligations under its Subsidiary Guarantee shall remain
liable for the full amount of principal of and interest on the
Notes and for the other obligations of any
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Guaranteeing Subsidiary under the Indenture as provided in
Article 10.
6. No Recourse Against Others. No past, present or future director,
officer, employee, incorporator, stockholder or agent of the Guaranteeing
Subsidiary, as such, shall have any liability for any obligations of the
Company or any Guaranteeing Subsidiary under the Notes, any Subsidiary
Guarantees, the Indenture or this Supplemental Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder of the Notes by accepting a Senior Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK
SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
8. Counterparts The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
9. Effect of Headings. The Section headings herein are for
convenience only and shall not affect the construction hereof.
10. The Trustee. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or for or in respect of the recitals contained herein,
all of which recitals are made solely by the Guaranteeing Subsidiary and the
Company.
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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: ____________ ___, ____ [GUARANTEEING SUBSIDIARY]
By: _______________________________
Name:
Title:
Dated: ____________ ___, ____ The Bank of New York
as Trustee
By: _______________________________
Name:
Title:
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EXHIBIT F
Form of Notation on Senior Subordinated Note Relating to Subsidiary Guarantee
Each Guaranteeing Subsidiary (as defined in the Supplemental
Indenture (the "Supplemental Indenture") among _______________ and
_________________, (i) has jointly and severally unconditionally guaranteed (a)
the due and punctual payment of the principal of, premium and interest on the
Notes, whether at maturity or an interest payment date, by acceleration, call
for redemption or otherwise, (b) the due and punctual payment of interest on
the overdue principal and premium of, and interest on the Notes, and (c) in
case of any extension of time of payment or renewal of any Notes or any of such
other obligations, the same will be promptly paid in full when due in
accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise and (ii) has agreed to pay any and all
costs and expenses (including reasonable attorneys' fees) incurred by the
Trustee or any Holder in enforcing any rights under this Subsidiary Guarantee.
Notwithstanding the foregoing, in the event that the Subsidiary
Guarantee of any Guaranteeing Subsidiary would constitute or result in a
violation of any applicable fraudulent conveyance or similar law of any
relevant jurisdiction, the liability of such Guaranteeing Subsidiary under its
Subsidiary Guarantee shall be reduced to the maximum amount permissible under
such fraudulent conveyance or similar law.
No past, present or future director, officer, employee, agent,
incorporator, stockholder or agent of any Guaranteeing Subsidiary, as such,
shall have any liability for any obligations of the Company or any Guaranteeing
Subsidiary under the Notes, any Subsidiary Guarantee, Indenture, any
supplemental indenture delivered pursuant to the Indenture by such Guaranteeing
Subsidiary or any Subsidiary Guarantees, or for any claim based on, in respect
of or by reason of such obligations or their creation. Each Holder by accepting
a Senior Note waives and releases all such liability.
This Subsidiary Guarantee shall be binding upon each Guaranteeing
Subsidiary and its successors and assigns and shall inure to the benefit of the
successors and assigns of the Trustee and the Holders and, in the event of any
transfer or assignment of rights by any Holder or the Trustee, the rights and
privileges herein conferred upon that party shall automatically extend to and
be vested in such transferee or assignee, all subject to the terms and
conditions hereof.
This Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Senior Note upon which
this Subsidiary Guarantee is noted have been executed by the Trustee under
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the Indenture by the manual signature of one of its authorized officers.
Capitalized terms used herein have the meaning assigned to them in the
Indenture.
[GUARANTEEING SUBSIDIARY]
By:_______________________
Name:
Title:
127
<PAGE>
EXHIBIT 10.3
STOCKHOLDERS AGREEMENT
DATED AS OF APRIL 30, 1997
Among
L-3 COMMUNICATIONS HOLDINGS, INC.
LOCKHEED MARTIN CORPORATION,
LEHMAN BROTHERS CAPITAL PARTNERS III, L.P.,
LEHMAN BROTHERS HOLDINGS INC.,
FRANK C. LANZA,
and
ROBERT V. LAPENTA
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . 2
ARTICLE II
RESTRICTIONS ON TRANSFERS
Section 2.1. Transfers in Accordance with this Agreement . . 6
Section 2.2. Agreement to be Bound . . . . . . . . . . . . . 6
Section 2.3. Legend . . . . . . . . . . . . . . . . . . . . 6
Section 2.4. Transfers to Permitted Transferees and the
Company . . . . . . . . . . . . . . . . . . . 6
Section 2.5. No Transfer Period; Rights of First Offer . . . 7
Section 2.6. Tag Along Right . . . . . . . . . . . . . . . . 8
Section 2.7. Bring Along Right . . . . . . . . . . . . . . . 9
Section 2.8. Registration Rights . . . . . . . . . . . . . . 10
ARTICLE III
CLOSING
Section 3.1. Closing . . . . . . . . . . . . . . . . . . . . 10
Section 3.2. Deliveries at Closing; Method of Payment
of Purchase Price . . . . . . . . . . . . . . 10
ARTICLE IV
ADDITIONAL RIGHTS AND OBLIGATIONS
OF STOCKHOLDERS AND THE COMPANY
Section 4.1. Preemptive Rights . . . . . . . . . . . . . . . 11
Section 4.2. Future Services . . . . . . . . . . . . . . . . 11
Section 4.3. Regulatory Event . . . . . . . . . . . . . . . 12
Section 4.4. Regulatory Compliance . . . . . . . . . . . . . 12
Section 4.5. Standstill Agreement . . . . . . . . . . . . . 13
Section 4.6. Certain Other Agreements . . . . . . . . . . . 13
ARTICLE V
CERTAIN VOTING AGREEMENTS
Section 5.1. Board of Directors of the Company . . . . . . . 13
Section 5.2. Charter Documents . . . . . . . . . . . . . . . 15
Section 5.3. Consent to an Initial Public Offering;
Required IPO . . . . . . . . . . . . . . . . 15
ARTICLE VI
TERMINATION
Section 6.1. Termination . . . . . . . . . . . . . . . . . . 15
2
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ARTICLE VII
MISCELLANEOUS
Section 7.1. No Inconsistent Agreements . . . . . . . . . . 16
Section 7.2. Recapitalization, Exchanges, etc . . . . . . . 16
Section 7.3. Successors and Assigns . . . . . . . . . . . . 16
Section 7.4. No Waivers, Amendments . . . . . . . . . . . . 16
Section 7.5. Notices . . . . . . . . . . . . . . . . . . . . 16
Section 7.6. Inspection . . . . . . . . . . . . . . . . . . 17
SECTION 7.7. GOVERNING LAW . . . . . . . . . . . . . . . . . 17
Section 7.8. Section Headings . . . . . . . . . . . . . . . 17
Section 7.9. Entire Agreement . . . . . . . . . . . . . . . 17
Section 7.10. Severability . . . . . . . . . . . . . . . . . 17
Section 7.11. Counterparts . . . . . . . . . . . . . . . . . 17
Section 7.12. Option Plan . . . . . . . . . . . . . . . . . . 18
Exhibit A Bylaws
Exhibit B Certificate of Incorporation
Exhibit C Registration Rights
Exhibit D Form of Agreement to be Bound
Exhibit E 1997 Option Plan for Key Employees of L-3
Communications Holdings, Inc.
3
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STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT dated as of April 30, 1997 among L-3
Communications Holdings, Inc., a Delaware corporation (the "Company"), Lockheed
Martin Corporation, a Maryland corporation ("Lockheed Martin"), Lehman Brothers
Capital Partners III, L.P., a Delaware limited partnership ("Lehman"), Lehman
Brothers Holders Inc., a Delaware corporation and the general partner of Lehman
("LBHI"), Frank C. Lanza ("Lanza") and Robert V. LaPenta ("LaPenta" and,
together with Lanza, the "Management Investors"). Each of the parties to this
Agreement (other than the Company) and any other Person (as hereinafter
defined) who or which shall become a party to or agree to be bound by the terms
of this Agreement after the date hereof is sometimes hereinafter referred to as
a "Stockholder."
WITNESSETH
WHEREAS, this Agreement shall become effective (the "Effective Date")
on the date of, and simultaneously with, the Closing under the Subscription
Agreements (as hereinafter defined);
WHEREAS, as of the Effective Date, the Company will have an
authorized capital stock consisting of 25,000,000 shares of Class A common
stock, par value $0.01 per share (the "Class A Common Stock"), 3,000,000 shares
of Class B common stock, par value $0.01 per share (the "Class B Common Stock")
and 3,000,000 shares of Class C common stock, par value $0.01 per share (the
"Class C Common Stock") and, together with the Class A Common Stock, the
"Common Stock").
WHEREAS, the Company, Lockheed Martin, Lehman and the Management
Investors have entered into a Transaction Agreement dated as of March 28, 1997
(the "Transaction Agreement") pursuant to which, among other things, the
Company has agreed, subject to the terms and conditions thereof, to purchase
certain assets and assume certain related liabilities of Lockheed Martin;
WHEREAS, in connection with the consummation of the transactions
pursuant to the Transaction Agreement, each of Lockheed Martin, Lehman and LBHI
has entered into a Common Stock Subscription Agreement with the Company dated
as of the date of this Agreement pursuant to which each such Stockholder has
agreed, subject to the terms and conditions thereof, to purchase shares of
Class A Common Stock;
WHEREAS, in connection with the consummation of the transactions
pursuant to the Transaction Agreement, each of the Management Investors has
entered into a Common Stock Subscription Agreement with the Company dated as of
the date of this Agreement (such Common Stock Subscription Agreements, together
with the Common Stock Subscription Agreements referred to in the preceding
recital, the "Subscription Agreements") pursuant to which each such Management
Investor has agreed, subject to the terms and conditions thereof, to purchase
shares of Class B Common Stock; and
WHEREAS, the parties hereto desire to restrict the sale, assignment,
transfer, encumbrance or other disposition of the Shares (as hereinafter
defined) and to provide for certain rights and obligations and other agreements
in respect of the Shares, all as hereinafter provided.
4
<PAGE>
NOW THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. As used in this Agreement, the
following terms have the following meanings:
"Acquisition Transaction" shall have the meaning set forth in
Section 4.6.
"Adverse Clearance Status" shall have the meaning
set forth in Section 4.3.
"Affiliate", as applied to any Person, shall mean any other Person
directly or indirectly controlling, controlled by, or under common control
with, that Person. For the purposes of this definition "control" (including,
with correlative meanings, the terms "controlling", "controlled by" and "under
common control with"), as applied to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of that Person, whether through the ownership of voting
securities, by contract or otherwise. Notwithstanding the foregoing, for
purposes of this Agreement, Lockheed Martin shall not be considered an
Affiliate of Lehman or of either of the Management Investors and the employee
benefit plans of Lockheed Martin and its Subsidiaries shall not be considered
Affiliates of Lockheed Martin.
"Board of Directors" shall mean the Board of Directors of the
Company.
"Business" shall have the meaning set forth in the Transaction
Agreement.
"Buyer's Notice" shall have the meaning set forth in Section
2.5(c).
"Buyout Notice" shall have the meaning set forth in Section 2.7.
"Bylaws" shall mean the Bylaws of the Company, in the form of Exhibit
A, as amended from time to time, consistent with the terms hereof.
"Certificate of Incorporation" shall mean the Amended and Restated
Certificate of Incorporation of the Company, in the form of Exhibit B, as
amended from time to time, consistent with the terms hereof.
"Charter Documents" shall have the meaning set forth in Section
5.2(a).
"Class A Common Stock" shall have the meaning set forth in the
recitals of this Agreement.
"Class B Common Stock" shall have the meaning set forth in the
recitals of this Agreement.
5
<PAGE>
"Class C Common Stock" shall have the meaning set forth in the
recitals of this Agreement.
"Common Stock" shall have the meaning set forth in the recitals of
this Agreement.
"Company" shall have the meaning set forth in the preamble of this
Agreement.
"Effective Date" shall have the meaning set forth in the recitals
of this Agreement.
"FOCI" shall have the meaning set forth in Section 4.3.
"Initial Public Offering" shall mean the initial Public Offering
(other than pursuant to a registration statement on Form S-8 or otherwise
relating to equity securities issuable under any employee benefit plan of the
Company).
"Lanza" shall have the meaning set forth in the preamble of this
Agreement.
"LaPenta" shall have the meaning set forth in the preamble of this
Agreement.
"Lehman" shall have the meaning set forth in the preamble of this
Agreement.
"LBHI" shall have the meaning set forth in the preamble of this
Agreement.
"Lehman Nominees" shall have the meaning set forth in Section
5.1(a).
"Lockheed Martin" shall have the meaning set forth in the preamble
of this Agreement.
"Lockheed Martin Nominees" shall have the meaning set forth in
Section 5.1(a).
"Management Investors" shall have the meaning set forth in the
preamble of this Agreement.
"Offer Price" shall have the meaning set forth in Section 2.5(b).
"Offered Shares" shall have the meaning set forth in Section
2.5(b).
"Option Plan" shall mean the 1997 Option Plan for Key Employees of
L-3 Communications Holdings, Inc., in the form of Exhibit E hereto.
"Payment in Full of the Preference Amount" shall have the meaning
given such term in the Certificate of Incorporation.
"Permitted Transferee" shall mean:
6
<PAGE>
(i) in the case of Lehman or LBHI and Permitted Transferees of Lehman
and LBHI, (A) LBHI or Lehman, as the case may be, or any controlled
Affiliate (other than an individual) of LBHI, (B) any general or limited
partner, director, officer or employee of Lehman, LBHI or any controlled
Affiliate (other than an individual) of LBHI, (C) the heirs, executors,
administrators, testamentary trustees, legatees or beneficiaries of any of
the individuals referred to in clause (B), (D) any trust, the
beneficiaries of which include only (1) Lehman, (2) Permitted Transferees
referred to in clauses (A), (B) and (C) and (3) spouses and lineal
descendants of Permitted Transferees referred to in clause (B) and (E) a
corporation or partnership, a majority of the equity of which is owned and
controlled by Lehman and/or Permitted Transferees referred to in clauses
(A), (B), (C) and (D);
(ii) in the case of Lockheed Martin and Permitted Transferees of
Lockheed Martin, any controlled Affiliate of Lockheed Martin; and
(iii) in the case of each Management Investor and Permitted Transferees
of such Management Investor, his or her spouse or any of his or her lineal
descendants or legatees or a testamentary trust for such legatees, or a
trust or individual retirement account, the beneficiaries of which or a
corporation or partnership the stockholders or partners of which include
only such Stockholder, his or her spouse and his or her lineal descendants
or a corporation or partnership wholly owned by them;
provided, that any such Permitted Transferee referred to in clauses
(i)(iii) agrees in writing to be bound by the terms of this Agreement in
accordance with Section 2.2.
"Person" shall mean an individual, partnership, corporation, business
trust, joint stock company, limited liability company, unincorporated
association, joint venture or other entity of whatever nature.
"Proposed Transferee" shall have the meaning set forth in Section
2.6.
"Public Offering" shall mean any underwritten public offering of
equity securities of the Company pursuant to an effective registration
statement under the Securities Act.
"Put" shall have the meaning set forth in Section 4.3.
"Reduced Transfer Price" shall have the meaning set forth in
Section 2.5(d).
"Reduced Transfer Price Notice" shall have the meaning set forth in
Section 2.5(d).
"Regulatory Event Notice" shall have the meaning set forth in
Section 4.3.
"Regulatory Portion" shall have the meaning set forth in Section
4.3.
"Restriction Lapse" shall have the meaning given such term in the
Certificate of Incorporation.
7
<PAGE>
"Second Reduction Transfer Price" shall have the meaning set forth in
Section 2.5(e).
"Second Reduction Transfer Price Notice" shall have the meaning set
forth in Section 2.5(e).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall have the meaning set forth in Section 2.5(b).
"Seller's Notice" shall have the meaning set forth in Section
2.5(b).
"Share Equivalents" shall mean securities of any kind issued by the
Company convertible into or exchangeable for Shares or options, warrants or
other rights to purchase or subscribe for Shares or securities convertible into
or exchangeable for Shares.
"Shares" shall mean, with respect to any Stockholder, shares of
Common Stock, whether now owned or hereafter acquired (including upon exercise
of options, preemptive rights or otherwise), held by such Stockholder.
"Shares Subject to Forfeiture" shall have the meaning given such term
in the Certificate of Incorporation.
"Stockholder" shall have the meaning set forth in the preamble of
this Agreement.
"Subscription Agreements" shall have the meaning set forth in the
recitals of this Agreement.
"Subsidiary" shall mean, with respect to any Person, any corporation
or other entity of which a majority of the capital stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar function at the time directly or
indirectly owned by such Person.
"Third Party" shall mean any prospective Transferee of Shares (other
than the Company) that is not a Permitted Transferee of the Stockholder
proposing the Transfer of such Shares to such prospective Transferee.
"Transaction Agreement" shall have the meaning set forth in the
recitals of this Agreement.
"Transfer" shall have the meaning set forth in Section 2.1.
"Transfer Closing Date" shall have the meaning set forth in Section
3.1.
"Transferee" shall mean any Person who or which acquires Shares from
a Stockholder or a Transferee (including Permitted Transferees) of a
Stockholder subject to this Agreement.
8
<PAGE>
ARTICLE II
RESTRICTIONS ON TRANSFERS
Section 2.1. Transfers in Accordance with this Agreement. No
Stockholder shall, directly or indirectly, transfer, sell, assign, pledge,
hypothecate, encumber, or otherwise dispose of all or any portion of any Shares
or any economic interest therein (including without limitation by means of any
participation or swap transaction) (each, a "Transfer") to any Person, except
in compliance with the Securities Act, applicable state and foreign securities
laws and this Agreement. No Stockholder shall Transfer any Shares if the
consummation of such Transfer may result in the Company becoming subject to
FOCI or Adverse Clearance Status. Any attempt to Transfer any Shares in
violation of the terms of this Agreement shall be null and void, and neither
the Company, nor any transfer agent shall register upon its books any Transfer
of Shares by a Stockholder to any Person except a Transfer in accordance with
this Agreement.
Section 2.2. Agreement to be Bound. No Transfer of Shares (other than
Transfers (i) in the Initial Public Offering, if any, or (ii) to the Company)
shall be effective unless (i) the certificates representing such Shares issued
to the Transferee shall bear the legend provided in Section 2.3 and (ii) the
Transferee, if not already a party hereto, shall have executed and delivered to
each other party hereto, as a condition precedent to such Transfer, an
instrument or instruments substantially in the form of Exhibit D or otherwise
reasonably satisfactory to such parties confirming that the Transferee agrees
to be bound by the terms of this Agreement with respect to the Shares so
Transferred to the same extent applicable to the Transferor thereof.
Section 2.3. Legend. A copy of this Agreement shall be filed with the
Secretary of the Company and kept with the records of the Company. Each
Stockholder hereby agrees that each certificate representing Shares issued to
any Stockholder, or any certificate issued in exchange for any similarly
legended certificate, shall bear a legend reading substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE OFFERED AND
SOLD ONLY IF SO REGISTERED OR AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
THE SHARES REPRESENTED BY THIS CERTIFICATE ALSO ARE SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCKHOLDERS
AGREEMENT, DATED AS OF APRIL 30, 1997, COPIES OF WHICH MAY BE
OBTAINED FROM L-3 COMMUNICATIONS HOLDINGS, INC. (THE "COMPANY"). NO
TRANSFER OF SUCH SHARES WILL BE MADE ON THE BOOKS OF THE COMPANY
UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH
AGREEMENT.
Section 2.4. Transfers to Permitted Transferees and the Company. (a)
None of the restrictions contained in this Agreement with respect to Transfers
of Shares (other than Sections 2.2, 2.3 and 2.4(b)) shall apply to any Transfer
of Shares by any Stockholder (i) to a Permitted Transferee of such Stockholder
or (ii) to the Company.
(b) Each Permitted Transferee of any Stockholder shall, and such
Stockholder shall cause such Permitted Transferee to, transfer back to such
9
<PAGE>
Stockholder any Shares it owns prior to such Permitted Transferee ceasing to be
a Permitted Transferee of such Stockholder.
Section 2.5. No Transfer Period; Rights of First Offer. (a) The
Stockholders may not Transfer Shares prior to the first anniversary of the
Effective Date, except for Transfers referred to in Section 2.4. Commencing on
the first anniversary of the Effective Date, with the exception of Transfers in
accordance with Section 2.4, each Stockholder may Transfer Shares only
following compliance and in accordance with the provisions of this Section 2.5
and, as applicable, Sections 2.6 or 2.7.
(b) Any Stockholder desiring to Transfer Shares to any Third Party
(such Stockholder, in such capacity, a "Seller") shall give written notice (a
"Seller's Notice") to the other Stockholders and to the Company (i) stating
that such Seller desires to make such Transfer and (ii) setting forth the
number of Shares proposed to be Transferred (the "Offered Shares") and the cash
price per share that such Seller proposes to be paid for such Offered Shares
(the "Offer Price") and, to the extent then known, the other terms and
conditions of such Transfer, including the identity of any proposed transferee.
Each Seller's Notice shall constitute an irrevocable offer by the Seller to the
other Stockholders and to the Company of the Offered Shares at the Offer Price
in cash and in accordance with the terms of this Agreement.
(c) Within 60 days after receipt of a Seller's Notice, each other
Stockholder may elect to purchase, on a pro rata basis based upon the total
number of outstanding Shares then held by such other Stockholders (provided
that any Offered Shares thereby offered to any other Stockholder that does not
elect to purchase such Offered Shares shall be reallocated (on a pro rata basis
based on the total number of Offered Shares each other Stockholder elected to
purchase) among the remaining other Stockholders who have elected to exercise
their option to purchase Offered Shares) all (but not less than all) of the
Offered Shares allocated to it at the Offer Price in cash. The Company may
elect, within 10 days following the expiration of such 60-day period, to
purchase at the Offer Price in cash all (but not less than all) of the Offered
Shares as to which no election to purchase is made by the other Stockholders
within such 60-day period. The election to purchase such Offered Shares shall
be exercisable by delivery of a notice (a "Buyer's Notice") to the Seller, with
a copy to the Company (where the Company is not the electing party), stating
(i) that such electing party elects to purchase such Offered Shares at the
Offer Price in cash, (ii) that such election is irrevocable and (iii) the
source of financing for such purchase, which financing shall not be subject to
any material contingencies. Delivery of a Buyer's Notice shall constitute a
contract among the Seller and the electing party that has delivered such
Buyer's Notice for the sale and purchase of the Offered Shares at the Offer
Price in cash and upon the other applicable terms and conditions set forth in
the Seller's Notice.
(d) If the other Stockholders and the Company fail to elect to
purchase all of the Offered Shares within the time periods specified in Section
2.5(c), then the Seller may, within a period of 90 days following the
expiration of such time periods specified in Section 2.5(c), complete the
Transfer of all or any of the Offered Shares not purchased by the other
Stockholders or the Company to one or more Third Parties at a price per share
not less than 95% of the Offer Price; provided that if the purchase price per
share (the "Reduced Transfer Price") proposed to be paid by any such Third
Party for Offered Shares is less than 95% of the Offer Price, the Seller
10
<PAGE>
shall promptly provide written notice (the "Reduced Transfer Price Notice") to
the other Stockholders and the Company of such intended Transfer (including the
material terms and conditions thereof) and the other Stockholders and the
Company shall have the right, exercisable by delivery of a written election
notice to the Seller within 30 days of receipt of such notice, to purchase such
Offered Shares at the Reduced Transfer Price and otherwise substantially in
accordance with the terms and conditions of the intended Transfer to such Third
Party, following which 30-day period, if no such election is made, Section
2.5(e) shall apply.
(e) If the other Stockholders and the Company fail to elect to
purchase all of the Offered Shares at the Reduced Transfer Price in cash within
the 30-day period specified in Section 2.5(d), then the Seller may, within a
period of 90 days following the expiration of such 30-day period, complete the
Transfer of all or any of the Offered Shares to one or more Third Parties at a
price per share not less than 95% of the Reduced Transfer Price; provided that
if the purchase price per share (the "Second Reduced Transfer Price") proposed
to be paid by any such Third Party for Offered Shares is less than 95% of the
Reduced Transfer Price, the Seller shall promptly provide written notice (the
"Second Transfer Price Notice") to the other Stockholders and the Company of
such intended Transfer (including the material terms and conditions thereof)
and the other Stockholders and the Company shall have the right, exercisable by
delivery of a written election notice to the Seller within 30 days of receipt
of such notice, to purchase such Offered Shares at the Second Reduced Transfer
Price and otherwise substantially in accordance with the terms and conditions
of the intended Transfer to such Third Party.
(f) If the other Stockholders and the Company fail to elect to
purchase all of the Offered Shares at the Offer Price (or, if applicable, the
Reduced Transfer Price or Second Reduced Transfer Price) in cash and the Seller
shall not have Transferred the Offered Shares to any Transferee prior to the
expiration of the 90-day period specified in Section 2.5(e), the rights of
first offer under this Section 2.5 shall again apply in connection with any
subsequent Transfer or offer to Transfer shares of Common Stock by such
Sellers.
Section 2.6. Tag Along Right. (a) If at any time on or after the
first anniversary of the Effective Date and prior to the consummation of an
Initial Public Offering, Lehman and/or LBHI (and/or their Permitted
Transferees) proposes to Transfer Shares to any Person (other than a Permitted
Transferee) (each, a "Proposed Transferee") in any transaction or series of
related transactions and as a result of such Transfer, Lehman and LBHI (with
their Permitted Transferees) would no longer own at least 35% of the issued and
outstanding Common Stock, then Lehman shall send written notice to each
Management Investor and Lockheed Martin which shall state (i) that Lehman
and/or LBHI and/or their Permitted Transferees desires to make such a Transfer,
(ii) the identity of the Proposed Transferee and the number of Shares proposed
to be sold or otherwise transferred, (iii) the proposed purchase price per
Share to be paid and the other terms and conditions of such Transfer and (iv)
the projected closing date of such Transfer, which in no event shall be prior
to 30 days after the giving of such written notice to each Management Investor
and Lockheed Martin.
(b) For a period of 30 days after the giving of the notice pursuant
to clause (a) above, each Management Investor and Lockheed Martin shall have
the right to sell to the Proposed Transferees in such Transfer at
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the same price and upon the same terms and conditions as Lehman, LBHI (and/or
their Permitted Transferees) that percentage of the total number of Shares held
by such Management Investor or Lockheed Martin, as the case may be, equal to
the percentage of the total number of Shares then held by Lehman, LBHI and
their Permitted Transferees proposed to be Transferred to such Proposed
Transferee; provided that neither Management Investor shall have the right to
sell any of its Shares Subject to Forfeiture pursuant to this Section 2.6(b) if
the price per share to be obtained by Lehman in such Transfer is less than
$6.47.
(c) The rights of each Management Investor and Lockheed Martin under
Section 2.6(b) shall be exercisable by delivering written notice thereof, prior
to the expiration of the 30-day period referred to in clause (b) above, to
Lehman with a copy to the Company; provided that Lockheed Martin shall not be
entitled to exercise any rights under this Section 2.6 if neither of the
Management Investors exercises his rights under this Section 2.6. The failure
of such Management Investor or Lockheed Martin to respond within such period to
Lehman shall be deemed to be a waiver of rights under this Section 2.6.
(d) In the event that any Management Investor or Lockheed Martin
exercises rights under Section 2.6(b) and following such exercise there is a
change in the price or terms of the proposed transaction between Lehman and the
Proposed Transferee, then Lehman shall promptly notify such Management Investor
and Lockheed Martin of the revised price or terms and such Management Investor
or Lockheed Martin, as the case may be, shall have the right to exercise its
rights under Section 2.6(b) by notice to Lehman within two business days of
receipt of the notice from Lehman. The failure of such Management Investor or
Lockheed Martin to respond within such two-day period to Lehman shall be deemed
to be a waiver of his or its rights under this Section 2.6.
(e) For purposes of determining the number of Shares a Management
Investor may Transfer pursuant to this Section 2.6, such Management Investor
shall be deemed to hold the shares of Common Stock issuable upon exercise of
any outstanding options to purchase Common Stock he holds so long as (i) such
options have vested and (ii) the exercise price of such options is below the
proposed price to be paid by the Proposed Transferee in the Transfer to which
such determination relates.
Section 2.7. Bring Along Right. (a) If at any time on or after the
first anniversary of the Effective Date and prior to the consummation of an
Initial Public Offering, Lehman and/or LBHI (and/or their Permitted
Transferees) proposes to sell Shares to a Third Party other than an Affiliate
in any bona fide arm's-length transaction or series of related transactions and
as a result of such sale Lehman and LBHI with their Permitted Transferees would
cease to own at least 35% of the issued and outstanding Common Stock, then
Lehman shall have the right to deliver a written notice (a "Buyout Notice") to
each Management Investor (with a copy to Lockheed Martin) which shall state (i)
that Lehman proposes to effect such transaction, (ii) the identity of the Third
Party, the number of Shares to be sold and the proposed purchase price per
Share to be paid and any other terms and conditions, and (iii) the projected
closing date of such sale. Each such Management Investor agrees that, upon
receipt of a Buyout Notice, each such Management Investor (and his Permitted
Transferees) shall be obligated to sell in such transaction that percentage of
the total number of Shares held by such Management Investor (determined on the
basis set forth in Section 2.6(e))
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equal to the percentage of the total number of Shares then held by Lehman and
LBHI and their Permitted Transferees to be sold in such transaction upon the
terms and conditions of such transaction (and otherwise take all necessary
action to cause consummation of the proposed transaction; provided, however,
that each such Management Investor shall only be obligated as provided above in
this Section 2.7 if each such Management Investor receives the same per Share
consideration as Lehman and LBHI (and/or their Permitted Transferees); and
provided further that in no event shall any Management Investor be required to
make any representations or provide any indemnities other than on a
proportionate basis and other than with respect to matters relating solely to
Lehman and LBHI (and/or its Permitted Transferees), such as representations as
to title to Shares to be transferred by Lehman and LBHI or their Permitted
Transferees.
(b) At any time that Lehman exercises its rights under this Section
2.7, Lockheed Martin shall have the right, but not the obligation, to sell in
the transaction specified in the Buyout Notice at the same price and upon the
same terms and conditions as Lehman and/or LBHI (and/or their Permitted
Transferees) and the Management Investors that percentage of the total number
of Shares held by Lockheed Martin equal to the percentage of the total number
of Shares then held by Lehman and LBHI and their Permitted Transferees to be
sold in such transaction. The rights of Lockheed Martin under this Section
2.7(b) shall be exercisable by delivering written notice thereof at least 10
days prior to the proposed closing date of such transaction.
Section 2.8. Registration Rights. The Company hereby grants to each
Stockholder the registration and other rights set forth in, and each
Stockholder agrees to comply with the terms and conditions contained in,
Exhibit C.
ARTICLE III
CLOSING
Section 3.1. Closing. Any Stockholders acquiring or Transferring any
Shares pursuant to Section 2.5 shall mutually determine a closing date (the
"Transfer Closing Date") which, subject to any applicable regulatory waiting
periods, shall not be more than 60 days after the last notice is given with
respect to such Transfer pursuant to Section 2.5 or after the expiration of the
last notice period pursuant to Section 2.5 applicable to such Transfer. The
closing shall be held at 10:00 a.m., local time, on the Transfer Closing Date
at the principal office of the Company, or at such other time and/or place as
the parties may mutually agree.
Section 3.2. Deliveries at Closing; Method of Payment of Purchase
Price. On the Transfer Closing Date, each selling Stockholder shall deliver (i)
certificates representing the Shares being sold, free and clear of any lien,
claim or encumbrance, and (ii) such other documents, including evidence of
ownership and authority, as the Transferees may reasonably request. The
purchase price shall be paid by wire transfer of immediately available funds no
later than 2:00 p.m. on the Transfer Closing Date.
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ARTICLE IV
ADDITIONAL RIGHTS AND OBLIGATIONS
OF STOCKHOLDERS AND THE COMPANY
Section 4.1. Preemptive Rights. If the Company shall (other than in
connection with the issuance of Shares or Share Equivalents (i) to employees,
officers and directors of or any of its direct or indirect subsidiaries with
respect to any employee benefit plan, incentive award program or other
compensation arrangement approved by the affirmative vote of a majority of the
outstanding shares and (ii) as all or a portion of the consideration for the
purchase of capital stock or assets of another Person) (A) issue any Shares,
(B) issue any Share Equivalents or (C) enter into any contracts, commitments,
agreements, understandings or arrangements of any kind relating to the issuance
of any Shares or Share Equivalents (in each case other than in connection with
the Initial Public Offering), each Stockholder shall have the right to purchase
that number of Shares (or Share Equivalents, as the case may be) at the same
purchase price as the price for the additional Shares (or Share Equivalents) to
be issued so that, after the issuance all of such Shares (or Share
Equivalents), together with all Shares (or Share Equivalents) to be issued
pursuant to this Section 4.1 in connection therewith, the Stockholder would, in
the aggregate, hold the same proportional interest of the outstanding Shares
(assuming, in the case of an issuance of Share Equivalents, the conversion,
exercise or exchange thereof) as was held by such Stockholder prior to the
issuance of such additional Shares (or Share Equivalents).
Section 4.2. Future Services. The Company agrees that Lehman Brothers
Inc. ("Lehman Brothers") shall have the right, but not the obligation, which
right shall be exercisable in Lehman Brothers' sole discretion, to provide
investment banking services to the Company on an exclusive basis for a period
of five years from the Effective Date (the "Exclusivity Period"); provided that
as to acquisitions undertaken by the Company for cash, the Exclusivity Period
shall be the three year period after the Effective Date. Such services may
include arranging senior and subordinated debt financing for the Company,
underwriting on a sole managed basis or acting as the sole initial purchaser or
placement agent for the Company's or its affiliates' debt and/or equity
securities, acting as the exclusive financial advisor to the Company with
respect to any mergers, acquisitions or divestitures for which the services of
an investment banking firm are utilized and providing other financial advisory
services on an exclusive basis. In the event that Lehman Brothers agrees to
provide any investment banking services to the Company, Lehman Brothers shall
be paid fees to be mutually agreed upon based on fees which are competitive
based upon similar transactions and practices in the investment banking
industry. The Company acknowledges that Lehman Brothers may determine in its
sole discretion for any reason (including, without limitation, the results of
its due diligence investigation, a material change in the Company's financial
condition, business, management, prospects or value, the lack of appropriate
internal Lehman Brothers' committee approvals or then current market
conditions) not to provide such investment banking services to the Company. In
the event that Lehman Brothers elects not to provide such services to the
Company with respect to any particular transaction, nothing contained herein
shall be deemed to prevent the Company from utilizing the services of another
investment banking firm for such transaction or to require the Company to pay a
fee to Lehman Brothers with respect to such transaction, but such retention of
another investment banking firm shall be without prejudice to Lehman Brothers'
rights hereunder with respect to subsequent transactions.
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Section 4.3. Regulatory Event. If (a) the Company receives
notification from a representative of the Department of Defense or any other
U.S. government department, agency or authority that the ownership of Shares by
Lehman and/or LBHI or the terms and provisions of this Agreement or the Charter
Documents (i) causes the Company to be under impermissible foreign ownership,
control or influence ("FOCI") within the meaning of Section 721 of Title VII of
the Defense Production Act of 1950, as amended by Section 5021 of the Omnibus
Trade and Competitiveness Act of 1988, or (ii) materially adversely affects the
ability of the Company to maintain or obtain Department of Defense or other
U.S. government department, agency or authority security clearance of the level
held by the Business and their employees on the Effective Date or which are
necessary or desirable for the Company to perform and to bid competitively on
U.S. government contracts and to participate in joint ventures formed to bid on
or perform U.S. government contracts of the type the Business is eligible to
bid on or participate in, respectively, on the Effective Date (any of the
matters described in this clause (ii) being referred to as "Adverse Clearance
Status"), and such FOCI or Adverse Clearance Status is not a result of a change
in (A) the ownership of Lehman or LBHI from the ownership thereof as it exists
as of the Effective Date or (B) applicable law, regulations and decrees as in
effect as of the Effective Date, Lehman and/or LBHI may, within 60 days of
becoming aware of such notification, upon delivery of a written notice (a
"Regulatory Event Notice") to the Company, require the Company (i) to
repurchase (the "Put") such portion of the Shares then held by Lehman and/or
LBHI required to eliminate such FOCI or Adverse Clearance Status (the
"Regulatory Portion") for an amount in cash equal to the fair market value of
the shares subject to the Put as determined by an investment bank of national
reputation which is mutually acceptable to the Company (as determined by the
Board of Directors of the Company without the participation by any directors
designated by Lehman pursuant to this Agreement) and Lehman or (ii) to commence
a Public Offering which shall include the registration and offering of the
Regulatory Portion in accordance with the registration procedures contained in
Exhibit C; provided, that prior to delivery of any Regulatory Event Notice
Lehman and/or LBHI shall have complied with Section 4.4; and provided further,
that the Company shall not be required to take any action under this Section
4.3 that it is prohibited from taking under the terms of any of its financing
agreements or under applicable law.
Section 4.4. Regulatory Compliance. (a) If any of the circumstances
described in Section 4.3 occur and would (x) cause the Company to be under FOCI
or (y) result in Adverse Clearance Status and such FOCI and Adverse Clearance
Status, if any, may be eliminated to the complete satisfaction of all
applicable U.S. government departments, agencies or authorities solely by the
adoption by Lehman or LBHI or the Board of Directors of the Company of
governance procedures or board resolutions insulating the Company from
impermissible control or influence of any foreign entity in accordance with the
National Industrial Security Program Operating Manual (DOD 5220.22M), then
Lehman or LBHI or the Board of Directors of the Company, shall adopt such
procedures or board resolutions, provided that such procedures and/or board
resolutions do not contravene and are consistent with applicable law and do not
materially and adversely affect the governance and other rights (whether
exercised directly or in accordance with such procedures) of Lehman or LBHI
contained in this Agreement and the Charter Documents and any other agreements
or documents relating thereto.
(b) If such FOCI and Adverse Clearance Status, if any, are not
eliminated following compliance with paragraph (a) above, and such FOCI and
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Adverse Clearance Status, if any, may be eliminated by a Transfer of Shares
held by Lehman or LBHI to an Affiliate, Lehman or LBHI, as the case may be,
shall use its reasonable efforts to effectuate such Transfer, provided that any
such Transfer shall not contravene, and is made in compliance with, Lehman's
and/or LBHI's customary business practices.
(c) If there is a change in the ownership of Lehman from the
ownership thereof as it exists as of the Effective Date and such change in
ownership causes the Company to be under impermissible FOCI or otherwise
results in an Adverse Clearance Status, and such FOCI or Adverse Clearance
Status, as the case may be, cannot be eliminated through the procedures
contemplated by Section 4.4(a) or Section 4.4(b), the Company shall have the
option, exercisable within 30 days after it concludes that the measures
contemplated by Section 4.4(a) and Section 4.4(b) are not sufficient to
eliminate the FOCI or Adverse Clearance Status, to purchase (the "Call") the
Regulatory Portion of the Shares then held by Lehman and/or LBHI for an amount
in cash equal to the fair market value of the Shares subject to the Call as
determined by an investment bank of national reputation which is mutually
acceptable to the Company (as determined by the Board of Directors of the
Company without the participation by any directors designated by Lehman
pursuant to this Agreement) and Lehman.
Section 4.5. Standstill Agreement. Lockheed Martin agrees that it
will not, and it will cause its Permitted Transferees not to, directly or
indirectly (through Affiliates or otherwise), acquire any shares of Common
Stock if immediately following such acquisition of shares of Common Stock,
Lockheed Martin and its Affiliates would own more than 34.9% of the outstanding
shares of Common Stock; provided that this Section 4.5 shall not limit any of
Lockheed Martin's rights under Section 2.5 or Section 4.1 of this Agreement.
Section 4.6. Certain Other Agreements. If at any time prior to
Payment in Full of the Preference Amount a merger or other similar transaction
is consummated pursuant to which 90% or more of the outstanding equity
interests in the Company are acquired by a Person other than an Affiliate of
Lehman at a price per share which is less than $6.47 (an "Acquisition
Transaction"), then each of the Stockholders agrees to enter into such other
agreements or other arrangements as may be required in order that the proceeds
to the Stockholders from such Acquisition Transaction are distributed as among
the holders of each class of Common Stock in a manner comparable to the manner
in which such proceeds would be distributed in a distribution of assets of the
Company in the event of any voluntary or involuntary liquidation, dissolution
or winding-up of the Company in accordance with the terms of the Certificate of
Incorporation.
ARTICLE V
CERTAIN VOTING AGREEMENTS
Section 5.1. Board of Directors of the Company. (a) The Company's
Board of Directors shall be initially composed of eleven members. Lehman shall
be entitled, but not required, to designate six members (the "Lehman Nominees")
of the Board of Directors. Lockheed Martin shall be entitled, but not required,
to designate three members (the "Lockheed Martin Nominees") of the Board of
Directors. In addition, each of Lanza and LaPenta shall be entitled, but not
required, to designate themselves as members of the Board of Directors for so
long as they are employees of the Company or
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<PAGE>
any of its Subsidiaries (the "Lanza Nominee" and "LaPenta Nominee",
respectively).
(b) (i) Each of the Stockholders agrees to vote all of the Shares of
Class A Common Stock owned or held of record by such Stockholder at any regular
or special meeting of the stockholders of the Company called for the purpose of
filling positions on the Board of Directors, or in any written consent executed
in lieu of such a meeting of stockholders, and agrees to take all actions
otherwise necessary, to ensure the election to the Board of Directors of the
Lehman Nominees, the Lockheed Martin Nominees, the Lanza Nominee and the
LaPenta Nominee in accordance with the terms hereof.
(ii) Each of the Company and each Stockholder hereby agrees to use
its or his best efforts to call, or cause the appropriate officers and
directors of the Company to call, a special meeting of stockholders of the
Company and to vote all of the Shares of Class A Common Stock owned or held of
record by such Stockholder for, or to take all actions by written consent in
lieu of any such meeting necessary to cause, the removal (with or without
cause) of (i) any Lehman Nominee if Lehman requests such director's removal for
any reason and (ii) any Lockheed Martin Nominee if Lockheed Martin requests
such director's removal for any reason. Lehman and Lockheed Martin shall have
the right to designate a new nominee in the event any Lehman Nominee or
Lockheed Martin Nominee, respectively, shall be so removed or shall vacate his
or her directorship for any reason.
(c) Except as provided in Section 5.1(b)(ii) hereof, each Stockholder
hereby agrees that, at any time that it or he is then entitled to vote for the
election or removal of directors, it will not vote in favor of the removal of
any Lehman Nominee, Lockheed Martin Nominee, Lanza Nominee or LaPenta Nominee,
unless such removal shall be for Cause. For the purposes of this Section
5.1(c), "Cause" shall mean (i) as to any Lehman Nominee or Lockheed Martin
Nominee, the gross neglect of or willful and continuing refusal to
substantially perform his duties as a director, the willful engaging by a
director in conduct which is demonstrably and materially injurious to the
Company or the director's conviction of any crime constituting a felony and
(ii) as to any Management Investor, gross neglect of or willful and continuing
refusal to substantially perform his duties as a director or employee, any
breach of the restrictive covenants contained in such Management Investor's
employment agreement with the Company or any of its Subsidiaries, willful
engaging in conduct which is demonstrably injurious to the Company or the
Company's subsidiaries or affiliates or conviction or plea of guilty or nolo
contendere to a felony or a misdemeanor involving moral turpitude.
(d) The number of directors which Lehman and Lockheed Martin have
the right to designate pursuant to Section 5.1(a) shall be reduced from time
to time to take into account any reduction in Lehman's and Lockheed Martin's
(in either case, together with its Permitted Transferees) ownership level in
the issued and outstanding shares of Common Stock so that the percentage of
the total number of directors designated by each such party corresponds as
nearly as practicable to the percentage ownership of such party (with its
Permitted Transferees) of the issued and outstanding shares of Common Stock;
provided that so long as Lehman (with its Permitted Transferees) continues to
own at least 35% of the issued and outstanding Common Stock, the directors
designated by Lehman pursuant to Section 5.1(a) shall constitute a majority
of the Board of Directors so long as Lehman (with its Permitted Transferees)
continues to represent the largest single stockholder of the Company. The
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Stockholders' obligations under Section 5.1(b) and (c) shall remain in effect
with respect to the Lehman Nominees and Lockheed Martin Nominees, as reduced
pursuant to the preceding sentence.
(e) The rights of Lehman, Lockheed Martin, Lanza and LaPenta to
designate Board members under Section 5.1(a) shall not be assignable (including
to any Transferee of Shares).
Section 5.2. Charter Documents. (a) Exhibits A and B set forth
copies of the Certificate of Incorporation and By-laws of the Company, each
in the form in which it is to be in effect on the Effective Date (the
"Charter Documents").
(b) The Company covenants and agrees that it will act in accordance
with the Charter Documents. Each Stockholder covenants and agrees that it will
vote all the Shares owned or held of record by such Stockholder at any regular
or special meeting of stockholders of the Company or in any written consent
executed in lieu of such a meeting of stockholders, and shall take all action
necessary, to ensure that the Charter Documents do not, at any time, conflict
with the provisions of this Agreement.
Section 5.3. Consent to an Initial Public Offering; Required IPO. (a)
Prior to the first anniversary of the Effective Date, the Company shall not
commence an Initial Public Offering without the affirmative vote of (i) a
majority of the Lehman Nominees, (ii) a majority of the Lockheed Martin
Nominees, (iii) the Lanza Nominee and (iv) the LaPenta Nominee.
(b) At any time on or after the fifth anniversary of the Effective
Date, if an Initial Public Offering shall not have been consummated prior to
such date, Lehman or Lockheed Martin (in each case, provided that it and its
Permitted Transferees then own at least 50% of the issued and outstanding
Common Stock owned by such party on the Effective Date) may require the Company
promptly to commence an Initial Public Offering and to complete such Initial
Public Offering as soon as reasonably practicable in accordance with the
registration procedures contained in Exhibit C. The rights of Lehman and
Lockheed Martin under this Section 5.3(b) shall not be assignable (including to
any Transferee of Shares).
ARTICLE VI
TERMINATION
Section 6.1. Termination. The provisions of this Agreement, other
than Sections 2.8, 4.2 and 4.5 shall terminate upon the consummation of an
Initial Public Offering. Section 2.8 and the registration rights contained in
Exhibit C shall continue to apply following such consummation with respect to
all Registrable Securities (as defined in Exhibit C) in accordance with the
terms thereof. Section 4.2 shall continue to apply following the consummation
of an Initial Public Offering until the earlier of the expiration of the
Exclusivity Period or the date on which Lehman (together with its Permitted
Transferees) ceases to own at least 10% of the outstanding shares of Common
Stock. Section 4.5 shall continue to apply following such consummation until
the fifth anniversary of the Effective Date.
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ARTICLE VII
MISCELLANEOUS
Section 7.1. No Inconsistent Agreements. The Company will not
hereafter enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the Stockholders in this Agreement.
Section 7.2. Recapitalization, Exchanges, etc. In the event that any
capital stock or other securities are issued in respect of, in exchange for, or
in substitution of, any Shares by reason of any reorganization,
recapitalization, reclassification, merger, consolidation, spin-off, partial or
complete liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the Shares or any other change in capital
structure of the Company, appropriate adjustments shall be made with respect to
the relevant provisions of this Agreement so as to fairly and equitably
preserve, as far as practicable, the original rights and obligations of the
parties hereto under this Agreement and the term "Shares," as used herein,
shall be deemed to include shares of such capital stock or other securities, as
appropriate.
Section 7.3. Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto, and their respective
successors and permitted assigns.
Section 7.4. No Waivers, Amendments. (a) No failure or delay by any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
(b) No amendment, modification or supplement to this Agreement shall
be enforced against any holder unless such amendment, modification or
supplement is signed by (i) where such holder is Lehman or LBHI or one of their
Permitted Transferees, a majority of the Shares held by Lehman and LBHI and its
Permitted Transferees, (ii) where such holder is Lockheed Martin or one of
their Permitted Transferees, a majority of the Shares held by Lockheed Martin
and its Permitted Transferees, (iii) where such holder is Lanza or one of his
Permitted Transferees, a majority of the Shares held by Lanza and his Permitted
Transferees and (iv) where such holder is LaPenta or one of his Permitted
Transferees, a majority of the Shares held by LaPenta and his Permitted
Transferees.
(c) Any provision of this Agreement may be waived if, but only if,
such waiver is in writing and is signed by the party against whom the
enforcement of such waiver is sought.
Section 7.5. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including telex, telecopier or
similar writing) and shall be given to such party at its address, telex or
telecopier number set forth below, or such other address, telex or telecopier
number as such party may hereinafter specify for the purpose to the party
giving such notice. Each such notice, request or other communication shall be
effective (i) if given by telex or telecopy, when such telex or telecopy is
transmitted to the telex or telecopy number specified in this Section and the
appropriate answerback is received or, (ii) if given by mail, 72 hours after
such communication is deposited in the mails with first
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class postage prepaid, addressed as aforesaid or, (iii) if given by any other
means, when delivered at the address specified in this Section 7.5.
Notices to the Company shall be addressed to the Company at L-3
Communications Holdings, Inc., 600 Third Avenue, New York, New York 10016,
Attention: General Counsel (telecopier no. (212) 805-5494) with a copy thereof
to Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017,
Attention: David B. Chapnick (telecopier (212) 455-2502); notices to Lehman or
LBHI shall be addressed to Lehman Brothers Capital Partners III, L.P. or Lehman
Brothers Holdings Inc., as the case may be, 3 World Financial Center, New York,
New York 10285, Attention: Steven Berkenfeld (telecopier (212) 526-3738) with a
copy thereof to Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New
York 10017, Attention: David B. Chapnick (telecopier (212) 455-2502); notices
to Lockheed Martin shall be addressed to Lockheed Martin at Lockheed Martin
Corporation, 6801 Rockledge Drive, Bethesda, Maryland 20817, Attention: Marcus
C. Bennett (telecopier (301) 897-6083) with a copy thereof to Lockheed Martin
Corporation, 6801 Rockledge Drive, Bethesda, Maryland 20817, Attention: Frank
H. Menaker, Jr. (telecopier (301) 897-6791) and to Miles & Stockbridge, a
Professional Corporation, 10 Light Street, Baltimore, Maryland 21202,
Attention: Glenn C. Campbell (telecopier (410) 385-3700); notices to Lanza and
LaPenta shall be addressed to Lanza and LaPenta, respectively, at L-3
Communications Holdings, Inc., 600 Third Avenue, New York, New York 10016
(telecopier (212) 949-9879, as to Lanza and (212) 805-5470, as to LaPenta) with
a copy thereof to Fried, Frank, Harris, Shriver and Jacobson, 1 New York Plaza,
New York, New York 10004 Attention: Robert C. Schwenkel (telecopier (212)
859-8879).
Section 7.6. Inspection. So long as this Agreement shall be in
effect, this Agreement and any amendments hereto shall be made available for
inspection by a Stockholder at the principal offices of the Company.
SECTION 7.7. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 7.8. Section Headings. The section headings contained in
this Agreement are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
Section 7.9. Entire Agreement. This Agreement, together with the
Subscription Agreements, constitutes the entire agreement and understanding
among the parties hereto and supersedes any and all prior agreements and
understandings, written or oral, relating to the subject matter hereof.
Section 7.10. Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdictions, it
being intended that all rights and obligations of the parties hereunder shall
be enforceable to the fullest extent permitted by law.
Section 7.11. Counterparts. This Agreement may be signed in
counterparts, each of which shall constitute an original and which together
shall constitute one and the same agreement.
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Section 7.12. Option Plan. Each of the Stockholders agrees to vote
all of the Shares of Class A Common Stock owned or held of record by such
Stockholder at any regular or special meeting of the stockholders of the
Company called for the purpose of approving the Option Plan or in any written
consent executed in lieu of such a meeting of stockholders (and the Company
agrees to use reasonable efforts to cause such meeting to occur promptly), and
agrees to take all actions otherwise necessary, to ensure the approval of the
Option Plan in accordance with the terms hereof.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date set forth above.
L-3 COMMUNICATIONS
HOLDINGS, INC.
By:_________________________________
Title:
LOCKHEED MARTIN CORPORATION
By:_________________________________
Title:
LEHMAN BROTHERS CAPITAL
PARTNERS III, L.P.
By: Lehman Brothers Holdings Inc.,
its general partner
By:_________________________________
Title:
LEHMAN BROTHERS HOLDINGS INC.
By:_________________________________
Title:
------------------------------------
Frank C. Lanza
------------------------------------
Robert V. LaPenta
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EXHIBIT D
FORM OF AGREEMENT TO BE BOUND
[DATE]
To the Parties to the
Stockholders Agreement
dated as of April 30, 1997
Dear Sirs:
Reference is made to the Stockholders Agreement dated as of April 30, 1997
(the "Stockholders Agreement"), among L-3 Communications Holdings, Inc.,
Lockheed Martin Corporation, Lehman Brothers Capital Partners III, L.P., Lehman
Brothers Holdings Inc., Frank C. Lanza and Robert V. LaPenta and each other
Stockholder who or which shall become parties to the Stockholders Agreement as
provided therein. Capitalized terms used herein and not defined have the
meanings ascribed to them in the Stockholders Agreement.
In consideration of the representations, covenants and agreements
contained in the Stockholders Agreement, the undersigned hereby confirms and
agrees that it shall be bound by all of the provisions thereof.
This letter shall be construed and enforced in accordance with the
laws of the State of New York.
Very truly yours,
[Permitted Transferee]
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EXHIBIT 10.4
TRANSACTION AGREEMENT
Dated as of March 28, 1997
By and Among
LOCKHEED MARTIN CORPORATION
LEHMAN BROTHERS CAPITAL PARTNERS III, L.P.
FRANK C. LANZA
ROBERT V. LAPENTA
and
L-3 COMMUNICATIONS HOLDINGS, INC.
<PAGE>
PERSONAL
AND
CONFIDENTIAL
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
Section 1.01 Definitions . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
TRANSACTIONS AND CLOSING
Section 2.01 Closing Transactions . . . . . . . . . . . . . . . . 1
Section 2.02 Exchange Consideration . . . . . . . . . . . . . . . 4
Section 2.03 Adjustment of Exchange Consideration . . . . . . . . 4
Section 2.04 Closing . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.05 Cash True-Up . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LOCKHEED MARTIN
Section 3.01 Representations and Warranties of Lockheed Martin . 8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LEHMAN
Section 4.01 Representations and Warranties of Lehman . . . . . . 8
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE INDIVIDUAL PURCHASERS
Section 5.01 Representations and Warranties of the Individual
Purchasers . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF NEWCO
Section 6.01 Representations and Warranties of Newco . . . . . . 8
ARTICLE VII
COVENANTS OF LOCKHEED MARTIN
Section 7.01 Conduct of Business . . . . . . . . . . . . . . . . 8
Section 7.02 Access to Information; Confidentiality . . . . . . . 10
Section 7.03 Non-Solicitation of Offers . . . . . . . . . . . . . 12
Section 7.04 Non-Solicitation of Employees . . . . . . . . . . . 12
Section 7.05 Change of Lockbox Accounts . . . . . . . . . . . . . 13
Section 7.06 Access to Information; Cooperation After Closing . . 13
Section 7.07 Maintenance of Insurance Policies . . . . . . . . . 13
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Section 7.08 Novation of Government Contracts . . . . . . . . . . 14
Section 7.09 Financial Statements . . . . . . . . . . . . . . . . 14
ARTICLE VIII
COVENANTS OF NEWCO AND THE PURCHASERS
Section 8.01 Confidentiality . . . . . . . . . . . . . . . . . . 15
Section 8.02 Provision and Preservation of and Access to Certain
Information; Cooperation . . . . . . . . . . . . . . 16
Section 8.03 Insurance; Financial Support Arrangements . . . . . 17
Section 8.04 Non-Solicitation of Employees . . . . . . . . . . . 20
Section 8.05 Financing . . . . . . . . . . . . . . . . . . . . . 21
Section 8.06 Use of Certain Trademarks, etc . . . . . . . . . . . 21
Section 8.07 Government Contract Novation; Cooperation . . . . . 21
Section 8.08 Reimbursement of Damages . . . . . . . . . . . . . . 22
ARTICLE IX
COVENANTS OF THE PARTIES
Section 9.01 Further Assurances . . . . . . . . . . . . . . . . . 22
Section 9.02 Certain Filings; Consents . . . . . . . . . . . . . 22
Section 9.03 Public Announcements . . . . . . . . . . . . . . . . 22
Section 9.04 Intellectual Property; License Agreements . . . . . 23
Section 9.05 HSR Act . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.06 Operation of Newco . . . . . . . . . . . . . . . . . 24
Section 9.07 Maintenance of Insurance Policies . . . . . . . . . 24
Section 9.08 Legal Privileges . . . . . . . . . . . . . . . . . . 25
Section 9.09 Non-Compete . . . . . . . . . . . . . . . . . . . . 25
ARTICLE X
TAX MATTERS
Section 10.01 Tax Matters . . . . . . . . . . . . . . . . . . . . 26
ARTICLE XI
EMPLOYEE BENEFIT MATTERS
Section 11.01 Employee Benefit Matters . . . . . . . . . . . . . . 26
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ARTICLE XII
CONDITIONS TO CLOSING
Section 12.01 Conditions to the Obligations of Each Party . . . . 26
Section 12.02 Conditions to Obligation of Newco and the Purchasers 27
Section 12.03 Conditions to Obligation of Lockheed Martin . . . . 28
Section 12.04 Effect of Waiver . . . . . . . . . . . . . . . . . . 28
ARTICLE XIII
SURVIVAL; INDEMNIFICATION
Section 13.01 Survival . . . . . . . . . . . . . . . . . . . . . . 29
Section 13.02 Indemnification. . . . . . . . . . . . . . . . . . . 30
Section 13.03 Procedures . . . . . . . . . . . . . . . . . . . . . 31
Section 13.04 Limitations . . . . . . . . . . . . . . . . . . . . 34
ARTICLE XIV
TERMINATION
Section 14.01 Termination . . . . . . . . . . . . . . . . . . . . 35
Section 14.02 Effect of Termination . . . . . . . . . . . . . . . 36
ARTICLE XV
MISCELLANEOUS
Section 15.01 Notices . . . . . . . . . . . . . . . . . . . . . . 37
Section 15.02 Amendments; Waivers . . . . . . . . . . . . . . . . 39
Section 15.03 Expenses . . . . . . . . . . . . . . . . . . . . . . 39
Section 15.04 Successors and Assigns . . . . . . . . . . . . . . . 40
Section 15.05 Disclosure . . . . . . . . . . . . . . . . . . . . . 40
Section 15.06 Construction . . . . . . . . . . . . . . . . . . . . 40
Section 15.07 Entire Agreement . . . . . . . . . . . . . . . . . . 41
Section 15.08 Governing Law . . . . . . . . . . . . . . . . . . . 41
Section 15.09 Counterparts; Effectiveness . . . . . . . . . . . . 41
Section 15.10 Jurisdiction . . . . . . . . . . . . . . . . . . . . 41
Section 15.11 Captions . . . . . . . . . . . . . . . . . . . . . . 42
Section 15.12 Bulk Sales . . . . . . . . . . . . . . . . . . . . . 42
Section 15.13 Delivery of Disclosure Schedules; Certain
Attachments . . . . . . . . . . . . . . . . . . . . 42
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EXHIBITS
EXHIBIT A Definitions
EXHIBIT B Representations and Warranties of Lockheed Martin
EXHIBIT C Representations and Warranties of Lehman
EXHIBIT D Representations and Warranties of the Individual Purchasers
EXHIBIT E Representations and Warranties of Newco
EXHIBIT F Tax Matters
EXHIBIT G Employee Benefit Matters
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ATTACHMENTS
Attachment I Audited Business Financial Statements
Attachment II December Statement
Attachment III Transfer Agreement
Attachment IV Forms of Common Stock Subscription Agreements
Attachment V Form of Stockholders Agreement
Attachment VI Additional Matters Relating to the Calculation of
Net Tangible Assets
Attachment VII Form of Exchange Consideration Schedule
Attachment VIII Certificate of Incorporation of Newco
Attachment IX Bylaws of Newco
Attachment X Consents and Approvals Required Prior to Closing
Attachment XI Exceptions to Non-Solicitation of Employees
Attachment XII Lockheed Martin Legal Opinions
Attachment XIII Newco Legal Opinions
Attachment XIV Certain Employee Benefit Matters
Attachment XV Patents and Patent Applications Constituting
Transferred Assets
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TRANSACTION AGREEMENT
This Transaction Agreement (together with the Exhibits, Schedules and
Attachments hereto, this "Agreement") is made as of the 28th day of March,
1997, by and among Lockheed Martin Corporation, a Maryland corporation
("Lockheed Martin"), Lehman Brothers Capital Partners III, L.P., a Delaware
limited partnership ("Lehman"), Frank C. Lanza ("Lanza"), Robert V. LaPenta
("LaPenta"; and together with Lanza, the "Individual Purchasers") and L-3
Communications Holdings, Inc., a Delaware corporation ("Newco"). For purposes
of this Agreement, Lehman, Lanza and LaPenta each are individually referred to
as a "Purchaser" and collectively referred to as the "Purchasers."
W I T N E S S E T H:
WHEREAS, Lockheed Martin, in its own right and through certain of its
direct and indirect Subsidiaries is engaged in the Business;
WHEREAS, Lockheed Martin and the Purchasers, upon the terms and subject to
the conditions of this Agreement have agreed to the formation and organization
of Newco; and
WHEREAS, upon the terms and subject to the conditions of this Agreement,
Lockheed Martin desires to transfer, or to cause the Affiliated Transferors to
transfer, substantially all of the assets held or owned by, or used to conduct,
the Business and to assign certain liabilities associated with the Business to
Newco, and Newco desires to receive such assets and assume such liabilities;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions. Defined terms used in this Agreement shall have
the meanings specified in this Agreement or in Exhibit A.
ARTICLE II
TRANSACTIONS AND CLOSING
Section 2.01 Closing Transactions. Upon the terms and subject to the
conditions set forth in the Transaction Documents, the parties agree that at
the Closing, among other things:
(i) Lockheed Martin will transfer or cause to be transferred to Newco
all Transferred Assets and Newco will assume all Assumed Liabilities in
accordance with this Agreement and the terms of the Transfer Agreement
attached as Attachment III;
(ii) Newco will issue to Lehman 10,020,000 shares of Newco Class A
Stock in exchange for $64,835,000 in cash;
(iii) Newco will issue to Lanza 1,500,000 shares of Newco Class B Stock
in exchange for $7,500,000 in cash;
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(iv) Newco will issue to LaPenta 1,500,000 shares of Newco Class B
Stock in exchange for $7,500,000 in cash; and
(v) Newco, Lockheed Martin and the Purchasers, as the case may be,
will enter into Common Stock Subscription Agreements and a Stockholders
Agreement in substantially the forms attached as Attachments IV and V,
will enter into License Agreements in the forms contemplated by Section
9.04, and will enter into an Exchange Agreement in substantially the form
attached to the Transfer Agreement attached as Attachment III;
(vi) Lockheed Martin and Newco will enter into a services agreement
for a term expiring on December 31, 1997 (other than with respect to
certain services to the Communications Systems Business Unit the term for
which shall be mutually agreed upon up to one year with a six-month option
exercisable by Newco) (which may be terminated (in whole or in part,
provided that related services may not be terminated in part) by the party
receiving such services upon 60 days advance written notice to the other
party at any time, it being understood that each party will use reasonable
commercial efforts to transition away from the other party as the source
for such services as soon as practicable) relating to the provision by the
Lockheed Martin Companies to Newco (or by Newco to the Lockheed Martin
Companies, as the case may be) following the Closing of certain services
(which may include making limited space and equipment available) of a type
provided by the Lockheed Martin Companies (other than services provided by
the Business Units or personnel at the location covered by the NY Leases)
to the Business (or services provided by the Business Units or the
personnel at the location covered by the NY Leases to the Lockheed Martin
Companies) as of the date of this Agreement, at costs consistent with past
practices (the "Interim Services Agreement"), which agreement is to be
negotiated by the parties in good faith prior to the Closing;
(vii) Lockheed Martin and Newco will enter into one or more supply
agreements to document intercompany work transfer agreements existing as
of the Closing or intercompany work transfer agreements or similar support
arrangements contemplated as of the Closing in connection with Bids in
existence as of the Closing between any of the Business Units and any of
the Lockheed Martin Companies, at prices and generally upon other terms
consistent with existing intercompany work transfer agreements, but
including such additional terms and conditions as are appropriate
(including indemnification and damage provisions consistent with the
underlying contract) to reflect the third-party nature of the agreements
(and in any event (1) including profit chargebacks (other than with
respect to the Eagle and Raptor programs) to Lockheed Martin of up to $1.9
million in 1997, $1.1 million in 1998, $700,000 in 1999 and $500,000 in
2000 consistent with the Long Range Plan for the Business prepared by
Lockheed Martin and previously provided to the Purchasers (the "Long Range
Plan"), but only to the extent in backlog at the Closing Date or
contemplated as of the Closing in connection with Bids in existence as of
the Closing, and in the case of the "Eagle" and "Raptor" (both long lead
material award and production award) programs, profit chargebacks to
Lockheed Martin of up to an aggregate of $1,000,000 and (2) providing
that, notwithstanding the terms of the Long Range Plan, after December 31,
2000 Newco shall not be entitled to any profit chargeback to Lockheed
Martin) (the "Supply Agreement"), which agreement is to be negotiated by
the parties in good faith prior to the Closing; and
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(viii) Other than with respect to the matters referenced in clause (ix)
below, Lockheed Martin (and/or other Lockheed Martin Companies, as
appropriate) and Newco will enter into lease, sublease or assignment
agreements, as the case may be, in respect of those facilities used by the
Business Units on such terms and subject to such conditions as may be
negotiated by the parties in good faith prior to the Closing, it being
understood that such terms and conditions shall be consistent with
existing agreements; and
(ix) Lockheed Martin and Newco will enter into an agreement pursuant
to which (A)(1) Lockheed Martin will agree for a period beginning on the
Closing Date and ending on December 31, 1999, to lease 67,400 square feet
of space in Building 1 at the Communications Systems Business Unit at an
"all in" annual cost of $36.25 per square foot, (2) Newco will grant
Lockheed Martin an option (exercisable on or prior to December 31, 1998)
to continue to lease all of the space contemplated by the preceding clause
(A)(1) for the period from January 1, 2000 until March 14, 2003 at an "all
in" annual cost of $18.12 per square foot, and (3) Newco will agree to pay
Lockheed Martin $2,000,000 on the first Business Day of January 2000 in
the event that Lockheed Martin exercises the option contemplated by the
preceding clause (A)(2), and (B) Lockheed Martin will agree to lease on
behalf of its existing MAC-MAR business its current space in Building 1 at
the Communications Systems Business Unit at the current lease rates
through December 31, 1998, and will grant Newco the right, on a
year-to-year basis, to match any competing offer to provide space and
related services to MAC-MAR thereafter until the end of the current lease
term, it being understood that Newco must continue to use the services of
the MAC-MAR business as long as the MAC-MAR business is using Newco's
receiving services at the Communications Systems Business Unit.
Section 2.02 Exchange Consideration. The consideration to be paid to
Lockheed Martin and the Affiliated Transferors for the Transferred Assets (the
"Exchange Consideration") shall consist of the following:
(i) Subject to adjustment in accordance with Section 2.03 and
Section 2.04, $479,835,000 in cash;
(ii) 6,980,000 shares of Newco Class A Stock; and
(iii) Newco's assumption of the Assumed Liabilities in accordance
with this Agreement.
Section 2.03 Adjustment of Exchange Consideration.
(a) At least two Business Days prior to the Closing Date, Lockheed Martin
shall, in good faith and after consultation with the Individual Purchasers,
prepare an estimate of the Net Tangible Assets of the Business as of March 30
(if the Closing shall occur in April 1997) or April 27 (if the Closing shall
occur in May 1997) (such date being the date on which Lockheed Martin closes
its accounting books and records for the respective month and referred to as
the "Effective Date"; and such estimate being the "Estimated Final Net Tangible
Asset Amount") and shall provide a copy of its calculation of the Estimated
Final Net Tangible Asset Amount to Newco and the Purchasers.
(b) Promptly following the Closing Date, but in no event later than 60
days after the Closing Date, Lockheed Martin shall, at its expense, with the
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assistance of Newco prepare and submit to Newco an audited combined statement
of net tangible assets setting forth, in reasonable detail, Lockheed Martin's
calculation of the Net Tangible Assets of the Business as of the close of
business on the Effective Date (the "Proposed Final Net Tangible Asset Amount")
together with an opinion of Ernst & Young LLP stating that such audited
combined statement of Net Tangible Assets presents fairly, in all material
respects, the Net Tangible Assets of the Business as of the close of business
on the Effective Date in accordance with the provisions of this Agreement. In
the event Newco disputes the correctness of the Proposed Final Net Tangible
Asset Amount, Newco shall notify Lockheed Martin of its objections within 45
days after receipt of Lockheed Martin's calculation of the Proposed Final Net
Tangible Asset Amount and shall set forth, in writing and reasonable detail,
the reasons for Newco's objections. If Newco fails to deliver such notice of
objections within such time, Newco shall be deemed to have accepted Lockheed
Martin's calculation. Lockheed Martin and Newco shall endeavor in good faith to
resolve any disputed items within 20 days after Lockheed Martin's receipt of
Newco's notice of objections. If they are unable to do so, Lockheed Martin and
Newco shall select a nationally known independent accounting firm (other than
Ernst & Young LLP or Coopers & Lybrand L.L.P.) to resolve the dispute (in a
manner consistent with Section 2.03(c) and with any items not in dispute), and
the determination of such firm in respect of the correctness of each item
remaining in dispute shall be conclusive and binding on Lockheed Martin and
Newco. The Net Tangible Assets of the Business as of the close of business on
the Effective Date as finally determined pursuant to this Section 2.03(b)
(whether by failure of Newco to deliver notice of objection, by agreement of
Lockheed Martin and Newco or by determination of the accountants selected as
set forth above) is referred to herein as the "Final Net Tangible Asset
Amount."
(c) The Estimated Final Net Tangible Asset Amount, the Proposed Final Net
Tangible Asset Amount and the Final Net Tangible Asset Amount shall be
determined in accordance with the accounting principles, policies, practices
and methods utilized in the preparation of the December Statement, as disclosed
in the notes to the December Statement, except as otherwise set forth in
Attachment VI.
(d) If the Final Net Tangible Asset Amount is greater than the Estimated
Final Net Tangible Asset Amount, the difference shall be paid to Lockheed
Martin by Newco with interest thereon from the Closing Date to the date of
payment at a rate per annum equal to the per annum interest rate announced from
time to time by Bank of America National Trust and Savings Association as its
reference rate in effect. If the Final Net Tangible Asset Amount is less than
the Estimated Final Net Tangible Asset Amount, the difference shall be paid to
Newco by Lockheed Martin with interest thereon from the Closing Date to the
date of payment at a rate per annum equal to the per annum interest rate
announced from time to time by Bank of America National Trust and Savings
Association as its reference rate in effect. Such payment shall be made in
immediately available funds not later than five Business Days after the
determination of the Final Net Tangible Asset Amount by wire transfer to a bank
account designated in writing by the party entitled to receive the payment;
provided, however, if Newco is prohibited from making such payment by the
financing arrangements of Newco in effect as of the Closing Date, then, in lieu
of making any payment in excess of the sum of (i) the difference between
$479,835,000 and the amount of the payment actually made pursuant to Section
2.04(i) and (ii) $5,000,000 by wire transfer in immediately available funds,
Newco may deliver to Lockheed Martin in satisfaction of its obligation in
excess of such sum a subordinated note
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the principal amount of which shall equal such excess and providing for
repayment thereof in eight consecutive equal quarterly payments of principal
together with interest thereon, with an interest rate and such other terms and
conditions that reflect the financial condition of Newco and would be available
to Newco for similar subordinated debt on the date the subordinated note is
delivered to Lockheed Martin by Newco, which subordinated note is to be
negotiated by the parties in good faith in the event such subordinated note is
required to be issued pursuant to the terms hereof.
(e) Lockheed Martin shall make available and shall cause Ernst & Young LLP
to make available, in accordance with reasonable and customary practices and
professional standards and subject to such reasonable conditions as Ernst &
Young LLP shall impose, the books, records, documents and work papers
underlying the preparation and audit of the December Statement and the
calculation of the Proposed Final Net Tangible Asset Amount. Newco and the
Purchasers shall make available and shall cause Coopers & Lybrand L.L.P. to
make available, in accordance with reasonable and customary practices and
professional standards and subject to such reasonable conditions as Coopers &
Lybrand L.L.P. shall impose, the books, records, documents and work papers
created or prepared by or for Newco in connection with the review of the
Proposed Final Net Tangible Asset Amount and the other matters contemplated by
Section 2.03(b).
(f) The fees and expenses, if any, of the accounting firm selected to
resolve any disputes between Lockheed Martin and Newco in accordance with
Section 2.03(b) shall be paid one-half by Lockheed Martin and one-half by
Newco.
Section 2.04 Closing. The closing (the "Closing") of the Contemplated
Transactions shall take place at the offices of Simpson Thacher & Bartlett, 425
Lexington Avenue, New York, New York on April 25, 1997, provided, however, that
if all of the conditions to Closing set forth in Article XII have not been
satisfied (or waived) as of that date and if closing on that date therefore
would be impractical, the Closing shall take place on the fifth Business Day
following the satisfaction or waiver (by the party entitled to waive the
condition) of all conditions to the Closing set forth in Article XII, or at
such other time and place as the parties to this Agreement may agree. The
Closing will occur at 9:00 a.m. on the Closing Date. At the Closing, among
other things:
(i) Newco shall pay and deliver to Lockheed Martin, for its own
account and as agent for the Affiliated Transferors, $479,835,000 (minus
the difference between the Estimated Final Net Tangible Asset Amount and
$269,118,000 in the event the Estimated Final Net Tangible Asset Amount is
less than $269,118,000) in immediately available funds by wire transfer to
an account designated by Lockheed Martin (which account shall be
designated by Lockheed Martin by written notice to Newco at least two
Business Days prior to the Closing Date, or such shorter notice as Newco
shall agree to accept);
(ii) Newco shall issue to Lockheed Martin, for its own account and as
agent for the Affiliated Transferors, 6,980,000 shares of Newco Class A
Stock;
(iii) Newco shall issue to Lehman 10,020,000 shares of Newco Class A
Stock in exchange for Lehman paying and delivering to Newco $64,835,000 in
immediately available funds by wire transfer to an account designated
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by Newco (which account shall be designated by Newco by written notice to
Lehman at least two Business Days prior to the Closing Date, or such
shorter notice as Lehman shall agree to accept);
(iv) Newco shall issue to Lanza 1,500,000 shares of Newco Class B
Stock in exchange for Lanza paying and delivering to Newco $7,500,000 in
immediately available funds by wire transfer to an account designated by
Newco (which account shall be designated by Newco by written notice to
Lanza at least two Business Days prior to the Closing Date, or such
shorter notice as Lanza shall agree to accept); and
(v) Newco shall issue to LaPenta 1,500,000 shares of Newco Class B
Stock in exchange for LaPenta paying and delivering to Newco $7,500,000 in
immediately available funds by wire transfer to an account designated by
Newco (which account shall be designated by Newco by written notice to
LaPenta at least two Business Days prior to the Closing Date, or such
shorter notice as LaPenta shall agree to accept).
Section 2.05 Cash True-Up. Within fifteen Business Days after the Closing
Date, Lockheed Martin shall prepare and deliver to Newco a schedule setting
forth, on a daily basis, the cash generated by the Business from 12:01 a.m. on
the first day following the Effective Date (after subtracting any cash
investments made by any of the Lockheed Martin Companies in or for the benefit
of the Business after the Effective Date and the amount of any checks drawn on
the accounts of any of the Lockheed Martin Companies prior to Closing Date but
not yet debited from such accounts as of the close of business on the day prior
to the Closing Date). Within five Business Days of receipt of the foregoing
schedule, Newco shall make payment to Lockheed Martin if the schedule shows a
net cash usage by the Business during the period referenced in the preceding
sentence and Lockheed Martin shall make payment to Newco if the schedule shows
net cash generation during such period in an amount equal to such net cash
usage or net cash generation, as the case may be. Lockheed Martin shall give
Newco reasonable access to its books and records for the purpose of confirming
the calculations of Lockheed Martin pursuant to this Section 2.05. Any payment
made hereunder shall be made in immediately available funds by wire transfer to
a bank account designated in writing by the party entitled to receive the
payment.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LOCKHEED MARTIN
Section 3.01 Representations and Warranties of Lockheed Martin. Lockheed
Martin represents and warrants prior to but not after the Closing to the
Purchasers, and as of and after the Closing to Newco, as set forth in Exhibit
B.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LEHMAN
Section 4.01 Representations and Warranties of Lehman. Lehman represents
and warrants to Lockheed Martin, Newco and the Individual Purchasers as set
forth in Exhibit C.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE INDIVIDUAL PURCHASERS
Section 5.01 Representations and Warranties of the Individual Purchasers.
Each of the Individual Purchasers represents and warrants to Lockheed Martin,
Newco and Lehman as set forth in Exhibit D.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF NEWCO
Section 6.01 Representations and Warranties of Newco. Newco represents
and warrants to Lockheed Martin and the Purchasers as set forth in Exhibit E.
ARTICLE VII
COVENANTS OF LOCKHEED MARTIN
Section 7.01 Conduct of Business. From the date of this Agreement until
the Closing Date, except with the written consent of either of the Individual
Purchasers (which consent may not be unreasonably withheld or delayed) the
Lockheed Martin Companies shall conduct the Business in all material respects
in accordance with the historical and customary operating practices relating to
the conduct of the Business (except that Lockheed Martin and the Affiliated
Transferors may sell or otherwise dispose of obsolete Inventory whether or not
in accordance with such practices and shall cause its Subsidiaries to use
reasonable commercial efforts to preserve intact the Business and its
relationships with third parties. Without limiting the generality of the
foregoing, from the date of this Agreement through the Closing Date, subject to
any exceptions required to comply with Applicable Laws, the Lockheed Martin
Companies shall not, without the written consent of either of the Individual
Purchasers (which consent may not be unreasonably withheld or delayed):
(i) make any capital expenditure, or group of related capital
expenditures (other than as contemplated by the Long Range Plan) relating
to the Business in excess of $250,000;
(ii) sell or dispose of more than an aggregate of $250,000 of assets
(other than the sale of Inventory, any sale made in the ordinary course of
business, and other than pursuant to Bids or Contracts in existence on the
date of this Agreement) that would constitute Transferred Assets if owned,
held or used by any of the Lockheed Martin Companies on the Closing Date;
(iii) amend, modify, or terminate any Contract where the effect of such
amendment, modification or termination would be a decrease in the backlog
value of the relevant Contract or a decrease in the payments to be
received or made by Newco, in any such case by $250,000 or more;
(iv) submit any Bid which, if accepted, would result in a fixed price
Contract that would constitute a Transferred Asset with a backlog value in
excess of (1) $5,000,000 in the case of a fixed price
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production Contract, or (2) $1,000,000 in the case of a fixed price
development Contract;
(v) except as required by Contracts in existence as of the date of
this Agreement or in the ordinary course of business, sell, transfer,
license or otherwise dispose of, any Intellectual Property relating to the
Business;
(vi) enter into any (1) fixed price production Contracts (other than
pursuant to a Bid in existence as of the date of this Agreement) that
would constitute a Transferred Asset if held by any of the Lockheed Martin
Companies on the Closing Date with a backlog value in excess of
$5,000,000, or (2) fixed price development Contracts (other than pursuant
to a Bid in existence as of the date of this Agreement) that would
constitute a Transferred Asset if held by any of the Lockheed Martin
Companies on the Closing Date with a backlog value in excess of
$1,000,000;
(vii) terminate the coverage of any policies of title, liability, fire,
workers' compensation, property and any other form of insurance covering
the Transferred Assets or operations of the Business, except where the
termination could not reasonably be expected to have a Material Adverse
Effect on the Business;
(viii) settle any lawsuit or claim if such settlement imposes a material
continuing non-monetary obligation on the Business or any of the
Transferred Assets;
(ix) except in respect of the Individual Purchasers, grant any new or
modified severance or termination arrangement or increase or accelerate in
any material respect any benefits payable under its severance or
termination pay policies in effect on the date of this Agreement with
respect to any Transferred Employee;
(x) other than with respect to the Individual Purchasers, except as
may be otherwise permitted or required by this Agreement, and except as
contemplated by Attachment XIV, adopt or amend in any material respect any
bonus, profit sharing, compensation, stock option, pension, retirement,
deferred compensation, employment or other employee benefit plan,
agreement, trust, fund or other arrangement for the benefit or welfare of
any Transferred Employee or, other than compensation increases for
individuals below the level of vice president in the ordinary course of
business or compensation increases for individuals at the level of vice
president and above in accordance with nondiscretionary provisions of the
Employee Plans or Benefit Arrangements disclosed in Section B.21 of the
Disclosure Schedules or referenced in Exhibit G, increase the compensation
or fringe benefits of any Transferred Employee or pay any benefit not
required by any Employee Plan, Benefit Arrangement or any agreement with
respect to any Transferred Employee; and
(xi) effectuate a "plant closing" or "mass layoff," as those terms are
defined in WARN, affecting in whole or in part any site of employment,
facility, operating unit or employee of the Business, without complying
with the notice requirements and other provisions of WARN.
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Section 7.02 Access to Information; Confidentiality.
(a) Except as may be necessary to comply with any Applicable Laws
(including, without limitation, any requirements with respect to security
clearances) and subject to any applicable privileges (including, without
limitation, the attorney-client privilege), from the date of this Agreement
until the Closing Date, Lockheed Martin will (a) give the Purchasers and their
Representatives reasonable access to the records of the Lockheed Martin
Companies relating to the Business during normal business hours and upon
reasonable prior notice, (b) give the Purchasers and their Representatives
reasonable access to any facilities the possession of which will be transferred
to Newco at Closing during normal business hours and upon reasonable prior
notice for the purpose of Purchasers' conduct of a Phase I Environmental Audit
of such facilities or documentary diligence, (c) furnish to the Purchasers and
their Representatives such financial and operating data and other information
relating to the Business as the Purchasers may reasonably request and (d)
instruct the employees and Representatives of the Lockheed Martin Companies to
cooperate with the Purchasers in their investigation of the Business. Without
limiting the generality of the foregoing, subject to the limitations set forth
in the first sentence of this Section 7.02(a), (i) Lockheed Martin shall use
reasonable commercial efforts to enable the Purchasers and the Purchasers'
Representatives to conduct, at the Purchasers' own expense, business and
financial reviews, investigations and studies as to the operation of the
various Business Units, including any tax, operating or other efficiencies that
may be achieved and (ii) from the date of this Agreement to the Closing Date,
Lockheed Martin shall give the Purchasers and their Representatives access to
information relating to the Business of the type, and with the same level of
detail, as in the ordinary course of business is made available to the
presidents or chief financial officers of the Business Units. Notwithstanding
the foregoing, the Purchasers shall not have access to personnel records of any
of the Lockheed Martin Companies relating to individual performance or
evaluation records, medical histories or other information which in Lockheed
Martin's good faith opinion is sensitive or the disclosure of which could
subject any of the Lockheed Martin Companies to risk of liability.
(b) For a period of three years after the Closing Date, the Lockheed
Martin Companies will treat and hold as such, any confidential information
concerning the operations or affairs of the Business. In the event any of the
Lockheed Martin Companies is requested or required (by oral or written request
for information or documents in any legal proceeding, interrogatory, subpoena,
civil investigative demand or similar process or by Applicable Law) to disclose
any such confidential information, then Lockheed Martin will notify Newco
promptly of the request or requirement so that Newco, at its expense, may seek
an appropriate protective order or waive compliance with this Section 7.02(b).
If, in the absence of a protective order or receipt of a waiver hereunder, any
of the Lockheed Martin Companies is, on the advice of counsel, compelled to
disclose such confidential information the Lockheed Martin Company may so
disclose the confidential information, provided that the Lockheed Martin
Company will use its reasonable efforts to obtain reliable assurance that
confidential treatment will be accorded to such confidential information. The
provisions of this Section 7.02(b) will not be deemed to prohibit the
disclosure of confidential information concerning the operations or affairs of
the Business by any of the Lockheed Martin Companies to the extent reasonably
required (i) to prepare or complete any required tax returns or financial
statements, (ii) in connection with audits or other proceedings by or on behalf
of a Governmental Authority, (iii) in connection
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with any insurance or benefits claims, (iv) to the extent necessary to comply
with any Applicable Laws, (v) to provide services to Newco in accordance with
the Interim Services Agreement, or (vi) in connection with any other similar
administrative functions in the ordinary course of business. Notwithstanding
the foregoing, the provisions of this Section 7.02(b) shall not apply to
information that (i) is or becomes publicly available other than as a result of
a disclosure by any of the Lockheed Martin Companies, (ii) is or becomes
available to a Lockheed Martin Company on a non-confidential basis from a
source that, to Lockheed Martin's knowledge, is not prohibited from disclosing
such information by a legal, contractual or fiduciary obligation, or (iii) is
or has been independently developed by a Lockheed Martin Company (other than
solely for the Business or by one of the Business Units). This Section 7.02(b)
shall not apply to the disclosure of confidential information concerning the
Instrumentation Recorder Product Line of Advanced Recorders in connection with
or after the sale thereof to a purchaser or potential purchaser (other than
Newco); provided, however, that such disclosure may only be made pursuant to a
confidentiality agreement containing reasonable terms and conditions.
Section 7.03 Non-Solicitation of Offers. From the date of this Agreement
to the earlier of the Closing Date or the termination of this Agreement,
Lockheed Martin shall not, and Lockheed Martin shall not authorize or permit
any of its Representatives to, directly or indirectly (through Affiliates or
otherwise), (i) solicit, initiate or take any action knowingly to facilitate
the submission of inquiries, proposals or offers from any Person (other than
Newco) relating to any acquisition or purchase of all or a substantial part of
the Business, in one transaction or a series of related transactions (whether
by asset or stock sale, business combination transaction or otherwise),
(collectively, the "Alternative Transaction Proposals"), or (ii) enter into or
participate in any discussions or negotiations regarding any of the foregoing,
or furnish to any other Person any information with respect to the Business
(other than in the ordinary course of operating the Business and in connection
with the possible sale of the Instrumentation Recorder Product Line of Advanced
Recorders) or otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other Person to do or
seek any of the foregoing. Except to the extent that it is prohibited from
doing so by contractual agreements that were in existence as of January 31,
1997 (of which there are two), if Lockheed Martin, directly or indirectly,
receives an Alternative Transaction Proposal, Lockheed Martin shall promptly
inform the Purchasers of the terms and conditions of the Alternative
Transaction Proposal and the identity of the Person making it.
Section 7.04 Non-Solicitation of Employees. From and after the date of
this Agreement until the second anniversary of the Closing Date, Lockheed
Martin shall not, without prior written approval of Newco, directly or
indirectly (through Affiliates or otherwise), knowingly solicit any individual
(other than individuals identified in Attachment XI) who at that time is an
employee of the Business to terminate his or her relationship with the Business
and will not knowingly hire any individual inadvertently solicited; provided,
however, that the foregoing shall not apply to (i) individuals solicited or
hired as a result of the use of an independent employment agency (so long as
the agency was not directed to solicit such individual and Lockheed Martin,
promptly following execution of this Agreement, advises the Vice President for
Human Resources of each Operating Sector of Lockheed Martin of the provisions
of this Section 7.04), and (ii) individuals solicited or hired as a result of
the use of a general
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solicitation (such as an advertisement) not specifically directed to
employees of the Business.
Section 7.05 Change of Lockbox Accounts. Immediately after the Closing,
Lockheed Martin shall take such steps as Newco may reasonably request to cause
Newco to be substituted as the sole party having control over any lockbox or
similar bank account maintained exclusively by the Business Units to which
customers of the Business directly make payments in respect of the Business or
to direct the bank at which any such lockbox or similar account is maintained
to transfer any payments made thereto to an account established by Newco.
Section 7.06 Access to Information; Cooperation After Closing. On and
after the Closing Date and subject to any applicable privileges (including,
without limitation, the attorney-client privilege), Lockheed Martin shall, and
shall cause each of the other Lockheed Martin Companies to, at their expense
(i) afford Newco and its Representatives reasonable access upon reasonable
prior notice during normal business hours, to all employees, offices,
properties, agreements, records, books and affairs of the Lockheed Martin
Companies to the extent relating to the Business, (ii) provide copies of such
information concerning the Business as Newco may reasonably request for any
proper purpose, including, without limitation, in connection with any public or
private offering of securities by Newco or the preparation of any financial
statements or in connection with any judicial, quasi judicial, administrative,
or arbitration proceeding or audit (provided, however, that except as otherwise
provided in writing signed by an officer of Lockheed Martin specifically
approving the use of such information, the specific purpose for which such
information is to be used therein and the specific representations and
warranties at issue, Lockheed Martin makes no representations or warranties to
the Purchasers, Newco or any other Person in respect of any such information)
and (iii) cooperate fully with Newco for any proper purpose, including, without
limitation, in the defense or pursuit of any Transferred Asset, Assumed
Liability or any claim or action that relates to occurrences involving the
Business prior to the Closing Date.
Section 7.07 Maintenance of Insurance Policies. Except as otherwise
provided in Exhibit G, on and after the date of this Agreement and until the
Closing Date, Lockheed Martin shall not take or fail to take any action if such
action or inaction, as the case may be, would adversely affect the
applicability of any insurance (including reinsurance) in effect on the date of
this Agreement that covers all or any part of the assets that would constitute
Transferred Assets if owned, held or used by any of the Lockheed Martin
Companies on the Closing Date, the Business or the Transferred Employees.
Except as otherwise provided in Exhibit G or as may otherwise be agreed in
writing by the parties, Lockheed Martin shall not have any obligation to
maintain the effectiveness of any such insurance policy after the Closing Date
or to make any monetary payment in connection with any such policy.
Section 7.08 Novation of Government Contracts. As soon as is reasonably
practicable following the Closing, Lockheed Martin shall, in accordance with
Federal Acquisition Regulations Part 42, Section 42.12, submit in writing to
each Responsible Contracting Officer (as such term is defined in Federal
Acquisition Regulations Part 42, Section 42.102(a)), a request for the U.S.
Government to (i) recognize Newco as the successor in interest to all of the
Government Contracts being sold, assigned, transferred and conveyed to Newco in
accordance with this Agreement and (ii) enter into a
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novation agreement (the "Novation Agreement") substantially in the form
contemplated by such regulations. Lockheed Martin shall use commercially
reasonable efforts to obtain all consents, approvals and waivers required for
the purpose of processing, entering into and completing the Novation Agreement
with regard to any of the Government Contracts, including responding to any
reasonable requests for information by the U.S. Government with regard to such
Novation Agreement.
Section 7.09 Financial Statements. Lockheed Martin shall, at Lockheed
Martin's expense, furnish and shall cause its independent accountants for the
Communications Systems Business Unit to audit and furnish their opinion thereon
not later than March 28, 1997, financial statements for such Business Unit for
the years ended December 31, 1996, December 31, 1995 and December 31, 1994
prepared in accordance with GAAP applied consistently throughout the periods
covered thereby in a form meeting the requirements of Regulation S-X of the
Securities Act, and, consistent with appropriate terms and conditions and upon
receipt of appropriate management representation letters, to furnish the
consent of such independent accountants to the inclusion of their report on
such financial statements to the extent the financial statements are required
to be included in any registration statement of Newco under the Securities Act
and any amendments thereto or in any offering memoranda in connection with an
offering of securities exempt from registration under the Securities Act, and
to provide comfort letters in customary form in connection therewith; and for
the purposes of assisting Newco with any such registration statement and
subsequent reporting requirements under the Securities Act of 1934, as amended,
Lockheed Martin will deliver to Newco unaudited income statements and balance
sheets of the Communications Systems Business Unit for each 1996 calendar
quarter and each 1997 calendar quarter completed prior to or on the Closing
Date. The financial statements and schedules described in the preceding
sentence for the first quarter of 1997 and 1996, respectively, will be provided
by May 10, 1997. To the extent required, each subsequent 1997 quarter's
financial statements and schedules (together with the corresponding 1996
quarter's financial statements) shall be delivered to Newco by Lockheed Martin
within 40 days after the last day of such quarter. The parties acknowledge and
agree that time is of the essence in the performance of this Section 7.09 and
Lockheed Martin shall provide Newco unaudited financial information with
respect to the Communications Systems Business Unit for the years 1993 and 1992
meeting the requirements of Item 301 of Regulation S-K (Selected Financial
Data) of the Securities Act by April 4, 1997. Lockheed Martin acknowledges that
Newco's independent accountants will be performing the audit of the combined
financial statements of the Business for the year ended December 31, 1996 (and,
if required by applicable SEC regulations, for the period from January 1, 1997
to the Closing Date), and the combined financial statements of the Wideband
Systems Business Unit and the Products Group of the Business for the three
months ended March 31, 1996 and the years ended December 31, 1995 and December
31, 1994. Lockheed Martin agrees to cooperate and cause its independent
accountants to cooperate with Newco's independent accountants, and provide such
reasonable representation letters of Lockheed Martin's management to Newco's
independent accountants in a form appropriate to enable such accountants to
issue an opinion on the financial statements they are auditing in accordance
with professional standards.
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ARTICLE VIII
COVENANTS OF NEWCO AND THE PURCHASERS
Section 8.01 Confidentiality.
(a) Newco and the Purchasers agree that all information provided or
otherwise made available in connection with the Contemplated Transactions, to
any of the Purchasers, Newco or their Representatives will be treated as if
provided, in the case of Newco and Lehman, under the Lehman Confidentiality
Agreement (whether or not the Lehman Confidentiality Agreement is in effect or
has been terminated) or, in the case of the Individual Purchasers, under
paragraph 7 of the Memorandum (whether or not the Memorandum is in effect or
has been terminated). In addition, until consummation of the Closing, Newco
agrees to be bound by the terms of the Lehman Confidentiality Agreement as if
Newco were Lehman thereunder (whether or not the Lehman Confidentiality
Agreement is in effect or has been terminated). Upon consummation of the
Closing, the Lehman Confidentiality Agreement and paragraph 7 of the Memorandum
shall cease to apply.
(b) For a period of three years after the Closing Date, the Purchasers,
Newco and each of their Affiliates will treat and hold as such, any
confidential information concerning the operations or affairs of businesses of
the Lockheed Martin Companies (other than the Business). In the event that any
of the Purchasers, Newco or any of their Affiliates is requested or required
(by oral or written request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand or similar
process or by Applicable Law) to disclose any such confidential information,
then they will notify Lockheed Martin promptly of the request or requirement so
that Lockheed Martin, at its expense, may seek an appropriate protective order
or waive compliance with this Section 8.01(b). If, in the absence of a
protective order or receipt of a waiver hereunder, any of the Purchasers, Newco
or any of their Affiliates is, on the advice of counsel, compelled to disclose
such confidential information, they may so disclose the confidential
information, provided that they use reasonable efforts to obtain reliable
assurance that confidential treatment will be accorded to such confidential
information. Notwithstanding the foregoing, the provisions of this Section
8.01(b) shall not apply to information that (i) is or becomes publicly
available other than as a result of a disclosure by any of the Purchasers,
Newco or any of their Affiliates, (ii) is or becomes available to any of the
Purchasers, Newco or any of their Affiliates on a non-confidential basis from a
source that, to the Purchasers', Newco's or any of their Affiliates' knowledge,
is not prohibited from disclosing such information by a legal, contractual or
fiduciary obligation, or (iii) is or has been independently developed by any of
the Purchasers, Newco or any of their Affiliates.
(c) Nothing in this Section 8.01 shall abrogate or otherwise limit the
fiduciary duties of, and any other duties or restrictions imposed by Applicable
Law on, the Individual Purchasers by virtue of their service as a director,
officer or employee of any of the Lockheed Martin Companies or their
predecessors.
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Section 8.02 Provision and Preservation of and Access to Certain
Information; Cooperation.
(a) Prior to the Closing Date, each Purchaser shall provide to Lockheed
Martin promptly upon its receipt thereof copies of all environmental audit and
similar reports with respect to facilities the possession of which will be
transferred to Newco at the Closing.
(b) The Individual Purchasers acknowledge that effective as of February 3,
1997, Lockheed Martin turned over day-to-day management of the Business Units
to the Individual Purchasers. From the date of this Agreement until the Closing
Date, the Individual Purchasers agree to take reasonable steps to ensure that
the Business Units conduct their business and operations in accordance with the
provisions of Section 7.01. Notwithstanding the foregoing, the Individual
Purchasers shall not have liability to any Person for the breach of this
Section 8.02(b), it being understood that the effects of a breach of this
Section 8.02(b) shall be limited to the effects set forth in Section 13.04(d)
and Section 14.02.
(c) On and after the Closing Date, Newco shall preserve all books and
records of the Business for a period of five years commencing on the Closing
Date (or in the case of books and records relating to tax, employment and
employee benefits matters, until such time as Lockheed Martin notifies Newco in
writing that all statutes of limitations to which such records relate have
expired), and thereafter, not to destroy or dispose of such records without
giving notice to Lockheed Martin of such pending disposal and offering Lockheed
Martin the right to copy such records at its expense. In the event Lockheed
Martin has not copied such materials within 90 days following the receipt of
notice from Newco, Newco may proceed to destroy or dispose of such materials
without any liability. From and after the Closing Date and subject to any
applicable privileges (including, without limitation, the attorney-client
privilege), Newco shall at its expense (i) afford Lockheed Martin and its
Representatives reasonable access upon reasonable prior notice during normal
business hours, to all employees, offices, properties, agreements, records,
books and affairs of Newco, and provide copies of such information concerning
the Business as Lockheed Martin may reasonably request for any proper purpose,
including, without limitation, in connection with the preparation of any tax
returns or financial statements or in connection with any judicial, quasi
judicial, administrative, tax, audit or arbitration proceeding and in
connection with the preparation of any financial statements or reports in
accordance with past practices and procedures and (ii) cooperate fully with
Lockheed Martin for any proper purpose, including, without limitation, the
defense of or pursuit of any Excluded Liability, Excluded Asset or any claim or
action that relates to an Excluded Liability or Excluded Asset.
Section 8.03 Insurance; Financial Support Arrangements.
(a) Newco and the Purchasers acknowledge and agree that as of the Closing
Date, neither Newco, the Business or any of the Business Units, any property
owned or leased by any of the foregoing nor any of the directors, officers,
employees (including, without limitation, the Transferred Employees) or agents
of any of the foregoing will be insured under any insurance policies maintained
by Lockheed Martin or any of its Affiliates, except (i) in the case of certain
policies, to the extent that a claim has been reported as of the Closing Date,
(ii) in the case of a policy that is an occurrence policy, to the extent the
accident, event or occurrence that
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results in an insurable loss occurs prior to the Closing Date and has been, is
or will be reported or noticed to the respective carrier by Newco or any of the
Lockheed Martin Companies in accordance with the requirements of such policies
(which claims Lockheed Martin shall, at Newco's cost and expense, pursue
diligently on Newco's behalf and the net proceeds of which claims shall be
remitted promptly to Newco upon receipt thereof), and (iii) as otherwise
provided in Exhibit G or agreed to in writing by the parties. Except as
otherwise provided in Exhibit G or as otherwise may be agreed to in writing by
the parties, from and after the Closing Date, Lockheed Martin shall have no
obligation of any kind to maintain any form of insurance covering all or any
part of the Transferred Assets, the Business or the Transferred Employees.
(b) Newco agrees to reimburse Lockheed Martin within 30 days of receipt of
an invoice for the items set forth below.
(i) The allocated cost to the Business of premiums, costs and
expenses (excluding Lockheed Martin risk management department costs and
expenses), including general and administrative charges, for all periods
prior to the Closing Date in respect of any and all insurance policies
that cover or covered the Business, whether or not a claim has been made
or ever will be made by the Business or Newco under such policies. The
"allocated cost" to the Business shall be determined by Lockheed Martin in
a manner consistent with prior practices and in conjunction with the Cost
Disclosure Statement filed by Lockheed Martin or any of its Affiliates and
their predecessors with the U.S. Government on the portion of the period
covered by the respective policies that ends prior to the Closing Date,
except that with respect to policies for which no premium rebate or refund
is available as a result of the consummation of the Contemplated
Transactions, the "allocated cost" to the Business shall be based on the
entire policy period. Newco and the Purchasers understand that Lockheed
Martin is in the process of reviewing with the U.S. Government the
methodology used by Lockheed Martin and its Affiliates to allocate
premiums, costs, expenses and reserves to various businesses and
divisions, including the Business Units, and acknowledge that any changes
to such allocation methodology may result in retroactive adjustments to
the allocated cost to the Business of premiums, costs and expenses. In the
event of any such change to the allocation methodology, Lockheed Martin
and Newco agree to adjust the allocated costs to the Business (either
through a special charge or credit to Newco under this Section 8.03(b)(i))
as appropriate.
(ii) Any self insurance, retention, deductible, retrospective premium,
cash payment for reserves calculated or charged on an incurred loss basis
and similar items, including but not limited to associated administrative
expenses and allocated loss adjustment or similar expenses (collectively,
"Insurance Liabilities") allocated to the Business by Lockheed Martin on a
basis consistent with past practices resulting from or arising under any
and all current or former insurance policies maintained by Lockheed Martin
or any of its Affiliates to the extent that such Insurance Liabilities
relate to or arise out of the Business or any activities of Newco.
Newco agrees that, to the extent any of the insurers under the insurance
policies, in accordance with the terms of the insurance policies, requests or
requires collateral, deposits or other security to be provided with respect to
claims made against such insurance policies relating to or arising from
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the Business, Newco will provide the collateral, deposits or other security or,
upon request of Lockheed Martin, will replace any collateral, deposits or other
security provided by Lockheed Martin or any of its Affiliates.
(c) Newco agrees that, for a period of at least six years commencing on
the Closing Date, to the extent it maintains insurance coverage, Newco will (at
Lockheed Martin's cost to the extent of any additional cost therefor, provided
that, in the event there will be such a cost, Newco will give Lockheed Martin a
reasonable period of time to determine whether it desires to incur such cost
before Newco commits to such coverage with respect to Lockheed Martin) include
Lockheed Martin and its Affiliates as an additional insured/loss payee on any
policies in respect of which Lockheed Martin or its Affiliates has or may have
an insurable interest with respect to the Business, the Transferred Assets, any
of the Assumed Liabilities or any facilities the possession of which will be
transferred to Newco at the Closing.
(d) Newco and the Purchasers agree that, not later than September 30,
1997, and in a manner reasonably satisfactory to Lockheed Martin, Newco will in
good faith seek to release Lockheed Martin and its Affiliates from all
obligations under all Financial Support Arrangements maintained by Lockheed
Martin or any of its Affiliates in connection with the Business.
(e) Lockheed Martin will use reasonable commercial efforts to cause each
Financial Support Arrangement to remain in full force and effect in accordance
with its terms until the earliest of (i) the date (the "Release Date") on which
Newco ensures that Lockheed and its Affiliates are released from all
obligations of Lockheed Martin and its Affiliates under such Financial Support
Arrangement in accordance with Section 8.03(d), (ii) September 30, 1997 and
(iii) the date such Financial Support Arrangement terminates in accordance with
its terms. After the Closing Date and prior to the Release Date for any such
Financial Support Arrangement, Lockheed Martin will not waive any requirements
of or agree to amend such Financial Support Arrangement without the prior
written consent of Newco.
(f) If, after the Closing Date, (i) any amounts are drawn on or paid under
any Financial Support Arrangement where Lockheed Martin or any of its
Affiliates is obligated to reimburse the Person making such payment or (ii)
Lockheed Martin or any of its Affiliates pays any amounts under, or any fees,
costs or expenses relating to, any Financial Support Arrangement, Newco shall
pay Lockheed Martin such amounts promptly after receipt from Lockheed Martin of
notice thereof accompanied by written evidence of the underlying payment
obligation.
(g) In the event that Newco fails to ensure that Lockheed Martin and its
Affiliates are released from all obligations under the Financial Support
Arrangements not later than September 30, 1997, Newco shall either (i) promptly
deposit with Lockheed Martin cash in an amount equal to the aggregate principal
or stated amount, as may be applicable, of the Financial Support Arrangements
not so released or (ii) provide back-up letters of credit in form and substance
reasonably satisfactory to Lockheed Martin with respect to such Financial
Support Arrangements; provided that if Newco has used reasonable commercial
efforts to structure its financing arrangements to permit it to comply with the
foregoing obligations, Newco shall not be required to take any action under
this Section 8.03(g) that it is prohibited from taking under the terms of any
financing agreements of Newco in effect on the Closing Date. Any cash deposited
with Lockheed Martin in accordance with
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clause (i) shall be held by Lockheed Martin in a segregated interest-bearing
account and shall be used by Lockheed Martin solely to satisfy its payment
obligations in respect of such Financial Support Arrangements, and the unused
portion of any cash (including interest) relating to a Financial Support
Arrangement shall be returned to Newco promptly after the occurrence of the
Release Date with respect to, or any other termination of, the Financial
Support Arrangement.
(h) In the event that Newco fails to ensure that Lockheed Martin and its
Affiliates are released from all obligations of Lockheed Martin and its
Affiliates under the Disclosed Financial Support Arrangements not later than
September 30, 1997, whether as a result of the proviso to the first sentence of
Section 8.03(g) or otherwise, and to the extent that Newco has not provided the
deposits or letters of credit contemplated by the first sentence of Section
8.03(g), on October 1, 1997 and on the first day of each calendar quarter
thereafter Newco agrees to pay to Lockheed Martin an amount equal to (i) .3125%
of the maximum aggregate potential liability of Lockheed Martin and its
Affiliates under such Disclosed Financial Support Arrangements in the case of
performance-related Disclosed Financial Support Arrangements or (ii) .625% of
the maximum aggregate potential liability of Lockheed Martin and its Affiliates
under such Disclosed Financial Support Arrangements in the case of all other
Disclosed Financial Support Arrangements (other than Disclosed Financial
Support Arrangements that constitute non-monetary performance guarantees or
similar non-monetary obligations) that have not been released or otherwise
secured by the deposits or letters of credit contemplated by the first sentence
of Section 8.03(g) (determined as of the last day of the preceding calendar
quarter). Any such payment by Newco shall be due and payable on October 1, 1997
or on the first day of the applicable calendar month thereafter, and shall be
nonrefundable regardless of any subsequent reduction of the liability of
Lockheed Martin or any of its Affiliates thereunder.
Section 8.04 Non-Solicitation of Employees. From and after the date of
this Agreement until the second anniversary of the Closing Date, Newco shall
not, without prior written approval of Lockheed Martin, directly or indirectly
(through Affiliates or otherwise), knowingly solicit any individual (other than
individuals identified in Attachment XI) who at that time is an employee of any
of the Lockheed Martin Companies (other than a Transferred Employee) to
terminate his or her relationship with the Lockheed Martin Companies and will
not knowingly hire any individual inadvertently solicited; provided, however,
that the foregoing shall not apply to individuals solicited or hired as a
result of the use of an independent employment agency (so long as the agency
was not directed to solicit such individual and Newco advises its Manager of
Human Resources of the provisions of this Section 8.04) or solicited or hired
as a result of the use of a general solicitation (such as an advertisement) not
specifically directed to employees of the Lockheed Martin Companies.
Section 8.05 Financing. Newco shall use reasonable commercial efforts to
obtain (on or prior to the Closing Date) sufficient funds on commercially
available terms acceptable to Newco in its sole discretion (i) to pay the cash
portion of the Exchange Consideration and (ii) to obtain adequate working
capital for the Business, provided that Newco shall not be considered to be in
breach of this Agreement if, notwithstanding its use of reasonable commercial
efforts as aforesaid, Newco does not have sufficient funds available for such
purposes on the Closing Date.
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Section 8.06 Use of Certain Trademarks, etc. Newco acknowledges and agrees
that it is not obtaining any rights or licenses with respect to the names
"Lockheed Martin," "Lockheed," "Loral," "Martin Marietta" or any derivative
thereof, or to their logos or trade dress, or to any other Intellectual
Property not constituting a Transferred Asset or not licensed to it under the
License Agreements. As soon as practicable following the Closing, but no later
than 180 days after the Closing Date, Newco shall remove and change signage,
change and substitute promotional and advertising material in whatever medium,
change stationery and packaging and take all such other steps as may be
required or appropriate to cease use of all such Intellectual Property not
constituting a Transferred Asset or not licensed to it under the License
Agreements; provided, however, that nothing in this Agreement shall obligate
Newco to change or copy over any engineering drawings, prints or copies of
correspondence, invoices and other documents prepared prior to the Closing Date
or to replace or alter any tools or dies included in the Transferred Assets.
Section 8.07 Government Contract Novation; Cooperation. Newco shall
provide to Lockheed Martin and each Responsible Contracting Officer all
information necessary to obtain the consent of the U.S. Government to recognize
Newco as the successor in interest to all of the Government Contracts being
sold, assigned, transferred and conveyed to Newco in accordance with this
Agreement. Newco shall use commercially reasonable efforts to obtain all
consents, approvals and waivers required for the purpose of processing,
entering into and completing the Novation Agreement with regard to any of the
Government Contracts, including responding to any requests for information by
the U.S. Government with regard to such Novation Agreement.
Section 8.08 Reimbursement of Damages. Newco shall use reasonable
commercial efforts to obtain reimbursement of any Damages suffered by it that
are subject to indemnification by Lockheed Martin hereunder as a reimbursable
cost under Government Contracts, provided the reimbursement of such Damages is
permitted by Applicable Law.
ARTICLE IX
COVENANTS OF THE PARTIES
Section 9.01 Further Assurances. Subject to the terms and conditions of
this Agreement, each party shall use all reasonable commercial efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary or desirable under Applicable Laws to consummate the Contemplated
Transactions. Lockheed Martin, Newco and the Purchasers shall execute and
deliver such other documents, certificates, agreements and other writings and
to take such other actions as may be necessary or desirable in order to
consummate or implement expeditiously the Contemplated Transactions. Except as
otherwise expressly set forth in the Transaction Documents, nothing in this
Section 9.01 shall require Lockheed Martin, Newco or any of the Purchasers to
make any payments in order to obtain any consents or approvals necessary or
desirable in connection with the consummation of the Contemplated Transactions.
Section 9.02 Certain Filings; Consents. Lockheed Martin, Newco and
the Purchasers shall cooperate with one another (i) in determining whether
any action by or in respect of, or filing with, any Governmental Authority is
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required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any material Contracts, in connection with the
consummation of the Contemplated Transactions and (ii) subject to the terms and
conditions of this Agreement, in taking such actions or making any such
filings, furnishing information required in connection therewith and seeking
timely to obtain any such actions, consents, approvals or waivers.
Section 9.03 Public Announcements. Prior to the Closing, Lockheed Martin,
Newco and the Purchasers shall consult with each other before issuing any press
release or making any public statement or communicating with the U.S.
Government as a customer with respect to this Agreement or the Contemplated
Transactions and, except as may be required by Applicable Law or any listing
agreement with any national or international securities exchange, will not
issue any such press release or make any such public statement prior to such
consultation. Notwithstanding the foregoing, no provision of this Agreement
(except as set forth in Section 8.01) shall relieve Lehman from any of its
obligations under the Lehman Confidentiality Agreement, or relieve the
Individual Purchasers from any of their respective obligations under paragraph
7 of the Memorandum, or terminate any of the restrictions imposed upon any
party by Section 8.01.
Section 9.04 Intellectual Property; License Agreements.
(a) In consideration of the grant described in Section 9.04(b), Lockheed
Martin shall grant to Newco, effective as of the Closing Date and pursuant to a
License Agreement, a fully paid-up, worldwide, perpetual, non-exclusive license
in respect of all Intellectual Property owned by Lockheed Martin that is used
or currently planned for use by the Business (but not constituting Transferred
Assets) on the Closing Date, for such uses and currently planned uses by Newco
and its Affiliates. Such license shall not be transferable by Newco other than
in connection with the sale or transfer of all or a substantial portion (it
being understood that the sale of a Business Unit shall be deemed a substantial
portion) of the Business by Newco.
(b) In consideration of the grant described in Section 9.04(a), Newco
shall grant to the Lockheed Martin Companies, effective as of the Closing Date
and pursuant to a License Agreement, a fully paid-up, world-wide, perpetual,
non-exclusive license in respect of all Intellectual Property constituting
Transferred Assets (i) that is used or currently planned for use by the
Lockheed Martin Companies (other than the Business Units) on the Closing Date,
for such uses and currently planned uses by Lockheed Martin and its Affiliates
or (ii) used by Newco after the Closing Date in connection with the manufacture
of any products for sale to, or the provision of any services to, any of the
Lockheed Martin Companies pursuant to any agreement between Newco and any of
the Lockheed Martin Companies that is breached by Newco, for use by Lockheed
Martin and its Affiliates in making or using such products or providing such
services (other than in the case of clause (ii), the duration for which shall
be an appropriate length of time to permit completion of manufacture or
services). The license granted pursuant to clause (i) of the preceding sentence
shall be effective as of the Closing Date and the license granted pursuant to
clause (ii) of the preceding sentence shall be effective as of the date that
the agreement described therein is breached by Newco. Such license shall not be
transferable by Lockheed Martin other than in connection with the sale or
transfer of all or a substantial portion of a business by Lockheed Martin.
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(c) Newco acknowledges and agrees that it shall hold all Intellectual
Property constituting part of the Transferred Assets subject to any licenses
thereof granted by Lockheed Martin and its Affiliates prior to the Closing
Date.
(d) The transfer of Intellectual Property constituting Transferred Assets
to Newco shall not affect Lockheed Martin's right to use, disclose or otherwise
freely deal with any know-how, trade secrets and other technical information
not constituting Transferred Assets that is resident on the Closing Date at
businesses of the Lockheed Martin Companies other than the Business.
Section 9.05 HSR Act. The parties shall take all actions necessary or
appropriate to cause the prompt expiration or termination of any applicable
waiting period under the HSR Act in respect of the Contemplated Transactions,
including, without limitation, complying as promptly as practicable with any
requests for additional information; provided that Newco shall not be required
to provide any undertakings or comply with any condition that, in its good
faith judgment, would materially and adversely diminish Newco's rights under
this Agreement or materially and adversely affect its business, results or
operations.
Section 9.06 Operation of Newco. From and after the date of this Agreement
through the Closing, Newco will not engage in or conduct any activities other
than activities that are necessary or appropriate in connection with the
consummation of the Contemplated Transactions.
Section 9.07 Maintenance of Insurance Policies. Notwith-standing any
provision to the contrary in this Agreement, this Section 9.07 shall constitute
the parties' agreement regarding the allocation of insurance proceeds with
respect to claims for liabilities that arise under or relate to Environmental
Laws that are comprised, in whole or in part, of Environmental Liabilities that
constitute Assumed Liabilities (the "Environmental Insurance Claims"). Newco
and the Purchasers acknowledge that Lockheed Martin shall control the
Environmental Insurance Claims and shall have the right to compromise or settle
any Environmental Insurance Claims. Lockheed Martin will act in good faith and
with reasonable prudence to maximize recovery with respect to the Environmental
Insurance Claims and will allocate any recovery received with respect to such
Environmental Insurance Claims, first, to the costs it incurred to collect such
recovery and all net tax costs related to such recovery, and second, to
reimburse any Governmental Authority, prime contractor or subcontractor
pursuant to a Government Contract.
With respect to any recovery remaining (the "Remaining Recovery"):
(i) if the recovery applies to liabilities that are Assumed
Liabilities and to liabilities that are not Assumed Liabilities, and the
recovery was not designated as arising from specific liabilities (e.g., a
global settlement with an insurance carrier), Lockheed Martin will pay
Newco an amount equal to the Remaining Recovery multiplied by X multiplied
by (one minus Y); where X equals the total of the Environmental Insurance
Claims (estimated as of the date of recovery) under said insurance
policies divided by the total environmental and other claims by Lockheed
Martin under said insurance policies; and Y equals Lockheed Martin's past
expenditures on said liabilities divided by the total estimated
expenditures made or to be made by Lockheed
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Martin or Newco in respect of said liabilities (estimated as of the date
of recovery), or
(ii) if the recovery was designated as arising from a specific
liability that is an Assumed Liability, Lockheed Martin will pay Newco the
Remaining Recovery multiplied by (one minus Y).
Any obligations assumed in any such compromise or settlement of the
Environmental Insurance Claims will be apportioned between Lockheed Martin and
Newco in the same proportion as a recovery would be allocated pursuant to this
Section 9.07.
Section 9.08 Legal Privileges. Lockheed Martin and Newco acknowledge and
agree that all attorney-client, work product and other legal privileges that
may exist with respect to the Transferred Assets or the Assumed Liabilities,
shall, from and after the Closing Date, be deemed joint privileges of Lockheed
Martin and Newco. Both Lockheed Martin and Newco shall use all commercially
reasonable efforts after the Closing Date to preserve all such privileges and
neither Lockheed Martin nor Newco shall knowingly waive any such privilege
without the prior written consent of the other party (which consent will not be
unreasonably withheld or delayed).
Section 9.09 Non-Compete. Lockheed Martin, Newco and the Purchasers
covenant and agree that prior to the Closing Date they will discuss in good
faith the scope and nature of an appropriate non-competition agreement to
provide reasonable commercial protection to Newco for periods to be mutually
agreed upon of up to three years with respect to the material core businesses
of the Business while providing the Lockheed Martin Companies the ability to
continue, without impediment, all of its existing businesses and currently
planned businesses (other than those conducted only through the Business
Units), to enter into businesses reasonably related to its exiting businesses
and currently planned businesses, to make acquisitions and to otherwise provide
third-party sourced products similar to those manufactured or sold by the
Business as part of larger systems manufactured or sold by the Lockheed Martin
Companies. The non-competition agreement also will provide reasonable
commercial protection to the Lockheed Martin Companies on programs where Newco
performs substantial subcontract work for the Lockheed Martin Companies, it
being understood that this provision shall not prohibit Newco from entering
into subcontract agreements with other Persons on programs that compete against
the Lockheed Martin Companies, provided that appropriate safeguards (including,
for example, "firewalls" and confidentiality agreements) are implemented and in
place to protect the proprietary and confidential information of the Lockheed
Martin Companies. For the purposes of any such non-competition agreement, (i)
the businesses operated and managed by Lockheed Martin on behalf of the U.S.
Government, including the Department of Energy, shall not be included within
the prohibitions, and (ii) "currently planned" businesses of the Lockheed
Martin Companies shall mean those businesses that Lockheed Martin can
demonstrate are affirmatively under consideration as of the Closing Date.
ARTICLE X
TAX MATTERS
Section 10.01 Tax Matters. The parties agree as to tax matters as set
forth in Exhibit F.
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ARTICLE XI
EMPLOYEE BENEFIT MATTERS
Section 11.01 Employee Benefit Matters. The parties agree as to
employee benefit matters as set forth in Exhibit G.
ARTICLE XII
CONDITIONS TO CLOSING
Section 12.01 Conditions to the Obligations of Each Party. The obligations
of Lockheed Martin, Newco and the Purchasers to consummate the Closing are
subject to the satisfaction (or waiver) of the following conditions:
(a) Any applicable waiting period under the HSR Act relating to the
Contemplated Transactions shall have expired or been terminated;
(b) No provision of any Applicable Law or regulation and no judgment,
injunction, order or decree shall prohibit the Closing, and no action or
proceeding shall be pending before any court, arbitrator or governmental body,
agency or official with respect to which counsel reasonably satisfactory to
Lockheed Martin, Newco and the Purchasers shall have rendered a written opinion
that there is a substantial likelihood of a determination that would prohibit
the Closing;
(c) All actions by or in respect of or filings with any Governmental
Authority required to permit the consummation of the Closing shall have been
obtained;
(d) Lockheed Martin, Newco and the Purchasers shall have executed and
delivered the Common Stock Subscription Agreements and the Stockholders
Agreement in substantially the forms attached as Attachments IV and V, and
shall have executed and delivered the Exchange Agreement in substantially the
form attached to the Transfer Agreement attached as Attachment III, the Interim
Services Agreement, the License Agreements, the Supply Agreement and the
leases, subleases and assignment agreements referred to in Section 2.01(viii)
and the agreement referred to in Section 2.01(ix);
(e) Lockheed Martin and Newco shall have executed and delivered the
noncompetition agreement contemplated by Section 9.09;
(f) Lockheed Martin or the applicable Affiliated Transferor, as the case
may be, shall have obtained the consents, approvals or permits contemplated by
Attachment X; and
(g) There shall be (i) no conditions requested of Lockheed Martin by the
PBGC or of Newco by Lockheed Martin, in connection with the transfer of all of
the assets and liabilities of the Spinoff Plans or the Assumed Plans, that are
in either party's reasonable good faith judgment unacceptable to either
Lockheed Martin (as to conditions requested of Lockheed Martin by the PBGC) or
Newco (as to conditions requested of Newco by Lockheed Martin); or (ii) no
commencement of proceedings by the PBGC to terminate any Lockheed Martin
Pension Plan (or a reasonable good faith determination of Newco or
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Lockheed Martin that the commencement of such proceedings is reasonably
likely).
Section 12.02 Conditions to Obligation of Newco and the Purchasers. The
obligations of Newco and the Purchasers to consummate the Closing are subject
to the satisfaction (or waiver by Newco and the Purchasers) of the following
further conditions:
(a) (i) Lockheed Martin shall have performed in all material respects all
of its obligations under the Transaction Documents required to be performed by
it on or prior to the Closing Date, (ii) the representations and warranties of
Lockheed Martin contained in the Transaction Documents shall be complete and
correct (in all material respects, in the case of those representations and
warranties which are not by their express terms qualified by reference to
materiality) at and as of the date of this Agreement and as of the Closing
Date, as if made at and as of each such date, except that those representations
and warranties which are by their express terms made as of a specific date
shall be complete and correct (in all material respects, in the case of those
representations and warranties which are not by their express terms qualified
by reference to materiality) only as of such date, and (iii) Newco shall have
received a certificate signed by an executive officer of Lockheed Martin to the
foregoing effect;
(b) Newco has sufficient funds available to pay the cash portion of the
Exchange Consideration for the Transferred Assets, provided that this Section
12.02(b) shall not be a condition to Newco and the Purchasers' obligation to
consummate the Closing unless the representations and warranties set forth in
Section C.08 of Exhibit C and Section D.06 of Exhibit D shall be, and continue
to be, accurate and Newco shall have complied in all material respects with its
obligations under Section 8.05;
(c) The Purchasers shall have completed their review of the litigation
titled Universal Navigation v. Loral Corporation and the results of such
review shall be satisfactory to the Purchasers;
(d) Since December 31, 1996, there shall not have been any material
adverse change in the assets, properties, business, financial condition or
results of operations of the Business taken as a whole or any developments that
reasonably could be expected to result in such a change;
(e) Lockheed Martin, the applicable Affiliated Transferor or Newco, as the
case may be, shall have obtained the consents, approvals or permits
contemplated by Attachment X;
(f) Newco shall have obtained such surveys and title insurance in respect
of the Owned Real Property as are sufficient to satisfy Newco's lenders and to
enable Newco to obtain financing; and
(g) Lockheed Martin shall have furnished Newco with an opinion dated the
Closing Date concerning the matters set forth in Attachment XII.
Section 12.03 Conditions to Obligation of Lockheed Martin. The obligation
of Lockheed Martin to consummate the Closing is subject to the satisfaction (or
waiver by Lockheed Martin) of the following further conditions:
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(a) (i) Newco and the Purchasers shall have performed in all material
respects all of their respective obligations under the Transaction Documents
required to be performed by them at or prior to the Closing Date, (ii) the
representations and warranties of Newco and the Purchasers contained in the
Transaction Documents shall be complete and correct (in all material respects,
in the case of those representations and warranties which are not by their
express terms qualified by reference to materiality) at and as of the date of
this Agreement and as of the Closing Date, as if made at and as of each such
date, except that those representations and warranties which are by their
express terms made as of a specific date shall be complete and correct (in all
material respects, in the case of those representations and warranties which
are not by their express terms qualified by reference to materiality) only as
of such date, and (iii) Lockheed Martin shall have received certificates signed
by executive officers of Newco (as to Newco) and Lehman (as to Lehman), and
certificates signed by each of the Individual Purchasers, to the foregoing
effect; and
(b) Newco shall have furnished Lockheed Martin with an opinion dated the
Closing Date covering the matters set forth in Attachment XIII.
Section 12.04 Effect of Waiver. Any waiver by Newco and the Purchasers of
the conditions specified in clause (ii) of Section 12.02(a) and any waiver by
Lockheed Martin of the conditions specified in clause (ii) of Section 12.03, if
made knowingly, shall also be deemed a waiver by such Person of any claim for
Damages as the result of the matters waived.
ARTICLE XIII
SURVIVAL; INDEMNIFICATION
Section 13.01 Survival. None of the representations and warranties of the
parties contained in any Transaction Document or in any certificate or other
writing delivered pursuant to any Transaction Document or in connection with
any Transaction Document shall survive the Closing, except for:
(i) the representations and warranties in Sections B.01, B.02,
B.07(b) and B.12 shall survive indefinitely;
(ii) the representations and warranties in Section B.13 shall not
survive the Closing Date;
(iii) the representations and warranties in Section B.15 shall
survive for a period of three years from the Closing Date;
(iv) the representations and warranties in Section B.21 shall survive
until 30 days after the expiration of the applicable statute of
limitations (or extensions or waivers thereof);
(v) the representations and warranties in Exhibit B (other than those
Sections of Exhibit B referenced in the preceding clauses (i), (ii), (iii)
and (iv)), shall survive for a period of two years from the Closing Date;
(vi) the representations and warranties included in Exhibit F shall
survive until 30 days after the expiration of the applicable statute of
limitations (or extensions or waivers thereof);
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(vii) the representations and warranties in Sections C.01, C.02 and
C.05 shall survive indefinitely;
(viii) the representations and warranties in Exhibit C (other than those
Sections of Exhibit C referenced in the preceding clause (vii)) shall
survive for a period of two years from the Closing Date;
(ix) the representations and warranties in Sections D.03 shall
survive indefinitely;
(x) the representations and warranties in Exhibit D (other than the
representations and warranties in Section D.03), shall survive for a
period of two years from the Closing Date;
(xi) the representations and warranties in Sections E.01, E.02 and
E.05 shall survive indefinitely; and
(xii) the representations and warranties in Exhibit E (other than those
Sections of Exhibit E referenced in the preceding clause (xi)) shall
survive for a period of two years from the Closing Date.
The covenants and agreements of the parties in the Transaction Documents and
the representations and warranties referenced in the preceding clauses (i) and
(iii) through (xii) are referred to herein as the "Surviving Representations or
Covenants." It is understood and agreed that, (1) before the Closing the
remedies expressly set forth in Article XIV are the sole and exclusive remedies
for any breach of any representation, warranty or covenant and (2) following
the Closing the sole and exclusive remedy with respect to any breach of any
representation, warranty or covenant (other than (i) with respect to a breach
of the terms of a covenant, as to which Newco or Lockheed Martin, as the case
may be, shall be entitled to seek specific performance or other equitable
relief and (ii) with respect to claims for fraud or for willful breach of a
covenant) shall be a claim for Damages made pursuant to this Article XIII.
Section 13.02 Indemnification.
(a) Effective as of the Closing and subject to the limitations set forth
in Section 13.04(a), Newco hereby indemnifies Lockheed Martin and its
Affiliates and their respective directors, officers, employees and agents,
against and agrees to hold them harmless from any and all Damages incurred or
suffered by any of them arising out of or related in any way to (i) any
misrepresentation or breach of any Surviving Representation or Covenant made or
to be performed by Newco pursuant to any of the Transaction Documents, (ii) the
Assumed Liabilities (including, without limitation, Newco's failure to perform
or in due course pay and discharge any Assumed Liability) or (iii) any
Financial Support Arrangement referred to in Section 8.03(b).
(b) Effective as of the Closing and subject to the limitations set forth
in Section 13.04(b), Lockheed Martin hereby indemnifies Newco and its
Affiliates and their respective directors, officers, employees and agents
against and agrees to hold them harmless from any and all Damages incurred or
suffered by any of them arising out of or related in any way to (i) any
misrepresentation or breach of any Surviving Representation or Covenant made or
to be performed by the Lockheed Martin Companies pursuant to any Transaction
Document, (ii) the Excluded Liabilities (including, without limitation,
Lockheed Martin's (or any other Lockheed Martin Company's)
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failure to perform or in due course pay and discharge any Excluded Liability),
(iii) the assumption by Newco of Environmental Liabilities arising out of,
relating to, based on or resulting from actions taken (or failures to take
action), conditions existing or events occurring prior to the Closing, (iv) the
Camden CAS 410 Issue, or (v) the Sarasota Asset Step-Up Issue; provided,
however, that Newco shall not have suffered or be deemed to have suffered any
Damages in the case of the foregoing clauses (iii), (iv), and (v) to the extent
that such Damages are recoverable as an allowable cost under Applicable Law or
under the terms of any applicable Government Contracts.
(c) Effective as of the Closing and subject to the limitations set forth
in Section 13.04(c), each of the Purchasers hereby, severally and not jointly
with the other Purchasers, indemnifies each of the other parties to this
Agreement and their respective Affiliates and their respective directors,
officers, employees and agents, against and agrees to hold them harmless from
any and all Damages incurred or suffered by any of them arising out of or
related in any way to any breach of any Surviving Representation or Covenant
made or to be performed by the Purchasers pursuant to any of the Transaction
Documents.
Section 13.03 Procedures.
(a) If Lockheed Martin or any of its Affiliates or any of their directors,
officers, employees and agents, shall seek indemnification pursuant to Section
13.02(a) or Section 13.02(c), or if Newco or any of its Affiliates or any of
their directors, officers, employees and agents, shall seek indemnification
pursuant to Section 13.02(b), such Person seeking indemnification (the
"Indemnified Party") shall give written notice to the party from whom such
indemnification is sought (the "Indemnifying Party") promptly (and in any event
within 30 days) after the Indemnified Party (or, if the Indemnified Party is a
corporation, any officer of the Indemnified Party) becomes aware of the facts
giving rise to such claim for indemnification (an "Indemnified Claim")
specifying in reasonable detail the factual basis of the Indemnified Claim,
stating the amount of the Damages, if known, the method of computation thereof,
and containing a reference to the provision of the Transaction Documents in
respect of which such Indemnified Claim arises. The failure of an Indemnified
Party to provide notice pursuant to this Section 13.03 shall not constitute a
waiver of that party's claims to indemnification pursuant to Section 13.02 in
the absence of, and then only to the extent of, material prejudice to the
Indemnifying Party. If the Indemnified Claim arises from the assertion of any
claim, or the commencement of any suit, action, proceeding or Remedial Action
brought by a Person that is not a party hereto (a "Third Party Claim")any such
notice to the Indemnifying Party shall be accompanied by a copy of any papers
theretofore served on the Indemnified Party in connection with such Third Party
Claim. With respect to any Third Party Claim asserted or brought prior to the
Closing Date, notice of such Third Party Claim shall be deemed to have been
delivered on the Closing Date.
(b) (i) Upon receipt of notice of a Third Party Claim from an Indemnified
Party pursuant to Section 13.03(a), the Indemnifying Party will, subject
to the other provisions of this Section 13.03(b), assume the defense and
control of such Third Party Claim but shall allow the Indemnified Party a
reasonable opportunity to participate in the defense thereof with its own
counsel and at its own expense. The Indemnifying Party shall select
counsel, contractors and consultants of recognized
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standing and competence after consultation with the Indemnified Party;
shall take all steps necessary in the defense or settlement thereof; and
shall at all times diligently and promptly pursue the resolution thereof.
In conducting the defense thereof, the Indemnifying Party shall at all
times act as if all Damages relating to such Third Party Claim were for
its own account and shall act in good faith and with reasonable prudence
to minimize Damages therefrom. The Indemnified Party shall, and shall
cause each of its Affiliates, directors, officers, employees, and agents
to, cooperate fully with the Indemnifying Party in the defense of any
Third Party Claim defended by the Indemnifying Party.
(ii) The Indemnifying Party shall give prompt and continuing notice to
the other Indemnified Party of any Third Party Claims that the
Indemnifying Party reasonably believes may: (1) result in the assertion of
criminal liability on the part of the Indemnified Party or any of its
Affiliates, directors, officers, employees or agents; (2) adversely affect
the ability of the Indemnified Party to do business in any jurisdiction or
in any manner or with any customer; or (3) materially affect the
reputation of the Indemnified Party or any of its Affiliates, directors,
officers, employees or agents.
(iii) Subject to the provisions of Section 13.03(b)(iv) and Section
13.03(b)(v), the Indemnifying Party shall be authorized to consent to a
settlement of, or the entry of any judgment arising from, any Third Party
Claims, without the consent of any Indemnified Party; provided, that the
Indemnifying Party shall (1) pay or cause to be paid all amounts arising
out of such settlement or judgment concurrently with the effectiveness
thereof; (2) shall not encumber any of the assets of any Indemnified Party
or agree to any restriction or condition that would apply to such
Indemnified Party or to the conduct of that party's business; and (3)
shall obtain, as a condition of any settlement or other resolution, a
complete release of each Indemnified Party. Except for the foregoing, no
settlement or entry of judgment in respect of any Third Party Claim shall
be consented to by any Indemnifying Party without the consent of the
Indemnified Party, which consent shall not be unreasonably withheld.
(iv) An Indemnified Party may elect to share the defense of a Third
Party Claim the defense of which has been assumed by the Indemnifying
Party pursuant to Section 13.03(b)(ii). In that event, the Indemnified
Party will so notify the Indemnifying Party in writing. Thereafter, the
Indemnifying Party and the Indemnified Party shall participate on an equal
basis in the defense, management and control of any such claim. The
Indemnifying Party and the Indemnified Party shall select mutually
satisfactory counsel, contractors and consultants to conduct the defense
or settlement thereof (the costs and expenses of which shall be shared
equally by the Indemnifying Party and the Indemnified Party), and shall at
all times diligently and promptly pursue the resolution thereof.
Notwithstanding the foregoing, Newco shall manage all Remedial Actions
conducted with respect to facilities which constitute Transferred Assets
or at which Newco will undertake operations pursuant to this Agreement,
provided that Lockheed Martin and its Representatives shall have the
right, consistent with Newco's right to manage such Remedial Actions as
aforesaid, to participate fully in all decisions regarding any Remedial
Action, including reasonable access to sites where any Remedial Action is
being conducted, reasonable access to all documents, correspondence,
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data, reports or information regarding the Remedial Action, reasonable
access to employees and consultants of Newco with knowledge of relevant
facts about the Remedial Action and the right to attend all meetings and
participate in any telephone or other conferences with any government
agency or third party regarding the Remedial Action.
(v) In the case of the indemnification contemplated by clauses (iii),
(iv) and (v) of Section 13.02(b), in the event that either the Indemnified
Party or the Indemnifying Party desires to settle the matters referenced
therein or consent to the entry of any judgment arising thereunder and the
other party does not wish to consent to such settlement, the other party
shall have no obligation to consent to the settlement provided that it
agrees in writing to pay and be responsible for 100% of any Damages
thereafter incurred; provided that no Indemnified Party shall be required
to consent to any settlement or agree to be responsible for the payment of
Damages thereafter incurred with respect to any matter the settlement of
which would require the consent of such Indemnified Party pursuant to
Section 13.03(b)(iii). The obligation of the party that rejects any
proposed settlement offer or entry of any such judgment to pay and be
responsible for 100% of any Damages thereafter incurred in accordance with
this Section 13.03(b)(v) shall be conditioned upon and subject to the
payment, within five Business Days of the date such party provides the
written agreement contemplated by the preceding sentence, of an amount, in
immediately available funds, equal to the portion of the total settlement
that would have been payable by the party desiring to settle the matter or
consent to the entry of any such judgment according to the percentage
sharing arrangement contemplated by Section 13.04(b)(ii) or Section
13.04(b)(iii), as the case may be. Thereafter, the party that rejects the
proposed settlement shall be solely responsible for the defense of the
matter that is the subject of the proposed settlement.
(c) If the Indemnifying Party and the Indemnified Party are unable to
agree with respect to a procedural matter arising under Section 13.03(b)(iv),
the Indemnifying Party and the Indemnified Party shall, within 10 days after
notice of disagreement given by either party, agree upon a third-party referee
("Referee"), who shall be an attorney and who shall have the authority to
review and resolve the disputed matter. The parties shall present their
differences in writing (each party simultaneously providing to the other a copy
of all documents submitted) to the Referee and shall cause the Referee promptly
to review any facts, law or arguments either the Indemnifying Party or the
Indemnified Party may present. The Referee shall be retained to resolve
specific differences between the parties within the range of such differences.
Either party may request that all oral arguments presented to the Referee by
either party be in each other's presence. The decision of the Referee shall be
final and binding unless both the Indemnifying Party and the Indemnified Party
agree. The parties shall share equally all costs and fees of the Referee.
Section 13.04 Limitations. Notwithstanding anything to the contrary in
this Agreement or in any of the Transaction Documents:
(a) Newco shall only have liability to Lockheed Martin and its Affiliates
with respect to the representations and warranties described in clause (i) of
Section 13.02(a) if such matters were the subject of a written notice given by
the Indemnified Party pursuant to Section 13.03(a) within the
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period following the Closing Date specified for each respective matter in
Section 13.01.
(b) Lockheed Martin shall only have liability to Newco or any other Person
hereunder:
(i) with respect to the representations and warranties described in
clause (i) of Section 13.02(b), (y) to the extent that the aggregate
Damages of all Indemnified Parties as the result thereof exceed $5,000,000
but are not greater than $55,000,000 (it being understood that Lockheed
Martin's maximum liability under Section 13.02(b)(i) with respect to
representations and warranties and this Section 13.04(b)(i) shall be
$50,000,000), and (z) if such matters were the subject of a written notice
given by the Indemnified Party pursuant to Section 13.03(a) within the
period following the Closing Date specified for each respective matter in
Section 13.01;
(ii) with respect to the matters described in clause (iii) of Section
13.02(b) (after giving effect to the proviso thereto), (y) to the extent
of 50% of the aggregate Damages incurred within eight years following the
Closing Date by all Indemnified Parties as the result thereof, and (z) to
the extent of 40% of the aggregate Operation and Maintenance Costs
incurred by all Indemnified Parties after the eighth anniversary of the
Closing Date and within 15 years following the Closing Date; provided,
however, that Lockheed Martin shall only have liability under Section
13.02(b)(iii) or this Section 13.04(b)(ii) for Damages and Operation and
Maintenance Costs incurred after the Closing Date in excess of $6,000,000;
(iii) with respect to the matters described in clause (iv) of Section
13.02(b) (after giving effect to the proviso thereto), (y) to the extent
of 75% of the aggregate Damages incurred by an Indemnified Party as the
result thereof, and (z) to the extent such Damages were incurred within
three years following the Closing Date; and
(iv) with respect to the matters described in clause (v) of Section
13.02(b) (after giving effect to the proviso thereto), (y) to the extent
of 75% of the aggregate Damages incurred by an Indemnified Party as the
result thereof, and (z) to the extent such Damages were incurred within
three years following the Closing Date.
(c) The Purchasers shall only have liability to Lockheed Martin and its
Affiliates with respect to the representations and warranties described in
Section 13.02(c) if such matters were the subject of a written notice given by
the Indemnified Party pursuant to Section 13.03(a) within the period following
the Closing Date specified for each respective matter in Section 13.01.
(d) Lockheed Martin shall not be liable to Newco or any other Person
hereunder for any Damages that result from a breach of the provisions of
Section 7.01 if such breach results from a breach by either of the Individual
Purchasers of Section 8.02(b).
(e) Lockheed Martin shall not be liable to Newco or any other Person under
this Article XIII for any Damages that result from any breach of any
representation or warranty made by Lockheed Martin hereunder to the extent such
representation or warranty is expressly qualified by reference to the
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knowledge of the Individual Purchasers or a substantially similar clause
relating to their knowledge if either of the Individual Purchasers had such
knowledge as of the Closing.
ARTICLE XIV
TERMINATION
Section 14.01 Termination. The Transaction Documents may be terminated
at any time prior to the Closing:
(i) by mutual written agreement of Lockheed Martin and the
Purchasers;
(ii) by Lockheed Martin or the Purchasers (as a group) if the Closing
shall not have been consummated by May 30, 1997; provided, however, that
neither Lockheed Martin nor a Purchaser may terminate the Transaction
Documents pursuant to this clause (ii) if the Closing shall not have been
consummated by May 30, 1997, by reason of the failure of such party or any
of its Affiliates to perform in all material respects any of its or their
respective covenants or agreements contained in the Transaction Documents;
provided further, that either Lockheed Martin or Newco and the Purchasers
(as a group) shall be entitled to terminate the Transaction Documents
prior to May 30, 1997, if such party or parties, as the case may be, shall
reasonably conclude that any condition to such party's or parties'
obligations hereunder (as set forth in Section 12.01 with respect to
Lockheed Martin, Newco and the Purchasers, Section 12.02 with respect to
Newco and the Purchasers, and Section 12.03 with respect to Lockheed
Martin) cannot reasonably be expected to be satisfied prior to May 30,
1997; and provided, further, that as a condition to the right of a party
to elect to terminate the Transaction Documents pursuant to the
immediately preceding proviso, the party shall first provide ten Business
Days prior notice to the other party specifying in reasonable detail the
nature of the condition that such party has concluded will not be
satisfied, and the other party shall be entitled during such ten Business
Day period to take any actions it may elect consistent with the terms of
this Agreement such that the condition reasonably could be expected to be
satisfied prior to the expiration of such time period;
(iii) by either Lockheed Martin or Newco and the Purchasers (as a
group) if there shall be any law or regulation that makes consummation of
the Contemplated Transactions illegal or otherwise prohibited or if
consummation of the Contemplated Transactions would violate any
nonappealable final order, decree or judgment of any court or Governmental
Authority having competent jurisdiction; and
(iv) in accordance with the provisions of Section 15.13.
Any party desiring to terminate this Agreement pursuant to this Section 14.01
shall give written notice of such termination to the other parties to this
Agreement.
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Section 14.02 Effect of Termination. If this Agreement is terminated as
permitted by Section 14.01, such termination shall be without liability of any
party (or any Affiliate, shareholder, director, officer, employee, agent,
consultant or representative of such party) to any other party to this
Agreement; provided, however, that if the Contemplated Transactions fail to
close as a result of a breach of any Transaction Document by Lockheed Martin,
Newco or any of the Purchasers, such party shall be fully liable for any and
all Damages incurred or suffered by any other party as a result of all such
breaches in an amount not to exceed $2,500,000, except that Lockheed Martin (i)
shall be fully liable for any and all Damages incurred or suffered by the
Purchasers as a result of any breach by Lockheed Martin of its obligations
under Section 7.03, (ii) shall be fully liable for any and all Damages incurred
or suffered by the Purchasers as a result of Lockheed Martin's willful failure
to consummate the Closing (other than resulting from an unintentional failure
of any of the conditions set forth in Section 12.01 or Section 12.03) if Newco
and the Purchasers have sufficient funds available, and are ready and willing,
to pay the cash portion of the Exchange Consideration for the Transferred
Assets, and (iii) shall not be liable to the Purchasers or any other Person
hereunder for any Damages that result from a breach of the provisions of
Section 7.01 if such breach results from a breach by either of the Individual
Purchasers of Section 8.02(b). The provisions of Sections 8.01 and 15.03 and
this Section 14.02 shall survive any termination hereof pursuant to Section
14.01.
ARTICLE XV
MISCELLANEOUS
Section 15.01 Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including telecopy or similar
writing) and shall be given,
if to Lockheed Martin:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Attention: Marcus C. Bennett
Telecopy: (301) 897-6083
with a copy to:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Attention: Frank H. Menaker, Jr.
Telecopy: (301) 897-6791
and
Miles & Stockbridge, a
Professional Corporation
10 Light Street
Baltimore, Maryland 21202
Attention: Glenn C. Campbell
Telecopy: (410) 385-3700
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if to Lehman:
Lehman Brothers Capital Partners III, L.P.
3 World Financial Center
New York, New York 10285
Attention: Steven Berkenfeld
Telecopy: (212) 526-2198
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: David B. Chapnick
Telecopy: (212) 455-2502
if to Lanza:
Frank C. Lanza
600 Third Avenue
New York, New York 10016
Telecopy: (212) 949-9879
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1 New York Plaza
New York, New York 10004
Attention: Robert C. Schwenkel
Telecopy: (212) 859-8879
if to LaPenta:
Robert V. LaPenta
600 Third Avenue
New York, New York 10016
Telecopy: (212) 805-5470
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1 New York Plaza
New York, New York 10004
Attention: Robert C. Schwenkel
Telecopy: (212) 859-8879
If to Newco:
L-3 Communications Holdings, Inc.
600 Third Avenue
New York, New York 10016
Attention: William J. LaSalle
Telecopy: (212) 805-5494
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with copies to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: David B. Chapnick
Telecopy: (212) 455-2502
and
Lehman Brothers Capital Partners III, L.P.
3 World Financial Center
New York, New York 10285
Attention: Steven Berkenfeld
Telecopy: (212) 526-2198
and
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Attention: Frank H. Menaker, Jr.
Telecopy: (301) 897-6791
or to such other address or telecopy number and with such other copies, as such
party may hereafter specify for the purpose by notice to the other parties.
Each such notice, request or other communication shall be effective (i) if
given by telecopy, when such telecopy is transmitted to the telecopy number
specified in this Section 15.01 and evidence of receipt is received or (ii) if
given by any other means, upon delivery or refusal of delivery at the address
specified in this Section 15.01.
Section 15.02 Amendments; Waivers.
(a) Any provision of the Transaction Documents may be amended or waived
prior to the Closing Date if, and only if, such amendment or waiver is in
writing and signed, in the case of an amendment, by Lockheed Martin, Newco and
the Purchasers, or in the case of a waiver, by the party against whom the
waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege under any Transaction Document shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
Section 15.03 Expenses. Except as otherwise provided in the Transaction
Documents and except that if the Closing shall occur the costs and expenses of
the Purchasers will be paid by Newco, all costs and expenses incurred in
connection with the Transaction Documents shall be paid by the party incurring
such cost or expense. Notwithstanding the foregoing, all transfer, sales, use
and similar fees and taxes resulting from or relating to the formation and
organization of Newco, including but not limited to the transfer of the
Transferred Assets to Newco by Lockheed Martin or any of the Affiliated
Transferors, shall be borne one-half by Lockheed Martin and one-half by Newco.
Each of Newco and Lockheed Martin shall reimburse the other
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for one-half of such fees and taxes paid by the other promptly upon
presentation of a demand therefor.
Section 15.04 Successors and Assigns. The provisions of the Transaction
Documents shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns; provided that no party may assign,
delegate or otherwise transfer any of its right or obligations under this
Agreement without the consent of Lockheed Martin, in the case of Newco or any
of the Purchasers, and Newco and the Purchasers in the case of Lockheed Martin.
Notwithstanding the foregoing proviso (i) Lehman may assign all or part of its
rights to Lehman Brothers Holdings Inc. and (ii) Newco may assign all or part
of its rights and obligations (other than the obligation to issue shares of its
capital stock) to a wholly owned Subsidiary of Newco, provided that Newco also
shall remain liable hereunder as if it had not assigned its rights and
obligations.
Section 15.05 Disclosure. Certain information set forth in the Disclosure
Schedules has been included and disclosed solely for informational purposes and
may not be required to be disclosed pursuant to the terms and conditions of the
Transaction Documents. The disclosure of any such information shall not be
deemed to constitute an acknowledgement or agreement that the information is
required to be disclosed in connection with the representations and warranties
made in the Transaction Documents or that the information is material, nor
shall any information so included and disclosed be deemed to establish a
standard of materiality or otherwise used to determine whether any other
information is material.
Section 15.06 Construction. As used in the Transaction Documents, any
reference to the masculine, feminine or neuter gender shall include all
genders, the plural shall include the singular, and the singular shall include
the plural. With regard to each and every term and condition of the Transaction
Documents, the parties understand and agree that the same have or has been
mutually negotiated, prepared and drafted, and that if at any time the parties
desire or are required to interpret or construe any such term or condition or
any agreement or instrument subject hereto, no consideration shall be given to
the issue of which party actually prepared, drafted or requested any term or
condition of the Transaction Documents.
Section 15.07 Entire Agreement.
(a) The Transaction Documents and any other agreements contemplated
thereby (including, to the extent contemplated herein, the Lehman
Confidentiality Agreement and paragraph 7 of the Memorandum) and certain other
letter agreements entered into contemporaneously herewith constitute the entire
agreement among the parties with respect to the subject matter of such
documents and supersede all prior agreements, understandings and negotiations,
both written and oral, between the parties with respect to the subject matter
thereof.
(b) The parties hereto acknowledge and agree that no representation,
warranty, promise, inducement, understanding, covenant or agreement has been
made or relied upon by any party hereto other than those expressly set forth in
the Transaction Documents. Without limiting the generality of the disclaimer
set forth in the preceding sentence, neither Lockheed Martin nor any of its
Affiliates has made or shall be deemed to have made any representations or
warranties, in any presentation or written information relating to the Business
given or to be given in connection with
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the Contemplated Transactions, in any filing made or to be made by or on behalf
of Lockheed Martin or any of its Affiliates with any governmental agency, and
no statement, made in any such presentation or written materials, made in any
such filing or contained in any such other information shall be deemed a
representation or warranty hereunder or otherwise. The Purchasers acknowledge
that Lockheed Martin has informed them that no Person has been authorized by
Lockheed Martin or any of its Affiliates to make any representation or warranty
in respect of the Business or in connection with the Contemplated Transactions,
unless in writing and contained in this Agreement or in any of the Transaction
Documents to which they are a party.
(c) Except as expressly provided herein or in any other Transaction
Document, no Transaction Document or any provision thereof is intended to
confer upon any Person other than the parties hereto any rights or remedies
hereunder.
Section 15.08 Governing Law. Except as otherwise provided in any of the
Transaction Documents, this Agreement shall be construed in accordance with and
governed by the law of the State of New York.
Section 15.09 Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have
received a counterpart hereof signed by the other parties hereto.
Section 15.10 Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in
connection with, any of the Transaction Documents or the Contemplated
Transactions may be brought against any of the parties in the United States
District Court for the Southern District of New York, and each of the parties
hereby consents to the exclusive jurisdiction of such court (and of the
appropriate appellate court) in any such suit, action or proceeding and waives
any objection to venue laid therein. Process in any such suit, action or
proceeding may be served on any party anywhere in the world, whether within or
without the State of New York. Without limiting the foregoing, Lockheed Martin,
Newco and the Purchasers agree that service of process upon such party at the
address referred to in Section 15.01, together with written notice of such
service to such party, shall be deemed effective service of process upon such
party.
Section 15.11 Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.
Section 15.12 Bulk Sales. Newco hereby waives compliance by Lockheed
Martin and each Affiliated Transferor, in connection with the Contemplated
Transactions, with the provisions of Article 6 of the Uniform Commercial Code
as adopted in the States of Georgia, Florida, California, Pennsylvania, New
York, Massachusetts, Utah and New Jersey, and as adopted in any other states
where any of the Transferred Assets are located, and any other applicable bulk
sales laws with respect to or requiring notice to Lockheed Martin's (or any
Affiliated Transferor's) creditors, as the same may be in effect on the Closing
Date. Lockheed Martin shall indemnify and hold harmless Newco against any and
all liabilities (other than liabilities in respect of Assumed
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Liabilities) which may be asserted by third parties against Newco as a result
of noncompliance with any such bulk sales law.
Section 15.13 Delivery of Disclosure Schedules; Certain Attachments.
(a) The parties acknowledge and agree that the Disclosure Schedules
contemplated by this Agreement are not being delivered at the time of signing
of this Agreement. Not later than the close of business on April 14, 1997,
Lockheed Martin shall deliver to Newco the Disclosure Schedules contemplated by
this Agreement, which Disclosure Schedules, once delivered, shall be effective
and speak as of the date of this Agreement as if delivered on the date of this
Agreement. In the event Newco or the Purchasers object to the Disclosure
Schedules, Newco or the Purchasers may, by written notice delivered to Lockheed
Martin prior to the close of business on the fifth Business Day following the
day on which the Disclosure Schedules are delivered to Newco, terminate this
Agreement. In the event Lockheed Martin does not receive such written notice
within the time period specified in the preceding sentence, Newco and the
Purchasers shall be deemed to have accepted the Disclosure Schedules. In the
event that Newco or any of the Purchasers elects to terminate this Agreement in
accordance with the provisions of this Section 15.13(a), no party to this
Agreement shall have any liability to any of the other parties to this
Agreement.
(b) The parties acknowledge and agree that Attachment X contemplated
by this Agreement is not being delivered at the time of signing of this
Agreement. Not later than the close of business on the third Business Day after
delivery of the Disclosure Schedules, Newco shall deliver to Lockheed Martin a
draft of the portions of Attachment X contemplated by Section 12.01 and Section
12.02. Not later than the close of business on the third Business Day after
delivery of the Disclosure Schedules, Lockheed Martin shall deliver to Newco a
draft of the portion of Attachment X contemplated by Section 12.01. In the
event either Newco or Lockheed Martin objects to any of the matters proposed to
be included by the other party in Attachment X, Newco and Lockheed Martin shall
in good faith discuss the matters to be included in Attachment X. In the event
Newco and Lockheed Martin are unable to reach agreement on the matters to be
included in Attachment X prior to the close of business on the sixth Business
Day after the delivery of the Disclosure Schedules, Attachment X shall include
all matters proposed to be included by each of Newco and Lockheed Martin.
(c) The parties acknowledge and agree that Attachments IV, V, VIII,
IX, XI and XV as attached to this Agreement at the time of signing of this
Agreement are subject to modification by any of the Purchasers or Lockheed
Martin at any time not later than the close of business on April 4, 1997. In
the event that any of the Purchasers or Lockheed Martin desires to amend either
Attachment IV, Attachment V, Attachment VIII, Attachment IX, Attachment XI or
Attachment XV, it shall notify the other parties in writing of the proposed
amendment and the Purchasers and Lockheed Martin shall, in good faith, discuss
the proposed amendment. In the event that, notwithstanding those discussions,
the Purchasers and Lockheed Martin are unable to resolve the differences as to
the provisions of either Attachment IV, Attachment V, Attachment VIII,
Attachment IX, Attachment XI or Attachment XV, any of the parties may terminate
this Agreement prior to the close of business on April 11, 1997 by written
notice to the other parties to this Agreement and upon any such termination no
party to this Agreement shall have any liability to any other parties to this
Agreement. If this Agreement shall not have been terminated in accordance with
the provisions of this
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Section 15.13(c) by the close of business on April 11, 1997, the amended
versions of Attachments IV, V, VIII, IX, XI and XV shall replace Attachments
IV, V, VIII, IX, XI and XV as attached to this Agreement at the time of signing
of this Agreement.
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IN WITNESS WHEREOF, the parties hereto caused this Agreement to be duly
executed by their respective authorized officers on the day and year first
above written.
WITNESS: LOCKHEED MARTIN CORPORATION
____________________________ By:________________________________
Name:
Title:
LEHMAN BROTHERS CAPITAL
PARTNERS III, L.P.
By: LEHMAN BROTHERS HOLDINGS INC.,
its General Partner
____________________________ By:___________________________
Name:
Title:
FRANK C. LANZA
- ---------------------------- -----------------------------------
ROBERT V. LAPENTA
- ---------------------------- -----------------------------------
L-3 COMMUNICATIONS HOLDINGS, INC.
____________________________ By:________________________________
Name:
Title:
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EXHIBIT A
DEFINITIONS
(a) The following terms have the following meanings:
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with such other
Person. For purposes of determining whether a Person is an Affiliate, the term
"control" shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of securities, contract or otherwise.
Notwith-standing the foregoing, for purposes of the Agreement neither Lockheed
Martin nor any of the Lockheed Martin Companies shall be considered an
Affiliate of Newco or any of the Purchasers.
"Affiliated Transferors" means Lockheed Martin Tactical Systems, Inc.,
Randtron Systems, Inc., Lockheed Martin Fairchild Corporation, Conic
Corporation, Lockheed Martin Microcom Corporation, Lockheed Martin Hycor, Inc.,
The NARDA Microwave Corporation and any other Affiliate of Lockheed Martin that
owns any of the assets that would constitute Transferred Assets if owned, held
or used by Lockheed Martin or any of the Affiliated Transferors specified above
on the Closing Date or is liable for any of the Assumed Liabilities.
"Applicable Law" means, with respect to any Person, any domestic or
foreign, federal, state or local statute, law, ordinance, rule, administrative
interpretation, regulation, order, writ, injunction, directive, judgment,
decree or other requirement of any Governmental Authority (including any
Environmental Law) applicable to such Person or any of their respective
properties, assets, officers, directors, employees, consultants or agents (in
connection with such officer's, director's, employee's, consultant's or agent's
activities on behalf of such Person).
"Assumed Liabilities" means all of the following liabilities and
obligations of any of the Lockheed Martin Companies relating to or arising out
of the operation and affairs of the Business, the Transferred Assets or the NY
Leases:
(i) Balance Sheet and Scheduled Liabilities. All liabilities and
obligations relating to the Business, the Transferred Assets or the NY Leases
whether accrued, liquidated, contingent, matured or unmatured, at or prior to
the Closing, which (a) are disclosed in any of the Disclosure Schedules
delivered hereunder, (b) would be subject to disclosure in any of the
Disclosure Schedules delivered in connection with any of Lockheed Martin's
representations and warranties but for the materiality standards contained in
such representation and warranty, (c) are reflected in the Final Net Tangible
Asset Amount as determined in accordance with Section 2.03 herein (including
without limitation accounts payable and reserves reflected as contra-asset
accounts, and those reflected in the estimates at completion), (d) are incurred
in the ordinary course of business subsequent to the Effective Date, other than
with respect to the matters covered by Exhibits F and G, or (e) are otherwise a
liability or obligation that Newco is expressly assuming pursuant to this
Agreement;
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(ii) Contracts. All liabilities and obligations arising under the
Contracts, whether or not such Contracts have been completed or terminated
prior to the Closing Date, including, without limitation, any such liabilities
and obligations arising from or relating to the performance or non-performance
of the Contracts by the Business Units, Newco or any other party, whether
arising prior to, on or after the Closing Date, except to the extent they
constitute Excluded Liabilities;
(iii) Employment. All liabilities and obligations in respect of
employees and former employees of the Business provided in Exhibit G to be
assumed by Newco;
(iv) Benefit Plans; Workers' Compensation. The liabilities and
obligations under the Employee Plans and Benefit Arrangements provided in
Exhibit G to be assumed by Newco;
(v) Product Warranty and Liability Claims. All liabilities and
obligations relating to warranty obligations or services, or claims of
manufacturing or design defects, with respect to any product or service sold or
provided by the Business whether prior to, on or after the Closing Date;
(vi) Taxes. All liabilities and obligations in respect of Taxes
provided in Exhibit F to be assumed by Newco;
(vii) Environmental Liabilities. All Environmental Liabilities,
whether arising prior to, on or after the Closing Date and whether such
Environmental Liabilities are "onsite" or "offsite," but only to the extent
relating to or arising out of conditions at, or the current or former
operations of the Business Units at, the facilities owned or leased by the
Business as of the Closing Date and included in the Transferred Assets (whether
by fee ownership or leasehold interest), it being understood that the term
"Assumed Liabilities" shall not include any Environmental Liabilities included
in clause (viii) of the definition of Excluded Liabilities;
(viii) NY Leases. All liabilities and obligations relating to the NY
Leases, whether arising prior to, on or after the Closing Date;
(ix) OSHA Liabilities. All liabilities and obligations relating to the
Occupational Safety and Health Act of 1970, as amended, and any regulations,
decisions or orders promulgated thereunder, together with any state or local
law, regulation or ordinance pertaining to worker, employee or occupational
safety or health in effect as of the Closing Date or as thereinafter may be
amended or superseded, whether arising prior to, on or after the Closing Date;
(x) Litigation. All matters of governmental, judicial or adversarial
proceedings (public or private), litigation, arbitration, disputes, claims,
causes of action or investigations (collectively, "Proceedings") of a civil
nature arising from or directly or indirectly relating to any of the enumerated
"Assumed Liabilities" in clauses (i) through (ix), whether or not such matters
were accrued, liquidated, contingent, matured, unmatured, or known or unknown
to Lockheed Martin at or prior to the Closing; and
(xi) Post-Closing Liabilities. All liabilities and obligations
relating to Newco's ownership of the Transferred Assets, directly or
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indirectly relating to or arising under the Employee Plans and Benefit
Arrangements or relating to the Transferred Employees, the lease of properties
under the NY Leases or otherwise or its conduct of the Business and any related
operations, in each case, from and after the Closing Date including, without
limitation, any and all Proceedings in respect thereof.
"Audited Business Financial Statements" means the audited combined
financial statements of the Lockheed Martin Predecessor Businesses, together
with the notes thereto, as attached in Attachment I to the Agreement.
"Bid" means any quotation, bid or proposal made by Lockheed Martin or any
of its Affiliates primarily in connection with the Business that if accepted or
awarded would lead to a Contract with the U.S. Government or any other Person
for the design, manufacture and sale of products or the provision of services
by the Business.
"Business" means the businesses conducted by the Business Units (together
with their predecessors), which in the aggregate comprise the Products Group
(excluding the business of Frequency Sources Inc. (other than its semiconductor
products business) and the assembly plant in Goodyear, Arizona), the Wideband
Systems business and the Communications Systems business of the Lockheed Martin
Companies.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by law
to close.
"Business Units" means (i) Display Systems headquartered in Atlanta,
Georgia, (ii) Advanced Recorders headquartered in Sarasota, Florida, (iii)
Conic headquartered in San Diego, California, (iv) Microcom headquartered in
Warminster, Pennsylvania, (v) Telemetry & Instrumentation headquartered in San
Diego, California, (vi) Randtron headquartered in Menlo Park, California, (vii)
Microwave--Narda East headquartered in Hauppauge, New York (including the NARDA
Semiconductor Products business in Lowell, Massachusetts), (viii)
Microwave--Narda West headquartered in Rancho Cordova, California, (ix) Hycor
headquartered in Woburn, Massachusetts, (x) Wideband Systems headquartered in
Salt Lake City, Utah, (xi) Communications Systems headquartered in Camden, New
Jersey, and (xii) the Airport Explosive Detection Business represented by the
Grant from the Federal Aviation Administration held by Lockheed Martin
Specialty Components, Inc.
"Camden CAS 410 Issue" means the assertions raised by the United States
Defense Contract Audit Agency that the Communications Systems Business Unit
overallocated general and administrative expenses during its transition from a
"cost of sales" to a "total cost input" allocation methodology for such
expenses in a manner inconsistent with CAS 410.
"Closing Date" means the date of the Closing.
"Common Stock Subscription Agreements" means the Common Stock Subscription
Agreements dated the Closing Date and entered into by each of Lockheed Martin
and the Purchasers with Newco (in substantially the forms of Attachment IV to
the Agreement), as the same may be amended from time to time.
"Contemplated Transactions" means the transactions contemplated by the
Transaction Documents.
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"Contracts" means all contracts, agreements, leases (including leases of
real property), licenses, commitments, sales and purchase orders, intercompany
work transfer agreements (with respect to work by or for other Lockheed Martin
businesses) and other instruments of any kind, whether written or oral, that
relate primarily to the Business.
"Damages" means (subject in the case of Damages suffered by Newco to
Newco's fulfillment of its obligations under Section 8.08 of the Agreement) all
demands, claims, actions or causes of action, assessments, losses, damages,
costs, expenses, liabilities, judgments, awards, fines, sanctions, penalties,
charges and amounts paid in settlement, including, without limitation,
reasonable costs, fees and expenses of attorneys, experts, accountants,
appraisers, consultants, witnesses, investigators and any other agents or
representatives of such Person (with such amounts to be determined net of any
resulting tax benefit actually received or realized and net of any refund or
reimbursement of any portion of such amounts actually received or realized,
including, without limitation, reimbursement by way of insurance, third party
indemnification or the inclusion of any portion of such amounts as a cost under
Government Contracts), but specifically excluding (i) any costs incurred by or
allocated to an Indemnified Party with respect to time spent by employees of
the Indemnified Party or any of its Affiliates, (ii) any lost profits or
opportunity costs (except to the extent assessed in connection with a
third-party claim with respect to which the party against which such damages
are assessed is entitled to indemnification hereunder), exemplary or punitive
damages and (iii) the decrease in the value of any Transferred Asset to the
extent that such valuation is based on any use of such Transferred Asset other
than its use as of the Closing Date. Notwithstanding the foregoing, in respect
of any breach of the representations and warranties set forth in Section B.05
with respect to the Audited Business Financial Statements, "Damages" shall be
limited to (i) the reasonable costs of defense by Newco of any demands, claims,
actions or causes of action to the extent related to or arising out of
allegations that the Audited Business Financial Statements as included in the
offering document used by Newco in the sale of high yield debt securities to
finance the Contemplated Transactions (and the related exchange offer
registration statement) and (ii) liability of Newco to third parties for
violations of the Securities Act or related blue sky or state securities laws
in connection with the offerings of securities referenced in the foregoing
clause (i) (with such amounts in each case to be determined net of any
resulting tax benefit actually received or realized and net of any refund or
reimbursement of any portion of such amounts actually received or realized,
including, without limitation, reimbursement by way of insurance, third party
indemnification or the inclusion of any portion of such amounts as a cost under
Government Contracts).
"December Statement" means the audited combined statement of net tangible
assets of the Business at December 31, 1996, together with the notes thereto,
as attached in Attachment II to the Agreement.
"Disclosed Financial Support Arrangements" means the Financial Support
Arrangements listed or referred to in Section B.10 of the Disclosure Schedules.
"Disclosure Schedule" means the Disclosure Schedule dated the date of this
Agreement and acknowledged by the parties hereto relating to the Agreement.
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"Environmental Claim" means any written or oral notice, claim, demand,
action, suit, complaint, proceeding or other communication by any third Person
alleging liability or potential liability (including without limitation
liability or potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resource damages, property damage,
personal injury, fines or penalties) arising out of, relating to, based on or
resulting from (i) the presence, discharge, emission, release or threatened
release of any Hazardous Substances at any location, (ii) circumstances forming
the basis of any violation or alleged violation of any Environmental Laws, or
(iii) otherwise relating to obligations or liabilities under any Environmental
Laws.
"Environmental Laws" means any and all past, present or future federal,
state, local and foreign statutes, laws, regulations, ordinances, judgments,
orders, codes, or injunctions, which (i) imposes liability for or standards of
conduct concerning the manufacture, processing, generation, distribution, use,
treatment, storage, disposal, cleanup, transport or handling of Hazardous
Substances including, The Resource Conservation and Recovery Act of 1976, as
amended, The Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, The Superfund Amendment and Reauthorization Act of
1984, as amended, The Toxic Substances Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, to the extent it
relates to the handling of and exposure to hazardous or toxic materials or
similar substances, and any other so-called "Superfund" or "Superlien" law or
(ii) otherwise relates to the protection of human health or the environment.
"Environmental Liabilities" means all liabilities to the extent arising in
connection with or in any way relating to the Business or Lockheed Martin's or
its Affiliates' use or ownership thereof, whether vested or unvested,
contingent or fixed, actual or potential, which arise under or relate to
Environmental Laws including, without limitation, (i) Remedial Actions, (ii)
personal injury, wrongful death, economic loss or property damage claims, (iii)
claims for natural resource damages, (iv) violations of law or (v) any other
cost, loss or damage with respect thereto.
"Exchange Agreement" means the Exchange Agreement referred to in the
Transfer Agreement.
"Excluded Assets" means:
(i) cash and cash equivalents of Lockheed Martin or any of its
Affiliates, including, without limitation, cash and cash equivalents used as
collateral for letters of credit, deposits with utilities, insurance companies
and other Persons;
(ii) all original books and records that Lockheed Martin or any of its
Affiliates shall be required to retain pursuant to any Applicable Law (in which
case copies of such books and records shall be provided to Newco upon request),
or that contain information relating primarily to any business or activity of
Lockheed Martin or any of its Affiliates not forming a part of the Business, or
any employee of Lockheed Martin or any of its Affiliates that is not a
Transferred Employee;
(iii) tax assets specified as Excluded Assets in Exhibit F;
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(iv) all assets of Lockheed Martin or any of its Affiliates not held
or owned by or used primarily in connection with the Business (including the
Chelmsford, Massachusetts location of Frequency Sources, Inc.), other than the
NY Leases;
(v) all assets of Lockheed Martin or any of its Affiliates (other
than the Business Units) held or used in connection with the provision of
services, or the sale of goods, to the Business;
(vi) all rights of Lockheed Martin under any of the Transaction
Documents and the agreements and instruments delivered to Lockheed Martin by
Newco pursuant to any of the Transaction Documents;
(vii) "Legacy Intellectual Property" identified as such in Section B.16
of the Disclosure Schedules, including but not limited to income, losses and
rights relating thereto;
(viii) any accounts receivable, notes receivable or similar claims or
rights (whether billed or accrued) of the Business from Lockheed Martin or any
Affiliate of Lockheed Martin other than a Business Unit except for accounts
receivable, notes receivable or similar claims or rights (whether billed or
accrued) relating to materials sold or services rendered by the Business Units
to or for Lockheed Martin or any such Affiliates;
(ix) capital stock or any other securities of any Subsidiaries of
Lockheed Martin;
(x) Intellectual Property not used primarily in the Business, it
being understood and agreed that the only Intellectual Property consisting of
patents and patent applications used primarily in the Business are those listed
on Attachment XV;
(xi) the leasehold interest of the Lockheed Martin Companies in
respect of the Horsham, Pennsylvania property of the Microcom Business Unit;
and
(xii) any Intellectual Property developed by a Business Unit at the
expense of a Lockheed Martin Company (other than a Business Unit) unless such
Intellectual Property may fairly be characterized as an immaterial improvement,
modification or derivative work to or of Intellectual Property developed by a
Business Unit at its own expense, including but not limited to income, losses
and rights relating thereto.
"Excluded Liabilities" means the following obligations and liabilities:
(i) any obligations or liabilities in respect of events occurring
prior to the Closing Date and arising out of (1) any criminal investigations,
grand jury proceedings, or counts in any causes of action specifically alleging
criminal conduct; provided, however, that if such investigations, grand jury
proceedings or counts become civil in nature, at such time they will no longer
constitute Excluded Liabilities pursuant to this provision or (2) counts or
actions alleging civil fraud or intentional misconduct by the Communications
Systems Business Unit (or its predecessors) headquartered in Camden, New
Jersey;
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(ii) all obligations and liabilities of Lockheed Martin or any of its
Affiliates not arising out of the conduct of the Business, except as otherwise
specifically provided in the Transaction Documents;
(iii) to the extent set forth in Exhibit F to the Agreement, any
obligation or liability for any Tax arising from or with respect to the
Transferred Assets or the operations of the Business for the Pre-Closing Tax
Period;
(iv) any liability whether presently in existence or arising after the
date of the Agreement in respect of accounts payable, notes payable (including
intercompany promissory notes and similar financing arrangements) or similar
obligations (whether billed or unbilled) to or allocated to Lockheed Martin or
any Affiliate of Lockheed Martin, except for accounts payable, notes payable or
similar obligations (whether billed or unbilled) relating to materials sold or
services rendered to, or any insurance procured for, the Business Units by
Lockheed Martin or any Affiliate of Lockheed Martin other than a Business Unit;
(v) any liability whether presently in existence or arising after the
date of the Agreement relating to fees, commissions or expenses owed to any
broker, finder, investment banker, accountant, attorney or other intermediary
or advisor employed by Lockheed Martin or any of its Affiliates in connection
with the Contemplated Transactions;
(vi) any obligation or liability retained by Lockheed Martin pursuant
to Exhibit G;
(vii) all obligations and liabilities related to Excluded Assets;
(viii) all Environmental Liabilities whether arising prior to, on or
after the Closing Date and whether such Environmental Liabilities are "onsite"
or "offsite," (1) relating to or arising out of conditions at or the operations
of the Camden Truck Depot located at 1257 2nd Street, Camden, New Jersey, or
(2) relating to or arising out of conditions at, or the current or former
operations at, any facilities not included in the Transferred Assets (whether
by fee ownership or leasehold interest) (including any predecessors to such
facilities); and
(vi) all obligations and liabilities related to the closing of the
assembly plant formerly operated by the Conic Business Unit in Goodyear,
Arizona.
"Financial Support Arrangements" means any obligations, contingent or
otherwise, of a Person in respect of any indebtedness, obligation or liability
(including assumed indebtedness, obligations or liabilities) of another Person,
including but not limited to remaining obligations or liabilities associated
with indebtedness, obligations or liabilities that are assigned, transferred or
otherwise delegated to another Person, if any, letters of credit and standby
letters of credit (including any related reimbursement or indemnity
agreements), direct or indirect guarantees, endorsements (except for collection
or deposit in the ordinary course of business), notes co-made or discounted,
recourse agreements, take-or-pay agreements, keep-well agreements, agreements
to purchase or repurchase such indebtedness, obligation or liability or any
security therefor or to provide funds for the payment or discharge thereof,
agreements to maintain solvency,
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assets, level of income or other financial condition, agreements to make
payment other than for value received and any other financial accommodations.
"GAAP" means Generally Accepted Accounting Principles as in effect on
the date of the Agreement.
"Government Contract" means any prime contract, subcontract, teaming
agreement or arrangement, joint venture, basic ordering agreement, pricing
agreement, letter contract, purchase order, delivery order, change order, Bid
or other arrangement of any kind relating exclusively to the Business between
Lockheed Martin or any of the Affiliated Transferors and (i) the U.S.
Government (acting on its own behalf or on behalf of another country or
international organization), (ii) any prime contractor of the U.S. Government
or (iii) any subcontractor with respect to any contract of a type described in
clauses (i) or (ii) above.
"Governmental Authority" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory organization,
commission, tribunal or organization or any regulatory, administrative or other
agency, or any political or other subdivision, department or branch of any of
the foregoing.
"Hazardous Substances" means substances defined as "hazardous substances,"
"hazardous materials" or "hazardous waste" in The Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or The Resource
Conservation and Recovery Act of 1976, as amended, those substances defined as
"hazardous wastes" in the regulations adopted and publications promulgated
pursuant to any of said laws, those substances defined as "toxic substances" in
The Toxic Substances Control Act, as amended, petroleum, its derivatives and
petroleum products, and asbestos and asbestos containing materials.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Intellectual Property" means all patents, copyrights, technology,
know-how, processes, trade secrets, inventions, proprietary data, formulae,
research and development data and computer software programs; all trademarks,
trade names, service marks and service names; all registrations, applications,
recordings, licenses and common-law rights relating thereto, all rights to sue
at law or in equity for any infringement or other impairment thereto, including
the right to receive all proceeds and damages therefrom, and all rights to
obtain renewals, continuations, divisions or other extensions of legal
protections pertaining thereto; and all other United States, state and foreign
intellectual property owned by Lockheed Martin or the Affiliated Transferors on
the Closing Date.
"Interim Services Agreement" means the Interim Services Agreement dated
the Closing Date by and among Newco and Lockheed Martin as contemplated by
Section 2.01, as the same may be amended from time to time.
"Inventory" means all items of inventory notwithstanding how classified in
Lockheed Martin's financial records, including all raw materials,
work-in-process and finished goods, together with costs accumulated under all
Contracts in progress.
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"Lehman Confidentiality Agreement" means the letter agreement dated
November 13, 1996, by and between Lockheed Martin and Lehman, as the same has
been or may be amended from time to time.
"License Agreements" means the license agreements dated the Closing Date
by and among Newco and Lockheed Martin as contemplated by Section 9.04, as the
same may be amended from time to time.
"Lien" means, with respect to any asset, any mortgage, lien, claim,
pledge, charge, security interest or other encumbrance of any kind in respect
of such asset.
"Lockheed Martin Companies" means Lockheed Martin and its Subsidiaries.
"Material Adverse Effect" means (i) with respect to the Business, a
material adverse effect on the assets, properties, business, financial
condition or results of operations of the Business taken as a whole, or (ii)
with respect to any other Person, a material adverse effect on the assets,
properties, business, financial condition or results of operations of such
Person and its Subsidiaries taken as a whole.
"Memorandum" means the Memorandum of Understanding dated January 31, 1997,
by and among Lockheed Martin and the Purchasers, as the same may be amended
from time to time.
"Net Tangible Assets" means (i) all Transferred Assets of the Business,
(ii) minus all (1) Assumed Liabilities of the Business, (2) goodwill, (3)
intangible assets related to contracts and programs acquired, and (4) any
reserve, liability or asset resulting from or relating to pension benefits,
retirement benefits or other post-employment benefits, (iii) in accordance with
the practices and policies of Lockheed Martin on December 31, 1996 and employed
in the preparation of the December Statement, determined, in each case, in
accordance with the December Statement and Attachment VI.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
"Newco Bylaws" means the Bylaws of Newco as attached in Attachment IX.
"Newco Certificate of Incorporation" means the Certificate of
Incorporation of Newco as attached in Attachment VIII.
"Newco Class A Stock" means the Class A Common Stock, par value $.01 per
share, of Newco.
"Newco Class B Stock" means the Class B Common Stock, par value $.01 per
share, of Newco.
"NY Leases" means the lease by and between Loral Corporation (now known as
Lockheed Martin Tactical Systems, Inc.) and 600 Third Avenue Associates in
respect of the property located at 600 Third Avenue, New York, New York, as the
same may be amended and supplemented from time to time, including the interests
of the Lockheed Martin Companies in any related fixtures, improvements and
personal property located therein.
"Operation and Maintenance Costs" means the reasonable costs (including
routine monitoring and sampling) required to operate and maintain the
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effectiveness of an environmental response action that, on or prior to the
eighth anniversary of the Closing Date, has been constructed or effectuated
and, if required, have been approved (or subsequently are approved as
constructed or effectuated as of the eighth anniversary of the Closing Date) by
the applicable environmental regulatory authority, it being understood that
Operation and Maintenance Costs does not include (i) any capital costs (other
than replacement in kind) relating to any such action, (ii) any claim for
property damage, damages to natural resources or personal injury or similar
claims or damages, whether or not arising out of the operation or maintenance
of such action or otherwise or (iii) any fines or penalties, whether or not
arising out of the operation or maintenance of such action or otherwise.
"Permitted Liens" means any of the following:
(i) Liens for taxes that (x) are not yet due or delinquent or (y)
are being contested in good faith by appropriate proceedings;
(ii) statutory Liens or landlords' carriers' warehousemen's
mechanic's, suppliers' materialmen's or other like Liens arising in the
ordinary course of business with respect to amounts not yet overdue for a
period of 45 days or amounts being contested in good faith by appropriate
proceedings;
(iii) easements, rights of way, restrictions and other similar charges
or encumbrances on real property interests, that, individually or in the
aggregate, do not materially interfere with the ordinary course of operation of
the Business or the use of any such real property for its current uses;
(iv) leases or subleases granted to others that do not materially
interfere with the ordinary conduct of the Business;
(v) with respect to real property, title defects or irregularities
that do not in the aggregate materially impair the use of such real property
for its current use;
(vi) Liens in favor of the U.S. Government or any other customer of
the Business arising in the ordinary course of business;
(vii) rights and licenses granted to others in Intellectual Property;
(viii) with respect to any Real Property Lease where any of the Lockheed
Martin Companies is a lessee, any Lien affecting the interest of the landlord
thereunder;
(ix) Liens, title defects, encumbrances, easements and restrictions,
invalidities of leasehold interests (collectively, "Encumbrances") that have
not had, and could not reasonably be expected to have, a Material Adverse
Effect on the Business; and
(x) Encumbrances disclosed in the Disclosure Schedule or taken
into account in the December Statement.
"Person" means an individual, a corporation, a general partnership, a
limited partnership, a limited liability company, an association, a trust or
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any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Prime Government Contract" means any Government Contract relating
primarily to the Business in connection with which Lockheed Martin or an
Affiliated Transferor is the prime contractor.
"Remedial Action(s)" means the investigation, clean-up or remediation of
contamination or environmental degradation or damage caused by, related to or
arising from the generation, use, handling, treatment, storage, transportation,
disposal, discharge, release, or emission of Hazardous Substances, including,
without limitation, investigations, response, removal and remedial actions
under The Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, corrective action under The Resource Conservation and
Recovery Act of 1976, as amended, and clean-up requirements under similar state
Environmental Laws.
"Representatives" means (i) with respect to Lehman, any of the
"Representatives" as defined in the Lehman Confidentiality Agreement, (ii) with
respect to the Individual Purchasers, any of the "Representatives" as defined
in the Memorandum and (iii) with respect to Lockheed Martin or Newco, each of
their respective directors, officers, advisors, attorneys, accountants,
employees or agents.
"Responsible Contracting Officer" means, with respect to any Prime
Government Contract, the Person identified as such with respect thereto in
Section 42.1202(a) of the Federal Acquisition Regulation, Part 42 of the Code
of Federal Regulations.
"Sarasota Asset Step-Up Issue" means the position of the U.S. Government
that the amendment of the provisions of the Federal Acquisition Regulations
relating to the ability of a contractor to include in its overhead the "stepped
up" value of acquired assets shall have retroactive effect and the related
impact on the Advanced Recorders Business Unit of its agreements in June 1994,
April 1995 and January 1997 with the cognizant Administrative Contracting
Officer to authorize the Advanced Recorders Business Unit to include in its
overhead the "stepped up" assets relating to the acquisition of Advanced
Recorders by Loral Corporation in 1989.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Stockholders Agreement" means the Stockholders Agreement dated the
Closing Date by and among Newco, Lockheed Martin and the Purchasers (in
substantially the form of Attachment V to the Agreement), as the same may be
amended from time to time.
"Subsidiary" as it relates to any Person, shall mean with respect to any
Person, any corporation, partnership, joint venture or other legal entity of
which such Person, either directly or through or together with any other
Subsidiary of such Person, owns more than 50% of the voting power in the
election of directors or their equivalents, other than as affected by events of
default.
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"Supply Agreement" means the Supply Agreement dated the Closing Date by
and among Newco and Lockheed Martin as contemplated by Section 2.01, as the
same may be amended from time to time.
"Transaction Documents" means the Agreement, the Transfer Agreement, the
Exchange Agreement, the Common Stock Subscription Agreements, the Stockholders
Agreement, the Interim Services Agreement, the Supply Agreement, the License
Agreements, the Newco Certificate of Incorporation, the Newco Bylaws and any
exhibits or attachments to any of the foregoing, as the same may be amended
from time to time.
"Transfer Agreement" means the Transfer Agreement dated March 28, 1997, by
and between Lockheed Martin and Newco (a copy of which is attached as
Attachment III to the Agreement), as the same may be amended from time to time.
"Transferred Assets" means all of the assets, properties, rights,
licenses, permits, contracts, causes of action and business of every kind and
description as the same shall exist on the Closing Date, other than the
Excluded Assets, wherever located, real, personal or mixed, tangible or
intangible, owned by, leased by or in the possession of Lockheed Martin or any
Affiliated Transferor, whether or not reflected in the books and records
thereof, and held or used primarily in the conduct of the Business as the same
shall exist on the Closing Date, including but not limited to all assets
reflected in the December Statement and not disposed of in the ordinary course
of business or as permitted or contemplated by the Agreement, and all assets of
the Business acquired by Lockheed Martin or any Affiliated Transferor, on or
prior to the Closing Date and not disposed of in the ordinary course of
business or as permitted or contemplated by the Agreement and including,
without limitation, except as otherwise specified herein, all direct or
indirect right, title and interest of Lockheed Martin or any Affiliated
Transferor in, to and under:
(i) all real property and leases (including, without limitation, the
NY Leases), whether capitalized or operating, of, and other interests in, real
property, owned by Lockheed Martin or any of its Affiliates that are used
primarily in the Business, in each case together with all buildings, fixtures,
easements, rights of way, and improvements thereon and appurtenances thereto;
(ii) all personal property and interests therein, including machinery,
equipment, furniture, office equipment, communications equipment, vehicles,
storage tanks, spare and replacement parts, fuel and other tangible property
(and interests in any of the foregoing) owned by Lockheed Martin or any of its
Affiliates that are used primarily in connection with the Business:
(iii) all costs accumulated for all Contracts in progress, raw
materials, work-in-process, finished goods, supplies and other inventories that
are owned by Lockheed Martin or any of its Affiliates and held for sale, use or
consumption primarily in the Business;
(iv) all Contracts;
(v) all Bids (with any Contracts (including, without limitation,
Government Contracts) awarded to Lockheed Martin or any of its Affiliates on or
before the Closing Date in respect of such Bids to be deemed Contracts);
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(vi) all accounts, accounts receivable and notes receivable whether or
not billed, accrued or otherwise recognized in the December Statement or taken
into account in the determination of the Final Net Tangible Asset Amount,
together with any unpaid interest or fees accrued thereon or other amounts due
with respect thereto, of Lockheed Martin or any of its Affiliates that relate
primarily to the Business, and any security or collateral for any of the
foregoing;
(vii) all expenses that have been prepaid by Lockheed Martin or any of
its Affiliates to the extent relating to the operation of the Business,
including but not limited to ad valorem taxes, lease and rental payments;
(viii) all of Lockheed Martin's or any of its Affiliates' rights,
claims, credits, causes of action or rights of set-off against third parties
relating prima rily to the Business or the Transferred Assets, including,
without limitation, unliquidated rights under manufacturers' and vendors'
warranties;
(ix) all Intellectual Property (other than Intellectual Property
constituting an Excluded Asset) used primarily in the Business, including the
goodwill of the Business symbolized thereby (including, without limitation, the
rights to the name "Fairchild" when used by or in connection with the Advanced
Recorders Business Unit and the names "Narda," "Conic," and "Randtron," but
excluding "Lockheed Martin," "Loral," "Lockheed" and "Martin Marietta" and any
derivatives thereof together with any logos, trade dress or other intellectual
property rights relating thereto);
(x) all transferable franchises, licenses, permits or other
governmental authorizations owned by, or granted to, or held or used by,
Lockheed Martin or any of its Affiliates and primarily related to the Business;
(xi) except to the extent Lockheed Martin or any of its Affiliates is
required to retain the originals pursuant to any Applicable Law (in which case
copies will be provided to Newco upon request), all business books, records,
files and papers, whether in hard copy or computer format, of Lockheed Martin
or any of its Affiliates used primarily in the Business, including, without
limitation, bank account records, books of account, invoices, engineering
information, sales and promotional literature, manuals and data, sales and
purchase correspondence, lists of present and former suppliers, lists of
present and former customers, personnel and employment records of present or
former employees, documentation developed or used for accounting, marketing,
engineering, manufacturing, or any other purpose relating to the conduct of the
Business at any time prior to the closing;
(xii) the right to represent to third parties that Newco is the
successor to the Business;
(xiii) all insurance proceeds, net of any retrospective premiums,
deductibles, retention or similar amounts, arising out of or related to damage,
destruction or loss of any property or asset of or used primarily in connection
with the Business to the extent of any damage or destruction that remains
unrepaired, or to the extent any property or asset remains unreplaced at the
Closing Date;
(xiv) any tax assets specified to be Transferred Assets in Exhibit F;
and
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(xv) all of the Lockheed Martin Companies' right, title and interest
in the real property located at 1355 Bluegrass Lakes Parkway, Alpharetta,
Georgia.
"U.S. Government" means the United States Government and any agencies,
instrumentalities and departments thereof.
(b) "To the knowledge," "known by" or "known" (and any similar phrase) means
(i) with respect to Lockheed Martin, to the actual knowledge of any of the
Senior Vice Presidents or higher ranking officers of Lockheed Martin, or the
Vice President, Financial Strategies of Lockheed Martin, or the President,
Chief Financial Officer and General Counsel of the Lockheed Martin Operating
Sector to which each of the Business Units reports, and shall be deemed to
include a representation that a reasonable investigation or inquiry of the
subject matter thereof has been conducted by or on behalf of the foregoing
specified Persons, which investigation shall include inquiries of the President
and the Chief Financial Officer of each of the Business Units, and (ii) with
respect to the Individual Purchasers, to the actual knowledge of either of the
Individual Purchasers as of the date the applicable representation or warranty
is made (by Lockheed Martin, in the case of representations in Exhibit B
limited by reference to the knowledge of the Individual Purchasers, or by the
Individual Purchasers, in the case of representations in Exhibit D), it being
understood that if there is any dispute as to whether an Individual Purchaser
had actual knowledge of any fact, event or circumstance and Lockheed Martin
seeks to assert such knowledge as a defense to any claim under any of the
Transaction Documents, Lockheed Martin shall have the burden of proof in
connection with any such determination. Notwithstanding the foregoing, the
knowledge of Lockheed Martin at any particular time shall not include knowledge
of any matters actually known by either of the Individual Purchasers at such
time if such matters are not also actually known by one or more of the other
individuals specified in clause (i) above (whether by disclosure to them by the
Individual Purchasers or otherwise).
(c) Each of the following terms is defined in the Section set forth opposite
such term:
Term Section
Accrued Liability . . . . . . . . . . . . . . . . . . . . . . . . . G.05
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Allocation Tax Loss . . . . . . . . . . . . . . . . . . . . . . . . F.01
Alternative Transaction Proposals . . . . . . . . . . . . . . . . . 7.04
Assumed Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . G.05
Basis Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . F.01
Benefit Arrangement . . . . . . . . . . . . . . . . . . . . . . . . G.01
Camden SERPs . . . . . . . . . . . . . . . . . . . . . . . . . . . G.05
Camden Transferee . . . . . . . . . . . . . . . . . . . . . . . . . G.01
Camden Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . G.05
Cash Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F.01
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F.01
Controlled Group . . . . . . . . . . . . . . . . . . . . . . . . . B.21
Defending Party . . . . . . . . . . . . . . . . . . . . . . . . . 13.03
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
Employee Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . G.01
Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . A
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Environmental Insurance Claims . . . . . . . . . . . . . . . . . . 9.07
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G.01
Estimated Final Net Tangible Asset Amount . . . . . . . . . . . . . 2.03
Exchange Consideration . . . . . . . . . . . . . . . . . . . . . . 2.02
Exchange Consideration Schedule . . . . . . . . . . . . . . . . . . F.05
Federal Systems Plan . . . . . . . . . . . . . . . . . . . . . . . G.05
Final Determination . . . . . . . . . . . . . . . . . . . . . . . . F.01
Final Net Tangible Asset Amount . . . . . . . . . . . . . . . . . . 2.03
Former GE Employees . . . . . . . . . . . . . . . . . . . . . . . . G.07
GE Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . G.07
GE Reimbursement Obligations . . . . . . . . . . . . . . . . . . . G.07
Government Bid . . . . . . . . . . . . . . . . . . . . . . . . . . B.15
Government Conditions . . . . . . . . . . . . . . . . . . . . . . . G.05
Hycor Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . G.05
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . F.01
Indemnified Claim . . . . . . . . . . . . . . . . . . . . . . . . 13.03
Indemnified Party . . . . . . . . . . . . . . . . . . . . . . . . 13.03
Indemnifying Party . . . . . . . . . . . . . . . . . . . . . . . 13.03
Individual Purchaser . . . . . . . . . . . . . . . . . . . . . Preamble
Initial Transfer Amount . . . . . . . . . . . . . . . . . . . . . . G.05
Initial Transfer Date . . . . . . . . . . . . . . . . . . . . . . . G.05
Insurance Liabilities . . . . . . . . . . . . . . . . . . . . . . . 8.03
Lanza . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
LaPenta . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Leased Real Property . . . . . . . . . . . . . . . . . . . . . . . B.07
Lehman . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
LMC SERPs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G.05
LMTS SERP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G.05
LMTS Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . G.05
Lockheed Martin . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Lockheed Martin Conditions . . . . . . . . . . . . . . . . . . . . G.05
Lockheed Martin Defined Contribution Plans . . . . . . . . . . . . G.06
Lockheed Martin Pension Plans . . . . . . . . . . . . . . . . . . . G.05
Lockheed Martin Savings Plans . . . . . . . . . . . . . . . . . . . G.06
Lockheed Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . G.05
Long Range Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 2.01
Narda Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . G.05
Newco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Newco Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . G.05
Newco's Savings Plans . . . . . . . . . . . . . . . . . . . . . . . G.06
Newco SERP . . . . . . . . . . . . . . . . . . . . . . . . . . . . G.05
Newco Spinoff Plans . . . . . . . . . . . . . . . . . . . . . . . . G.05
Novation Agreement . . . . . . . . . . . . . . . . . . . . . . . . 7.08
Owned Real Property . . . . . . . . . . . . . . . . . . . . . . . . B.07
PBGC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B.21
Post-Closing Tax Period . . . . . . . . . . . . . . . . . . . . . . F.01
Pre-Closing Tax Period . . . . . . . . . . . . . . . . . . . . . . F.01
Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . A
Program Agreements . . . . . . . . . . . . . . . . . . . . . . . . G.08
Proposed Final Net Tangible Asset Amount . . . . . . . . . . . . . 2.03
Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . B.07
Real Property Leases . . . . . . . . . . . . . . . . . . . . . . . B.07
Referee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.03
Release Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.03
Remaining Recovery . . . . . . . . . . . . . . . . . . . . . . . . 9.07
Section 351 Transfer . . . . . . . . . . . . . . . . . . . . . . . F.01
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Section 4044 Amount . . . . . . . . . . . . . . . . . . . . . . . . G.05
SERP Liability . . . . . . . . . . . . . . . . . . . . . . . . . . G.05
Spinoff Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . G.05
Supplemental Agreements . . . . . . . . . . . . . . . . . . . . . . G.08
Supplementary Plan . . . . . . . . . . . . . . . . . . . . . . . . G.05
Surviving Representation and Covenant . . . . . . . . . . . . . . 13.01
Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F.01
Tax Basis Shortfall . . . . . . . . . . . . . . . . . . . . . . . . F.01
Third Party Claim . . . . . . . . . . . . . . . . . . . . . . . . 13.03
Transferred Beneficiary . . . . . . . . . . . . . . . . . . . . . . G.01
Transferred Benefit Plans . . . . . . . . . . . . . . . . . . . . . G.10
Transferred Employee . . . . . . . . . . . . . . . . . . . . . . . G.01
Transferred Savings Plans . . . . . . . . . . . . . . . . . . . . . G.06
True-Up Amount . . . . . . . . . . . . . . . . . . . . . . . . . . G.05
True-Up Date . . . . . . . . . . . . . . . . . . . . . . . . . . . G.05
WARN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G.02
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EXHIBIT B
REPRESENTATIONS AND WARRANTIES OF LOCKHEED MARTIN
Lockheed Martin hereby represents and warrants prior to but not after the
Closing to the Purchasers, and as of and after the Closing to Newco, that:
B.01. Corporate Existence and Power. Each of Lockheed Martin and each
Affiliated Transferor is a corporation duly incorporated, validly existing and
in good standing under the laws of the state of its incorporation and has all
corporate powers and all governmental licenses, authorizations, consents and
approvals required to carry on the Business as now conducted, except where the
failure to have such licenses, authorizations, consents and approvals has not
had, and could not reasonably be expected to have, a Material Adverse Effect on
the Business. Each of Lockheed Martin and each Affiliated Transferor, as the
case may be, is duly qualified to do business as a foreign corporation in each
jurisdiction where the character of the property owned or leased by it or the
nature of its activities make such qualification necessary to carry on the
Business as now conducted, except where the failure to be so qualified has not
had, and could not reasonably be expected to have, a Material Adverse Effect on
the Business.
B.02. Corporate Authorization. The execution, delivery and performance by
each of Lockheed Martin and each Affiliated Transferor of each of the
Transaction Documents to which it is a party and the consummation by Lockheed
Martin and each Affiliated Transferor of the Contemplated Transactions are
within its corporate powers and have been duly authorized by all necessary
corporate action on its part. Each of the Transaction Documents to which it is
a party constitutes a legal, valid and binding agreement of Lockheed Martin and
each Affiliated Transferor enforceable against it in accordance with its terms
(i) except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter
in effect relating to or affecting creditors' rights generally, including the
effect of statutory and other laws regarding fraudulent conveyances and
preferential transfers and (ii) subject to the limitations imposed by general
equitable principles (regardless of whether such enforceability is considered
in a proceeding at law or in equity).
B.03. Governmental Authorization.
(a) The execution, delivery and performance by Lockheed Martin and
each Affiliated Transferor of the Transaction Documents to which it is a party
require no action by or in respect of, or consent or approval of, or filing
with, any Governmental Authority other than:
(i) compliance with any applicable requirements of the HSR
Act;
(ii) compliance with any applicable requirements of the New
Jersey Industrial Site Recovery Act;
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(iii) the facilities clearance requirements of the Defense
Investigative Service of the United States Department of Defense ("DIS"),
as set forth in the DIS Industrial Security Regulation and the DIS
Industrial Security Manual, as each may be amended from time to time;
(iv) the novation of the Government Contracts as contemplated
by Section 7.08 herein;
(v) any actions, consents, approvals or filings set forth in
Section B.03 of the Disclosure Schedules or otherwise expressly referred
to in this Agreement; and
(vi) such other consents, approvals, authorizations, permits and
filings the failure to obtain or make would not have, in the aggregate, a
Material Adverse Effect on the Business.
(b) To the knowledge of Lockheed Martin, there are no facts relating
to the identity or circumstances of Lockheed Martin or any of its Affiliates
that would prevent or materially delay obtaining any of the consents referred
to in Section B.03(a).
B.04. Non-Contravention. Except as set forth in Section B.04 of the
Disclosure Schedules or known to the Individual Purchasers (in the case of
clauses (i)(B) and (i)(C) below), the execution, delivery and performance by
Lockheed Martin of the Transaction Documents do not and will not (i)(A)
contravene or conflict with the charter or bylaws of Lockheed Martin or any
Affiliated Transferor, (B) assuming compliance with the matters referred to in
Section B.03, contravene or conflict with or constitute a violation of any
provisions of any Applicable Law, regulation, judgment, injunction, order, writ
or decree binding upon Lockheed Martin or any Affiliated Transferor that is
applicable to the Business; (C) assuming compliance with the matters referred
to in Section B.03, constitute a default under or give rise to any right of
termination, cancellation or acceleration of, or to a loss of any benefit
relating primarily to the Business to which Lockheed Martin or any Affiliated
Transferor is entitled under, any agreement, Contract or other instrument
binding upon Lockheed Martin or any Affiliated Transferor and relating
primarily to the Business or by which any of the Transferred Assets is or may
be bound or any license, franchise, permit or similar authorization held by
Lockheed Martin or any Affiliated Transferor relating primarily to the Business
except, in the case of clauses (B) and (C), for any such contravention,
conflict, violation, default, termination, cancellation, acceleration or loss
that could not reasonably be expected to have a Material Adverse Effect on the
Business or (ii) result in the creation or imposition of any Lien on any
transferred Asset, other than Permitted Liens and other than such Liens the
creation or imposition of which could not reasonably be expected to have a
Material Adverse Effect on the Business.
B.05. Financial Statements.
(a) The December Statement presents fairly, in all material respects,
the Net Tangible Assets of the Business (other than the Airport Explosive
Detection Business) as of December 31, 1996, in conformity with GAAP (except as
set forth in the notes thereto or in Attachment VI applied on a basis
consistent in all material respects with the manner in which the Business
reported as of December 31, 1996 its financial position for inclusion in the
financial statements of Lockheed Martin.
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(b) The Audited Business Financial Statements have been prepared
based upon the books and records of Lockheed Martin and the Affiliated
Transferors relating to the Business and present fairly the financial
condition, results of operations and cash flows of the Business in conformity
with GAAP (except as set forth in the notes thereto) for the periods and as of
the dates included therein.
B.06. Absence of Certain Changes. Except for matters that would be
permitted (without consent of either of the Individual Purchasers) in
accordance with Section 7.01 if they occurred after the date of this Agreement,
as set forth in Section B.06 of the Disclosure Schedules and except as known to
the Individual Purchasers, from December 31, 1996 to the date of this
Agreement, there has not been any material adverse change in the business,
financial condition or results of operations of the Business and there has not
been:
(a) any event, occurrence, development or state of circumstances or
facts that has had a Material Adverse Effect on the Business, other than those
resulting from changes, whether actual or prospective, in general conditions
applicable to the industries in which the Business is involved or general
economic conditions;
(b) any damage, destruction or other casualty loss affecting the
Business or any assets that would constitute Transferred Assets if owned, held
or used by Lockheed Martin or any of the Affiliated Transferors on the Closing
Date that has had a Material Adverse Effect on the Business;
(c) any transaction or commitment made, or any contract or agreement
entered into, by Lockheed Martin or any Affiliated Transferor relating
primarily to the Business or any assets that would constitute Transferred
Assets if owned, held or used by Lockheed Martin or any of the Affiliated
Transferors on the Closing Date (including the acquisition or disposition of
any assets) or any termination or amendment by Lockheed Martin or any
Affiliated Transferor of any contract or other right relating primarily to the
Business, in either case, material to the Business taken as a whole, other than
transactions and commitments in the ordinary course of business and those
contemplated by this Agreement;
(d) any sale or other disposition of more than an aggregate of
$250,000 of assets (other than Inventory or any sale made in the ordinary
course of business) that would constitute Transferred Assets if owned, held or
used by any of the Lockheed Martin companies on the Closing Date;
(e) any increase in the compensation of any current employee of any
of the Business Units at a level of vice president or above, other than
nondiscretionary increases pursuant to Employee Plans or Benefit Arrangements
disclosed in Section B.21 of the Disclosure Schedules or referenced in Exhibit
G; and
(f) any cancellation, compromise, waiver or release by Lockheed
Martin of any claim or right (or a series of related rights and claims) related
to the Business, other than cancellations, compromises, waivers or releases in
the ordinary course of business.
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B.07. Sufficiency of and Title to the Transferred Assets.
(a) The Transferred Assets, together with the services to be provided
to Newco pursuant to the Interim Services Agreement and the Intellectual
Property to be licensed to Newco pursuant to the License Agreements,
constitute, and on the Closing Date will constitute, all of the assets and
services that are necessary to permit the operation of the Business in
substantially the same manner as such operations have heretofore been
conducted.
(b) Upon consummation of the Contemplated Transactions, Newco will
have acquired good and marketable title in and to, or a valid leasehold
interest in, each of the Transferred Assets that are necessary to permit the
operation of the Business in substantially the same manner as operations have
heretofore been conducted, free and clear of all Liens, except for Permitted
Liens.
(c) Section B.07 of the Disclosure Schedules includes a true and
complete list of all real property owned by the Lockheed Martin Companies (or
property which the Lockheed Martin Companies have a right to acquire in
connection with the operation of the Business) which is included in the
Transferred Assets (collectively, the "Owned Real Property"; the Owned Real
Property and the Leased Real Property, collectively the "Real Property").
Section B.07(c) of the Disclosure Schedules specifies (i) the address of each
parcel of Owned Real Property and (ii) the owner of such Owned Real Property.
(d) Section B.07 of the Disclosure Schedules includes a true and
complete list of all agreements (together with any amendments thereof
collectively, the "Real Property Leases") pursuant to which the Lockheed Martin
Companies lease, sublease or otherwise occupy (whether as landlord, tenant,
subtenant or other occupancy arrangement) any real property used in the
Business (collectively, the "Leased Real Property"). Section B.07 of the
Disclosure Schedules specifies (i) the address of each parcel of Leased Real
Property and (ii) the owner of the leasehold, subleasehold or occupancy
interest for each Leased Real Property.
B.08. No Undisclosed Liabilities. To the knowledge of Lockheed Martin,
there are no liabilities of Lockheed Martin (or any Affiliated Transferor)
relating to the Business that constitute Assumed Liabilities of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, other than:
(a) liabilities disclosed or provided for in the December Statement
and liabilities for matters taken into account in the determination of the
Final Net Tangible Asset Amount;
(b) liabilities (i) disclosed in Section B.08 of the Disclosure
Schedules, (ii) known to the Individual Purchasers, (iii) related to any
Contract disclosed in the Disclosure Schedules or (iv) related to any Employee
Plan or Benefit Arrangements identified in Exhibit G or disclosed in Section
B.08 of the Disclosure Schedules;
(c) liabilities incurred in the ordinary course of business since
December 31, 1996;
(d) liabilities not required to be accrued for or reserved against
in accordance with GAAP as of December 31, 1996; and
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(e) with respect to the bring down of this representation and
warranty as of the Closing Date, liabilities not required to be accrued for or
reserved against in accordance with GAAP as of the Closing Date.
B.09. Litigation; Contract-Related Matters.
(a) Except as set forth in Section B.09 of the Disclosure Schedules
or reserved against or referred to in the December Statement, there is no
action, suit, investigation or proceeding (except for actions, suits or
proceedings referred to in Section B.09(b)) pending against, or to the
knowledge of Lockheed Martin, threatened against or affecting, the Business or
any Transferred Asset before any court or arbitrator or any governmental body,
agency, official or authority which could reasonably be expected to have a
Material Adverse Effect on the Business.
(b) Except as set forth in Section B.09 of the Disclosure Schedules
or reserved against or referred to in the December Statement or known to the
Individual Purchasers, there is no action, suit, investigation or proceeding
relating to any Government Contract or Bid, or relating to any proposed
suspension or debarment of the Business or any of its employees, pending
against, or to the knowledge of Lockheed Martin, threatened against or
affecting the Business or any Transferred Asset before any court or arbitrator
or any governmental body, agency, official or authority which could reasonably
be expected to have a Material Adverse Effect on the Business.
(c) None of the Lockheed Martin Companies is, in connection with the
Business, subject to any unsatisfied monetary judgment, order or decree that
would materially affect Newco's ability to conduct the business and operations
of the Business immediately after Closing as the Lockheed Martin Companies
currently conduct them.
B.10. Material Contracts and Bids; Backlog.
(a) Except as set forth in Section B.10 of the Disclosure Schedules,
to the knowledge of Lockheed Martin, as of the date of this Agreement, the
Lockheed Martin Companies, with respect to the Business, are not parties to or
otherwise bound by or subject to:
(i) any written employment, severance, consulting or sales
representative Contract which contains an obligation to pay more than
$100,000 per year and constitutes an Assumed Liability;
(ii) any Contract containing any covenant limiting the freedom of
the Lockheed Martin Companies, with respect of the Business or the
operations of any of the Business Units, to engage in any line of business
or compete with any Person in any geographic area in any material respect
if such Contract will be binding on Newco after the Closing;
(iii) any Contract in effect on the date of this Agreement
relating to the disposition or acquisition of the assets of, or any
interest in, any business enterprise which relates to the Business other
than in the ordinary course of business;
(iv) any Financial Support Arrangements;
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(v) any indebtedness for borrowed money of the Business that
would constitute an Assumed Liability if in existence on the Closing Date,
other than indebtedness or borrowed money totaling not more than $100,000
in the aggregate; or
(vi) any offset agreement entered into in connection with an
international sales transaction and relating to any Contract that imposes
on the Business an obligation to perform that will continue in effect on
or after the Closing Date.
Notwithstanding the foregoing or any other provisions of this Agreement, the
failure of Lockheed Martin to include any Financial Support Arrangements in
Section B.10 of the Disclosure Schedules shall not constitute a breach of a
representation or warranty hereunder and shall have no effect on the rights,
duties and obligations of the parties under this Agreement, except that the
obligations of Newco under Section 8.03 in respect of Financial Support
Arrangements shall not include an obligation to seek the release of or comply
with Section 8.03(g) with respect to any Financial Support Arrangements in
existence on the date of this Agreement that are not disclosed in Section B.10
of the Disclosure Schedules.
(b) Except as disclosed in Section B.10 of the Disclosure Schedules,
or known to the Individual Purchasers, to the knowledge of Lockheed Martin all
cost or pricing data submitted or certified in connection with Bids and
Government Contracts were when filed current, accurate and complete in
accordance with the Truth in Negotiation Act, as amended, and the rules and
regulations thereunder, except any failures to be current, accurate and
complete which, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on the Business.
(c) Except as disclosed in Section B.10 of the Disclosure Schedules,
or known to the Individual Purchasers, each Government Contract and each other
material Contract relating to the Business or any of the Transferred Assets is
a legal, valid and binding obligation of Lockheed Martin (or the applicable
Affiliated Transferor) enforceable against Lockheed Martin (or the applicable
Affiliated Transferor) in accordance with its terms (except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally, including the effect of statutory and other laws regarding
fraudulent conveyances and preferential transfers, and subject to the
limitations imposed by general equitable principles regardless of whether such
enforceability is considered in a proceeding at law or in equity), and Lockheed
Martin (or the applicable Affiliated Transferor) is not in default and has not
failed to perform any obligation thereunder, and, to the knowledge of Lockheed
Martin, there does not exist any event, condition or omission which would
constitute a breach or default (whether by lapse of time or notice or both) by
any other Person, except for any such default, failure or breach as has not
had, and could not reasonably be expected to have, a Material Adverse Effect on
the Business.
B.11. Licenses and Permits. To the knowledge of Lockheed Martin, Lockheed
Martin (or the appropriate Affiliated Transferor) has all licenses, franchises,
permits and other similar authorizations affecting, or relating in any way to,
the Business required by law to be obtained by Lockheed Martin (or the
appropriate Affiliated Transferor) to permit Lockheed Martin to conduct the
Business in substantially the same manner as the Business has heretofore been
conducted.
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B.12. Finders' Fees. Except for Bear, Stearns & Co. Inc., whose fees will
be paid by Lockheed Martin, there is no investment banker, broker, finder or
other intermediary that has been retained by or is authorized to act on behalf
of Lockheed Martin who might be entitled to any fee or commission from Lockheed
Martin, Newco or the Purchasers or any of their Affiliates upon consummation of
the contemplated Transactions.
B.13. Environmental Compliance. Except as disclosed in Section B.13 of the
Disclosure Schedules or known to the Individual Purchasers, and except as
reserved against or referred to in the December Statement, to the knowledge of
Lockheed Martin the Business is and has been in substantial compliance with all
applicable Environmental Laws, and has obtained all material permits, licenses
and other authorizations that are required under applicable Environmental Laws.
Except as set forth in Section B.13 of the Disclosure Schedules or known to the
Individual Purchasers, and except as reserved against or referred to in the
December Statement, to the knowledge of Lockheed Martin (i) the Business is and
has been in material compliance with the terms and conditions under which the
permits, licenses and other authorizations referenced in the preceding sentence
were issued or granted, (ii) the Lockheed Martin Companies hold all permits
required by Environmental Laws that are appropriate to conduct the Business as
presently conducted in all material respects and to operate the Transferred
Assets in all material respects as they are presently operated; (iii) no
suspension, cancellation or termination of any of permit referred to in clause
(ii) is pending or to Lockheed Martin's knowledge threatened; (iv) Lockheed
Martin has not received written notice of any material Environmental Claim
relating to or affecting the Business or the Transferred Assets, and to the
knowledge of Lockheed Martin, there is no such threatened Environmental Claim;
(v) Lockheed Martin, in connection with the Business or the Transferred Assets,
has not entered into, agreed in writing to, or is subject to any judgment,
decree, order or other similar requirement of any Governmental Authority under
any Environmental Laws.
B.14. Compliance with Laws. Except as set forth in Section B.14 of the
Disclosure Schedules and, except for violations or infringements of
Environmental Laws or orders, writs, injunctions or decrees relating to
Contracts or Bids and except for violations or infringements that have not had,
and may not reasonably be expected to have, a Material Adverse Effect on the
Business, to the knowledge of Lockheed Martin the operation of the Business and
condition of the Transferred Assets have not violated or infringed, and do not
violate or infringe, in any respect any Applicable Law or any order, writ,
injunction or decree of any Governmental Authority.
B.15. Government Contracts.
(a) Except as set forth in Section B.15 of the Disclosure Schedules
or known to the Individual Purchasers, and except for inaccuracies in the
following as have not had, and may not reasonably be expected to have a
Material Adverse Effect on the Business, with respect to each fixed price
Government Contract with a backlog value in excess of $5,000,000, each "cost
plus" Government Contract with a backlog value in excess of $7,500,000 and each
Bid that, if accepted, would result in such a Government Contract (a
"Government Bid") to which Lockheed Martin or any Affiliated Transferor is a
party with respect to the Business, (i) to the knowledge of Lockheed Martin,
Lockheed Martin (or the applicable Affiliated Transferor) has complied with all
terms and conditions of such Government Contract or Government Bid, including
all clauses, provisions and requirements incorporated expressly, by
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reference or by operation of law therein; (ii) to the knowledge of Lockheed
Martin, Lockheed Martin (or the applicable Affiliated Transferor) has complied
with all requirements of all Applicable Laws or agreements pertaining to such
Government Contract or Government Bid; (iii) to the knowledge of Lockheed
Martin, all representations and certifications executed, acknowledged or set
forth in or pertaining to such Government Contract or Government Bid were
complete and correct as of their effective date, and Lockheed Martin (or the
applicable Affiliated Transferor) has complied in all respects with all such
representations and certifications; (iv) neither the U.S. Government nor any
prime contractor, subcontractor or other Person has notified Lockheed Martin
(or the applicable Affiliated Transferor) that Lockheed Martin (or the
applicable Affiliated Transferor) has breached or violated any Applicable Law,
certification, representation, clause provision or requirement pertaining to
such Government Contract or Government Bid; (v) no termination for convenience,
termination for default, cure notice or show cause notice is currently in
effect pertaining to such Government Contract or Government Bid; (vi) to the
knowledge of Lockheed Martin, no cost incurred by Lockheed Martin (or the
applicable Affiliated Transferor) pertaining to such Government Contract or
Government Bid has been questioned or challenged, is the subject of any
investigation or has been (or could reasonably be expected to be) disallowed by
the U.S. Government; (vii) to the knowledge of Lockheed Martin, no money due to
Lockheed Martin (or the applicable Affiliated Transferor) pertaining to such
Government Contract or Government Bid has been (or has attempted to be)
withheld or set off and Lockheed Martin (or the applicable Affiliated
Transferor) is entitled to all progress payments with respect thereto and
(viii) each Government Contract is valid and subsisting.
(b) Except as set forth in Section B.15 of the Disclosure Schedules
or known to the Individual Purchasers, and except as has not had, and may not
reasonably be expected to have, a Material Adverse Effect on the Business, with
respect to the Business; (i) to the knowledge of Lockheed Martin, none of its
respective employees, consultants or agents is (or during the last five years
has been) under administrative, civil or criminal investigation, indictment or
information by any Governmental Authority, or any audit or investigation by
Lockheed Martin with respect to any alleged irregularity, misstatement or
omission arising under or relating to any Government Contract or Government
Bid; and (ii) during the last five years, Lockheed Martin has not conducted or
initiated any internal investigation or, to Lockheed Martin's knowledge, had
reason to conduct, initiate or report any internal investigation, or made a
voluntary disclosure to the U.S. Government, with respect to any alleged
irregularity, misstatement or omission arising under or relating to a
Government Contract or Government Bid. Except as set forth in Section B.15 of
the Disclosure Schedules or known to the Individual Purchasers, Lockheed Martin
has no knowledge of any irregularity, misstatement or omission arising under or
relating to any Government Contract or Government Bid that has led or could
reasonably be expected to lead, either before or after the Closing Date, to any
of the consequences set forth in clause (i) or (ii) of the immediately
preceding sentence or any other material damage, penalty assessment, recoupment
of payment or disallowance of cost.
(c) Except as set forth in Section B.15 of the Disclosure Schedules
or known to the Individual Purchasers, and except as has not had, and may not
reasonably be expected to have, a Material Adverse Effect on the Business, with
respect to the Business, to the knowledge of Lockheed Martin, there exist (i)
no outstanding claims against Lockheed Martin or any
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Affiliated Transferor, either by the U.S. Government or by any prime
contractor, subcontractor, vendor or other third party, arising under or
relating to any Government Contract or Bid referred to in Section B.15(a) and
(ii) no disputes between Lockheed Martin or any Affiliated Transferor and the
U.S. Government under the Contract Disputes Act or any other Federal statute or
between Lockheed Martin or any Affiliated Transferor and any prime contractor,
subcontractor or vendor arising under or relating to any such Government
Contract or Government Bid. Except as set forth in Section B.15 of the
Disclosure Schedules or known to the Individual Purchasers, Lockheed Martin has
no knowledge of any fact that could reasonably be expected to result in a claim
or a dispute under clause (i) or (ii) of the immediately preceding sentence.
(d) Except as set forth in Section B.15 of the Disclosure Schedules
or known to the Individual Purchasers, neither Lockheed Martin (or any
Affiliated Transferor) (with respect to the Business), nor to Lockheed Martin's
knowledge, any of its employees, consultants or agents is (or during the last
five years has been) suspended or debarred from doing business with the U.S.
Government or is (or during such period was) the subject of a finding of
nonresponsibility or ineligibility for U.S. Government contracting. Except as
set forth in Section B.15 of the Disclosure Schedules or known to the
Individual Purchasers, Lockheed Martin does not know of any facts or
circumstances that would warrant the suspension or debarment, or the finding of
nonresponsibility or ineligibility, on the part of Lockheed Martin (or any
Affiliated Transferor) or any of Lockheed Martin's (or any Affiliated
Transferor's) employees, consultants or agents. Except as set forth in Section
B.15 of the Disclosure Schedules or known to the Individual Purchasers, and
except as has not had, and may not reasonably be expected to have, a Material
Adverse Effect on the Business, to Lockheed Martin's knowledge, the Lockheed
Martin Companies have complied with all requirements of all material laws
pertaining to all Government Contracts and Bids.
(e) Except as set forth in Section B.15 of the Disclosure Schedules
or known to the Individual Purchasers, and except for any of the following as
has not had, and may not reasonably be expected to have, a Material Adverse
Effect on the Business, to the knowledge of Lockheed Martin, all test and
inspection results Lockheed Martin (or any Affiliated Transferor) has provided
to the U.S. Government pursuant to any Government Contract referred to in
Section B.15(a) or to any other Person pursuant to any such Government Contract
or as a part of the delivery to the U.S. Government pursuant to any such
Government Contract of any article designed, engineered or manufactured in the
Business were complete and correct as of the date so provided. Except as set
forth in Section B.15 of the Disclosure Schedules or known to the Individual
Purchasers, and except for any of the following as has not had, and may not
reasonably be expected to have, a Material Adverse Effect on the Business, to
the knowledge of Lockheed Martin, Lockheed Martin (or an Affiliated Transferor)
has provided all test and inspection results to the U.S. Government pursuant to
any such Government Contract as required by Applicable Law and the terms of the
applicable Government Contracts.
(f) Except as set forth in Section B.15 of the Disclosure Schedules
or known to the Individual Purchasers, and except for any of the following as
has not had, and may not reasonably be expected to have, a Material Adverse
Effect on the Business, to the knowledge of Lockheed Martin, no statement,
representation or warranty made by Lockheed Martin (or an Affiliated
Transferor) in any Government Contract, any exhibit thereto or in
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any certificate, statement, list, schedule or other document submitted or
furnished to the U.S. Government in connection with any Government Contract or
Government Bid (i) contained on the date so furnished or submitted any untrue
statement of a material fact, or failed to state a material fact necessary to
make the statements contained therein, in light of the circumstances in which
they were made, not misleading or (ii) contains on the date hereof any untrue
statement of a material fact, or fails to state a material fact necessary to
make the statements contained therein, in light of the circumstances in which
they are made, not misleading, except in the case of both clauses (i) and (ii)
any untrue statement or failure to state a material fact that would not result
in any material liability to the Business as a result of such untrue statement
or failure to state a material fact.
B.16. Intellectual Property. With respect to Intellectual Property
that constitute Transferred Assets, except as set forth in Section B.16 of
the Disclosure Schedules, to the knowledge of Lockheed Martin:
(a) Lockheed Martin (or an Affiliated Transferor) owns, free and
clear of all Liens other than Permitted Liens, and subject to any licenses
granted by Lockheed Martin and its Affiliates prior to the Closing Date, all
right, title and interest in such Intellectual Property. To the knowledge of
Lockheed Martin, the use of such Intellectual Property in connection with the
operation of the Business as heretofore conducted does not conflict with,
infringe upon or violate the intellectual property rights of any other Persons;
(b) Lockheed Martin (or an Affiliated Transferor) has the right to
use all Intellectual Property used by the Business and necessary for the
continued operation of the Business in substantially the same manner as its
operations have heretofore been conducted except where the failure to have any
such Intellectual Property has not had, and could not reasonably be expected to
have, a Material Adverse Effect on the Business; and
(c) Upon the consummation of the Closing hereunder, (i) Newco will be
vested with all of Lockheed Martin's (or the Affiliated Transferors') rights,
title and interest in, and Lockheed Martin's (or the Affiliated Transferors')
rights and authority to use in connection with the Business, all of the
Intellectual Property that constitute Transferred Assets and (ii) such
Intellectual Property, together with the Intellectual Property licensed to
Newco in accordance with Section 9.04 of the Agreement and any other interests
in Intellectual Property transferred hereunder will collectively constitute
such rights and interests in Intellectual Property which are necessary for the
continued operation of the Business as a whole in substantially the same manner
as its operations have heretofore been conducted, except where any inaccuracy
of clause (ii) has not had, and could not reasonably be expected to have, a
Material Adverse Effect on the Business.
B.17. Government Furnished Equipment. Section B.17 of the Disclosure
Schedules incorporates the most recent schedule delivered to the U.S.
Government which identifies by description or inventory number certain
equipment and fixtures loaned, bailed or otherwise furnished to or held by each
Business Unit by or on behalf of the United States. To Lockheed Martin's
knowledge, such schedule was accurate and complete on its date and, if dated as
of the Closing Date, would contain only those additions and omit only those
deletions of equipment and fixtures that have occurred in the
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ordinary course of business, except for such inaccuracies that could not
reasonably be expected to have a Material Adverse Effect on the Business.
B.18. Powers of Attorney. Section B.18 of the Disclosure Schedules
lists the names of each person holding powers of attorney from any of the
Lockheed Martin Companies in connection with the Business.
B.19. Insurance. Section B.19 of the Disclosure Schedules contains a
correct and complete list of all material policies of insurance held by any of
the Lockheed Martin Companies that have been procured specifically with respect
to the operation of the Business, other than workers' compensation policies.
B.20. Affiliate Transactions. Except as set forth in Section B.20 of the
Disclosure Schedule, (a) there is no ongoing agreement or arrangement between
Lockheed Martin or any Affiliated Transferor, on the one hand, and any of the
Business Units, on the other hand, having an annual cost to a Business Unit or
any of the Lockheed Martin Companies, individually, in excess of $120,000; (b)
there is no debt owed by any Business Unit to any of the Lockheed Martin
Companies (other than another Business Unit), other than debt which will be
eliminated prior to the Closing or otherwise will not be an Assumed Liability;
and (c) there is no indemnification or similar obligation owed by any Business
Unit to Lockheed Martin or any of its Affiliates (other than another Business
Unit), other than in connection with or resulting from the failure of a
Business Unit to perform its obligations under any Contracts involving Lockheed
Martin or any of its Affiliates.
B.21. Employee Benefit Matters.
(a) To the knowledge of Lockheed Martin, Section B.21 of the
Disclosure Schedule lists each Employee Plan or Benefit Arrangement which
covers Transferred Employees or Transferred Beneficiaries and each collective
bargaining agreement covering Transferred Employees.
(b) Except as set forth in Section B.21 of the Disclosure Schedule
and with respect to the Business:
(i) Neither Lockheed Martin nor any member of its "Controlled
Group" (defined as any organization which is a member of a controlled
group of organizations within the meaning of Code Sections 414(b), (c),
(m) or (o)) has ever contributed to or had any liability to a
multi-employer plan, as defined in Section 3(37) of ERISA, which could
reasonably be expected to have a Material Adverse Effect on the Business;
(ii) To the knowledge of Lockheed Martin, except to the extent
known by the Individual Purchasers with respect to the Business Units
other than the Communications Systems Business Unit, no fiduciary of any
funded Employee Plan has engaged in a "prohibited transaction" (as that
term is defined in Section 4975 of the Code and Section 406 of ERISA)
which could subject Newco to a penalty tax imposed by Section 4975 of the
Code;
(iii) No Employee Plan that is subject to Section 412 of the Code
has incurred an "accumulated funding deficiency" within the meaning of
Section 412 of the Code, whether or not waived;
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(iv) To the knowledge of Lockheed Martin, except to the extent
known by the Individual Purchasers with respect to the Business Units
other than the Communications Systems Business Unit, each Employee Plan
and Benefit Arrangement has been established and administered in
accordance with its terms and in compliance with Applicable Law;
(v) To the knowledge of Lockheed Martin, except to the extent
known by the Individual Purchasers with respect to the Business Units
other than the Communications Systems Business Unit, no Employee Plan
subject to Title IV of ERISA has incurred any material liability under
such title other than for the payment of premiums to the Pension Benefit
Guaranty Corporation ("PBGC"), all of which to the knowledge of Lockheed
Martin and the Individual Purchasers have been paid when due;
(vi) No defined benefit Employee Plan has been terminated; nor
have there been any "reportable events" (as that term is defined in
Section 4043 of ERISA and the regulations thereunder), other than
reportable events arising directly from the Contemplated Transactions,
which would present a risk that an Employee Plan would be terminated by
the PBGC in a distress termination;
(vii) Each Employee Plan intended to qualify under Section 401 of
the Code has received a determination letter that it is so qualified and
to the knowledge of Lockheed Martin, except to the extent known by the
Individual Purchasers with respect to the Business Units other than the
Communications Systems Business Unit, no event has occurred with respect
to any such Employee Plan which could cause the loss of such qualification
or exemption;
(viii) With respect to each Employee Plan listed on Section B.21 of
the Disclosure Schedule, Lockheed Martin has made available to Newco the
most recent copy (where applicable) of (A) the plan document; (B) the most
recent determination letter; (C) any summary plan description; (D) Form
5500; and (E) actuarial valuation report; and with respect to each Benefit
Arrangement that covers any Transferred Employee or Transferred
Beneficiary, Lockheed Martin has made available to Newco a current,
accurate and complete copy (or, to the extent that no such copy exists, an
accurate description) thereof; and
(ix) To the knowledge of Lockheed Martin, except to the extent
known by the Individual Purchasers with respect to the Business Units
other than the Communications Systems Business Unit, no Employee Plan or
Benefit Arrangement exists which could result in the payment to any
Transferred Employee or Transferred Beneficiary of any money or other
property or rights or accelerate or provide any other rights or benefits
to any Transferred Employee or Transferred Beneficiary as a result of the
transaction contemplated by this Agreement, whether or not such payment
would constitute a parachute payment (within the meaning of Section 280G
of the Code).
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EXHIBIT C
REPRESENTATION AND WARRANTIES OF LEHMAN
Lehman hereby represents and warrants to Lockheed Martin and the
individual Purchasers and, upon the Closing, to Newco that:
C.01. Organization and Existence. Lehman is a limited partnership duly
formed, validly existing and in good standing under the laws of the State of
Delaware and has all partnership powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted, except where the failure to have such licenses, authorizations,
consents and approvals has not had and may not reasonably be expected to have,
a Material Adverse Effect on Lehman. Lehman is duly qualified to do business as
a foreign limited partnership in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities make such
qualification necessary to carry on its business as now conducted, except for
those jurisdictions where failure to be so qualified has not had, and may not
reasonably be expected to have, a Material Adverse Effect on Lehman.
C.02. Authorizations. The execution, delivery and performance by Lehman of
the Transaction Documents and the consummation by Lehman of the Contemplated
Transactions are within the partnership powers of Lehman and have been duly
authorized by all necessary partnership action on the part of Lehman. Each of
the Transaction Documents constitutes a legal, valid and binding agreement of
Lehman, enforceable against Lehman in accordance with its terms (i) except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally, including the effect of
statutory and other laws regarding fraudulent conveyances and preferential
transfers and (ii) subject to the limitations imposed by general equitable
principles (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
C.03. Governmental Authorization.
(a) The execution, delivery and performance by Lehman of the
Transaction Documents require no action by or in respect of, consents or
approvals of, or filing with, any governmental body, agency, official or
authority other than:
(i) compliance with any applicable requirements of the HSR
Act; and
(ii) compliance with any applicable requirements of the 1933
Act.
(b) To the actual knowledge of Lehman, there are no facts relating to
the identity or circumstances of Lehman or any of its Affiliates that would
prevent or materially delay obtaining the consents or approvals referred to in
Section C.03(a).
C.04. Non-Contravention. The execution, delivery and performance by
Lehman of the Transaction Documents do not and will not (i) contravene or
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conflict with the certificate of limited partnership or Amended and Restated
Agreement of Limited Partnership of Lehman, (ii) assuming compliance with the
matter referred to in Section C.03, contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to Lehman, or (iii) constitute a default
under or give rise to any right of termination, cancellation or acceleration of
any right or obligation of Lehman or to a loss of any benefit to which Lehman
is entitled under any provision of any agreement, contract or other instrument
binding upon Lehman or any license, franchise, permit or other similar
authorization held by Lehman, except, in the case of clauses (ii) and (iii),
for any such contravention, conflict, violation, default, termination,
cancellation, acceleration or loss that would not have a Material Adverse
Effect on Lehman.
C.05. Finders' Fees. Except for Lehman Brothers Inc., there is no
investment banker, broker, finder or other intermediary that has been retained
by or is authorized to act on behalf of Lehman who might be entitled to any fee
or commission from Newco, Lockheed Martin or any of its Affiliates, or either
of the Individual Purchasers, upon consummation of the Contemplated
Transactions by the Transaction Documents.
C.06. Litigation. There is no action, suit, investigation or proceeding
pending against, or to the actual knowledge of Lehman, threatened against or
affecting, Lehman before any court or arbitrator or any governmental body,
agency or official which in any matter challenges or seeks to prevent, enjoin,
alter or materially delay the Contemplated Transactions.
C.07. Inspections. Lehman is an informed and sophisticated participant in
the Contemplated Transactions, and has engaged expert advisors, experienced in
the evaluation and purchase of enterprises such as the Business. Lehman has
undertaken an investigation and has been provided with, has evaluated and has
relied upon certain documents and information to assist Lehman in making an
informed and intelligent decision with respect to the execution of the
Transaction Documents. Lehman will undertake prior to Closing such further
investigation and request such additional documents and information as it deems
necessary. Lehman acknowledges that Lockheed Martin has made no representation
or warranty as to the prospects, financial or otherwise of the Business. Lehman
agrees that Newco shall accept the Transferred Assets and the Assumed
Liabilities as they exist on the Closing Date based upon Lehman's and the
Individual Purchasers' inspection, examination and determination with respect
thereto as to all matters, and without reliance upon any express or implied
representations or warranties of any nature, whether in writing, orally or
otherwise, made by or on behalf of or imputed to Lockheed Martin except as
expressly set forth in the Transaction Documents.
C.08. Financing. Lehman has available to it cash, marketable securities or
other investments, or presently available sources of credit, to enable it to
purchase the shares of Newco Class A Stock contemplated by this Agreement.
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EXHIBIT D
REPRESENTATIONS AND WARRANTIES OF THE INDIVIDUAL PURCHASERS
Each of the Individual Purchasers hereby represents and warrants, with
respect to himself, to Lockheed Martin and Lehman and, upon the Closing, to
Newco that:
D.01. Governmental Authorization.
(a) The execution, delivery and performance by each Individual
Purchaser of the Transaction Documents require no action by or in respect of,
consents or approvals of, or filing with, any governmental body, agency,
official or authority other than:
(i) compliance with any applicable requirements of the HSR
Act; and
(ii) compliance with any applicable requirements of the 1933
Act.
(b) To the knowledge of each of the Individual Purchasers, there are
no facts relating to the identity or circumstances of the Individual Purchasers
that would prevent or materially delay obtaining any of the consents or
approvals referred to in Section D.01(a).
D.02. Non-Contravention. The execution, delivery and performance by each
of the Individual Purchasers of the Transaction Documents do not and will not
(i) assuming compliance with the matters referred to in Section D.01,
contravene or conflict with or constitute a violation of any provision of any
law, regulation, judgment, injunction, order or decree binding upon or
applicable to the Individual Purchasers or (ii) constitute a default under or
give rise to any right of termination, cancellation or acceleration of any
right or obligation of either of the Individual Purchasers or to a loss of any
benefit to which either of the Individual Purchasers is entitled under any
provision of any agreement, contract or other instrument binding upon either of
the Individual Purchasers or any license, franchise, permit or other similar
authorization held by either of the Individual Purchasers, except for any such
contravention, conflict, violation, default, termination, cancellation,
acceleration or loss that is immaterial to the Contemplated Transactions and
the operation of the Business after Closing.
D.03. Finders' Fees. There is no investment banker, broker, finder or
other intermediary that has been retained by or is authorized to act on behalf
of either of the Individual Purchasers who might be entitled to any fee or
commission from Newco, Lockheed Martin or Lehman, or any of their Affiliates,
upon consummation of the Contemplated Transactions.
D.04. Litigation. There is no action, suit, investigation or proceeding
pending against, or to the knowledge of either of the Individual Purchasers,
threatened against or effecting, either of the Individual Purchasers before any
court or arbitrator or any governmental body, agency or official which in any
manner challenges or seeks to prevent, enjoin, alter or materially delay the
Contemplated Transactions.
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D.05. Inspections. Each of the Individual Purchasers is an informed and
sophisticated participant in the Contemplated Transactions, and has engaged
such expert's advisors as he deems appropriate. Each of the Individual
Purchasers has undertaken an investigation and has been provided with, has
evaluated and has relied upon certain documents and information to assist him
in making an informed and intelligent decision with respect to the execution of
the Transaction Documents. Each of the Individual Purchasers will undertake
prior to Closing such further investigation and request such additional
documents and information as he deems necessary. Each of the Individual
Purchasers acknowledges that Lockheed Martin has made no representation or
warranty as to the prospects, financial or otherwise of the Business. Each of
the Individual Purchasers agrees that Newco shall accept the Transferred Assets
and the Assumed Liabilities as they exist on the Closing Date based upon
Lehman's and the Individual Purchasers' inspection, examination and
determination with respect thereto as to all matters, and without reliance upon
any express or implied representations or warranties of any nature, whether in
writing, orally or otherwise, made by or on behalf of or imputed to Lockheed
Martin, except as expressly set forth in the Transaction Documents.
D.06. Financing. Each of the Individual Purchasers has available
sufficient cash, marketable securities or other investments, or presently
available sources of credit, to enable him to purchase the shares of Newco
Class B Stock contemplated by this Agreement.
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EXHIBIT E
REPRESENTATION AND WARRANTIES OF NEWCO
Newco hereby represents and warrants to Lockheed Martin, Lehman and the
Individual Purchasers that:
E.01. Organization and Existence. Newco is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has (or, prior to the Closing Date, will have) all corporate
powers and all governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted, except where the failure to
have such licenses, authorizations, consents and approvals has not had and may
not reasonably be expected to have, a Material Adverse Effect on Newco (after
giving effect to the Contemplated Transactions). As of the Closing Date, Newco
will be duly qualified to do business as a foreign corporation in each
jurisdiction where the character of the property owned or leased by it or the
nature of its activities (after giving effect to the Contemplated Transactions)
make such qualification necessary to carry on its business as now conducted,
except for those jurisdictions where failure to be so qualified has not had,
and may not reasonably be expected to have, a Material Adverse Effect on Newco
(after giving effect to the Contemplated Transactions).
E.02. Corporate Authorizations. The execution, delivery and performance by
Newco of the Transaction Documents and the consummation by Newco of the
Contemplated Transactions are within the corporate powers of Newco and have
been (or, prior to the Closing, will have been) duly authorized by all
necessary corporate action on the part of Newco. Each of the Transaction
Documents constitutes a legal, valid and binding agreement of Newco,
enforceable against Newco in accordance with its terms (i) except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally, including the effect of
statutory and other laws regarding fraudulent conveyances and preferential
transfers and (ii) subject to the limitations imposed by general equitable
principles (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
E.03. Governmental Authorization.
(a) Except as set forth on Attachment X, the execution, delivery and
performance by Newco of the Transaction Documents require no action by or in
respect of, consents or approvals of, or filing with, any governmental body,
agency, official or authority other than:
(i) compliance with any applicable requirements of the HSR
Act; and
(ii) compliance with any applicable requirements of the 1933
Act.
(b) There are no facts relating to the identity or circumstances of
Newco known to Newco that would prevent or materially delay obtaining any of
the consents or approvals referred to in Section E.03(a).
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E.04. Non-Contravention. The execution, delivery and performance by Newco
of the Transaction Documents do not and will not (i) contravene or conflict
with the charter or bylaws of Newco, (ii) assuming compliance with the matters
referred to in Section E.03, contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to Newco, or (iii) constitute a default
under or give rise to any right of termination, cancellation or acceleration of
any right or obligation of Newco or to a loss of any benefit to which Newco is
entitled under any provision of any agreement, contract or other instrument
binding upon Newco or any license, franchise, permit or other similar
authorization held by Newco, except, in the case of clauses (ii) and (iii), for
any such contravention, conflict, violation, default, termination,
cancellation, acceleration or loss that could not reasonably be expected to
have a Material Adverse Effect on Newco.
E.05. Finders' Fees. Except for Lehman Brothers Inc., there is no
investment banker, broker, finder or other intermediary that has been retained
by or is authorized to act on behalf of Newco who might be entitled to any fee
or commission from Lockheed Martin or Lehman (or any of their Affiliates), or
from either of the Individual Purchasers, upon consummation of the Contemplated
Transactions.
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EXHIBIT F
TAX MATTERS
F.01. Tax Definitions. The following terms shall have the following
meanings:
"Allocation Tax Loss" means an amount equal to 20% of the first $5,000,000
of the Tax Basis Shortfall and 25% of the next $20,000,000 of the Tax
Basis Shortfall.
"Basis Liabilities" means Assumed Liabilities which upon the Tax Closing
Date give rise to the creation of, or increase in, basis to Newco of one
or more Transferred Assets for Income Tax purposes.
"Cash Sale" means a transfer of assets to Newco pursuant to the
Transaction Agreement whereby Lockheed Martin or any of its Affiliated
Transferors, as the case may be, does not receive any Newco Class A Stock
as Exchange Consideration for Transferred Assets.
"Code" means the Internal Revenue Code of 1986, as amended.
"Final Determination" means a determination as defined in Section 1313(a)
of the Code or any other event which finally and conclusively establishes
the amount of any liability for Taxes.
"Income Taxes" means any Taxes determined by reference to net income.
"Post-Closing Tax Period" means that portion of any Tax period ending
after the Tax Closing Date, which is after the Tax Closing Date.
"Pre-Closing Tax Period" means that portion of any Tax period ending on or
before the Tax Closing Date, which is on or before the Tax Closing Date.
"Section 351 Transfer" means a transfer of assets to Newco pursuant to the
Transaction Agreement whereby Lockheed Martin or any of its Affiliated
Transferors, as the case may be, receives Newco Class A Stock as part or
all of the Exchange Consideration for Transferred Assets.
"Tax" means any tax imposed of any nature including federal, state, local
or foreign net income tax, alternative or add-on minimum tax, profits or
excess profits tax, franchise tax, gross income, adjusted gross income or
gross receipts tax, employment related tax (including employee withholding
or employer payroll tax, FICA, or FUTA), real or personal property tax or
ad valorem tax, sales or use tax, excise tax, stamp tax or duty, any
withholding or backup withholding tax, value added tax, severance tax,
prohibited transaction tax, premiums tax, occupation tax, together with
any interest or any penalty, addition to tax or additional amount imposed
by any Governmental Authority responsible for the imposition of any such
tax.
"Tax Basis Shortfall" means the amount by which Newco's adjusted tax basis
in the Transferred Assets (after the recognition of gains pursuant to
Section F.07.(a)(i)(C)) is less than $525,000,000 plus or minus any
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adjustment to the Exchange Consideration in accordance with Sections 2.03
and 2.04 and plus the Basis Liabilities.
"Tax Closing Date" means the Effective Date.
F.02. Tax Return Packages. Newco will use its reasonable efforts to cause
appropriate employees of the Business to prepare usual and customary Tax return
packages (in the form provided to the Business Units for the 1996 calendar
year) with respect to (1) the taxable period ended December 31, 1996, in the
event that such packages have not been prepared prior to Closing and (2) the
tax period beginning January 1, 1997 and ending as of the Tax Closing Date. In
the event that Tax return packages for the taxable period ended December 31,
1996 have not been prepared prior to Closing, then Newco will use reasonable
efforts to cause the Tax return packages for such taxable period to be
delivered to Lockheed Martin no later than 30 days subsequent to Closing. Newco
will use reasonable efforts to cause the Tax return packages for the period
beginning on January 1, 1997 and ending as of the Tax Closing Date to be
delivered to Lockheed Martin no later than the last day of the third calendar
month succeeding the month in which the Closing occurs.
F.03.A. Assumed Liabilities. The term Assumed Liabilities as defined in
Exhibit A shall include any and all liabilities and obligations of Lockheed
Martin and the Affiliated Transferors for Taxes arising from or with respect to
the Transferred Assets or the operation of the Business with respect to any
period ending prior to on or after the Tax Closing Date other than (i) income
or franchise taxes arising from or with respect to the Transferred Assets or
the operations of the Business for the Pre-Closing Tax Period (other than state
or local income or franchise taxes attributable to the Business with respect to
a Pre-Closing Tax Period to the extent reimbursable (but not actually
reimbursed as of the Tax Closing Date) by the U.S. Government pursuant to the
principles of Federal Acquisition Regulation Part 31, Contract Cost Principles
and Procedures), and (ii) income or franchise taxes imposed on Lockheed Martin
or any of the Affiliated Transferors with respect to gain or loss on the
disposition of the Transferred Assets pursuant to the Transaction Agreement
(other than Taxes borne by Newco pursuant to Section 15.03). Notwithstanding
the foregoing, the parties agree that, with respect to Tax liabilities
attributable to the Communications Systems Business Unit relating to the
Pre-Closing Tax Period, Newco shall not assume any liability or obligation
other than and only to the extent (i) disclosed or provided for in the December
Statement or taken into account in the determination of the Final Net Tangible
Asset Amount or (ii) relating to Tax periods for which Tax returns (including
any applicable extensions) are not required to have been filed prior to the Tax
Closing Date.
F.03.B. Excluded Liabilities. The term Excluded Liabilities as defined in
Exhibit A shall include any and all liabilities or obligations for any and all
Taxes arising from or with respect to the Transferred Assets or operations of
the Business that are not Assumed Liabilities as defined in Section F.03.A.
F.04.A. Transferred Assets. The term Transferred Assets as defined in
Exhibit A shall include any and all refunds, credits or rights of recovery in
respect of any Taxes that are Assumed Liabilities as defined in Section F.03.A.
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F.04.B. Excluded Assets. The term Excluded Assets as defined in Exhibit A
shall include any refund, credit or right of recovery in respect of any Taxes
that are not Assumed Liabilities as defined in Section F.03.A.
F.05. Allocation of Exchange Consideration.
(a) Within 30 days after the appraisal of the Transferred Assets by
Coopers & Lybrand L.L.P. as referred to in Section F.07 has been completed,
Lockheed Martin shall prepare a schedule (the "Exchange Consideration
Schedule") setting forth the allocation of the cash amount of the Exchange
Consideration among Lockheed Martin and each of the Affiliated Transferors. The
allocation shall be determined based on such appraisal by Coopers & Lybrand
L.L.P., and shall take into account the allocation of Newco Class A Stock among
Lockheed Martin and the Affiliated Transferors, as determined by Lockheed
Martin in its sole discretion. In connection with the preparation of the
Exchange Consideration Schedule, Lockheed Martin shall give Newco reasonable
access to the books and records of Lockheed Martin in respect of the
Transferred Assets and the Basis Liabilities. Lockheed Martin agrees to make
reasonable efforts to allocate the Exchange Consideration in the Exchange
Consideration Schedule in a manner calculated to allow Newco to obtain a tax
basis in the Transferred Assets equal to, but not greater than, $525,000,000
plus or minus any adjustment to the Exchange Consideration in accordance with
Sections 2.03 and 2.04 and plus the Basis Liabilities. Lockheed Martin
covenants and agrees that the Exchange Consideration will be allocated so that
the adjusted tax basis of Newco in the Transferred Assets, based on the
allocation in the Exchange Consideration Schedule, will be not less than
$500,000,000 plus or minus any adjustment to the Exchange Consideration in
accordance with Sections 2.03 and 2.04 and plus the Basis Liabilities.
(b) The Allocation Tax Loss shall be determined jointly by Lockheed
Martin and Newco within 90 days after the Exchange Consideration Schedule is
delivered to Newco. Any dispute with respect to the determination of the
Allocation Tax Loss shall be resolved in the manner specified in Section 2.03
(b) (regarding determination of the Final Net Tangible Asset Amount). Within 10
days after the Allocation Tax Loss is determined, Lockheed Martin shall pay to
Newco the amount of the Allocation Tax Loss with interest thereon from the
Closing Date to the date of payment at a rate per annum equal to the per annum
interest rate announced from time to time by Bank of America National Trust and
Savings Association as its reference rate in effect. Such payment shall be made
in immediately available funds by wire transfer to a bank account designated in
writing by Newco. Newco agrees that the aforementioned payment by Lockheed
Martin shall satisfy all obligations assumed by Lockheed Martin pursuant to
this Section F.05. Lockheed Martin shall have no further obligation to
indemnify Newco with regard to any adjustment to the tax basis of the
Transferred Assets in the hands of Newco as a result of an audit by the
Internal Revenue Service or any other Tax authority, or as a result of any
other adjustment which is treated for Tax purposes as an adjustment to the
Exchange Consideration.
F.06. Representations and Warranties of Lockheed Martin. Lockheed Martin
hereby represents prior to but not after the Closing to the Purchasers, and as
of and after the Closing to Newco that:
(a) there are no liens on any of the Transferred Assets that arose
in connection with any failure (or alleged failure) to pay any Tax;
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(b) neither Lockheed Martin nor any of the Affiliated Transferors
will take part in both a Section 351 Transfer and a Cash Sale in the context of
the Contemplated Transactions;
(c) neither Lockheed Martin nor any of the Affiliated Transferors has
transferred or otherwise altered the ownership of any of the Transferred Assets
in anticipation of the Contemplated Transactions.
F.07. Consistent Reporting.
(a) Section 351 Transfers
(i) Unless there has been a Final Determination to the contrary,
Lockheed Martin, the Affiliated Transferors and Newco covenant and agree,
for all Tax purposes including all Tax returns and Tax controversies, to
(and to cause any Affiliate or successor to their assets or business to)
take each of the positions set forth in subparagraph (A) through (E) below
with respect to Section 351 Transfers.
(A) The transfer of assets by each transferor will qualify
under Section 351(b) of the Internal Revenue Code of 1986.
(B) The amount of cash received in exchange for any
Transferred Asset will be determined by (A) allocating Basis Liabilities
to the Transferred Assets in proportion to the adjusted tax basis of such
Transferred Assets, and then (B) allocating the total amount of cash
received by the transferor among the Transferred Assets in proportion to
the net fair market value of such Transferred Assets (the net fair market
value being the fair market value of a Transferred Asset reduced by the
amount of any Basis Liabilities allocated to the asset).
(C) The tax basis of each Transferred Asset to be received
by Newco will be the same as the tax basis of such asset in the hands of
the transferor increased by the amount of any gain recognized by the
transferor on the transfer of such asset.
(D) The fair market value of each category of Transferred
Assets will be determined based on an independent appraisal by Coopers &
Lybrand L.L.P.
(E) Neither Newco, nor any successor to its assets or
businesses will be entitled to claim any deduction in respect of any Basis
Liability to the extent previously deducted by the transferor, unless such
previous deduction is later denied.
(ii) Lockheed Martin and the Affiliated Transferors will file
with their consolidated federal income tax return for the tax period which
includes the Tax Closing Date the information required by Treas. Reg.
1.351-3(a) and will deliver copies of such statements, including
attachments, to Newco at least 10 days prior to the date on which such
return is filed, and Newco will file with its federal income tax return
for the taxable period within which the Tax Closing Date falls the
information required by Treas. Reg. 1.351-(b) and will deliver a copy of
that statement to Lockheed Martin within ten days thereafter. Within 180
days after the Closing Date, Lockheed Martin will deliver to Newco all of
the cost and other basis information relating to the Transferred
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Assets and Basis Liabilities reasonably required for Newco to prepare
the Statement required by Treas. Reg. 1.351-3(b)(2).
(iii) Lockheed Martin and Newco will jointly prepare schedules
showing (A) the amount of any gain recognized on the transfer of each
category of Transferred Assets, (B) the tax basis of each category of
Transferred Assets in the hands of the transferor, and (C) the amount
previously deducted in respect of each category of Basis Liabilities. Such
schedules will be prepared in a manner consistent with each of the
positions described in Section F.07.(a)(i). In the event of any adjustment
to the tax basis of the Transferred Assets or Basis Liabilities, as the
result of an audit or otherwise, Lockheed Martin, the Affiliated
Transferors and Newco will jointly prepare any necessary revisions to such
schedules. Unless there has been a Final Determination to the contrary,
Lockheed Martin, the Affiliated Transferors and Newco covenant and agree,
for all Income Tax purposes, including all Income Tax returns and any
Income Tax controversies, not to take (and to cause any Affiliate or
successors to their assets or businesses not to take) any position
inconsistent with the basis in assets shown on such schedules (including
any revised schedules from and after the date of revision) prepared
pursuant to this Section F.07.(a)(iii).
(iv) Lockheed Martin and the Affiliated Transferors covenant and
agree to make the election necessary under Section 197(f)(9)(B) of the
Code and pay the Tax that is required to be paid thereunder, so that
intangible assets will be amortizable to the extent allowable under
Section 197 of the Code. Lockheed Martin will deliver a copy of the
election to Newco within 10 days of filing or making such election.
(b) Cash Sales
With respect to Cash Sales, the Exchange Consideration shall be
allocated among the Transferred Assets in accordance with Section 1060 of the
Code and Treasury Regulations thereunder. Such allocation shall be based on an
independent appraisal by Coopers & Lybrand L.L.P. Lockheed Martin, the
Affiliated Transferors and Newco shall not take any position on their
respective Tax returns that is inconsistent with such allocation of the
Exchange Consideration for purposes of determining the amount of gain or loss
recognized by Lockheed Martin and/or any of the Affiliated Transferors pursuant
to Cash Sales, and Lockheed Martin and Newco shall duly prepare and timely file
such reports and information returns as may be required to report the
allocation, including Internal Revenue Service Form 8594. Lockheed Martin and
Newco will each deliver a copy of Form 8594, including attachments, to the
other at least 10 days prior to filing it with its tax return.
F.08. Allocation of Income, Deductions and Other Items. For purposes of
the Transaction Agreement, income, deductions, and other items will be
allocated between the Pre-Closing Tax Period and the Post-Closing Tax Period
based on an actual closing of the books of the Business on the Tax Closing
Date. Income, deductions and other items attributable to the Pre-Closing Tax
Period will be included in the federal and state income and/or franchise tax
returns of Lockheed Martin. Income, deductions and other items attributable to
the Post-Closing Tax Period will be included in the federal and state income
and/or franchise tax returns of Newco.
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F.09. Allocation of Taxes. Any pre-paid asset or accrued liability for
real property tax, personal property tax or any similar ad valorem obligation
levied with respect to any Transferred Asset for a Post-Closing Tax Period
which includes the Tax Closing Date will be apportioned as of the Tax Closing
Date and included in the determination of the Estimated Final Net Tangible
Asset Amount, the Proposed Final Net Tangible Asset Amount and the Final Net
Tangible Asset Amount based on the number of days of such taxable period
included in the Pre-Closing Tax Period and the number of days of such taxable
period included in the Post-Closing Tax Period.
F.10. Credit for Increasing Research Activities. Lockheed Martin, the
Affiliated Transferors and Newco agree that the transfers of assets pursuant to
the Transaction Agreement constitute dispositions of trades or businesses
within the meaning of Section 41(f)(3) of the Code. Lockheed Martin and the
Affiliated Transferors agree to provide Newco within 150 days after the Closing
Date with all information necessary to permit Newco to timely apply the
provisions of Section 41(f)(3)(A) of the Code with respect to the Businesses.
F.11. Costs and Expenses of Appraisal. The costs and expenses of the
appraisal by Coopers & Lybrand L.L.P. which is referred to in Sections F.05.,
F.07.(a)(i)(D) and F.07.(b) shall be shared equally by Lockheed Martin and
Newco.
F.12. Resale Certificates. Within 45 days after the Closing Date, where
applicable, Newco shall remit to Lockheed Martin such properly completed resale
exemption certificates or similar certificates or instruments as are necessary
to claim exemptions from the payment of sales, transfer, use or other similar
taxes under Applicable Law.
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EXHIBIT G
EMPLOYMENT AND EMPLOYEE BENEFIT MATTERS
G.01. Employee Benefits Definitions. The following terms shall have the
following meanings:
"Benefit Arrangement" means each employment, severance, continuation pay,
termination pay, layoff, or other similar written contract, arrangement or
policy and each written plan or arrangement providing for health, medical, life
or other welfare or fringe benefit coverage (including any insurance,
self-insurance or other arrangements), workers' compensation, severance pay,
retention agreements, disability benefits, supplemental unemployment benefits,
holiday, education or vacation benefits, retirement benefits or deferred
compensation, profit-sharing, benefits in the event of a sale of the Business
or other change in the control, management or the ownership of the Business,
bonuses, stock options, stock appreciation rights and other forms of incentive
compensation or post-retirement insurance, compensation or benefits which (i)
is not an Employee Plan, (ii) is or has been entered into, maintained,
administered or contributed to, as the case may be, by Lockheed Martin or any
of its Affiliates and (iii) covers any Transferred Employee, Transferred
Beneficiary and/or his or her dependent, spouse or beneficiary or for which a
Transferred Employee would be eligible upon retirement or other termination of
service.
"Camden Transferee" means each Transferred Employee who worked in the
Communications Systems Business Unit immediately prior to Closing and any
Transferred Beneficiary related to such Transferred Employee.
"Employee Plan" means each "employee benefit plan", as such term is
defined in Section 3(3) of ERISA, which (i) is subject to any provision of
ERISA, (ii) is or has been entered into, maintained, administered or
contributed to by Lockheed Martin or any of its Affiliates and (iii) covers any
Transferred Employee and/or Transferred Beneficiary.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Transferred Employee" means any Person who, (i) on the Closing Date, is
actively employed in the Business, or who, with respect to the Business, is on
vacation, approved illness absence, long-term disability, authorized leave of
absence (including leave under the Family and Medical Leave Act) or military
service leave of absence as of the Closing Date, (ii) was laid off from the
Business and has recall rights with respect to the Business, or (iii) is
identified on Attachment XI, to be delivered to Newco at the same time as the
Disclosure Schedules are delivered.
"Transferred Beneficiary" means any Person who, at Closing, is not a
Transferred Employee but (i) who was formerly employed in the Business (other
than at the Communications Systems Business Unit)(whether by Lockheed Martin
and/or its Affiliates or by their predecessors with respect to the Business)
and to whom or with respect to whom Lockheed Martin or any of its Affiliates
now has or may have in the future any obligation or liability (whether or not
contingent) arising from that Person's employment in the Business or who is now
or may become entitled to any coverage or benefit (whether or not
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contingent) provided under any Employee Plan or Benefit Arrangement as a result
of his or her employment in the Business; (ii) who is the spouse, dependent or
beneficiary of a Person who qualifies as a Transferred Employee or a Person
described in clause (i), if that spouse, dependent or beneficiary is or may
become entitled to any coverage or benefit (whether or not contingent) provided
under any Employee Plan or Benefit Arrangement as a result of that Person's
employment in the Business.
G.02. Employees and Offers of Employment.
(a) Newco shall offer employment to commence on the Closing Date to
all Transferred Employees; provided that, for any Transferred Employee who is
on vacation, approved illness absence, authorized leave of absence (including
leave under the Family and Medical Leave Act), long-term disability or military
service leave of absence as of the Closing, the offer shall remain open until
the date he or she is able to return to active employment to the extent
consistent with any applicable collective bargaining agreement and/or existing
company policy; provided, further, that any Camden Transferee entitled to
recall rights shall be offered employment by Newco in accordance with the terms
of the applicable bargaining agreement. Each Transferred Employee shall be
offered a position by Newco similar to his or her position immediately prior to
the Closing Date, at the same job and salary or wage levels, with non-equity
based bonus and incentive plans and other non-equity based employee benefit
plans substantially similar to those provided by Lockheed Martin and its
Affiliates immediately prior to the Closing Date. Such offers of employment
shall be at the same respective locations as those at which such Transferred
Employees are employed immediately prior to the Closing. Subject to Applicable
Law and this Agreement, Newco shall have the right to dismiss any Transferred
Employee at any time, with or without cause, and to change the terms of
employment of any Transferred Employee.
(b) Lockheed Martin shall provide any notices to Transferred
Employees which may be required under the Worker Adjustment Retraining and
Notification Act, 29 USC Section 2101 et seq., ("WARN") with respect to events
which occur prior to the Closing Date and Newco shall provide any notices to
Transferred Employees which may be required under WARN with respect to events
which occur on or after the Closing Date.
(c) Commencing on the Closing Date, Newco shall assume all
responsibility and liability for all matters arising out of or relating to
Transferred Employees and Transferred Beneficiaries regardless of whether such
matter arises from or relates to events prior to, on or after the Closing Date,
including but not limited to (i) accrued but unpaid wages, bonuses and salary;
(ii) all liabilities for workers compensation claims made at any time by
Transferred Employees or Transferred Beneficiaries whether or not reported as
of the Closing Date and all expenses of administration of such claims; (iii)
all incurred but not reported claims for life insurance, medical, disability or
similar benefits; (iv) all claims relating to the terms and conditions of
employment, hiring, firing, supervision, occupational safety and health,
workplace, wages and hours promotion, employment practices or treatment of
Transferred Employees or Transferred Beneficiaries; provided, however, that
with respect to any responsibility and liability relating to a Camden
Transferee for a matter described in clause (iv), Newco shall only assume such
responsibility and liability if it arises from or relates to (A) a matter
described in Section B.09 of the Disclosure Schedule, or (B) events occurring
on or after the Closing Date.
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G.03. Plans Following the Closing.
(a) Except to the extent changes are (i) required by Applicable Law;
(ii) necessary to maintain the tax favored status of any employee plan or
benefit arrangement; (iii) permitted or required under any applicable
collective bargaining agreement; or (iv) necessary to eliminate the use of any
equity securities as the basis for any equity-based incentive compensation,
during the one-year period following the Closing, Newco will maintain employee
compensation and employee plans and benefit arrangements for the benefit of the
Transferred Employees and Transferred Beneficiaries, in either case, who are
not covered by collective bargaining agreements, that are substantially similar
to the Employee Plans and Benefit Arrangements (excluding any stock options,
stock appreciation or other equity based incentive compensation) in effect on
the Closing Date; provided, however, that layoff, severance and retention
benefits (including the Special Severance Program) shall be identical during
this period; provided, further, that post-retirement benefits for Camden
Transferees shall also be provided in accordance with Sections G.03(b) and
G.05(f). During such period, for Transferred Employees and Transferred
Beneficiaries who are covered by collective bargaining agreements, Newco shall
provide such benefits as are required by any and such collective bargaining
agreements as are assumed pursuant to Section G.04. Newco will give Transferred
Employees full credit for purposes of eligibility, vesting and benefit accrual
under any such plans or arrangements maintained by Newco pursuant to this
Section G.03 for such Transferred Employees' service recognized for such
purposes under the Employee Plans and Benefit Arrangements at Closing;
provided, however, that any Newco pension plan may offset pension benefits
provided under Newco's pension plan to a Transferred Employee and attributable
to service before the Closing Date by any pension benefits provided to that
Transferred Employee under any Lockheed Martin pension plan and attributable to
that same pre-Closing service.
(b) Effective as of the Closing Date, Lockheed Martin and its
Affiliates shall cease to have any liability or obligation to provide
post-retirement medical and life insurance benefits to Transferred Employees
and Transferred Beneficiaries and Newco shall assume all such liabilities and
obligations to provide post-retirement life and medical benefits and shall
provide post-retirement medical and life insurance benefits in accordance with
Section G.03(a). In addition, Newco will provide (i) substantially equivalent
post-retirement medical benefits for Camden Transferees who meet the age and
service requirements for those benefits (as such requirements are in effect
under the applicable Lockheed Martin plan immediately prior to the Closing
Date) by the five-year anniversary of the Closing Date and who retire before
that 5th year anniversary; (ii) substantially equivalent post retirement life
insurance benefits for those Camden Transferees who were at least age 50 as of
December 31, 1994 and have ten years of continuous service at retirement; and
(iii) post-retirement medical benefits and life insurance for Transferred
Employees and Transferred Beneficiaries covered by a collective bargaining
agreement in accordance with the terms of that agreement. Notwithstanding the
foregoing, nothing herein shall prevent Newco from increasing the cost to
Transferred Employees or Transferred Beneficiaries who became participants in
such plans to the extent permitted by law, but only if the proportion of any
required payments by such participants does not change in relation to the
payments made prior to the Closing Date by such participant's employer;
provided, however, nothing herein permits the level of benefits provided under
the plans to be decreased.
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(c) Newco's plans that are welfare plans (as defined in Section 3(1)
of ERISA) shall not contain a clause excluding coverage for preexisting
conditions of Transferred Employees or Transferred Beneficiaries (unless and
only to the extent and for the period that such pre-existing condition as of
the Closing Date would be excluded from coverage under the welfare plans of the
Business) and shall provide that any expenses incurred by a Transferred
Employee or Transferred Beneficiary during 1997 on or before the Closing shall
be taken into account from the Closing until December 31, 1997 under such
welfare plans for the purposes of deductible and coinsurance requirements and
satisfaction of maximum out-of-pocket provisions to the same extent as if such
expenses had been incurred after the Closing.
(d) Effective as of the Closing Date, Newco and Lockheed Martin shall
enter into a benefit administration agreement or agreements, whereby Newco
shall provide to Lockheed Martin and Lockheed Martin shall provide to Newco,
upon reasonable request, assistance in the administration of benefit plans and
arrangements after the Closing Date. Newco and Lockheed Martin agree to
negotiate in good faith the cost of such services and actual terms of such
benefit administration agreement(s).
G.04. Collective Bargaining Agreements. Newco shall (i) expressly
recognize any collective bargaining representative recognized by Lockheed
Martin or any of its Affiliates as of the Closing for bargaining units
consisting of Transferred Employees; (ii) expressly assume any and all of
Lockheed Martin's and its Affiliates' obligations under the collective
bargaining agreements set forth on Section B.21 of the Disclosure Schedules
with respect to the Transferred Employees; and (iii) be a successor employer
for purposes of such collective bargaining agreements.
G.05. Pension Plan Obligations
(a) Transferred Employees currently participate in the following
defined benefit pension plans: (i) Lockheed Martin Tactical Defense Systems
Retirement Plan; (ii) Lockheed Martin Corporation Retirement Income Plan II;
(iii) Lockheed Martin Corporation Pension Plan for Employees in Participating
Bargaining Units; (iv) The Narda Microwave Corporation Pension Plan; (v)
Lockheed Martin Tactical Systems, Inc. Pension Plan; (vi) Lockheed Martin
Fairchild Corporation Retirement Plan; (vii) Lockheed Martin Hycor Pension
Plan; (viii) Lockheed Martin Retirement Income Plan; (ix) Lockheed Martin
Supplemental Retirement Income Plan; (x) Lockheed Martin Retirement Plan for
Certain Salaried Employees; (xi) Lockheed Martin Tactical Systems, Inc.
Supplemental Executive Retirement Plan; (xii) Lockheed Martin Corporation
Supplementary Pension Plan for Employees of Transferred GE Operations; (xiii)
Supplemental Executive Retirement Plan for Certain Management Employees of the
Narda Microwave Corporation; (xiv) Lockheed Martin Fairchild Corporation
Supplemental Benefit Plan; (xv) Lockheed Martin Supplemental Executive
Retirement Plan ("Lockheed Martin Pension Plans"). As of the Closing Date,
Transferred Employees shall cease to accrue service credit or benefits under
Lockheed Martin Pension Plans, other than the Assumed Plans described in
Section G.05(b).
(b) With respect to The Narda Microwave Corporation Pension Plan
("Narda Plan") and the Lockheed Martin Hycor Pension Plan ("Hycor Plan")
(collectively, the "Assumed Plans"), as of the Closing Date, Lockheed Martin
and its Affiliates shall cease to sponsor, administer, pay benefits or
contribute to the Assumed Plans (other than for contributions due prior to the
Effective Date) and thereby cease to be responsible for any acts,
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omissions and transactions under or in connection with any such Assumed Plan,
whether occurring before or after Closing. Effective as of the Closing Date,
Newco shall become the sponsor of the Assumed Plans. Contingent upon receipt of
the Initial Transfer Amount in the case of the Narda Plan or the transfer of
sponsorship of the trust in the case of the Hycor Plan, Newco shall assume all
liabilities with respect to such Assumed Plan (including liabilities with
respect to Transferred Beneficiaries), shall assume responsibility for paying
pension benefits in respect of Transferred Employees and Transferred
Beneficiaries, and shall become responsible for all acts, omissions and
transactions under or in connection with that Assumed Plan, whether arising
before or after the Closing. As soon as practicable after the Closing Date, the
parties shall cause the sponsorship of the trust agreement maintained to fund
the Hycor Plan to be transferred to Newco and Newco, as of the Closing Date,
shall assume all of Lockheed Martin's and its Affiliates rights, obligations
and duties under that trust agreement. Lockheed Martin shall cause the trusts
holding the assets of the Narda Plan to transfer the assets attributable to the
Narda Plan (determined as of the end of the month in which the Closing Date
occurs) to be transferred to a trust (or trusts) designated by Newco for the
purpose of holding the assets of the Narda Plan.
(c) With respect to the (i) Lockheed Martin Tactical Defense Systems
Retirement Plan; (ii) Lockheed Martin Corporation Retirement Income Plan II;
(iii) Lockheed Martin Corporation Pension Plan for Employees in Participating
Bargaining Units; (iv) Lockheed Martin Tactical Systems, Inc. Pension Plan; (v)
Lockheed Martin Fairchild Corporation Retirement Plan; and (vi) Lockheed Martin
Retirement Income Plan (the "Spinoff Plans"), Newco shall establish a defined
benefit plan or plans which provide substantially similar benefits in
accordance with Section G.03(a), where applicable,(the "Newco Spinoff Plans")
for the benefit of the Transferred Employees and Transferred Beneficiaries
participating in the Spinoff Plans. As soon as practicable following the
Closing, Lockheed Martin shall cause its actuary to calculate the Accrued
Liability of all participants in each of the Spinoff Plans and then to compare,
on a plan by plan basis, the Accrued Liability of all the participants in each
of the Spinoff Plans to the fair market value of the assets in the respective
Spinoff Plan as of the end of the month in which the Closing Date occurs. If
the Accrued Liability of all participants in the respective Spinoff Plan is
less than the fair market value of the assets in that Spinoff Plan, then
Lockheed Martin shall cause assets (determined as of the end of the month in
which the Closing Date occurs) to be transferred to a trust established to hold
assets of the respective Newco Spinoff Plan equal to such fair market value of
the assets multiplied by a fraction the numerator of which is the Accrued
Liability of Transferred Employees and Transferred Beneficiaries under such
Spinoff Plan and the denominator of which is the Accrued Liability of all
participants in such plan. If the Accrued Liability of all participants in the
respective Spinoff Plan is equal to or more than the fair market value of the
assets in that Spinoff Plan, then Lockheed Martin shall cause its actuary to
determine the amount of assets allocable to the liabilities of Transferred
Employees and Transferred Beneficiaries participating in that plan based on
Section 4044 of ERISA ("Section 4044 Amount"). Lockheed Martin shall cause
assets in cash equal to the Section 4044 Amount applicable to Transferred
Employees and Transferred Beneficiaries under such Spinoff Plan to be
transferred to a trust established by Newco to hold assets of the respective
Newco Spinoff Plans. Contingent upon the transfer of the Initial Transfer
Amount (as described in Section G.05(b)) to each Newco Spinoff Plan, Newco
shall assume all liabilities of Lockheed Martin and its affiliates with respect
to Transferred Employees and Transferred Beneficiaries under the Spinoff Plan
from which
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that transfer was made and shall become with respect to such Transferred
Employees and Transferred Beneficiaries responsible for all acts, omissions and
transactions under or in connection with such Spinoff Plan, whether arising
before or after the Closing; provided, however, that in the case of liabilities
with respect to Camden Transferees, Newco shall only assume liabilities and
shall only become responsible for all acts, omissions and transactions under or
in connection with that Spinoff Plan arising on or after the Closing or
disclosed in Section B.21 of the Disclosure Schedules.
(d) All transfers to the Narda Plan and the Newco Spinoff Plans shall
be made in accordance with the provisions of this Section G.05(d). Within 30
days of the Closing Date, or if later, 20 days following the date on which
Lockheed Martin has been provided evidence reasonably satisfactory to it that
Newco has established a trust (or trusts) to hold the assets of the Narda Plan
and the Newco Spinoff Plans and that the Newco Spinoff Plans are qualified
under Section 401(a) of the Code and the trusts holding assets of the Newco
Spinoff Plans or Narda Plan are tax exempt under Section 501(a) of the Code
("Initial Transfer Date"), Lockheed Martin shall cause its trusts to make an
initial transfer of assets in cash equal to 85% of the amount estimated by
Lockheed Martin in good faith to be equal to X (as defined below) with respect
to each plan (using the same assumptions and methodologies consistent with
estimates previously provided to Newco and as set forth in a schedule to be
presented at Closing by Lockheed Martin) ("Initial Transfer Amount"). In
addition, prior to the Initial Transfer Date Lockheed Martin shall provide
Newco with evidence reasonably satisfactory to Newco that the appropriate
Lockheed Martin Pension Plans remain qualified under Section 401(a) of the
Code. As soon as practicable after the final determination of the amounts to be
transferred ("True-Up Date"), Lockheed Martin shall cause a second transfer to
be made in cash of the "True-Up Amount." The True-Up Amount shall be equal to
the sum of the following amount with respect to the Narda Plan and each Spinoff
Plan:
(X minus Initial Transfer Amount), minus benefit payments, adjusted for
Earnings,
where X equals in the case of the Spinoff Plans, the Accrued Liability or the
Section 4044 Amount, whichever is applicable, and in the case of the Narda
Plan, the fair market value of the assets attributable to the Narda Plan at the
end of the month in which the Closing Date occurs. Earnings shall be calculated
(i) from the last day of the month following the Closing until the Initial
Transfer Date on the amount equal to the Initial Transfer Amount using the rate
paid on a 90-day Treasury Bill on the auction date coincident with or
immediately preceding the Closing, (ii) from the Initial Transfer Date until
the True-Up Date on an amount equal to X minus the sum of the Initial Transfer
Amount and the benefit payments using (A) with respect to the period from the
Closing Date to the last day of the month preceding the True-Up Date, the
cumulative rate of return (considering both gain and loss) earned or lost on
the assets of the trust from which the True-Up Amount is being transferred and
(B) with respect to the period from the first day of the month in which the
True-Up Date occurs and the True-Up Date the rate paid on a 90-Day Treasury
Bill on the auction date coincident with or immediately preceding the first day
of the month in which the True-Up Date occurs. If the Initial Transfer Amount
exceeds X with respect to any plan, as soon as practicable following such
determination Newco shall cause a transfer to be made to the respective
Lockheed Martin Pension Plan equal to the difference between the Initial
Transfer Amount and X, adjusted to reflect Earnings (i) from the last day of
the month in which the Closing occurs until the Initial
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Transfer Date using the rate paid on a 90-day Treasury Bill on the auction date
coincident with or immediately preceding the Closing; (ii) from the Initial
Transfer Date until the date of transfer, such Earnings shall be calculated
using (A) with respect to the period from that Initial Transfer Date to the
last day of the month preceding such transfer, the cumulative rate of return
(considering both gain and loss) on the assets of the plan from which the
transfer is being transferred and (B) with respect to the period from the first
day of the month in which the transfer occurs and the date of such transfer,
the rate paid on a 90-Day Treasury Bill on the auction date coincident with or
immediately preceding the first day of the month in which the transfer occurs.
The True-Up Amount shall be transferred in cash except benefits of Transferred
Employees and Transferred Beneficiaries attributable to John Hancock Group
Annuity Contract 8474 shall be transferred in kind. Unless the parties agree
otherwise, all transfers will occur on the last business day of a month.
Notwithstanding anything contained herein to the contrary, the transfers
contemplated by this section G.05(d) shall be determined in accordance with
Section 414(l) of the Code and Treasury Regulation 1.414(l)-1. The amounts to
be transferred pursuant to this section G.05(d) shall be reduced to the extent
necessary to satisfy Section 414(l) of the Code, and any regulations
promulgated thereunder, ERISA Section 4044, and any regulations promulgated
thereunder.
(e) For the purposes of this Section, the term "Accrued Liability"
shall mean the present value of the accrued benefit of the Transferred Employee
or Transferred Beneficiary, determined on a termination basis using the
interest factors specified by the PBGC for an immediate or deferred annuity as
appropriate for such Transferred Employee or Transferred Beneficiary and the
other methods and factors specified in the regulations of the PBGC for the
valuation of accrued benefits upon plan termination, including, but not limited
to, expected retirement ages and expense load assumptions published by the
PBGC, and the 1983 Group Annuity Mortality Table. The interest factors shall be
those in effect on the Closing Date. The Accrued Liability and Section 4044
Amount shall be determined by an enrolled actuary designated by Lockheed
Martin. Lockheed Martin shall provide any actuary designated by Newco with all
information reasonably necessary to review the calculation of the Accrued
Liability and the Section 4044 Amount in all material respects and to verify
that such calculations have been performed in a manner consistent with the
terms of this Agreement. If there is a good faith dispute between Lockheed
Martin's actuary and Newco's actuary as to the amount to be transferred to any
plan, and such dispute remains unresolved for 30 days, the chief financial
officers of the respective companies shall endeavor to resolve the issue.
Should such dispute remain unresolved for 60 days, Lockheed Martin and Newco
shall select and appoint a third actuary who is mutually satisfactory to both
of the parties hereto. The decision of such third party actuary shall be
rendered within 30 days and shall be conclusive as to any dispute for which it
was appointed. The cost of such third party actuary shall be divided equally
between Lockheed Martin and Newco. Each party shall be responsible for the cost
of its own actuary.
(f) Newco shall take all action necessary to qualify each Newco
Spinoff Plan under the applicable provisions of the Code and Newco and Lockheed
Martin shall cooperate to make any and all filings and submissions to the
appropriate governmental agencies required to be made by Newco as are
appropriate in effectuating the provisions hereof. The Newco Spinoff Plans and
Assumed Plans and any successor plans thereto shall contain appropriate
provisions providing that through the first year anniversary of the Closing
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(fifth anniversary in the case of Lockheed Martin Retirement Income Plan II and
Lockheed Martin Retirement Income Plan), each Newco Spinoff Plan shall provide
for a benefit formula that is no less favorable than the formula provided in
the corresponding Spinoff Plan at Closing. The Newco Spinoff Plans or Assumed
Plans receiving a transfer from the Lockheed Martin Corporation Retirement
Income Plan II and the Lockheed Martin Corporation Pension Plan for Employees
in Participating Bargaining Units and any successor plans thereto shall contain
appropriate provisions providing that (i) to the extent assets transferred are
attributable to assets transferred from the GE Pension Plan or are governed by
collective bargaining agreements, any such assets shall be held by trusts
forming a part of such Newco Spinoff Plans (or successor plans) and shall be
held for the exclusive benefit of the participants in such Newco Spinoff Plans
(or successor plans) and such assets shall not upon termination of those Newco
Spinoff Plans (or successor plans) revert to the employer or sponsor of such
Newco Spinoff Plans (or successor plans); (ii) the accrued benefits as of the
Closing of Transferred Employees under such plans may not be decreased by
amendment or otherwise; and (iii) each Transferred Employee retiring under
Newco Spinoff Plans (or successor plans) will be entitled to receive pension
benefits no less than what would have been received under the GE Pension Plan
as in effect as of April 5, 1993, taking into account the Transferred
Employee's combined service with Newco, Lockheed Martin, GE, and RCA and each
of their Affiliates.
(g) With respect to the (i) Lockheed Martin Tactical Systems, Inc.
Supplemental Executive Retirement Plan ("LMTS SERP"); (ii) the Lockheed Martin
Corporation Supplementary Pension Plan for Employees of Transferred GE
Operations ("Supplementary Plan"), the Lockheed Martin Supplemental Executive
Retirement Plan, the Lockheed Martin Supplemental Retirement Income Plan (the
"Camden SERPs"); and (iii) the Supplemental Executive Retirement Plan for
Certain Management Employees of Narda Microwave Corporation, and Lockheed
Martin Fairchild Corporation Supplemental Benefit Plan, (the plans in (i),
(ii), and (iii) collectively referred to as the "LMC SERPs"), Newco shall
establish a nonqualified plan or plans (the "Newco SERP") for the benefit of
Transferred Employees and Transferred Beneficiaries participating in the LMC
SERPs as of the Closing Date and Newco shall assume all obligations and
liabilities under the LMC SERPs, with respect to the Transferred Employees and
the Transferred Beneficiaries. Effective as of the Closing Date, all
Transferred Employees will cease to accrue benefits under the LMC SERPs. With
respect to the Supplementary Plan, Newco will provide an equivalent plan for
Transferred Employees and Transferred Beneficiaries eligible to participate in
that plan as of the Closing Date that provides equivalent benefits during the
entire term of their employment with Newco, its Affiliates and their
successors. With respect to the LMC SERPs (other than the Supplementary Plan),
Newco shall provide a substantially similar plan in accordance with the
provisions of Section G.03(a). As soon as practicable (but not more than 180
days) after the Closing Date, Lockheed Martin shall cause its actuary to
calculate the SERP Liability of all participants in the LMTS SERP and the
Camden SERPS, respectively, and the SERP Liability for Transferred Employees
and Transferred Beneficiaries in the LMTS and Camden SERPS respectively and
shall cause the following transfers. As soon as practicable thereafter, but in
no event later than the later of (i) the acceptance of the calculation of the
SERP Liability by Newco or (ii) 20 days following submission to Lockheed Martin
of evidence reasonably satisfactory to it that Newco has established a
corresponding rabbi trust or trusts, Lockheed Martin shall cause a transfer of
assets from the rabbi trust established in connection with the LMTS SERP ("LMTS
Trust") to a rabbi trust established by Newco in an amount equal to the product
of the (i) fair market
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value of the assets of the LMTS Trust as of the last day of the month in which
the Closing Date occurs; and (ii) a fraction, the numerator of which is the
"SERP Liability" for Transferred Employees and Transferred Beneficiaries
participating in the LMTS SERP and the denominator of which is the SERP
Liability for all participants in the LMTS SERP. Lockheed Martin shall also
cause a transfer of assets from the rabbi trust established in connection with
the Camden SERPs ("Camden Trust") to a rabbi trust established by Newco in an
amount equal to the product of the (i) fair market value of the assets of the
Camden Trust as of the last day of the month in which the Closing Date occurs;
and (ii) a fraction, the numerator of which is the "SERP Liability" for
Transferred Employees and Transferred Beneficiaries participating in the Camden
SERPs and the denominator of which is the SERP Liability for all participants
in the Camden SERPs. The amount of the transfer shall be reduced by benefits
paid by Lockheed Martin prior to the transfer. If the amount of the benefits
paid exceeds the amount of the transfer, Newco shall promptly pay Lockheed
Martin such excess. For the purpose of this section, the "SERP Liability" with
respect to a participant shall be the lump sum present value (determined as of
the end of the month in which the Closing Date occurs) of the accrued benefit
of the participant under the applicable SERP calculated utilizing the
assumptions used by Lockheed Martin for reporting accrued benefit obligations
relative to Seller Pension Plans under FAS No. 87 in its 1996 Annual Report.
The calculation of the amount to be transferred shall be subject to the review
and dispute resolution procedures contained in subsection (e).
(h) No later than the True-Up Date, Lockheed Martin shall also cause
the Lockheed Martin Federal Systems, Inc. Retirement Plan ("Federal Systems
Plan") to make a transfer to a qualified defined benefit plan designated by
Newco in an amount equal to the accrued benefit of the Transferred Employees
who participated in the Federal Systems Plan immediately prior to the Closing.
For the purposes of this section, the accrued benefit of the Transferred
Employees shall mean the present value of the accrued benefit determined on a
termination basis using the interest factors for an immediate or deferred
annuity as appropriate for each such Transferred Employee. The assumptions used
in determining the accrued benefit of each such Transferred Employee shall be
the same as the assumptions used to determine Accrued Liability under Section
G.05(e). The transfer shall be contingent upon Newco providing evidence
reasonably satisfactory to Lockheed Martin that such designated plan is
qualified under Section 401(a) of the Code and the trust of which it is a part
is exempt from taxation under Section 501(a) of the Code. Lockheed Martin shall
also provide to Newco evidence reasonably satisfactory to Newco that the
Federal Systems Plan is qualified under Section 401(a) of the Code and the
trust of which it is a part is exempt from taxation under Section 501(a) of the
Code. Upon receipt of such transfer of assets, Newco shall assume all
liabilities of Lockheed Martin and its Affiliates with respect to such
Transferred Employees under the Federal Systems Plan and shall become with
respect to such Transferred Employees responsible for all acts, obligations,
omissions and transactions under or in connection with the Federal Systems
Plan, whether arising before or after the Closing. Lockheed Martin shall cause
the benefits accrued as of the Closing Date by any Transferred Employee or
Transferred Beneficiary under the Lockheed Martin Retirement Plan for Certain
Salaried Employees (the "Lockheed Plan") or any other defined benefit pension
plan that is not listed in Schedule G.05(a) or this G.05(h) to be fully vested
at the Closing Date and any such Transferred Employee or Transferred
Beneficiary shall be eligible on the Closing Date to participate in the Newco
defined benefit plans (the "Newco Plans") established for other Transferred
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Employees or Transferred Beneficiaries who were formerly employed in the
Communications Systems Business Unit (or such other plan as Newco designates in
the case of Transferred Employees covered under any plan other than the
Lockheed Plan). Newco shall credit such Transferred Employees and Transferred
Beneficiaries with all service recognized under the Lockheed Plan or such other
plans as the case may be. If the Transferred Employee participated in the plan
for more than one year, Lockheed Martin shall credit such Transferred Employees
and Transferred Beneficiaries with all service recognized under the Newco Plans
for all purposes, other than benefit accrual and will recognize Newco
compensation for calculating pensionable earnings under the Lockheed Plan or
any other such plan which is a final average pay plan.
G.06. Savings Plan Obligations.
(a) Transferred Employees currently participate in the following
defined contribution plans: (i) Lockheed Martin Defense Systems Savings and
Investment Plan; (ii) Lockheed Martin Salaried Savings Plan; (iii) Lockheed
Martin Salaried Savings Plan II; (iv) Lockheed Martin Performance Sharing Plan;
(v) Lockheed Martin Supplemental Savings Plan; (vi) Conic Corporation Deferred
Income Retirement Plan; (vii) Narda Microwave Supplemental Retirement Savings
Plan; (viii) Narda Western Operations 401(k) Deferred Income Retirement Plan;
(ix) Lockheed Martin Tactical Systems, Inc. Deferred Income Savings Plan; (x)
Lockheed Martin Fairchild Corporation Savings Plan; (xi) Randtron Employees
Retirement Savings Plan; (xii) Microcom Corporation 401(k) Plan; (xiii) Profit
Sharing Plan and Trust of Lockheed Martin Hycor, Inc., (xiv) Lockheed Martin
Tactical Systems Inc. Frequency Sources, Inc. 401(k) Retirement Plan and (xv)
Lockheed Martin Federal Systems Deferred Income Retirement Plan (collectively,
"Lockheed Martin Defined Contribution Plans"). The plans listed in (i), (vi),
(vii), (viii), (ix), (xiv) and (xv) are all sub-plans in the Lockheed Martin
Tactical Systems Master Savings Plan.
(b) Effective as of the Closing Date, Lockheed Martin and Newco shall
cause (i) Randtron Employees Retirement Plan; (ii) Microcom Corporation 401K
Plan; (iii) Profit Sharing Plan and Trust of Lockheed Martin Hycor, Inc.
("Transferred Savings Plans") to be amended to provide that sponsorship and
maintenance thereof shall be transferred to Newco and Newco shall assume all of
the obligations and liabilities of Lockheed Martin and its Affiliates with
respect to each such Transferred Plan (including liabilities with respect to
Transferred Beneficiaries) and contingent upon receipt of the transferred
assets described in Section G.06(c), shall become responsible for all acts,
omissions and transactions under or in connection with the Transferred Savings
Plan, whether arising before or after Closing. Effective as of the Closing
Date, Lockheed Martin and/or its Affiliates shall cease to sponsor, administer
or contribute (other than contributions in respect of benefits accrued prior to
the Effective Date) to the Transferred Savings Plans and thereby cease to be
responsible for any acts, omissions and transactions under or in connection
with any such Transferred Savings Plan.
(c) With respect to all Lockheed Martin Defined Contribution Plans
except the Transferred Savings Plans described in Section G.06(b) (the
"Lockheed Martin Savings Plans"), the Transferred Employees shall cease to
accrue benefits and service credits under such plans as of the Closing Date
and, effective as of the Closing Date, Newco shall establish new savings plans
("Newco's Savings Plans") and associated trusts to hold the assets of those
plans for the Transferred Employees, to be effective as of the Closing
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Date, and shall provide to Lockheed Martin evidence reasonably satisfactory to
Lockheed Martin that Newco's Savings Plans and the associated trusts have been
established and that the Newco's Savings Plans qualify under the requirements
of Section 401(a) of the Code, and that the trusts are exempt from tax under
Section 501(a) of the Code. Lockheed Martin shall provide to Newco evidence
reasonably satisfactory to Newco that the Lockheed Martin Savings Plans remain
qualified under the requirements of Section 401(a) of the Code. Provided
Lockheed Martin and Newco have received evidence reasonably satisfactory to
them in accordance with the preceding sentences, as soon as is reasonably
practicable following the Closing Date, in no event later than 60 days
following receipt of such mutually satisfactory evidence, Lockheed Martin shall
take or cause to be taken all action required or appropriate to transfer the
account balances of all Transferred Employees and Transferred Beneficiaries to
the respective trusts associated with Newco's Savings Plans. Such transfers
shall be made in cash in an amount equal to the value of the account balances
to be transferred, determined as of the close of business on the last business
day immediately preceding the transfer, except that (i) to the extent a
participant's or beneficiary's account balance in the transferor plan includes
one or more promissory notes evidencing a participant loan or loans, such
promissory notes shall be transferred in kind for the participant's or
beneficiary's credit under the transferee plan and (ii) any assets in the
transferor trust consisting of securities issued by Lockheed Martin, Martin
Marietta Materials, Inc. or Loral Space & Communications, Ltd. that are
allocable to the respective transferee plan shall be transferred in kind. For
the period from the Closing Date until the transfer, Newco shall collect by
payroll deduction and promptly pay over to the respective Lockheed Martin
Defined Contribution Plan all loan payments required on participant loans made
by the respective plan to any Transferred Employee and Lockheed Martin shall
cause the respective Lockheed Martin Defined Contribution Plan to administer
and pay all distributions, withdrawals and loans payable under the terms of the
respective plan to any Transferred Employee or Transferred Beneficiary until
the transfer. Contingent upon the transfer of the account balances to each of
Newco's Savings Plans, Newco shall assume all liabilities of Lockheed Martin
and its affiliates with respect to Transferred Employees and Transferred
Beneficiaries under the Lockheed Martin Defined Contribution Plan from which
that transfer was made and shall become with respect to such Transferred
Employees and Transferred Beneficiaries responsible for all acts, omissions and
transactions under or in connection with such Lockheed Martin Defined
Contribution Plan, whether arising before or after the Closing; provided,
however, that in the case of liabilities with respect to Camden Transferees,
Newco shall only assume liabilities and shall only become responsible for all
acts, omissions and transactions under or in connection with that Lockheed
Martin Defined Contribution Plan arising after the Closing or disclosed in
Section B.21 of the Disclosure Schedules.
G.07. GE Special Benefits Protections. Pursuant to Section V.II of Exhibit
V to a Transaction Agreement (the "GE Agreement") dated November 22, 1992, as
amended, among GE, Martin Marietta Corporation, a Maryland corporation and
Lockheed Martin, Lockheed Martin has agreed to reimburse GE (the "GE
Reimbursement Obligations") for certain specified expenses relating to benefits
for certain individuals who were formerly employed by GE and who became
employees of Lockheed Martin or its Affiliates as a result of the transaction
contemplated by the GE Agreement (the "Former GE Employees"). Newco shall
assume, effective on the Closing Date, all of the GE Reimbursement Obligations
in respect of Transferred Employees and Transferred Beneficiaries for such
specified expenses, and shall indemnify and hold
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harmless Lockheed Martin and its Affiliates from any and all such GE
Reimbursement Obligations. Lockheed Martin shall provide Newco with copies of
any documentation it receives from GE documenting the basis for such expenses.
G.08. Severance and Retention Agreements. In accordance with Section 6.9
of the Agreement and Plan of Merger dated as of January 7, 1996, by and among
Loral Corporation, Lockheed Martin Corporation and LAC Acquisition Corporation,
Lockheed Martin Tactical Systems, Inc. has adopted the Supplemental Severance
Program. Lockheed Martin has entered into Key Employee Supplemental Severance
Program and Key Executive Supplemental Severance Program agreements (the
"Program Agreements"). In addition, Lockheed Martin has entered into Retention
Agreements (collectively with the Supplemental Severance Program and the
Program Agreements, the "Supplemental Agreements") with certain Transferred
Employees who participate in the Supplemental Severance Program. Other than
with respect to the Transferred Employees set forth on Section B.21 of the
Disclosure Schedules, Newco assumes all obligations and liabilities of Lockheed
Martin and its Affiliates under the Supplemental Agreements for all claims made
after the Closing Date by Transferred Employees, including claims based on the
Contemplated Transactions, which shall be Assumed Liabilities for purposes of
this Agreement. All obligations and liabilities of Lockheed Martin with respect
to the Transferred Employees on Section B.21 of the Disclosure Schedules and
any other individual covered by a Supplemental Agreement who is not a
Transferred Employee shall constitute Excluded Liabilities.
G.09. Vacation and Holidays. As of the Closing, Newco shall adopt at its
expense, vacation and holiday plans for Transferred Employees to succeed
Lockheed Martin's and its Affiliates' vacation and holiday plans. For the
12-month period beginning with the Closing Date, such plans shall provide for
accrued vacation and holidays no less favorable than, and in substitution for,
those Lockheed Martin and its Affiliates would have provided to such
Transferred Employees had they remained employees of Lockheed Martin and its
Affiliates, and Lockheed Martin and its Affiliates shall have no liability or
obligation to pay or provide any vacation or holiday payments claimed on or
after the Closing Date. Thereafter, such plans shall provide vacation, accrued
vacation and holidays to each eligible Transferred Employee on the basis of his
or her continuous service with Lockheed Martin, Newco and their Affiliates.
G.10. Other Employee Plans.
(a) Newco shall, as of the Closing Date, assume all obligations and
liabilities of Lockheed Martin and its Affiliates in respect of Transferred
Employees and Transferred Beneficiaries under the Deferred
Management Incentive Compensation Plan.
(b) Newco shall, as of the Closing Date, assume all obligations and
liabilities (including, without limitation, all obligations and liabilities
attributable to the period prior to the Closing Date) of Lockheed Martin and
its Affiliates in respect of Transferred Employees and Transferred
Beneficiaries under each Employee Plan and Benefit Arrangement not covered
under Sections G.05, G.06, G.07, G.08, G.09, G.10(a) and G.10(c) and shall be a
successor employer with respect to such plans; provided, however, that with
respect to obligations and liabilities to Camden Transferees arising from
events occurring prior to the Closing Date, Newco shall assume such obligations
and liabilities only to the extent that they (i) arise under a
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Benefit Arrangement or Employee Plan disclosed in Section B.21 of the
Disclosure Schedules; (ii) are reflected in the Final Net Tangible Asset
Amount; or (iii) are incurred after the Effective Date.
(c) With respect to each Employee Plan and Benefit Arrangement (other
than those referred to in Sections G.05, G.06, G.07, G.08, G.09 and G.10(a)),
including any employment agreement, that covers only Transferred Employees
and/or Transferred Beneficiaries ("Transferred Benefit Plans"), Lockheed Martin
and Newco shall cause each Transferred Benefit Plan to be amended to provide
that sponsorship and maintenance thereof shall be transferred as of the Closing
Date to Newco and Newco shall assume all obligations and liabilities of
Lockheed Martin and its Affiliates with respect to each such plan (including
liabilities with respect to Transferred Beneficiaries), and shall become
responsible for all acts, omissions and transactions under or in connection
with the Transferred Benefit Plans, whether arising before or after Closing;
provided, however, that with respect to obligations and liabilities to Camden
Transferees under or otherwise arising in connection with an Employee Plan or
Benefit Arrangement arising from events occurring prior to the Closing Date,
Newco shall assume such obligations and liabilities only to the extent that
they (i) arise under an Employee Plan or Benefit Arrangement disclosed in
Section B.21 of the Disclosure Schedules; (ii) are reflected in the Final Net
Tangible Asset Amount; or (iii) are incurred after the Closing Date. Effective
as of the Closing Date, Lockheed Martin and/or its Affiliates shall cease to
sponsor, administer or contribute to the Transferred Benefit Plans and thereby
cease to be responsible for any acts, omissions and transactions under or in
connection with any such Transferred Benefit Plan, whether occurring before or
after Closing. Except as otherwise agreed to by the parties or as it relates
solely to an Individual Purchaser, Lockheed Martin agrees to transfer any
assets which are separately identifiable or attributable to the Employee Plans
and Benefit Arrangements described in this Section G.10(c).
(d) As of the Closing Date, Transferred Employees and Transferred
Beneficiaries shall cease to accrue or enjoy benefits under any Employee Plans
and Benefit Arrangements (excluding those referred to in Sections G.05(b),
G.06(b), G.07, G.08, G.09 and G.10(c)) and shall commence accrual of benefits
and participation in those employee compensation and benefit plan and
arrangements maintained by Newco pursuant to Section G.03.
(e) For any full or partial contract year or plan year prior to the
Closing Date of any Employee Plan or Benefit Arrangement covering Transferred
Employees or Transferred Beneficiaries (other than Camden Transferees): (i)
Lockheed Martin agrees to carve out and transfer to the corresponding Newco
plan, any surpluses, refunds or rebates received by or attributable to Lockheed
Martin for any Employee Plan or Benefit Arrangement and (ii) Newco agrees to
transfer to the corresponding Lockheed Martin Plan an amount equal to any
deficit charged to or attributable to Lockheed Martin for any Employee Plan or
Benefit Arrangement, in either case that is attributable to Transferred
Employees and/or Transferred Beneficiaries.
(f) The flexible spending accounts established on behalf of the
Transferred Employees and Transferred Beneficiaries in accordance with Section
G.03(a) will be maintained through the end of the applicable plan year in which
the Closing occurs in a manner that ensures that each Transferred Employee and
Transferred Beneficiary receives no more and no less than he or she would have
received had the Contemplated Transactions not occurred. Lockheed Martin and
Newco shall coordinate management of their
98
<PAGE>
respective flexible spending accounts to achieve this result. As soon as
practicable following the close of the 1997 plan year, Lockheed Martin and
Newco shall reconcile flexible spending account balances so as to achieve an
equitable result as between Lockheed Martin and Newco.
G.11. Necessary Action. Newco and Lockheed Martin agree to take all action
which may be necessary in order to effectuate the transactions contemplated by
this Exhibit G, including, without limitation, adopting any necessary
amendments to the Employee Plans and Benefit Arrangements and making all
filings and submissions to the appropriate governmental agencies required to be
made in connection with the segregation and/or transfer of assets contemplated
by Sections G.05 and G.06.
G.12. Third Party Beneficiaries. No provision of this Exhibit G shall
create any third party beneficiary rights in any employee or former employee of
the Business (including any beneficiary or dependent thereof) including,
without limitation, any right to continued employment or employment in any
particular position by Newco for any specified period of time after the Closing
Date.
G.13. Plan Administration. Newco shall prepare and file all Forms 5500 and
other government reports or returns that are required to be filed after the
Closing Date with respect to each of the Assumed Plans described in Section
G.05(b), the Transferred Savings Plans described in Section G.06(b) and the
Transferred Benefit Plans described in Section G.10(c).
G.14. Mutual Assistance. At all times after the Closing Date, Newco and
Lockheed Martin agree to make reasonably available to each other and each
other's agents, employees, accountants and other representatives such
actuarial, financial, personnel and related information as may be requested
with respect to any Employee Plan or Benefit Arrangement, Transferred Employee
or Transferred Beneficiary, including but not limited to benefit records,
compensation and employment histories, policies, interpretations and other
records relating to the Employee Plans and Benefit Arrangements.
G.15. Flanigan v. G.E. Newco shall not by reason of the transactions
contemplated by this Agreement or otherwise be deemed to have assumed any
liability or obligation with respect to any claim or cause of action asserted
against GE or Lockheed Martin in the lawsuit Flanigan v. G.E. filed in the
federal district court in Connecticut in March, 1993. All such claims and
causes of action shall constitute Excluded Liabilities for purposes of this
Agreement. Nothing in this Section G.15. or elsewhere, however, shall be deemed
to require Lockheed Martin to indemnify or otherwise to relieve Newco of any
liability or obligation it may incur as a result of a purported claim or
purported cause of action asserted against Newco which is based on this
Agreement, the Contemplated Transactions, or any actions or transactions that
occur on or after the date of this Agreement.
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<PAGE>
- -------------------------------------------------------------------------------
AMENDMENT NO. 1
Dated as of April 11, 1997
to
TRANSACTION AGREEMENT
Dated as of March 28, 1997
By and Among
LOCKHEED MARTIN CORPORATION
LEHMAN BROTHERS CAPITAL PARTNERS III, L.P.
FRANK C. LANZA
ROBERT V. LAPENTA
and
L-3 COMMUNICATIONS HOLDINGS, INC.
- -------------------------------------------------------------------------------
<PAGE>
AMENDMENT NO. 1 TO TRANSACTION AGREEMENT
This Amendment No. 1 to Transaction Agreement (the "Amendment") is made as
of the 11th day of April, 1997, by and among Lockheed Martin Corporation, a
Maryland corporation ("Lockheed Martin"), Lehman Brothers Capital Partners III,
L.P., a Delaware limited partnership ("Lehman"), Frank C. Lanza ("Lanza"),
Robert V. LaPenta ("LaPenta"; and together with Lanza, the "Individual
Purchasers") and L-3 Communications Holdings, Inc., a Delaware corporation
("Newco"). For purposes of this Amendment, Lehman, Lanza and LaPenta each are
individually referred to as a "Purchaser" and collectively referred to as the
"Purchasers."
W I T N E S S E T H:
WHEREAS, Lockheed Martin, in its own right and through certain of its
direct and indirect Subsidiaries is engaged in the Business;
WHEREAS, Lockheed Martin and the Purchasers, upon the terms and subject to
the conditions of the Agreement have agreed to the formation and organization
of Newco;
WHEREAS, upon the terms and subject to the conditions of the Agreement,
Lockheed Martin has agreed to transfer, or to cause the Affiliated Transferors
to transfer, substantially all of the assets held or owned by, or used to
conduct, the Business and to assign certain liabilities associated with the
Business to Newco, and Newco has agreed to receive such assets and assume such
liabilities; and
WHEREAS, Lockheed Martin, Newco and the Purchasers desire to amend the
Agreement in accordance with the terms of this Amendment;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties contained herein, the parties agree as follows:
Section 1. Capitalized terms used but not defined herein have the meanings
given to them in the Transaction Agreement dated as of March 28, 1997, by and
among Lockheed Martin, Newco and the Purchasers.
Section 2. Section 15.13(a) of the Agreement is amended by deleting the
reference to "April 14, 1997" in the second sentence of Section 15.13(a) and
inserting in its place and stead "April 17, 1997."
Section 3. Section 15.13(c) of the Agreement is amended by deleting the
references to "April 11, 1997" in each of the last two sentences of Section
15.13(c) and inserting in its place and stead "April 18, 1997."
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto caused this Amendment to be duly
executed by their respective authorized officers on the day and year first
above written.
WITNESS: LOCKHEED MARTIN CORPORATION
____________________________ By:________________________________
Name:
Title:
LEHMAN BROTHERS CAPITAL
PARTNERS III, L.P.
By: LEHMAN BROTHERS HOLDINGS INC.,
its General Partner
____________________________ By:___________________________
Name:
Title:
FRANK C. LANZA
- ---------------------------- -----------------------------------
ROBERT V. LAPENTA
- ---------------------------- -----------------------------------
L-3 COMMUNICATIONS HOLDINGS, INC.
____________________________ By:________________________________
Name:
Title:
3
<PAGE>
- -------------------------------------------------------------------------------
AMENDMENT NO. 2
Dated as of April 30, 1997
to
TRANSACTION AGREEMENT
Dated as of March 28, 1997
By and Among
LOCKHEED MARTIN CORPORATION
LEHMAN BROTHERS CAPITAL PARTNERS III, L.P.
FRANK C. LANZA
ROBERT V. LAPENTA
and
L-3 COMMUNICATIONS HOLDINGS, INC.
- -------------------------------------------------------------------------------
<PAGE>
AMENDMENT NO. 2 TO TRANSACTION AGREEMENT
This Amendment No. 2 to Transaction Agreement (the "Amendment") is made as
of the 30th day of April, 1997, by and among Lockheed Martin Corporation, a
Maryland corporation ("Lockheed Martin"), Lehman Brothers Capital Partners III,
L.P., a Delaware limited partnership ("Lehman"), Frank C. Lanza ("Lanza"),
Robert V. LaPenta ("LaPenta"; and together with Lanza, the "Individual
Purchasers") and L-3 Communications Holdings, Inc., a Delaware corporation
("Newco"). For purposes of this Amendment, Lehman, Lanza and LaPenta each are
individually referred to as a "Purchaser" and collectively referred to as the
"Purchasers."
W I T N E S S E T H:
WHEREAS, Lockheed Martin, in its own right and through certain of its
direct and indirect Subsidiaries is engaged in the Business;
WHEREAS, Lockheed Martin and the Purchasers, upon the terms and subject to
the conditions of the Agreement have agreed to the formation and organization
of Newco;
WHEREAS, upon the terms and subject to the conditions of the Agreement,
Lockheed Martin has agreed to transfer, or to cause the Affiliated Transferors
to transfer, substantially all of the assets held or owned by, or used to
conduct, the Business and to assign certain liabilities associated with the
Business to Newco, and Newco has agreed to receive such assets and assume such
liabilities; and
WHEREAS, Lockheed Martin, Newco and the Purchasers desire to amend the
Agreement in accordance with the terms of this Amendment;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties contained herein, the parties agree as follows:
Section 1. Capitalized terms used but not defined herein have the meanings
given to them in the Transaction Agreement dated as of March 28, 1997, by and
among Lockheed Martin, Newco and the Purchasers, as amended by Amendment No. 1
to Transaction Agreement dated as of April 11, 1997 (as amended, the
"Agreement").
Section 2. The list of Attachments set forth in the index to the Agreement
is revised by amending the description of Attachment XI to read as follows:
"Other Transferred Employees".
Section 3. Section 2.04(i) of the Agreement is amended by deleting the
references to "$269,118,000" in the first parenthetical of that Section and
inserting in their place and stead "$272,618,000".
Section 4. Notwithstanding the provisions of Section 15.13(c) of the
Agreement, for purposes of the Agreement, Attachment IV shall be as set forth
in Exhibit A to this Amendment.
Section 5. Notwithstanding the provisions of Section 15.13(c) of the
Agreement, for purposes of the Agreement, Attachment V shall be as set forth in
Exhibit B to this Amendment.
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<PAGE>
Section 6. Notwithstanding the provisions of Section 15.13(c) of the
Agreement, for purposes of the Agreement, Attachment VIII shall be as set forth
in Exhibit C to this Amendment.
Section 7. Notwithstanding the provisions of Section 15.13(c) of the
Agreement, for purposes of the Agreement, Attachment IX shall be as set forth
in Exhibit D to this Amendment.
Section 8. Notwithstanding the provisions of Section 15.13(b) of the
Agreement, for purposes of the Agreement, Attachment X shall as set forth in
Exhibit E to this Amendment.
Section 9. Notwithstanding the provisions of Section 15.13(c) of the
Agreement, for purposes of the Agreement, Attachment XI shall be as set forth
in Exhibit F to the Amendment.
Section 10. For purposes of the Agreement, Attachment XIV shall be as set
forth in Exhibit G to this Amendment.
Section 11. Notwithstanding the provisions of Section 15.13(c) of the
Agreement, for purposes of the Agreement, Attachment XV shall be as set forth
in Exhibit H to this Amendment.
Section 12. The Disclosure Schedules attached to this Amendment as Exhibit
I are, and for all purposes shall be, the Disclosure Schedules referenced in
the Agreement.
Section 13. Section 7.04 of the Agreement is amended by deleting the
reference to "Attachment XI" in the second parenthetical of the first sentence
and inserting in its place and stead the phrase "writing by Lockheed Martin and
Newco on or prior to the Closing Date".
Section 14. Section 8.04 of the Agreement is amended by deleting the
reference to "Attachment XI" in the second parenthetical of the first sentence
and inserting in its place and stead the phrase "writing by Lockheed Martin and
Newco on or prior to the Closing Date".
Section 15. Section 13.02(b) of the Agreement is amended by deleting the
word "or" before the beginning of clause (v); inserting the phrase ", or (vi)
the Universal Litigation" after clause (v) and before the semicolon; deleting
the word "and" before "(v)" in the proviso; and inserting the phrase "and (vi)"
after "(v)" in the proviso.
Section 16. Section 13.04(b)(iii) of the Agreement is amended by deleting
the word "and" after the semicolon.
Section 17. Section 13.04(b)(iv) of the Agreement is amended by deleting
the period at the end and inserting in its place and stead the phrase "; and".
Section 18. Section 13.04(b) of the Agreement is amended by adding a new
clause (v) as follows:
"(v) with respect to the matter described in clause (vi) of
Section 13.02(b) (after giving effect to the proviso thereto), to the
extent of 50% of the aggregate Damages incurred by all Indemnified
Parties as the result thereof in
2
<PAGE>
excess of the Reserve Amount but not in excess of the Reserve Amount
plus $1,000,000 (it being understood that Lockheed Martin's maximum
liability under Section 13.02(b)(vi) and this Section 13.04(b)(v)
shall be $500,000)."
Section 19. Section 15.01 of the Agreement is amended to change the notice
address for notices to Newco to the following:
"L-3 Communications Holdings, Inc.
600 Third Avenue
New York, New York 10016
Attention: Robert V. LaPenta
Telecopy: (212) 805-5470"
Section 20. Section (a) of Exhibit A to the Agreement is amended by adding
the following after the definition of "Prime Government Contract" and before
the definition of "Remedial Action(s)":
""Reserve Amount" means the amount referenced in the letter from
Lockheed Martin to Newco dated as of the Closing Date making specific
reference to the Agreement and this definition.
Section 21. Section (a) of Exhibit A to the Agreement is amended by
adding the following after the definition of "Transferred Assets" and before
the definition of "U.S. Government":
""Universal Litigation" means the matter titled Universal
Navigation Corporation, a California corporation; and
Microcomputer Electronics Corporation, a Washington
corporation v. Loral Corporation, a New York corporation; and
Loral Fairchild Corp., a Delaware corporation (CIV93-743TUC
WDB) pending in the United States District Court for the
District of Arizona."
Section 22. Clause (ii) of the definition of "Transferred Employee" in
Section G.01 of Exhibit G to the Agreement is amended by deleting the existing
provision in its entirety and inserting in its place and stead the following:
"(ii) was laid off from the Business and has recall rights with
respect to the Business other than any Person with such rights who is
either employed by Lockheed Martin on the Closing Date (other than in
the Business) or who has recall rights at another Lockheed Martin
facility, or"
Section 23. Section G.08 of Exhibit G to the Agreement is amended by
deleting the existing provision in its entirety and inserting in its place and
stead the following:
3
<PAGE>
"G.08. Severance and Retention Agreements. In accordance with
Section 6.9 of the Agreement and Plan of Merger dated as of January 7,
1996, by and among Loral Corporation, Lockheed Martin Corporation and LAC
Acquisition Corporation, Lockheed Martin Tactical Systems, Inc. has
adopted the Supplemental Severance Program. Lockheed Martin has entered
into Key Employee Supplemental Severance Program and Key Executive
Supplemental Severance Program agreements (the "Program Agreements"). In
addition, Lockheed Martin has entered into Retention Agreements
(collectively with the Supplemental Severance Program and the Program
Agreements, the "Supplemental Agreements") with certain Transferred
Employees who participate in the Supplemental Severance Program. Lockheed
Martin also sponsors the Lockheed Martin Tactical Systems Severance Plan
(the "Tactical Severance Plan"), the Severance Benefit Plan for Employees
of Lockheed Martin Corporation (the "LMC Severance Plan") and the Special
Supplemental Severance Program relating to the retention (as set forth in
a memorandum from Steve Jackson dated October 28, 1996 of C3I and Systems
Integration Sector administrative personnel (collectively with the
Supplemental Agreements, the Tactical Severance Plan and the LMC Severance
Plan, the "Severance Arrangements"). Other than with respect to the
Transferred Employees set forth on Section B.21 of the Disclosure
Schedules, Newco assumes all obligations and liabilities of Lockheed
Martin and its Affiliates under the Severance Arrangements and any other
severance benefit obligation (collectively with the Severance
Arrangements, the "Severance Obligations") whether oral or written, for
all claims made after the Closing Date by Transferred Employees, including
claims based on the Contemplated Transactions, which shall be Assumed
Liabilities for purposes of this Agreement. All obligations and
Liabilities of Lockheed Martin with respect to any Severance Obligation
for the Transferred Employees on Section B.21 of the Disclosure Schedules
and any other individual covered by a Supplemental Agreement under any
Severance Obligation who is not a Transferred Employee shall constitute
Excluded Liabilities."
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto caused this Amendment to be duly
executed by their respective authorized officers on the day and year first
above written.
LOCKHEED MARTIN CORPORATION
By:________________________________
Name:
Title:
LEHMAN BROTHERS CAPITAL
PARTNERS III, L.P.
By: LEHMAN BROTHERS HOLDINGS INC.,
its General Partner
By:___________________________
Name:
Title:
FRANK C. LANZA
-----------------------------------
ROBERT V. LAPENTA
-----------------------------------
L-3 COMMUNICATIONS HOLDINGS, INC.
By:________________________________
Name:
Title:
5
<PAGE>
AMENDMENT NO. 3
Dated as of May 21, 1997
to
TRANSACTION AGREEMENT
Dated as of March 28, 1997
By and Among
LOCKHEED MARTIN CORPORATION
LEHMAN BROTHERS CAPITAL PARTNERS III, L.P.
LEHMAN BROTHERS HOLDINGS INC.
FRANK C. LANZA
ROBERT V. LAPENTA
L-3 COMMUNICATIONS HOLDINGS, INC.
and
L-3 COMMUNICATIONS CORPORATION
<PAGE>
AMENDMENT NO. 3 TO TRANSACTION AGREEMENT
This Amendment No. 3 to Transaction Agreement (the "Amendment") is
made as of the 15th day of May, 1997, by and among Lockheed Martin Corporation,
a Maryland corporation ("Lockheed Martin"), Lehman Brothers Capital Partners
III, L.P., a Delaware limited partnership, Lehman Brothers Holdings Inc., a
Delaware corporation (together with Lehman Brothers Capital Partners III, L.P.,
"Lehman"), Frank C. Lanza ("Lanza"), Robert V. LaPenta ("LaPenta"; and together
with Lanza, the "Individual Purchasers"), L-3 Communications Holdings, Inc., a
Delaware corporation ("Newco"), and L-3 Communications Corporation, a Delaware
corporation. For purposes of this Amendment, Lehman, Lanza and LaPenta each are
individually referred to as a "Purchaser" and collectively referred to as the
"Purchasers."
W I T N E S S E T H
WHEREAS, Lockheed Martin, in its own right and through certain of its
direct and indirect Subsidiaries previously was engaged in the Business;
WHEREAS, Lockheed Martin and the Purchasers, upon the terms and
subject to the conditions of the Agreement have formed and organized Newco;
WHEREAS, upon the terms and subject to the conditions of the
Agreement, Lockheed Martin has transferred or caused the Affiliated Transferors
to transfer, substantially all of the assets held or owned by, or used to
conduct, the Business and to assign certain liabilities associated with the
Business to Newco, and Newco has received such assets and assumed such
liabilities;
WHEREAS, Lehman Brothers Capital Partners III L.P. has assigned
certain of its rights and obligations under the Agreement to Lehman Brothers
Holdings Inc., and Newco has assigned certain of its rights and obligations
under the Agreement to L-3 Communications Corporation, a Delaware corporation
and wholly owned subsidiary of Newco; and
WHEREAS, Lockheed Martin, Newco and the Purchasers desire to amend
the Agreement in accordance with the terms of this Amendment;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties contained herein, the parties agree as follows:
Section 1. Capitalized terms used but not defined herein have the
meanings given to them in the Transaction Agreement dated as of March 28, 1997,
by and among Lockheed Martin, Newco and the Purchasers, as amended by Amendment
No. 1 to Transaction Agreement dated as of April 11, 1997, and by Amendment No.
2 to the Transaction Agreement dated as of April 30, 1997 (as amended, the
"Agreement").
Section 2. Section G.06(c) of the Transaction Agreement shall be
amended to read as follows:
With respect to all Lockheed Martin Defined Contribution Plans except
the Transferred Savings Plans described in Section G.06(b) (the
"Lockheed Martin Savings Plans"), the Transferred Employees shall
cease to accrue benefits and service credits under such plans as of
the Closing Date and, effective as of
1
<PAGE>
the Closing Date, Newco shall establish new savings plans ("Newco's
Savings Plans") and associated trusts to hold the assets of those
plans for the Transferred Employees, to be effective as of the
Closing Date, and shall provide to Lockheed Martin evidence
reasonably satisfactory to Lockheed Martin that Newco's Savings Plans
and the associated trusts have been established and that Newco's
Savings Plans qualify under the requirements of Section 401(a) of the
Code, and that the trusts are exempt from tax under Section 501(a) of
the Code. Lockheed Martin shall provide to Newco evidence reasonably
satisfactory to Newco that the Lockheed Martin Savings Plans remain
qualified under the requirements of Section 401(a) of the Code.
Provided Lockheed Martin and Newco have received evidence reasonably
satisfactory to them in accordance with the preceding sentences, as
soon as is reasonably practicable following the Closing Date, but in
no event later than 60 days following receipt of such mutually
satisfactory evidence, (i) Lockheed Martin shall take all action
required or appropriate to transfer the account balances of all
Transferred Employees and Transferred Beneficiaries (other than
account balances in the Lockheed Martin Savings Plan, Lockheed Martin
Savings Plan II and Lockheed Martin Performance Sharing Plan,
collectively the "Camden Plans") to the respective trust associated
with Newco's Savings Plans; and (ii) with respect to account balances
in the Camden Plans, Lockheed Martin shall amend the Camden Plans, to
the extent permitted by Section 401(k)(10) of the Code, to permit
each Transferred Employee or Transferred Beneficiary with an account
balance in the Camden Plans during the period between the Closing and
the end of the second calendar year following the Closing, to (x)
receive a distribution from the Camden Plans; (y) make a direct
rollover in accordance with Section 401(a)(31) of the Code; or (z)
leave his or her account balances in the Camden Plans. Transfers
shall be made in the form of cash in an amount equal to the value of
the account balances to be transferred, determined as of the close of
business on the last business day immediately preceding the transfer,
except that (i) to the extent a participant's or beneficiary's
account balance in the transferor plan includes one or more
promissory notes evidencing a participant loan or loans, such
promissory note shall be transferred in kind for the participant's or
beneficiary's credit under the transferee plan and (ii) any assets in
the transferor trust consisting of securities issued by Lockheed
Martin, Martin Marietta Materials, Inc. and Loral Space &
Communications, Ltd. that are allocable to the respective transferee
plan shall be transferred in kind. Amounts distributed or rolled over
from the Camden Plans shall be payable in cash only. For the period
from the Closing Date until such time as the Transferred Employee or
Transferred Beneficiary no longer has an account balance in any
Lockheed Martin Defined Contribution Plan, Newco shall collect by
payroll deduction and promptly pay over to the respective Lockheed
Martin Defined Contribution Plan all loan payments required on
participant loans made by the respective plan to any Transferred
Employee and Lockheed Martin shall cause the respective Lockheed
Martin Defined Contribution Plan to
2
<PAGE>
administer and pay all distributions, withdrawals and loans payable
under the terms of the respective plan. Contingent upon the transfer
of an account balance to each of Newco's Savings Plans, Newco shall
assume all liabilities of Lockheed Martin and its affiliates with
respect to that Transferred Employee or Transferred Beneficiary under
the Lockheed Martin Defined Contribution Plan from which that
transfer was made and shall become with respect to such Transferred
Employee and Transferred Beneficiary responsible for all acts,
omissions and transactions under or in connection with such Lockheed
Martin Defined Contribution Plan, whether arising before or after the
Closing; provided, however, that in the case of any liabilities with
respect to Camden Transferees (other than Camden Transferrees for
whom no such transfer was made), Newco shall only assume liabilities
and shall only become responsible for all acts, omissions and
transactions under or in connection with that Lockheed Martin Defined
Contribution Plan arising after the Closing or disclosed in Section
B.21 of the Disclosure Schedules."
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective authorized officers on the day and year
first above written.
WITNESS: LOCKHEED MARTIN CORPORATION
_______________________________ By: ____________________________
Name: Marian S. Block
Title: Associate General
Counsel
LEHMAN BROTHERS CAPITAL
PARTNERS III, L.P.
By: LEHMAN BROTHERS HOLDINGS
INC., its General Partner
_______________________________ By: ____________________________
Name: Robert B. Millard
Title: Managing Director
LEHMAN BROTHERS HOLDINGS INC.
_______________________________ By: ____________________________
Name: Steven J. Berger
Title: Managing Director
L-3 COMMUNICATIONS HOLDINGS,
INC.
_______________________________ By: ____________________________
Name: Michael T. Strianese
Title: VP Finance and
Controller
FRANK C. LANZA
- ------------------------------- ----------------------------
ROBERT V. LAPENTA
- ------------------------------- ----------------------------
4
<PAGE>
L-3 COMMUNICATIONS CORPORATION
_______________________________ By: ____________________________
Name: Michael T. Strianese
Title: VP Finance and
Controller
5
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
AGREEMENT, made April 30, 1997 by and between L-3 Communications
Holdings, Inc., a Delaware corporation (the "Company") and Frank C. Lanza (the
"Executive").
RECITALS
In order to induce Executive to serve as the Chairman and Chief
Executive Officer of the Company, the Company desires to provide Executive with
compensation and other benefits on the terms and conditions set forth in this
Agreement.
Executive is willing to accept such employment and perform services
for the Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as follows:
1. Employment.
1.1 Subject to the terms and conditions of this Agreement, the Company
agrees to employ Executive during the Term hereof as its Chairman and Chief
Executive Officer. In his capacity as the Chairman and Chief Executive Officer
of the Company, Executive shall report to the Board of Directors of the Company
(the "Board") and shall have the customary powers, responsibilities and
authorities of chairmen and chief executive officers of corporations of the
size, type and nature of the Company, as it exists from time to time, and as
are assigned by the Board.
1.2 Subject to the terms and conditions of this Agreement, Executive
hereby accepts employment as the Chairman and Chief Executive Officer of the
Company commencing as of the date hereof (the "Commencement Date") and agrees
to devote his full business time and efforts to the
1
<PAGE>
performance of services, duties and responsibilities in connection therewith,
subject at all times to review and control of the Board. In addition, during
the Initial Term and any Renewal Term, (i) the Company agrees to nominate
Executive for election to the Board and use its best efforts to cause his
election to the Board and Executive agrees to serve on the Board of the Company
and (ii) during the Term of Employment, Executive also agrees to serve, if
elected, as an officer and/or director of any Subsidiary of the Company,
without the payment of any additional compensation therefor. Upon the
termination of Executive's employment for any reason, Executive shall resign as
a member of the Board of the Company or any Subsidiary of the Company.
1.3 Nothing in this Agreement shall preclude Executive from engaging
in charitable work and community affairs, from managing any investment made by
him with respect to which Executive is not substantially involved with the
management or operation of the entity in which Executive has invested (provided
that no such investment in publicly traded equity securities or other property
may exceed 5% of the equity of any entity, without the prior approval of the
Board) or from serving, subject to the prior approval of the Board, as a member
of boards of directors or as a trustee of any other corporation, association or
entity, to the extent that any of the above activities do not materially
interfere with the performance of his duties hereunder. For purposes of the
preceding sentence, any approval by the Board required therein shall not be
unreasonably withheld.
2. Term of Employment. Executive's term of employment under this
Agreement (the "Term of Employment") shall commence on the Commencement Date
and, subject to the terms hereof, shall terminate on the earlier of (i) the
fifth anniversary of the Commencement Date (the "Initial Term") or (ii)
termination of Executive's employment pursuant to this Agreement.
Notwithstanding the foregoing, subsequent to the Initial Term, Executive's
2
<PAGE>
Term of Employment under this Agreement shall automatically renew annually for
one year renewal terms (the "Renewal Term") unless either party shall deliver
to the other written notice, at least 90 days prior to the expiration of the
Initial Term or any Renewal Term, that the Term of Employment shall not be
extended. In such event, the Term of Employment will end at its then scheduled
expiration date and shall not be further extended except by written agreement
of the Company and Executive.
3. Compensation.
3.1 Salary. During the Initial Term of Executive's employment under
the terms of this Agreement, the Company shall pay Executive a base salary
("Base Salary") at an initial rate of $750,000 per annum. Base Salary shall be
payable in accordance with the ordinary payroll practices of the Company.
During the Term of Employment, the Board shall, in good faith, review, at least
annually, the Executive's Base Salary in accordance with the Company's
customary procedures and practices regarding the salaries of senior executives
and may, if determined by the Board to be appropriate, increase Executive's
Base Salary following such review. Increases in the rate of salary, once
granted, shall not be subject to revocation or decrease thereafter, and "Base
Salary" for all purposes herein shall be deemed to be a reference to such
higher amount.
4. Employee Benefits.
4.1 Equity and Stock Options. Simultaneously with the execution of
this Agreement, the Company and Executive are entering into the Subscription
Agreement, the Option Agreement and the Stockholders' Agreement in the forms
attached hereto as Exhibits A, B and C, respectively (the "Ancillary
Documents"). Executive shall not be eligible to receive any stock option or
other equity incentive other than as set forth in the Ancillary Documents.
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<PAGE>
4.2 Employee Benefit Programs, Plans and Practices. The Company shall
provide Executive while employed hereunder with coverage under such employee
benefits (commensurate with his position in the Company and to the extent
permitted under any employee benefit plan) in accordance with the terms
thereof, which the Company makes available to its senior executives.
4.3 Vacation. Executive shall be entitled to twenty (20) business days
paid vacation each calendar year, which shall be taken at such times as are
consistent with Executive's responsibilities hereunder. Any vacation days not
taken during the calendar year in which they are accrued may be carried over
into the next subsequent year.
5. Expenses. Subject to prevailing Company policy or such guidelines
as may be established by the Board, the Company will reimburse Executive for
all reasonable expenses incurred by Executive in carrying out his duties.
6. Termination of Employment.
6.1 Termination Not for Cause or for Good Reason. (a) The Company or
Executive may terminate Executive's Term of Employment at any time for any
reason by written notice at least thirty (30) days in advance. If Executive's
employment is terminated (i) by the Company other than for Cause (as defined in
Section 6.2(b) hereof), Disability (as defined in Section 6.3 hereof) or death
or (ii) by Executive for Good Reason (as defined in Section 6.1(b) hereof)
prior to the end of the Initial Term or any Renewal Term, the Company shall
continue to pay Executive's Base Salary through the end of the Initial Term or
the Renewal Term (the "Continuation Period"), as the case may be, with such
payments to be made in accordance with the terms of Section 3.1. (the
"Severance Payments"). In addition, the Company shall continue to provide
Executive during the Continuation Period with life insurance, medical and
hospitalization benefits (collectively, the "Continuation Benefits") comparable
to those provided to other senior executives; provided, however,
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that any such coverage shall terminate to the extent that Executive is offered
or obtains comparable life insurance, medical or hospitalization benefits
coverage from any other employer during the Continuation Period.
Notwithstanding the foregoing, if Executive breaches any provision of Section
11 hereof, the remaining balance of the Severance Payments and any Continuation
Benefits shall be forfeited. Executive shall be entitled to receive the
benefits, if any, provided under the employee benefit programs, plans and
practices referred to in Section 4.2, in accordance with their terms.
(b) For purposes of this Agreement, "Good Reason" shall mean any of
the following (without Executive's express prior written consent):
(i) A reduction by the Company in Executive's Base Salary (in which
event Severance Payments shall be made based upon Executive's Base Salary
in effect prior to any such reduction); or
(ii) Any material diminution or material adverse change in Executive's
titles, duties or responsibilities, unless due to a promotion or increased
responsibility of Executive.
(c) Termination by Executive for Good Reason shall be made by delivery
to the Company by Executive of written notice, given at least 45 days prior to
such termination, which sets forth the conduct believed to constitute Good
Reason; provided, however, that the Company shall have the opportunity to cure
the Good Reason during the first 30 days of such notice period and if the Good
Reason is cured within such 30-day period, Executive's notice of termination
shall be deemed withdrawn. If no notice is given within 90 days of the event
giving rise to Good Reason, the Good Reason shall be deemed waived.
6.2 Voluntary Termination by Executive; Discharge for Cause. (a) In
the event that Executive's employment is terminated (i) by the Company for
Cause, as hereinafter defined or (ii) by Executive other than for Good Reason,
Disability or death, Executive shall only be entitled to receive (A) any Base
Salary accrued but unpaid prior to such termination and (B) any
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benefits provided under the employee benefit programs, plans and practices
referred to in Section 4.2 hereof, in accordance with their terms. After the
termination of Executive's employment under this Section 6.2, the obligations
of the Company under this Agreement to make any further payments, or provide
any benefits specified herein, to Executive shall thereupon cease and
terminate.
(b) As used herein, the term "Cause" shall be limited to (i) gross
neglect of or willful and continuing refusal by Executive to substantially
perform Executive's duties hereunder (other than due to death or Disability, as
such term is defined in Section 6.3 hereof), (ii) any breach of the provisions
of Section 11 of this Agreement by Executive, (iii) willfully engaging in
conduct that is demonstrably injurious to the Company or the Company's
subsidiaries or affiliates by Executive or (iv) conviction of, or plea of nolo
contendere, by Executive to (a) any felony or (b) a misdemeanor involving moral
turpitude. Termination of Executive pursuant to this Section 6.2 shall be made
by delivery to Executive of written notice, given at least 30 days prior to
such Termination, from the Board specifying the particulars of the conduct by
Executive set forth in any of clauses (i) through (iv) above. Termination shall
be effected by a majority vote of the Board at a meeting at which Executive
shall have had the opportunity (along with counsel) to be heard unless within
30 days after receiving such notice, Executive shall have cured Cause to the
reasonable satisfaction of the Board; provided, however, that no cure shall be
possible if termination for Cause is made pursuant to this Section 6.2(b)(ii)
or (iv). As long as Executive is on the Board, he shall reasonably cooperate to
cause a valid Board meeting to occur.
6.3 Disability. In the event of the Disability (as defined below) of
Executive during the Term of Employment, the Company may terminate Executive's
Term of Employment upon written notice to Executive (or
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Executive's personal representative, if applicable) effective upon the date of
receipt thereof (the "Disability Commencement Date"). The obligation of the
Company to make any further payments under this Agreement shall, except for
earned but unpaid Base Salary, cease as of the Disability Commencement Date;
provided, however, that Executive shall continue to receive payments equal to
Executive's Base Salary otherwise payable under this Agreement for a period
equal to the lesser of (i) six months after the date of the occurrence of the
incapacity causing Executive's Disability and (ii) the number of months
otherwise remaining in the Term of Employment, in either case, reduced by the
amount of any disability payments otherwise payable to Executive under any
insurance program of the Company. The term "Disability," for purposes of this
Agreement, shall mean Executive's absence from the full-time performance of
Executive's duties pursuant to a reasonable determination made in accordance
with the Company's disability plan that Executive is disabled as a result of
incapacity due to physical or mental illness that lasts, or is reasonably
expected to last, for at least six months.
6.4 Death. In the event of Executive's death during his Term of
Employment hereunder or at any time thereafter while payments are still owing
to Executive under the terms of this Agreement, all obligations of the Company
to make any further payments, other than the obligation to pay any accrued but
unpaid Base Salary or remaining payments that were payable to Executive by
reason of his termination of employment under Section 6.1 to which Executive
was entitled at the time of his death, shall terminate upon Executive's death,
and benefits shall become payable under the Company's life and accidental death
insurance program in accordance with its terms. Benefits under all other
employee benefit programs, plans and practices shall be paid in accordance with
their terms.
6.5 No Further Notice or Compensation. Executive understands and
agrees that he shall not be entitled to any further notice or compensation
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upon Termination of Employment under this Agreement, other than amounts
specified in this Section 6 and the Ancillary Documents. Executive shall not
have any obligation to seek comparable employment following such termination or
resignation, nor shall any compensation received from any subsequent employment
reduce the Company's obligations hereunder.
6.6 Executive's Duty to Provide Materials. Upon the termination of the
Term of Employment for any reason, Executive or his estate shall surrender to
the Company all correspondence, letters, files, contracts, mailing lists,
customer lists, advertising materials, ledgers, supplies, equipment, checks,
and all other materials and records of any kind that are the property of the
Company or any of its subsidiaries or affiliates, that may be in Executive's
possession or under his control, including all copies of any of the foregoing;
provided, however, Executive shall not be required to surrender his personal
rolodex, telephone book, appointment book and personal materials acquired by
Executive prior to the date hereof.
7. Notices. All notices or communications hereunder shall be in
writing, addressed as follows:
To the Company:
with a copy to:
Alvin H. Brown, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
To Executive:
Frank C. Lanza
37 Murray Hill Road
Scarsdale, NY 10583
with a copy to:
Robert C. Schwenkel
Fried, Frank, Harris, Shriver & Jacobson
1 New York Plaza
New York, New York 10004
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Any such notice or communication shall be delivered by hand or by courier or
sent certified or registered mail, return receipt requested, postage prepaid,
addressed as above (or to such other address as such party may designate in a
notice duly delivered as described above), and the third business day after the
actual date of sending shall constitute the time at which notice was given.
8. Separability. If any provision of this Agreement shall be declared
to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
9. Assignment. This contract shall be binding upon and inure to the
benefit of the heirs and representatives of Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights or
obligations hereunder shall be assignable or otherwise subject to hypothecation
by Executive (except by will or, in the case of the Options, by trust for the
benefit of Executive's spouse and/or children or by operation of the laws of
intestate succession) or by the Company, except that the Company may assign
this Agreement to any successor (whether by merger, purchase or otherwise) to
all or substantially all of the stock, assets or businesses of the Company, if
such successor expressly agrees to assume the obligations of the Company
hereunder.
10. Amendment. This Agreement may only be amended by written agreement
of the parties hereto.
11. Nondisclosure of Confidential Information: Non-Competition. (a)
While employed by the Company, and at any time thereafter, the Executive shall
not, without the prior written consent of the Company, use, divulge, disclose
or make accessible to any other person, firm, partnership, corporation or other
entity any Confidential Information pertaining to the business of the Company
or any of its affiliates, except (i) while employed
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by the Company, in the business of and for the benefit of the Company or (ii)
when required to do so by applicable law, by a court, by any governmental
agency, or by any administrative body or legislative body (including a
committee thereof); provided, however, that Executive shall give reasonable
notice under the circumstances to the Company that he has been notified that he
will be required to so disclose as soon as possible after receipt of such
notice in order to permit the Company to take whatever action it reasonably
deems necessary to prevent such disclosure and Executive shall cooperate with
the Company to the extent that it reasonably requests him to do so. For
purposes of this Section 11(a), "Confidential Information" shall mean
non-public information concerning the financial data, strategic business plans,
product development (or other proprietary product data), customer lists,
marketing plans and other non-public, proprietary and confidential information
of the Company, its subsidiaries, its affiliates or customers, that, in any
case, is not otherwise available to the public (other than by Executive's
breach of the terms hereof).
(b) In consideration of the Company's obligations under this
Agreement, Executive agrees that during the period of his employment hereunder
and for a period of twelve (12) months thereafter, without the prior written
consent of the Board, (A) he will not, directly or indirectly, either as
principal, manager, agent, consultant, officer, stockholder, partner, investor,
lender or employee or in any other capacity, carry on, be engaged in or have
any financial interest in, any entity which is in competition with the business
of the Company or its subsidiaries and (B) he shall not, on his own behalf or
on behalf of any person, firm or company, directly or indirectly, solicit or
offer employment to any person who is or has been employed by the Company or
its subsidiaries at any time during the twelve (12) months immediately
preceding such solicitation; provided, however, that if the Executive's
employment terminates following the
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expiration of the Initial Term, this subsection 11(b) shall only be effective
during the period, if any, that the Company pays the Executive the Severance
Payments.
(c) For purposes of this Section 11, an entity shall be deemed to be
in competition with the Company if it is principally involved in the purchase,
sale or other dealing in any property or the rendering of any service
purchased, sold, dealt in or rendered by the Company as a part of the business
of the Company within the same geographic area in which the Company effects
such sales or dealings or renders such services. Notwithstanding this
subsection 11(c) or subsection 11(b), nothing herein shall (i) prohibit
Executive from serving as an officer, employee or independent consultant of any
business unit or subsidiary which would not otherwise be in competition with
the Company or its subsidiaries, but which business unit is a part of, or which
subsidiary is controlled by, or under common control with, an entity that would
be in competition with the Company or its subsidiaries, so long as Executive
does not engage in any activity which is in competition with any business of
the Company or its subsidiaries or (ii) be construed so as to preclude
Executive from investing in any publicly or privately held company, provided
Executive's beneficial ownership of any class of such company's securities does
not exceed 5% of the outstanding securities of such class.
(d) Executive agrees that this covenant not to compete is reasonable
under the circumstances and will not interfere with his ability to earn a
living or to otherwise meet his financial obligations. Executive and the
Company agree that if in the opinion of any court of competent jurisdiction
such restraint is not reasonable in any respect, such court shall have the
right, power and authority to excise or modify such provision or provisions of
this covenant as to the court shall appear not reasonable and to enforce the
remainder of the covenant as so amended. Executive agrees that any breach of
the covenants contained in this Section 11 would
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irreparably injure the Company. Accordingly, Executive agrees that, in the
event the Company determines that Executive has breached the covenants
contained in this Section 11, the Company may, in addition to pursuing any
other remedies it may have in law or in equity, cease making any payments
otherwise required by this Agreement and obtain an injunction against Executive
from any court having jurisdiction over the matter restraining any further
violation of this Agreement by Executive.
12. Beneficiaries; References. Executive shall be entitled to select
(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder
following Executive's death, and may change such election, in either case by
giving the Company written notice thereof. In the event of Executive's death or
a judicial determination of his incompetence, reference in this Agreement to
Executive shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative. Any reference to the masculine gender in
this Agreement shall include, where appropriate, the feminine.
13. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. The
provisions of this Section 13 are in addition to the survivorship provisions of
any other section of this Agreement.
14. Dispute Resolution; Legal Fees. Any dispute or controversy arising
under or in connection with this Agreement shall be resolved by the court with
the appropriate jurisdiction in the State of New York. The prevailing party
shall be entitled to be reimbursed for any reasonable legal fees and other fees
and expenses which may be incurred in respect of enforcing its respective
rights under this Agreement.
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15. Governing Law. This Agreement shall be construed, interpreted and
governed in accordance with the laws of the State of New York, without
reference to rules relating to conflicts of law.
16. Effect on Prior Agreements. This Agreement and the Ancillary
Documents contain the entire understanding between the parties hereto and
supersedes in all respects any prior or other agreement or understanding, both
written and oral, between the Company, any affiliate of the Company or any
predecessor of the Company or affiliate of the Company and Executive.
17. Withholding. The Company shall be entitled to withhold from
payment any amount of withholding required by law.
18. Survival. Notwithstanding the expiration of the term of this
Agreement, the provisions of Section 11 hereunder shall remain in effect as
long as is reasonably necessary to give effect thereto in accordance with the
terms hereof.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
L-3 Communications Holdings, Inc.
By /s/ Michael T. Strianese
Name: Michael T. Strianese
Title: Vice President, Finance and Controller
/s/ Frank C. Lanza
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EXHIBIT 10.51
EMPLOYMENT AGREEMENT
AGREEMENT, made April 30, 1997 by and between L-3 Communications
Holdings, Inc., a Delaware corporation (the "Company") and Robert V. LaPenta
(the "Executive").
RECITALS
In order to induce Executive to serve as the President and Chief
Financial Officer of the Company, the Company desires to provide Executive with
compensation and other benefits on the terms and conditions set forth in this
Agreement.
Executive is willing to accept such employment and perform services
for the Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as follows:
1. Employment.
1.1 Subject to the terms and conditions of this Agreement, the Company
agrees to employ Executive during the Term hereof as its President and Chief
Financial Officer. In his capacity as the President and Chief Financial
Executive Officer of the Company, Executive shall report to the Chief Executive
Officer (the "CEO") and shall have the customary powers, responsibilities and
authorities of presidents and chief financial officers of corporations of the
size, type and nature of the Company, as it exists from time to time, and as
are assigned by the CEO.
1.2 Subject to the terms and conditions of this Agreement, Executive
hereby accepts employment as the President and Chief Financial Officer of the
Company commencing as of the date hereof (the "Commencement Date") and agrees
to devote his full business time and efforts to the
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performance of services, duties and responsibilities in connection therewith,
subject at all times to review and control of the CEO. In addition, during the
Initial Term and any Renewal Term, (i) the Company agrees to nominate Executive
for election to the Board of Directors of the Company (the "Board") and use its
best efforts to cause his election to the Board and Executive agrees to serve
on the Board of the Company and (ii) during the Term of Employment, Executive
also agrees to serve, if elected, as an officer and/or director of any
Subsidiary of the Company, without the payment of any additional compensation
therefor. Upon the termination of Executive's employment for any reason,
Executive shall resign as a member of the Board of the Company or any
Subsidiary of the Company.
1.3 Nothing in this Agreement shall preclude Executive from engaging
in charitable work and community affairs, from managing any investment made by
him with respect to which Executive is not substantially involved with the
management or operation of the entity in which Executive has invested (provided
that no such investment in publicly traded equity securities or other property
may exceed 5% of the equity of any entity, without the prior approval of the
Board) or from serving, subject to the prior approval of the Board, as a member
of boards of directors or as a trustee of any other corporation, association or
entity, to the extent that any of the above activities do not materially
interfere with the performance of his duties hereunder. For purposes of the
preceding sentence, any approval by the Board required therein shall not be
unreasonably withheld.
2. Term of Employment. Executive's term of employment under this
Agreement (the "Term of Employment") shall commence on the Commencement Date
and, subject to the terms hereof, shall terminate on the earlier of (i) the
fifth anniversary of the Commencement Date "Initial Term") or (ii) termination
of Executive's employment pursuant to this Agreement. Notwithstanding the
foregoing, subsequent to the Initial Term, Executive's
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Term of Employment under this Agreement shall automatically renew annually for
one year renewal terms (the "Renewal Term") unless either party shall deliver
to the other written notice, at least 90 days prior to the expiration of the
Initial Term or any Renewal Term, that the Term of Employment shall not be
extended. In such event, the Term of Employment will end at its then scheduled
expiration date and shall not be further extended except by written agreement
of the Company and Executive.
3. Compensation.
3.1 Salary. During the Initial Term of Executive's employment under
the terms of this Agreement, the Company shall pay Executive a base salary
("Base Salary") at an initial rate of $500,000 per annum. Base Salary shall be
payable in accordance with the ordinary payroll practices of the Company.
During the Term of Employment, the Board shall, in good faith, review, at least
annually, the Executive's Base Salary in accordance with the Company's
customary procedures and practices regarding the salaries of senior executives
and may, if determined by the Board to be appropriate, increase Executive's
Base Salary following such review. Increases in the rate of salary, once
granted, shall not be subject to revocation or decrease thereafter, and "Base
Salary" for all purposes herein shall be deemed to be a reference to such
higher amount.
4. Employee Benefits.
4.1 Equity and Stock Options. Simultaneously with the execution of
this Agreement, the Company and Executive are entering into the Subscription
Agreement, the Option Agreement and the Stockholders' Agreement in the forms
attached hereto as Exhibits A, B and C, respectively (the "Ancillary
Documents"). Executive shall not be eligible to receive any stock option or
other equity incentive other than as set forth in the Ancillary Documents.
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4.2 Employee Benefit Programs, Plans and Practices. The Company shall
provide Executive while employed hereunder with coverage under such employee
benefits (commensurate with his position in the Company and to the extent
permitted under any employee benefit plan) in accordance with the terms
thereof, which the Company makes available to its senior executives.
4.3 Vacation. Executive shall be entitled to twenty (20) business days
paid vacation each calendar year, which shall be taken at such times as are
consistent with Executive's responsibilities hereunder. Any vacation days not
taken during the calendar year in which they are accrued may be carried over
into the next subsequent year.
5. Expenses. Subject to prevailing Company policy or such guidelines
as may be established by the Board, the Company will reimburse Executive for
all reasonable expenses incurred by Executive in carrying out his duties.
6. Termination of Employment.
6.1 Termination Not for Cause or for Good Reason. (a) The Company or
Executive may terminate Executive's Term of Employment at any time for any
reason by written notice at least thirty (30) days in advance. If Executive's
employment is terminated (i) by the Company other than for Cause (as defined in
Section 6.2(b) hereof), Disability (as defined in Section 6.3 hereof) or death
or (ii) by Executive for Good Reason (as defined in Section 6.1(b) hereof)
prior to the end of the Initial Term or any Renewal Term, the Company shall
continue to pay Executive's Base Salary through the end of the Initial Term or
the Renewal Term (the "Continuation Period"), as the case may be, with such
payments to be made in accordance with the terms of Section 3.1. (the
"Severance Payments"). In addition, the Company shall continue to provide
Executive during the Continuation Period with life insurance, medical and
hospitalization benefits (collectively, the "Continuation Benefits") comparable
to those provided to other senior executives; provided, however,
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that any such coverage shall terminate to the extent that Executive is offered
or obtains comparable life insurance, medical or hospitalization benefits
coverage from any other employer during the Continuation Period.
Notwithstanding the foregoing, if Executive breaches any provision of Section
11 hereof, the remaining balance of the Severance Payments and any Continuation
Benefits shall be forfeited. Executive shall be entitled to receive the
benefits, if any, provided under the employee benefit programs, plans and
practices referred to in Section 4.2, in accordance with their terms.
(b) For purposes of this Agreement, "Good Reason" shall mean any of
the following (without Executive's express prior written consent):
(i) A reduction by the Company in Executive's Base Salary (in which
event Severance Payments shall be made based upon Executive's Base Salary
in effect prior to any such reduction); or
(ii) Any material diminution or material adverse change in Executive's
titles, duties or responsibilities, unless due to a promotion or increased
responsibility of Executive.
(c) Termination by Executive for Good Reason shall be made by delivery
to the Company by Executive of written notice, given at least 45 days prior to
such termination, which sets forth the conduct believed to constitute Good
Reason; provided, however, that the Company shall have the opportunity to cure
the Good Reason during the first 30 days of such notice period and if the Good
Reason is cured within such 30-day period, Executive's notice of termination
shall be deemed withdrawn. If no notice is given within 90 days of the event
giving rise to Good Reason, the Good Reason shall be deemed waived.
6.2 Voluntary Termination by Executive; Discharge for Cause. (a) In
the event that Executive's employment is terminated (i) by the Company for
Cause, as hereinafter defined or (ii) by Executive other than for Good Reason,
Disability or death, Executive shall only be entitled to receive (A) any Base
Salary accrued but unpaid prior to such termination and (B) any
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benefits provided under the employee benefit programs, plans and practices
referred to in Section 4.2 hereof, in accordance with their terms. After the
termination of Executive's employment under this Section 6.2, the obligations
of the Company under this Agreement to make any further payments, or provide
any benefits specified herein, to Executive shall thereupon cease and
terminate.
(b) As used herein, the term "Cause" shall be limited to (i) gross
neglect of or willful and continuing refusal by Executive to substantially
perform Executive's duties hereunder (other than due to death or Disability, as
such term is defined in Section 6.3 hereof), (ii) any breach of the provisions
of Section 11 of this Agreement by Executive, (iii) willfully engaging in
conduct that is demonstrably injurious to the Company or the Company's
subsidiaries or affiliates by Executive or (iv) conviction of, or plea of nolo
contendere, by Executive to (a) any felony or (b) a misdemeanor involving moral
turpitude. Termination of Executive pursuant to this Section 6.2 shall be made
by delivery to Executive of written notice, given at least 30 days prior to
such Termination, from the Board specifying the particulars of the conduct by
Executive set forth in any of clauses (i) through (iv) above. Termination shall
be effected by a majority vote of the Board at a meeting at which Executive
shall have had the opportunity (along with counsel) to be heard unless within
30 days after receiving such notice, Executive shall have cured Cause to the
reasonable satisfaction of the Board; provided, however, that no cure shall be
possible if termination for Cause is made pursuant to this Section 6.2(b)(ii)
or (iv). As long as Executive is on the Board, he shall reasonably cooperate to
cause a valid Board meeting to occur.
6.3 Disability. In the event of the Disability (as defined below) of
Executive during the Term of Employment, the Company may terminate Executive's
Term of Employment upon written notice to Executive (or
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Executive's personal representative, if applicable) effective upon the date of
receipt thereof (the "Disability Commencement Date"). The obligation of the
Company to make any further payments under this Agreement shall, except for
earned but unpaid Base Salary, cease as of the Disability Commencement Date;
provided, however, that Executive shall continue to receive payments equal to
Executive's Base Salary otherwise payable under this Agreement for a period
equal to the lesser of (i) six months after the date of the occurrence of the
incapacity causing Executive's Disability and (ii) the number of months
otherwise remaining in the Term of Employment, in either case, reduced by the
amount of any disability payments otherwise payable to Executive under any
insurance program of the Company. The term "Disability," for purposes of this
Agreement, shall mean Executive's absence from the full-time performance of
Executive's duties pursuant to a reasonable determination made in accordance
with the Company's disability plan that Executive is disabled as a result of
incapacity due to physical or mental illness that lasts, or is reasonably
expected to last, for at least six months.
6.4 Death. In the event of Executive's death during his Term of
Employment hereunder or at any time thereafter while payments are still owing
to Executive under the terms of this Agreement, all obligations of the Company
to make any further payments, other than the obligation to pay any accrued but
unpaid Base Salary or remaining payments that were payable to Executive by
reason of his termination of employment under Section 6.1 to which Executive
was entitled at the time of his death, shall terminate upon Executive's death,
and benefits shall become payable under the Company's life and accidental death
insurance program in accordance with its terms. Benefits under all other
employee benefit programs, plans and practices shall be paid in accordance with
their terms.
6.5 No Further Notice or Compensation. Executive understands and
agrees that he shall not be entitled to any further notice or compensation
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upon Termination of Employment under this Agreement, other than amounts
specified in this Section 6 and the Ancillary Documents. Executive shall not
have any obligation to seek comparable employment following such termination or
resignation, nor shall any compensation received from any subsequent employment
reduce the Company's obligations hereunder.
6.6 Executive's Duty to Provide Materials. Upon the termination of the
Term of Employment for any reason, Executive or his estate shall surrender to
the Company all correspondence, letters, files, contracts, mailing lists,
customer lists, advertising materials, ledgers, supplies, equipment, checks,
and all other materials and records of any kind that are the property of the
Company or any of its subsidiaries or affiliates, that may be in Executive's
possession or under his control, including all copies of any of the foregoing;
provided, however, Executive shall not be required to surrender his personal
rolodex, telephone book, appointment book and personal materials acquired by
Executive prior to the date hereof.
7. Notices. All notices or communications hereunder shall be in
writing, addressed as follows:
To the Company:
with a copy to:
Alvin H. Brown, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
To Executive:
Robert V. LaPenta
749 Riversville Road
Greenwich, CT 06831
with a copy to:
Robert C. Schwenkel
Fried, Frank, Harris, Shriver & Jacobson
1 New York Plaza
New York, New York 10004
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Any such notice or communication shall be delivered by hand or by courier or
sent certified or registered mail, return receipt requested, postage prepaid,
addressed as above (or to such other address as such party may designate in a
notice duly delivered as described above), and the third business day after the
actual date of sending shall constitute the time at which notice was given.
8. Separability. If any provision of this Agreement shall be declared
to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
9. Assignment. This contract shall be binding upon and inure to the
benefit of the heirs and representatives of Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights or
obligations hereunder shall be assignable or otherwise subject to hypothecation
by Executive (except by will or, in the case of the Options, by trust for the
benefit of Executive's spouse and/or children or by operation of the laws of
intestate succession) or by the Company, except that the Company may assign
this Agreement to any successor (whether by merger, purchase or otherwise) to
all or substantially all of the stock, assets or businesses of the Company, if
such successor expressly agrees to assume the obligations of the Company
hereunder.
10. Amendment. This Agreement may only be amended by written agreement
of the parties hereto.
11. Nondisclosure of Confidential Information; Non-Competition. (a)
While employed by the Company, and at any time thereafter, the Executive shall
not, without the prior written consent of the Company, use, divulge, disclose
or make accessible to any other person, firm, partnership, corporation or other
entity any Confidential Information pertaining to the business of the Company
or any of its affiliates, except (i) while employed
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by the Company, in the business of and for the benefit of the Company or (ii)
when required to do so by applicable law, by a court, by any governmental
agency, or by any administrative body or legislative body (including a
committee thereof); provided, however, that Executive shall give reasonable
notice under the circumstances to the Company that he has been notified that he
will be required to so disclose as soon as possible after receipt of such
notice in order to permit the Company to take whatever action it reasonably
deems necessary to prevent such disclosure and Executive shall cooperate with
the Company to the extent that it reasonably requests him to do so. For
purposes of this Section 11(a), "Confidential Information" shall mean
non-public information concerning the financial data, strategic business plans,
product development (or other proprietary product data), customer lists,
marketing plans and other non-public, proprietary and confidential information
of the Company, its subsidiaries, its affiliates or customers, that, in any
case, is not otherwise available to the public (other than by Executive's
breach of the terms hereof).
(b) In consideration of the Company's obligations under this
Agreement, Executive agrees that during the period of his employment hereunder
and for a period of twelve (12) months thereafter, without the prior written
consent of the Board, (A) he will not, directly or indirectly, either as
principal, manager, agent, consultant, officer, stockholder, partner, investor,
lender or employee or in any other capacity, carry on, be engaged in or have
any financial interest in, any entity which is in competition with the business
of the Company or its subsidiaries and (B) he shall not, on his own behalf or
on behalf of any person, firm or company, directly or indirectly, solicit or
offer employment to any person who is or has been employed by the Company or
its subsidiaries at any time during the twelve (12) months immediately
preceding such solicitation; provided, however, that if the Executive's
employment terminates following the
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expiration of the Initial Term, this subsection 11(b) shall only be effective
during the period, if any, that the Company pays the Executive the Severance
Payments.
(c) For purposes of this Section 11, an entity shall be deemed to be
in competition with the Company if it is principally involved in the purchase,
sale or other dealing in any property or the rendering of any service
purchased, sold, dealt in or rendered by the Company as a part of the business
of the Company within the same geographic area in which the Company effects
such sales or dealings or renders such services. Notwithstanding this
subsection 11(c) or subsection 11(b), nothing herein shall (i) prohibit
Executive from serving as an officer, employee or independent consultant of any
business unit or subsidiary which would not otherwise be in competition with
the Company or its subsidiaries, but which business unit is a part of, or which
subsidiary is controlled by, or under common control with, an entity that would
be in competition with the Company or its subsidiaries, so long as Executive
does not engage in any activity which is in competition with any business of
the Company or its subsidiaries or (ii) be construed so as to preclude
Executive from investing in any publicly or privately held company, provided
Executive's beneficial ownership of any class of such company's securities does
not exceed 5% of the outstanding securities of such class.
(d) Executive agrees that this covenant not to compete is reasonable
under the circumstances and will not interfere with his ability to earn a
living or to otherwise meet his financial obligations. Executive and the
Company agree that if in the opinion of any court of competent jurisdiction
such restraint is not reasonable in any respect, such court shall have the
right, power and authority to excise or modify such provision or provisions of
this covenant as to the court shall appear not reasonable and to enforce the
remainder of the covenant as so amended. Executive agrees that any breach of
the covenants contained in this Section 11 would
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irreparably injure the Company. Accordingly, Executive agrees that, in the
event the Company determines that Executive has breached the covenants
contained in this Section 11, the Company may, in addition to pursuing any
other remedies it may have in law or in equity, cease making any payments
otherwise required by this Agreement and obtain an injunction against Executive
from any court having jurisdiction over the matter restraining any further
violation of this Agreement by Executive.
12. Beneficiaries; References. Executive shall be entitled to select
(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder
following Executive's death, and may change such election, in either case by
giving the Company written notice thereof. In the event of Executive's death or
a judicial determination of his incompetence, reference in this Agreement to
Executive shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative. Any reference to the masculine gender in
this Agreement shall include, where appropriate, the feminine.
13. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. The
provisions of this Section 13 are in addition to the survivorship provisions of
any other section of this Agreement.
14. Dispute Resolution; Legal Fees. Any dispute or controversy arising
under or in connection with this Agreement shall be resolved by the court with
the appropriate jurisdiction in the State of New York. The prevailing party
shall be entitled to be reimbursed for any reasonable legal fees and other fees
and expenses which may be incurred in respect of enforcing its respective
rights under this Agreement.
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15. Governing Law. This Agreement shall be construed, interpreted and
governed in accordance with the laws of the State of New York, without
reference to rules relating to conflicts of law.
16. Effect on Prior Agreements. This Agreement and the Ancillary
Documents contain the entire understanding between the parties hereto and
supersedes in all respects any prior or other agreement or understanding, both
written and oral, between the Company, any affiliate of the Company or any
predecessor of the Company or affiliate of the Company and Executive.
17. Withholding. The Company shall be entitled to withhold from
payment any amount of withholding required by law.
18. Survival. Notwithstanding the expiration of the term of this
Agreement, the provisions of Section 11 hereunder shall remain in effect as
long as is reasonably necessary to give effect thereto in accordance with the
terms hereof.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
L-3 Communications Holdings, Inc.
By /s/ Michael T. Strianese
Name: Michael T. Strianese
Title: Vice President, Finance and Controller
/s/ Robert V. LaPenta
Robert V. LaPenta
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Exhibit 10.6
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS ASSIGNMENT AND ASSUMPTION OF LEASE (this "Assignment") is dated
as of April 29, 1997 among Lockheed Martin Tactical Systems, Inc., a New York
corporation (the "Assignor"), L-3 COMMUNICATIONS CORPORATION, a Delaware
corporation (the "Assignee"), and KSL, Division of Bonneville International, a
Utah corporation (the "Landlord"), with reference to the
following:
RECITALS
A. The Landlord, as landlord, and the Assignor, as tenant, executed a
Lease Agreement dated November 1, 1995, (which, together with all
modifications, amendments and supplements thereof, is hereinafter referred to
collectively as the "Lease"), a copy of which is attached hereto and
incorporated by reference as Exhibit A, pursuant to which Landlord leased to
the Assignor and the Assignor leased from Landlord property and improvements
described therein located in Oquirrh Mountains Range, Utah (the "Premises").
B. The Assignee is acquiring certain assets and assuming certain
liabilities from the Assignor including the Assignor's rights, leasehold
interest and obligations under the Lease.
C. In connection with such acquisition, the Assignor desires to
assign the Lease to the Assignee, and the Assignee desires to accept the
assignment of the Lease from the Assignor.
D. The Landlord has agreed to enter into this Assignment to, among
other things, evidence its consent to such assignment of the Lease.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Assignor, the Assignee and the
Landlord hereby covenant and agree as follows:
1. Assignment. The Assignor grants, assigns and transfers to the
Assignee, its successors and assigns, all of the Assignor's right, title and
interest in, to and under the Lease (including, without limitation, any options
under the Lease and any rights to extend or renew the Lease) and the Assignee
accepts from the Assignor all of the Assignor's right, title and interest in,
to and under the Lease.
2. Assumption of Lease Obligation. The Assignee assumes and
agrees to perform and fulfill all terms, covenants, conditions and
obligations required to be performed and fulfilled by the Assignor under the
Lease, including, without limitation, the obligation to make all payments due
or payable on behalf of the Assignor under the Lease as they become due and
payable.
3. Representations of Assignor and Landlord. The Assignor and the
Landlord represent to the Assignee as follows:
(a) The Lease attached hereto as Exhibit A is a true, correct and
complete copy of the Lease (including all modifications, amendments and
supplements thereof) and the same are the only agreements between Landlord
and the Assignor with respect to the subject matter thereof.
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(b) The Lease is in full force and effect and, except for the
modifications, amendments and supplements included in Exhibit A, the Lease
has not been modified, amended or supplemented.
(c) Except as net forth on Exhibit B, no default by the Assignor or
the Landlord has occurred and is continuing under the Lease, and no event
has occurred and is continuing which with the giving of notice or the
lapse of time or both would constitute a default thereunder.
(d) No minimum or base rent or other rental has been paid in advance
(except for the current month).
(e) The monthly amount of base rent due under the Lease as of May 1,
1997, is $1,050, and the minimum or base rent and all other rentals and
other payments due, owing and accruing under the Lease have been paid
through April 30, 1997.
(f) The term of the Lease commenced on November 1, 1995, and the
current term of the Lease expires on October 31, 1998.
4. Landlord's Consent.
The Landlord hereby consents to the Assignor's assignment of the
Lease to the Assignee and the Assignee's assumption of the Lease. On and from
the date of this Assignment forward, the Landlord hereby releases and relieves
the Assignor from any and all liability and obligation under the Lease, and
agrees to look solely to the Assignee for performance of the terms, covenants
and conditions of tenant under the Lease.
5. Successors and Assigns. This Assignment shall be binding on and
inure to the benefit of the parties hereto, and their respective heirs,
personal representatives, successors and assigns, provided that this Section 5
shall not be construed to permit any future assignments of the Lease or
subletting of the Premises except as permitted by the Lease.
6. Counterparts. This Assignment may be signed in counterpart
and, as so executed, shall constitute a binding agreement.
7. Governing Law. This Assignment shall be governed by and
construed in accordance with the laws of the state in which the Premises are
located.
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IN WITNESS WHEREOF, the parties hereto have executed this Assignment
as of the date first above written.
WITNESS/ATTEST: ASSIGNOR:
LOCKHEED MARTIN TACTICAL SYSTEMS,
INC.
___________________________ By:________________________(SEAL)
Name: Stephen M. Piper
Title: Vice President and Assistant
Secretary
ASSIGNEE:
L-3 COMMUNICATIONS CORPORATION
___________________________ By:________________________(SEAL)
Name: Michael T. Strianese
Title: Vice President, Finance and
Controller
WITNESS/ATTEST: LANDLORD:
KSL, a division of BONNEVILLE
INTERNATIONAL CORPORATION
___________________________ By:________________________(SEAL)
Name: Brent Robinson
Title: Chief Engineer
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STATE OF NEW YORK, COUNTY OF NEW YORK, TO WIT:
On this 30th day of April, 1997, before me a notary public of said
State, Stephen M. Piper, the undersigned officer, personally appeared Stephen
M. Piper, who acknowledged himself to be a Vice President and Assistant
Secretary of Lockheed Martin Tactical Systems, a New York corporation, and that
he, as such Vice President and Assistant Secretary, being authorized so to do,
executed the foregoing instrument for the purposes therein contained, by
signing the name of the Corporation by himself as a Vice President and
Assistant Secretary.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
----------------------------
Notary Public
My Commission Expires:
STATE OF NEW YORK, COUNTY OF NEW YORK, TO WIT:
On this 30th day of April, 1997, before me a notary public of said
State, Michael T. Strianese, the undersigned officer, personally appeared
Michael T. Strianese, who acknowledged himself to be a Vice President of L-3
Communications Corporation, a Delaware corporation, and that he, as such Vice
President, being authorized so to do, executed the foregoing instrument for the
purposes therein contained, by signing the name of the corporation by himself
as a Vice President.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
----------------------------
Notary Public
My Commission Expires:
4
<PAGE>
STATE OF UTAH, COUNTY OF SALT LAKE, TO WIT:
On this 28th day of April, 1997, before me a notary public of said
State, Brent Robinson, the undersigned officer, personally appeared Brent
Robinson, who acknowledged himself to be a Chief Engineer of KSL-TV, a Utah
corporation, and that he, as such Chief Engineer, being authorized so to do,
executed the foregoing instrument for the purposes therein contained, by
signing the name of the corporation by himself as a Chief Engineer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
----------------------------
Notary Public
My Commission Expires:
5
<PAGE>
EXHIBIT A
THE LEASE
6
<PAGE>
TO: Julia Michael
FROM: Bruce J. Garner
DATE: January 10, 1996
SUBJECT: LCS Facilities Lease Request
Julia, attached is the Lease request documentation for the Far Field Test
Antenna Range we have been discussing. I understand you will attached the
general liability, automobile coverage and workers compensation insurance
certification requested in paragraph 11 on page 6 of the lease. LCS will make
the helicopter insurance requirement noted in the same paragraph a requirement
of the purchase order(s) issued for that service.
If you have any questions you can call me at 801-594-2356.
Thank you for your assistance in this matter.
cc: W.B. Booker
D.C. Freeze
T.O. Miiller
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<PAGE>
LEASE AGREEMENT
This Lease Agreement (the "Agreement") is entered into this 1st day
of November, 1995 between KSL, a division of Bonneville International
Corporation, a Utah corporation, with its principal place of business at
Broadcast House, 55 North 300 West, P. O. Box 1160, Salt Lake City, Utah
84110-1160 ("Lessor") and Loral Communication Systems, a New York corporation,
with its principal place of business at 640 North 2200 West, Salt Lake City,
Utah 84116 ("Lessee"), in light of the following circumstances:
Recitals
Whereas, Lessor is the owner of certain television and radio
transmission facilities located in the Oquirrh mountain range in Salt Lake and
Tooele counties, Utah at a location commonly known as Farnsworth Peak (the
"Site"); and
Whereas, Lessee is engaged in the business of satellite
communications and data link services; and
Whereas, Lessee desires to lease from Lessor certain space and
equipment at the Site;
Now, therefore, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged, Lessor and Lessee agree as follows:
Terms and Conditions
1. Leased Premises. Lessor hereby leases to Lessee, and Lessee hereby
accepts from Lessor, that certain space and equipment at the Site identified on
Schedule A to this Agreement (the "Premises") for the location and operation of
a test antenna of approximately six feet in length. A complete list of Lessee's
equipment to be located at the Premises (the "Equipment") is attached to this
Agreement as Schedule B.
2. During Furnished Items. During the term of this Agreement,
Lessor shall furnish Lessee with the following:
A. Access to the Site over the access road available to Lessor for
that purpose. Lessee understands that it will be subject to the same
restrictions on the use of such road as may be imposed on Lessor from time
to time by the entities controlling the property upon which the road is
located, including the Kennecott Copper Corporation, Alpha
Communications and Hercules Corporation;
B. Heat, light and toilet facilities at the Site;
C. The right to connect to the power load center at the Site for the
operation of the Equipment. Lessee's use of electricity will be separately
metered by Lessor. Lessor shall invoice Lessee monthly for such electrical
usage at the established commercial rates of the Utah Power and Light
Company, plus the lesser of ten percent of Lessee's monthly statement or
$30.00 for administration and general expenses.
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Invoices shall be payable within twenty days of the date of billing. In
the event an invoice is more than ten days delinquent, Lessor, upon five
days written notice, shall be entitled to cease supplying Lessee with
electricity;
D. Upon Lessee's request, emergency service, if available, for the
Equipment. Rates for emergency service are set forth in Schedule O to
this Agreement and may be adjusted from time to time as determined by
Lessor;
E. The right to make reasonable alterations, attach fixtures and
erect additions to the Premises as required to operate the Equipment, but
only so long as plans for such alterations, attachments or additions are
submitted, along with a list of added and/or replaced materials, to Lessor
for approval, which approval shall not be unreasonably withheld. In no
event shall any of Lessee's alterations, attachments or additions
interfere with the operation or work of Lessor or of other tenants at the
Site;
F. Other services, such as the use of tools and parts owned by
Lessor, at the rates listed on Schedule O, as such may be adjusted from
time to time as determined by Lessor; and
G. Maintenance of the Site in good operating order.
3. Monthly Payments by Lessee. In exchange for the right to occupy
the Premises and operate the Equipment, Lessee shall pay to Lessor the monthly
rental payment and other fees set forth in Schedule C to this Agreement. The
monthly rental payment shall be payable in advance on or before the first day
of each calendar month at Lessor's principal place of business or at such other
place or in such other manner as Lessor may from time to time direct; provided,
however, that in the event the term of this Agreement shall commence on other
than the first day of a calendar month or terminate on other than the last day
of a calendar month, the monthly rental payment shall be prorated on a daily
basis for such partial calendar month. Unless otherwise specifically set forth
elsewhere in this Agreement, all other payments required to be made by Lessee
to Lessor shall be paid by within twenty days of the date of invoice.
4. Other Costs. Lessee recognizes that additional expenses may be
incurred by Lessor from time to time for the benefit of Lessee and other
tenants at the Site, such as the cost of transporting various government
inspectors, tax assessors, state and/or county officers/officials and the like
to and from the Site. Lessee agrees to pay its share of such costs on a pro
rata basis as calculated by Lessor. Lessor shall provide Lessee with proof of
such costs, along with calculations for determining the amount charged to
Lessee.
5. Compliance. Lessee's operations at the Site shall be in full
compliance with all applicable laws, statutes, ordinances, rules and
regulations of any governmental authority having jurisdiction over Lessor,
Lessee or the Site, including, but not limited to, the Federal Communications
Commission (the "FCC"). Lessee shall bear the cost and responsibility for all
matters pertaining to its operations at the Site, including, but not limited
to, applications, renewals, regular or special reports, discrepancy citations,
inspections or any changes in equipment which may be required from time to time
by the FCC or standards of good engineering practice.
9
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Lessee shall protect all persons at the Site at all times from
exposure to excessive non-ionizing radiation (as determined by the FCC, the
Occupational Safety and Health Agency, the Environmental Protection Agency or
any other governmental authority) which may be generated as a result of
Lessee's operations. In the event Lessee's operations appear to be causing
excessive non-ionizing radiation, Lessor shall have the right, but not the
obligation, to take whatever action Lessor deems appropriate to reduce the
amount of such radiation, including, but not limited to, the interruption of
Lessee's operations or the reduction of Lessee's transmission power. Lessor
shall invoice Lessee for the costs of any such action and Lessee shall promptly
pay such amount within twenty days of the date of invoice.
6. Interference. Lessee acknowledges that Lessor reserves the right
to grant space, premises, facilities and/or rights to third parties at the Site
that are the same as or similar to those granted herein to Lessee. Lessee shall
endeavor in good faith to conduct its activities in accordance with sound
electronic and engineering practices and applicable FCC standards and will
cooperate with Lessor and other tenants at the Site so as to anticipate and
prevent Interference, as that term is defined below. A list of Tenants at the
Site as of the commencement of this Agreement is attached hereto as Schedule S.
If Lessee's operations cause Interference, Lessee shall, at its sole
cost and expense and without recourse to Lessor, cause any such Interference to
be corrected within ten days following written notice thereof to Lessee.
Pending correction, Lessee shall immediately cease the activity or remove the
equipment causing the Interference. If Lessee fails to act within the given
time frame, Lessor may cause the required corrections to be made. Lessor shall
invoice Lessee for the costs of any such action and Lessee shall promptly pay
such amount within twenty days of the date of invoice.
"Interference" shall be deemed to exist if (i) a final determination
to that effect is made by an authorized representative of the FCC pursuant to
its rules and regulations; (ii) a condition exists which constitutes
interference within the meaning of the provisions of the rules and regulations
of the FCC in effect at the time; or (iii) Lessor makes a good faith
determination that its technical operations or the technical operations of any
other tenants at the Site are being adversely affected by Lessee's activities.
7. Lessor Improvements. Lessor reserves the right to replace or
install additional equipment at the Site necessary or desirable for its own
operations. Lessor shall not be liable for any disruption of or interference to
Lessee's operations by reason of such replacement or installation, but Lessor
agrees to cooperate with Lessee and to use reasonable efforts to resolve in
advance any problems that might arise in connection with these activities.
8. Assignment or Sublease. Lessee may not assign or transfer this
Agreement or any interest therein, sublease any interest covered by this
Agreement or encumber, hypothecate or otherwise give as security this Agreement
or any interest therein without the prior written consent of Lessor, which
consent shall not be unreasonably withheld. No assignment, transfer or sublease
shall be effective as against Lessor for any purpose, unless Lessor shall have
consented thereto in writing prior to such assignment, transfer or sublease and
unless all sums due from Lessee,
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<PAGE>
together with any costs to Lessor to cover reasonable legal and other expenses
of Lessor in connection with such assignment, transfer or sublease, shall have
been paid to Lessor.
Each and every attempt to assign, sell, transfer or encumber this
Agreement or any interest therein and each and every attempt to sublease any
interest covered hereby in a manner contrary to that set forth in this
paragraph may be deemed a default by Lessee hereunder.
Lessor's consent to one assignment, transfer or sublease by Lessee or
acceptance of performance from an assignee, transferee or sublessee shall not
be deemed a waiver by Lessor of the restrictions of this paragraph as to
subsequent attempts to assign, transfer or sublet by Lessee or by Lessee's
heirs, successors, assigns, transferees or sublessees. As used herein, the
terms Lessor and Lessee shall be deemed to include their respective heirs,
successors, assigns, transferees or sublessees.
The terms, conditions and covenants contained in this Agreement shall
apply to, inure to the benefit of and be binding upon the parties hereto and
their respective legal representatives, successors, assigns, transferees and
sublessees.
Lessor shall have the right to transfer and assign, in whole or in
part, all of its rights and obligations hereunder and in the Site and in such
event Lessor shall be released from any further obligations hereunder and the
successor-in-interest of Lessor shall have all the rights and obligations
hereunder and in the Site with respect to Lessee.
9. Term. The initial term of this Agreement shall begin on November
1, 1995 and shall end on October 31, 1996. This Agreement shall thereafter be
renewed for up to three additional two year periods (from November 1, 1996
through October 31, 1998; from November 1, 1998 through October 31, 2000; and
from November 1, 2000 through October 31, 2002, respectively) upon the same
terms and conditions set forth herein unless Lessee provides Lessor with
written notice at least ninety days prior to the expiration of the then current
term.
10. Default by Lessee. The following events shall be deemed to be
events of default by Lessee under this Agreement (each such event of default
is hereinafter referred to as an "Event of Default"):
A. Lessee shall fail to timely pay any monthly rental payment as
referenced in paragraph 3 above or any other sum of money due hereunder
and such failure shall continue for a period of ten days;
B. Lessee shall fail to comply with any provision of this Agreement
not requiring the payment of money, all of which provisions shall be
deemed material, and such failure shall continue for a period of twenty
days after written notice of such default is delivered to Lessee;
C. Lessee shall become insolvent or fail to pay its debts as they
become due or Lessee notifies Lessor that it anticipates either
condition;
D. Lessee takes any action to file a petition under any section or
chapter of the United States Bankruptcy Code or under any similar law or
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statute of the United States or any state thereof or a petition shall be
filed against Lessee under any such statute or Lessee or any creditor of
Lessee notifies Lessor that it knows such a petition will be filed or
Lessee notifies Lessor that it expects such a petition to be filed; or
E. A receiver or trustee shall be appointed for Lessee's leasehold
interest in the Premises or for all or a substantial part of Lessee's
assets.
Upon the occurrence of any Event of Default, Lessor may at its option
and without further notice to all other remedies given hereunder or by law or
in equity, do any one or more of the following: (i) terminate this Agreement,
in which event Lessee shall immediately surrender possession of the Premises to
Lessor; (ii) enter upon the Premises and expel or remove Lessee's Equipment
therefrom, with or without having terminated this Agreement; and (iii) change
or re-key all locks to entrances to the Site and Lessor shall have no
obligation to give Lessee notice thereof or to provide Lessee with a new key to
the Site.
The exercise by Lessor of any one or more remedies hereunder shall
not constitute an acceptance of the surrender of the Premises by Lessee. Lessee
acknowledges that a surrender of the Premises can be effected only by a written
agreement between Lessor and Lessee.
If Lessor terminates this Agreement by reason of an Event of Default,
Lessee shall pay to Lessor the sum of (i) the cost of recovering the Premises;
(ii) the unpaid monthly payments and all other indebtedness accrued hereunder
to the date of such termination; (iii) to the extent the same were not paid,
the cost of repairing, altering or otherwise putting the Premises into a
condition acceptable to a new tenant or tenants (if Lessor elects to so relet)
(collectively, the "Reletting Expenses"); (iv) all expenses incurred by Lessor
in enforcing Lessor's remedies, including attorneys' fees and court costs; (v)
the total monthly payments and other benefits which Lessor would have received
under this Agreement for the remainder of the term, minus any net sums
thereafter received by Lessor through reletting the Premises during such
period; and (vi) any other damages or relief which Lessor may be entitled to at
law or in equity. Lessee shall not be entitled to any excess rent obtained by
reletting the Premises.
If Lessor repossesses the Premises without terminating this Agreement
by reason of an Event of Default, then Lessee shall pay to Lessor the sum of
(i) the cost of recovering the Premises; (ii) the unpaid monthly payments and
all other indebtedness accrued hereunder to the date of such repossession;
(iii) the Reletting Expenses; (iv) all expenses incurred by Lessor in enforcing
Lessor's remedies, including attorneys' fees and court costs; (v) the total
monthly payments and other benefits which Lessor would have received under this
Agreement for the remainder of the term, minus any net sums thereafter received
by Lessor through reletting the Premises during such period; and (vi) any other
damages or relief which Lessor may be entitled to at law or in equity. Re-entry
by Lessor will not affect the obligations of Lessee for the unexpired term of
this Agreement. Lessee shall not be entitled to any excess rent obtained by
reletting the Premises. Actions to collect amounts due by Lessee may be brought
on one or more occasions without the necessity of Lessor's waiting until the
expiration of the term of this Agreement.
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Upon termination of this Agreement or repossession of the Premises
due to an Event of Default, Lessor shall not be obligated to relet or attempt
to relet the Premises or any portion thereof or to collect rent after
reletting, but Lessor shall have the option to relet the whole or any portion
of the Premises for any period to any tenant and for any use and purpose.
11. Insurance. Lessee shall at its own cost and expense procure and
maintain general liability insurance coverage and automobile coverage in the
face amount of at least $1,000,000.00 per occurrence and workers compensation
insurance as prescribed by Utah state law. A certificate of insurance naming
Lessor as an additional insured shall be attached to this Agreement as Schedule
I. In addition, Lessee shall use only certified and insured helicopter carriers
for trips and from the Site. Such carriers shall carry liability insurance in
the face amount of at least $5,000,000.00 per occurrence. All such insurance
shall cover Lessee's employees, agents and invitees while in, or about the Site
and while traveling to and from the Site, including losses attributable to the
presence of the Equipment, Lessee's employees, agents or invitees while in, on
or about the Site. Lessee shall be solely responsible for procuring and
maintaining property insurance on the Equipment.
12. Indemnification. Lessee shall indemnify, defend and hold harmless
Lessor and any officer, director, employee, contractor, agent or affiliate of
Lessor (collectively, a "Lessor Related Party") from and against any and all
liabilities, obligations, damages, claims, suits, losses, causes of action,
liens, judgments and expenses (including court costs, attorneys' fees and costs
of investigation) or any kind, nature or description resulting from any
injuries to or death of any person or any damage to the Site which either (i)
arises from or is claimed to arise from any act, omission or negligence of
Lessee or any employee, officer, contractor, agent, subtenant, guest, licensee
or invitee of Lessee; (ii) arises from a breach, violation or nonperformance of
any term, provision, covenant or agreement of Lessee hereunder or a breach or
violation by Lessee of any court order or any law, regulation or ordinance of
any federal, state or local authority; or (iii) arises from the activities of
Lessee in and around the Site or the operations or conduct of Lessee's business
upon the Site (collectively, the "Claims"), except to the extent such Claims
are directly caused by the gross negligence or willful misconduct of Lessor. If
any such Claim is made against Lessor, Lessee shall at its sole cost and
expense defend such Claim by or through attorneys satisfactory to Lessor. In
resolving or settling any Claim, Lessee shall obtain a release of such Claim
made against Lessor or any Lessor Related Party. The indemnity obligations of
Lessee are in addition to Lessee's obligations to obtain and maintain insurance
as otherwise provided herein.
Lessee specifically agrees to look solely to Lessor's interest in the
Site for the recovery of any judgment against Lessor.
13. Limits on Liability. Lessor shall have no liability to Lessee
or any other party for any loss allegedly occasioned by the nontransmission
or partial transmission of Lessee's data or damage to the Equipment by reason
of the physical collapse of a tower or antennas, breakdown of a transmitter
or its components, failure or inability of Utah Power and Light Company to
supply electrical power, failure of Lessor's emergency generator, acts of
God, sabotage, earthquake, fire, theft, burglary, windstorm or any other
hazard (natural or man-made), strikes or walkouts,cancellation of Lessee's
licenses or any other cause beyond Lessor's control. Lessor shall have no
13
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liability to Lessee or any other party and Lessee shall indemnify Lessor from
and against all claims, costs and expenses for non-ionizing radiation claimed
to originate as a result of Lessee's operations at the Site.
14. Lessor's Facilities. Lessor shall have first call on personnel
and all Lessor's equipment at the Site, which personnel and/or equipment may be
temporarily limited by reason of personnel or power shortage and/or demand for
reconstruction following a general breakdown caused by acts within or beyond
Lessor's control. Lessor's emergency power supply equipment at the Site will
not be available to Lessee in the event of a Utah Power and Light Company
failure, except as otherwise provided in Schedule O.
15. Property Tax. Lessee shall be responsible for any property
taxes which arise from the operation of the Equipment at the Site. Lessee
acknowledges that the Equipment may be located in Salt Lake and/or Tooele
counties.
16. Late Charges. Any amount owing to Lessor from Lessee under this
Agreement that is thirty days past due shall be assessed a late charge of
$50.00 per invoice per month for each invoice totaling less than $500.00 and a
late charge of $200.00 per invoice per month for each invoice that is equal to
or greater than $500.00.
17. Road Maintenance Charge. Lessee acknowledges and agrees that an
annual charge shall be assessed by Lessor to Lessee to cover access roadway
maintenance and repairs. This cost shall be prorated among the various users of
the Farnsworth Peak/Little Farnsworth Peak areas and is due and payable from
Lessee on or before July 1st annually.
18. Notices. All notices to be given under this Agreement shall be in
writing and shall be deemed to have been given if delivered personally, mailed
by certified mail, return receipt requested, or delivered by recognized
commercial courier to the other party at its last known business address.
19. Governing Law. This Agreement shall be interpreted under and
governed by the laws of the State of Utah.
20. Environmental Representations and Warranties. Neither Lessee nor
Lessee's agents, contractors, authorized representatives or employees shall
engage in any of the following prohibited activities in, on or about the Site:
A. Cause or permit any releases, discharges or spills of
Hazardous Material on or from the Site;
B. Cause or permit any manufacturing, holding, handling,
retaining, transporting spilling, leaking, treating, disposing or
dumping of Hazardous Material in or on any portion of the Site;
C. Cause or permit to be located on the Site any underground or
above-ground tanks for the storage of fuel oil, gasoline and/or other
petroleum products or by-products;
D. Cause or permit any releases, discharges or spills of fuel
oil, gasoline and/or other petroleum products or by-products; or
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E. Otherwise place, keep, or maintain, or allow to be placed,
kept or maintained, any Hazardous Material on any portion of the Site.
For purposes of this paragraph, "Hazardous Material" means any
radioactive, hazardous or toxic substance, material, waste or similar terms,
including, without limitation, petroleum and petroleum products, the presence
of which at the Site or the discharge or emission of which from the Site or the
collection, storage, treatment or disposal of which is regulated by
governmental requirements or regulations.
21. Waiver. The parties agree that the waiver of any breach of this
Agreement by either party shall in no event constitute a waiver as to any
further breach.
22. Headings. Headings on each paragraph of this Agreement are for
reference purposes only and shall not be deemed to have any substantive effect.
23. Entire Agreement; Construction: This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all prior agreements, contracts or other arrangements. No
amendments, modifications or supplements to this Agreement shall be binding
unless executed in writing by the parties hereof.
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first listed above.
KSL, a Division of Bonneville
International Corporation
By:__________________________
Its:_________________________
Loral Communication Systems
By:__________________________
Its:_________________________
16
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Schedule A
The Premises are marked on the attached drawing of the site. The premises
include approximately 210 square feet of space in the attic above the kitchen
in the Transmitter Building shown in the attached drawing for Lessee to install
one six foot antenna with associated equipment of Schedule B.
Attachment: Drawing KSLFPSD002 Site Plot Farnsworth Peak
17
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Schedule B
List of Lessee's Equipment
Item Description Qty.
- ------- ----------- ----
1 HP-83751B Frequency Generator 1
2 HP-8563E Spectrum Analyzer 1
3 HP-3488A Switch Control Unit 1
4 486 Personal Computer 1
5 Video Monitor 1
6 Parabolic Reflector, 6 ft. diameter 1
7 Antenna Feeds (C, X, and Ku) 3
8 Az/El Antenna Positioner 1
9 Antenna Positioner Control Unit 1
10 3 dB 90 degree Coaxial Hybrid 1
11 Coaxial Line Stretcher 2
12 Wideband Coaxial Low Noise Amplifier 1
13 Power Meter 1
14 Directional Coupler 1
15 24V DC Power Supply 1
16 Misc. Cables and Connectors
18
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Schedule C
For the period November 1, 1995 through October 31, 1996, Lessee's
monthly rental payment shall be $1,100.00. If this Agreement is extended as set
forth in paragraph 9, beginning November 1, 1996 and continuing every year
thereafter, the monthly rental payment shall be increased at the rate of five
percent per year.
If Lessee increases and/or modifies the Equipment or otherwise
materially changes the nature of its operations at the Site, Lessor shall be
entitled to increase the monthly rental payment accordingly.
The above-described monthly rental payment shall include the right of
access to one telephone line to be provided by Lessor to Lessee.
19
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Schedule I
Certificate of Insurance
20
<PAGE>
Schedule O
1. Requested Emergency Engineering/Technical Services. $50.00
per hour. Hours shall be invoiced in tenths, with a minimum charge per
request of two-tenths of an hour.
2. Emergency Power Generator Use. This service is available only to
the capacity of the system. Tenants have priority based on their length of time
at the Site. Cost is $8.00/KVA (peak demand rate) per month. Should operation
time exceed fifty hours per year, an additional charge will be made to cover
the cost of additional fuel.
3. Use of Tools and Workshop. The room known as the PI room is
equipped with a work bench and tools, tool board, ladders, drill press,
grinder, extension power cords, goggles and face shield which may be used by
Lessee. Lessee shall be responsible for any loss, breakage or damage. The
cabinet labeled "Tenant Use" contains a minimal assortment of electronic test
equipment that is also available for use.
4. Specialized Equipment and Supplies. An additional charge will
be made for use of some items. The listing of such items is posted on the
bulletin board at the Site and use of these items is subject to permission of
Lessor's engineer on site.
5. Use of Parts and Supplies. Lessor does not stock, inventory,
sell or supply parts. In an emergency, the following rules apply:
A. The requested item must be available and not in immediate need
by Lessor;
B. Approval to use the item must be obtained from Lessor's
engineer on site; and
C. No exchange of money or parts will be allowed, but replacement
with identical and new parts on the basis of replace two items for any
one used within seven days.
21
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Schedule S
Seniority
1. KSL-TV (Operations Began) . . . . . . . . . . . . 1952
2. KSFI (FM) . . . . . . . . . . . . . . . . . . . . Nov. 1, 1957
3. KISN (FM) . . . . . . . . . . . . . . . . . . . . Nov. 11, 1968
4. U.S. Government, Secret Service . . . . . . . . . Jun. 1, 1972
5. KSOP (FM) . . . . . . . . . . . . . . . . . . . . Sep. 15, 1973
6. KRSP (FM) . . . . . . . . . . . . . . . . . . . . Dec. 14, 1973
7. Utah Transit Authority . . . . . . . . . . . . . Nov. 3, 1976
8. Petersen Electric . . . . . . . . . . . . . . . . Apr. 4, 1977
9. KBUL (FM) . . . . . . . . . . . . . . . . . . . . Jul. 1, 1977
10. KBER (FM) . . . . . . . . . . . . . . . . . . . . Jul. 1, 1977
11. Utah Transit Authority . . . . . . . . . . . . . Dec. 1, 1978
12. KBZN (FM) . . . . . . . . . . . . . . . . . . . . Feb. 1, 1979
13. KRCL (FM) . . . . . . . . . . . . . . . . . . . . Aug. 30, 1979
14. Questar . . . . . . . . . . . . . . . . . . . . . Jun. 20, 1981
15. Precision Electronics . . . . . . . . . . . . . . Jun. 26, 1981
16. KKAT (FM) . . . . . . . . . . . . . . . . . . . . Mar. 23, 1983
17. GTE Airfone . . . . . . . . . . . . . . . . . . . Sep. 14, 1990
18. KUMT (FM) . . . . . . . . . . . . . . . . . . . . Aug. 20, 1991
19. Technivision Inc., dba Omnivision . . . . . . . . Mar. 1992
20. Clairtel Communications Group, L.P. . . . . . . . Jun. 15, 1992
21. SMR of Utah, Inc. . . . . . . . . . . . . . . . . Nov. 15, 1992
22. Family Stations, Inc. . . . . . . . . . . . . . . July 6, 1994
23. Loral Communications Systems . . . . . . . . . . Nov. 1, 1995
22
<PAGE>
LEASE AGREEMENT
This Lease Agreement (the "Agreement") is entered into this 18th day
of March, 1996 to be effective November 1, 1995, between KSL, a division of
Bonneville International Corporation, a Utah corporation, with its principal
place of business at Broadcast House, 55 North 300 West, P. O. Box 1160, Salt
Lake City, Utah 84110-1160 ("Lessor") and Loral Corporation, a New York
corporation, with its principal place of business at 600 Third Avenue, New
York, New York 10016 ("Lessee"), in light of the following circumstances:
Recitals
Whereas, Lessor is the owner of certain television and radio
transmission facilities located in the Oquirrh mountain range in Salt Lake and
Tooele counties, Utah at a location commonly known as Farnsworth Peak (the
"Site"); and
Whereas, Lessee is engaged in the business of satellite
communications and data link services; and
Whereas, Lessee desires to lease from Lessor certain space and
equipment at the Site;
Now, therefore, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged, Lessor and Lessee agree as follows:
Terms and Conditions
1. Leased Premises. Lessor hereby leases to Lessee, and Lessee hereby
accepts from Lessor, that certain space and equipment at the Site identified on
Schedule A to this Agreement (the "Premises") for the location and operation of
a test antenna of approximately six feet in length. A complete list of Lessee's
equipment to be located at the Premises (the "Equipment") is attached to this
Agreement as Schedule B.
2. Lessor Furnished Items. During the term of this Agreement,
Lessor shall furnish Lessee with the following:
A. Access to the Site over the access road available to Lessor for
that purpose. Lessee understands that it will be subject to the same
restrictions on the use of such road as may be imposed on Lessor from time
to time by the entities controlling the property upon which the road is
located, including the Kennecott Copper Corporation, Alpha
Communications and Hercules Corporation;
B. Heat, light and toilet facilities at the Site;
C. The right to connect to the power load center at the Site for the
operation of the Equipment. Lessee's use of electricity will be separately
metered by Lessor. Lessor shall invoice Lessee monthly for such electrical
usage at the established commercial rates of the Utah Power and Light
Company, plus the lesser of ten percent of Lessee's monthly statement or
$30.00 for administration and general expenses.
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<PAGE>
Invoices shall be payable within twenty days of the date of billing. In
the event an invoice is more than ten days delinquent, Lessor, upon five
days written notice, shall be entitled to cease supplying Lessee with
electricity;
D. Upon Lessee's request, emergency service, if available, for the
Equipment. Rates for emergency service are set forth in Schedule O to
this Agreement and may be adjusted from time to time as determined by
Lessor;
E. The right to make reasonable alterations, attach fixtures and
erect additions to the Premises as required to operate the Equipment, but
only so long as plans for such alterations, attachments or additions are
submitted, along with a list of added and/or replaced materials, to Lessor
for approval, which approval shall not be unreasonably withheld. In no
event shall any of Lessee's alterations, attachments or additions
interfere with the operation or work of Lessor or of other tenants at the
Site;
F. Other services, such as the use of tools and parts owned by
Lessor, at the rates listed on Schedule O, as such may be adjusted from
time to time as determined by Lessor; and
G. Maintenance of the Site in good operation order.
3. Monthly Payments by Lessee. In exchange for the right to occupy
the Premises and operate the Equipment, Lessee shall pay to Lessor the monthly
rental payment and other fees set forth in Schedule C to this Agreement. The
monthly rental payment shall be payable in advance on or before the first day
of each calendar month at Lessor's principal place of business or at such other
place or in such other manner as Lessor may from time to time direct; provided,
however, that in the event the term of this Agreement shall commence on other
than the first day of a calendar month or terminate on other than the last day
of a calendar month, the monthly rental payment shall be prorated on a daily
basis for such partial calendar month. Unless otherwise specifically set forth
elsewhere in this Agreement, all other payments required to be made by Lessee
to Lessor shall be paid by within twenty days of the date of invoice.
4. Other Costs. Lessee recognizes that additional expenses may be
incurred by Lessor from time to time for the benefit of Lessee and other
tenants at the Site, such as the cost of transporting various government
inspectors, tax assessors, state and/or county officers/officials and the like
to and from the Site. Lessee agrees to pay its share of such costs on a pro
rata basis as calculated by Lessor. Lessor shall provide Lessee with proof of
such costs, along with calculations for determining the amount charged to
Lessee.
5. Compliance. Lessee's operations at the Site shall be in full
compliance with all applicable laws, statutes, ordinances, rules and
regulations of any governmental authority having jurisdiction over Lessor,
Lessee or the Site, including, but not limited to, the Federal Communications
Commission (the "FCC"). Lessee shall bear the cost and responsibility for all
matters pertaining to its operations at the Site, including, but not limited
to, applications, renewals, regular or special reports, discrepancy citations,
inspections or any changes in equipment which may be required from time to time
by the FCC or standards of good engineering practice.
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<PAGE>
Lessee shall protect all persons at the Site at all times from
exposure to excessive non-ionizing radiation (as determined by the FCC, the
Occupational Safety and Health Agency, the Environmental Protection Agency or
any other governmental authority) which may be generated as a result of
Lessee's operations. In the event Lessee's operations appear to be causing
excessive non-ionizing radiation, Lessor shall have the right, but not the
obligation, to take whatever action Lessor deems appropriate to reduce the
amount of such radiation, including, but not limited to, the interruption of
Lessee's operations or the reduction of Lessee's transmission power. Lessor
shall invoice Lessee for the costs of any such action and Lessee shall promptly
pay such amount within twenty days of the date of invoice.
6. Interference. Lessee acknowledges that Lessor reserves the right
to grant space, premises, facilities and/or rights to third parties at the Site
that are the same as or similar to those granted herein to Lessee. Lessee shall
endeavor in good faith to conduct its activities in accordance with sound
electronic and engineering practices and applicable FCC standards and will
cooperate with Lessor and other tenants at the Site so as to anticipate and
prevent Interference, as that term is defined below. A list of Tenants at the
Site as of the commencement of this Agreement is attached hereto as Schedule S.
If Lessee's operations cause Interference, Lessee shall, at its sole
cost and expense and without recourse to Lessor, cause any such Interference to
be corrected within ten days following written notice thereof to Lessee.
Pending correction, Lessee shall immediately cease the activity or remove the
equipment causing the Interference. If Lessee fails to act within the given
time frame, Lessor may cause the required corrections to be made. Lessor shall
invoice Lessee for the costs of any such action and Lessee shall promptly pay
such amount within twenty days of the date of invoice.
"Interference" shall be deemed to exist if (i) a final determination
to that effect is made by an authorized representative of the FCC pursuant to
its rules and regulations; (ii) a condition exists which constitutes
interference within the meaning of the provisions of the rules and regulations
of the FCC in effect at the time; or (iii) Lessor makes a good faith
determination that its technical operations or the technical operations of any
other tenants at the Site are being adversely affected by Lessee's activities.
7. Lessor Improvements. Lessor reserves the right to replace or
install additional equipment at the Site necessary or desirable for its own
operations. Lessor shall not be liable for any disruption of or interference to
Lessee's operations by reason of such replacement or installation, but Lessor
agrees to cooperate with Lessee and to use reasonable efforts to resolve in
advance any problems that might arise in connection with these activities.
8. Assignment or Sublease. Lessee may not assign or transfer this
Agreement or any interest therein, sublease any interest covered by this
Agreement or encumber, hypothecate or otherwise give as security this Agreement
or any interest therein without the prior written consent of Lessor, which
consent shall not be unreasonably withheld. No assignment, transfer or sublease
shall be effective as against Lessor for any purpose, unless Lessor shall have
consented thereto in writing prior to such assignment, transfer or sublease and
unless all sums due from Lessee,
25
<PAGE>
together with any costs to Lessor to cover reasonable legal and other expenses
of Lessor in connection with such assignment, transfer or sublease, shall have
been paid to Lessor.
Each and every attempt to assign, sell, transfer or encumber this
Agreement or any interest therein and each and every attempt to sublease any
interest covered hereby in a manner contrary to that set forth in this
paragraph may be deemed a default by Lessee hereunder.
Lessor's consent to one assignment, transfer or sublease by Lessee or
acceptance of performance from an assignee, transferee or sublessee shall not
be deemed a waiver by Lessor of the restrictions of this paragraph as to
subsequent attempts to assign, transfer or sublet by Lessee or by Lessee's
heirs, successors, assigns, transferees or sublessees. As used herein, the
terms Lessor and Lessee shall be deemed to include their respective heirs,
successors, assigns, transferees or sublessees.
The terms, conditions and covenants contained in this Agreement shall
apply to, inure to the benefit of and be binding upon the parties hereto and
their respective legal representatives, successors, assigns, transferees and
sublessees.
Lessor shall have the right to transfer and assign, in whole or in
part, all of its rights and obligations hereunder and in the Site and in such
event Lessor shall be released from any further obligations hereunder and the
successor-in-interest of Lessor shall have all the rights and obligations
hereunder and in the Site with respect to Lessee.
9. Term. The initial term of this Agreement shall begin on November
1, 1995 and shall end on October 31, 1996. This Agreement shall thereafter be
renewed for up to three additional two year periods (from November 1, 1996
through October 31, 1998; from November 1, 1998 through October 31, 2000; and
from November 1, 2000 through October 31, 2002, respectively) upon the same
terms and conditions set forth herein, provided Lessee gives Lessor written
notice at least ninety days prior to the expiration of the then current term.
10. Default by Lessee. The following events shall be deemed to be
events of default by Lessee under this Agreement (each such event of default
is hereinafter referred to as an "Event of Default"):
A. Lessee shall fail to timely pay any monthly rental payment as
referenced in paragraph 3 above or any other sum of money due hereunder
and such failure shall continue for a period of ten days after written
notice of such default is delivered to Lessee;
B. Lessee shall fail to comply with any provision of this Agreement
not requiring the payment of money, all of which provisions shall be
deemed material, and such failure shall continue for a period of twenty
days after written notice of such default is delivered to Lessee;
C. Lessee shall become insolvent or fail to pay its debts as they
become due or Lessee notifies Lessor that it anticipates either
condition;
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<PAGE>
D. Lessee takes any action to file a petition under any section or
chapter of the United States Bankruptcy Code or under any similar law or
site of the United States or any state thereof or a petition shall be
filed against Lessee under any such statute or Lessee or any creditor of
Lessee notifies Lessor that it knows such a petition will be filed or
Lessee notifies Lessor that it expects such a petition to be filed; or
E. A receiver or trustee shall be appointed for Lessee's leasehold
interest in the Premises or for all or a substantial part of Lessee's
assets.
Upon the occurrence of any Event of Default, Lessor may at its option
and without further notice to Lessee and in addition to all other remedies
given hereunder or by law or in equity, do any one or more of the following:
(i) terminate this Agreement, in which event Lessee shall immediately surrender
possession of the Premises to Lessor; (ii) enter upon the Premises and expel or
remove Lessee's Equipment therefrom, with or without having terminated this
Agreement; and (iii) change or re-key all locks to entrances to the Site and
Lessor shall have no obligation to give Lessee notice thereof or to provide
Lessee with a new key to the Site.
The exercise by Lessor of any one or more remedies hereunder shall
not constitute an acceptance of the surrender of the Premises by Lessee. Lessee
acknowledges that a surrender of the Premises can be effected only by a written
agreement between Lessor and Lessee.
If Lessor terminates this Agreement by reason of an Event of Default,
Lessee shall pay to Lessor the sum of (i) the cost of recovering the Premises;
(ii) the unpaid monthly payments and all other indebtedness accrued hereunder
to the date of such termination; (iii) to the extent the same were not paid,
the cost of repairing, altering or otherwise putting the Premises into a
condition acceptable to a new tenant or tenants (if Lessor elects to so relet)
(collectively, the "Reletting Expenses"); (iv) all expenses incurred by Lessor
in enforcing Lessor's remedies, including attorneys' fees and court costs; (v)
the total monthly payments and other benefits which Lessor would have received
under this Agreement for the remainder of the term, minus any net sums
thereafter received by Lessor through reletting the Premises during such
period; and (vi) any other damages or relief which Lessor may be entitled to at
law or in equity. Lessee shall not be entitled to any excess rent obtained by
reletting the Premises.
If Lessor repossesses the Premises without terminating this Agreement
by reason of an Event of Default, then Lessee shall pay to Lessor the sum of
(i) the cost of recovering the Premises; (ii) the unpaid monthly payments and
all other indebtedness accrued hereunder to the date of such repossession;
(iii) the Reletting Expenses; (iv) all expenses incurred by Lessor in enforcing
Lessor's remedies, including attorneys' fees and court costs; (v) the total
monthly payments and other benefits which Lessor would have received under this
Agreement for the remainder of the term, minus any net sums thereafter received
by Lessor through reletting the Premises during such period; and (vi) any other
damages or relief which Lessor may be entitled to at law or in equity. Re-entry
by Lessor or will not affect the obligations of Lessee for the unexpired term
of this Agreement. Lessee shall not be entitled to any excess rent obtained by
reletting the Premises. Actions to collect amounts due by Lessee may be brought
on one or more occasions without the necessity of Lessor's waiting until the
expiration of the term of this Agreement.
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<PAGE>
Upon termination of this Agreement or repossession of the Premises
due to an Event of Default, Lessor shall not be obligated to relet or attempt
to relet the Premises or any portion thereof or to collect rent after
reletting, but Lessor shall have the option to relet the whole or any portion
of the Premises for any period to any tenant and for any use and purpose.
11. Insurance. Lessee shall at its own cost and expense procure and
maintain general liability insurance coverage and automobile coverage in the
face amount of at least $1,000,000.00 per occurrence and workers compensation
insurance as prescribed by Utah state law. A certificate of insurance naming
Lessor as an additional insured shall be attached to this Agreement as Schedule
I. In addition, Lessee shall use only certified and insured helicopter carriers
for trips and from the Site. Such carriers shall carry liability insurance in
the face amount of at least $5,000,000.00 per occurrence. All such insurance
shall cover Lessee's employees, agents and invitees while in, on or about the
Site and while traveling to and from the Site, including losses attributable to
the presence of the Equipment, Lessee's employees, agents or invitees while in,
on or about the Site. Lessee shall be solely responsible for procuring and
maintaining property insurance on the Equipment.
12. Indemnification. Lessee shall indemnify, defend and hold harmless
Lessor and any officer, director, employee, contractor, agent or affiliate of
Lessor (collectively, a "Lessor Related Party") from and against any and all
liabilities, obligations, damages, claims, suits, losses, causes of action,
liens, judgments and expenses (including court costs, attorneys' fees and costs
of investigation) or any kind, nature or description resulting from any
injuries to or death of any person or any damage to the Site which either (i)
arises from or is claimed to arise from any act, omission or negligence of
Lessee or any employee, officer, contractor, agent, subtenant, guest, licensee
or invitee of Lessee; (ii) arises from a breach, violation or nonperformance of
any term, provision, covenant or agreement of Lessee hereunder or a breach or
violation by Lessee of any court order or any law, regulation or ordinance of
any federal, state or local authority; or (iii) arises from the activities of
Lessee in and around the Site or the operations or conduct of Lessee's business
upon the Site (collectively, the "Claims"), except to the extent such Claims
are directly caused by the gross negligence or willful misconduct of Lessor. If
any such Claim is made against Lessor, Lessee shall at its sole cost and
expense defend such Claim by or through attorneys satisfactory to Lessor. In
resolving or settling any Claim, Lessee shall obtain a release of such Claim
made against Lessor or any Lessor Related Party. The indemnity obligations of
Lessee are in addition to Lessee's obligations to obtain and maintain insurance
as otherwise provided herein.
Lessee specifically agrees to look solely to Lessor's interest in the
Site for the recovery of any judgment against Lessor.
13. Limits on Liability. Lessor shall have no liability to Lessee
or any other party for any loss allegedly occasioned by the nontransmission
or partial transmission of Lessee's data or damage to the Equipment by reason
of the physical collapse of a tower or antennas, breakdown of a transmitter
or its components, failure or inability of Utah Power and Light Company to
supply electrical power, failure of Lessor's emergency generator, acts of
God, sabotage, earthquake, fire, theft, burglary, windstorm or any other
hazard (natural or man-made), strikes or walkouts,cancellation of Lessee's
licenses or any other cause beyond Lessor's control. Lessor shall have no
28
<PAGE>
liability to Lessee or any other party and Lessee shall indemnify Lessor from
and against all claims, costs and expenses for non-ionizing radiation claimed
to originate as a result of Lessee's operations at the Site.
14. Lessor's Facilities. Lessor shall have first call on personnel
and all Lessor's equipment at the Site, which personnel and/or equipment may be
temporarily limited by reason of personnel or power shortage and/or demand for
reconstruction following a general breakdown caused by acts within or beyond
Lessor's control. Lessor's emergency power supply equipment at the Site will
not be available to Lessee in the event of a Utah Power and Light Company
failure, except as otherwise provided in Schedule O.
15. Property Tax. Lessee shall be responsible for any property
taxes which arise from the operation of the Equipment at the Site. Lessee
acknowledges that the Equipment may be located in Salt Lake and/or Tooele
counties.
16. Late Charges. Any amount owing to Lessor from Lessee under this
Agreement that is thirty days past due shall be assessed a late charge of
$50.00 per invoice per month for each invoice totaling less than $500.00 and a
late charge of $200.00 per invoice per month for each invoice that is equal to
or greater than $500.00.
17. Road Maintenance Charge. Lessee acknowledges and agrees that an
annual charge shall be assessed by Lessor to Lessee to cover access roadway
maintenance and repairs. This cost shall be prorated among the various users of
the Farnsworth Peak/Little Farnsworth Peak areas and is due and payable from
Lessee on or before July 1st annually.
18. Notices. All notices to be given under this Agreement shall be in
writing and shall be deemed to have been given if delivered personally, mailed
by certified mail, return receipt requested, or delivered by recognized
commercial courier to the other party at its last known business address.
19. Governing Law. This Agreement shall be interpreted under and
governed by the laws of the State of Utah.
20. Environmental Representations and Warranties. Neither Lessee
nor Lessee's agents, contractors, authorized representatives or employees shall
engage in any of the following prohibited activities in, on or about the Site:
A. Cause or permit any releases, discharges or spills of
Hazardous Material on or from the Site;
B. Cause or permit any manufacturing, holding, handling,
retaining, transporting spilling, leaking, treating, disposing or
dumping of Hazardous Material in or on any portion of the Site;
C. Cause or permit to be located on the Site any underground or
above-ground tanks for the storage of fuel oil, gasoline and/or other
petroleum products or by-products;
D. Cause or permit any releases, discharges or spills of fuel
oil, gasoline and/or other petroleum products or by-products; or
29
<PAGE>
E. Otherwise place, keep, or maintain, or allow to be placed,
kept or maintained, any Hazardous Material on any portion of the Site.
For purposes of this paragraph, "Hazardous Material" means any
radioactive, hazardous or toxic substance, material, waste or similar terms,
including, without limitation, petroleum and petroleum produce, the presence of
which at the Site or the discharge or emission of which from the Site or the
collection, storage, treatment or disposal of which is regulated by
governmental requirements or regulations.
The last paragraph 12 of this Lease shall not be applicable to any
representation, warranty or indemnification given to Lessee by Lessor pursuant
to the terms of this paragraph 20.
21. Waiver. The parties agree that the waiver of any breach of this
Agreement by either party shall in no event constitute a waiver as to any
further breach.
22. Headings. Headings on each paragraph of this Agreement are for
reference purposes only and shall not be deemed to have any substantive effect.
23. Entire Agreement; Construction: This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all prior agreements, contracts or other arrangements. No
amendments, modifications or supplements to this Agreement shall be binding
unless executed in writing by the parties hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first listed above.
KSL, a Division of Bonneville
International Corporation
By:__________________________
Its:_________________________
Loral Communication Systems
Corporation
By:__________________________
Stephen B. Jackson
Its: Vice President
30
<PAGE>
Schedule A
The Premises are marked on the attached drawing of the site. The
Premises include approximately 210 square feet of space in the attic above the
kitchen in the transmitter building shown in the attached drawing for Lessee to
install one six foot antenna with associated equipment of Schedule B.
Attachment: Drawing KSLFPSD002 Site Plot Farnsworth Peak
31
<PAGE>
Schedule B
List of Lessee's Equipment
Item Description Qty.
- ---- ----------- ----
1 HP-83751B Frequency Generator 1
2 HP-8563E Spectrum Analyzer 1
3 HP-3488A Switch Control Unit 1
4 486 Personal Computer 1
5 Video Monitor 1
6 Parabolic Reflector, 6 ft. diameter 1
7 Antenna Feeds (C, X, and Ku) 3
8 Az/El Antenna Positioner 1
9 Antenna Positioner Control Unit 1
10 3 dB 90 degree Coaxial Hybrid 1
11 Coaxial Line Stretcher 2
12 Wideband Coaxial Low Noise Amplifier 1
13 Power Meter 1
14 Directional Coupler 1
15 24V DC Power Supply 1
16 Misc. Cables and Connectors
32
<PAGE>
Schedule C
For the period November 1, 1995 through October 31, 1996, Lessee's
monthly rental payment shall be $1,000.00. If Lessee exercises its right to
extend this Agreement as set forth in paragraph 9, beginning November 1, 1996
and continuing every year thereafter, the monthly rental payment shall be
increased at the rate of five percent per year.
If Lessee increases and/or modifies the Equipment or otherwise
materially changes the nature of its operations at the Site, Lessor shall be
entitled to increase the monthly rental payment accordingly.
In addition to the above-described monthly rental payment, Lessee
shall pay Lessor the sum of $96.00 per month for access to one telephone line
to be provided by Lessor to Lessee.
33
<PAGE>
Schedule I
Certificate of Insurance
CERTIFICATE OF INSURANCE ISSUE DATE
(MM/DD/YY)
02/15/96
PRODUCER THIS CERTIFICATE IS ISSUED AS A MATTER OF
INFORMATION ONLY AND CONFERS NO RIGHTS
UPON THE CERTIFICATE HOLDER. THIS
CERTIFICATE DOES NOT AMEND, EXTEND OR
Alexander & Alexander of ALTER THE COVERAGE AFFORDED BY THE
New York, Inc. POLICIES BELOW.
1185 Avenue of the
Americas COMPANIES AFFORDING COVERAGE
New York, New York 10036
TRANSPORTATION INSURANCE CO.
COMPANY
LETTER A
CONTINENTAL CASUALTY COMPANY
COMPANY
LETTER B
INSURED ZURICH INSURANCE COMPANY
COMPANY
LETTER C
COMPANY
LORAL COMMUNICATIONS LETTER D
SYSTEMS
M/S F1-E10 COMPANY
640 N. 3200 WEST LETTER E
SALT LAKE CITY, UT 84116
COVERAGES
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED
TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY
REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT
TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN. THE INSURANCE AFFORDED
BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND
CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
34
<PAGE>
CO LTR TYPE OF INSURANCE POLICY NUMBER
- ------ ----------------- -------------
B GENERAL LIABILITY GL 402521597
/x/ COMMERCIAL GENERAL LIABILITY
/_/_/ CLAIMS MADE /x/ OCCUR.
/_/ OWNER'S & CONTRACTOR'S PROT.
/x/ B.F. VENDORS
POLICY EFFECTIVE POLICY EXPIRATION LIMITS
DATE (MM/DD/YY) DATE (MM/DD/YY)
- ---------------- ------------------ ---------------------------------------
04/01/95 04/01/96 GENERAL AGGREGATE $ 2,500,000
PROD. COMP/OP AGG. $ 2,500,000
PERS. & ADV. INJURY $ 2,500,000
EACH OCCURRENCE $ 2,500,000
FIRE DAMAGE $ 50,000
(Any one fire)
MED. EXPENSE $ 5,000
(Any one person)
35
<PAGE>
CO LTR TYPE OF INSURANCE POLICY NUMBER
- ------ ----------------- -------------
AUTOMOBILE LIABILITY BUA 802521600 A/S
A /x/ ANY AUTO BUA 002521599 TX
A /_/ ALL OWNED AUTOS PHYSICAL DAMAGE
/_/ SCHEDULED AUTOS COLL. DED. $500
/x/ HIRED AUTOS COMP. DED. $250
/x/ NON-OWNED AUTOS
/_/ GARAGE LIABILITY
/_/
POLICY EFFECTIVE POLICY EXPIRATION LIMITS
DATE (MM/DD/YY) DATE (MM/DD/YY)
- ---------------- ----------------- ---------------------------------------
04/01/95 04/01/96 COMBINED SINGLE $ 1,000,000
04/01/95 04/01/96 LIMIT
BODILY INJURY $
(Per person)
BODILY INJURY $
(Per accident)
PROPERTY DAMAGE $
36
<PAGE>
CO LTR TYPE OF INSURANCE POLICY NUMBER
- ------ ----------------- -------------
C EXCESS LIABILITY AUO 684722502
/x/ UMBRELLA FORM
/_/ OTHER THAN UMBRELLA FORM
POLICY EFFECTIVE POLICY EXPIRATION LIMITS
DATE (MM/DD/YY) DATE (MM/DD/YY)
- ---------------- ----------------- ---------------------------------------
04/01/95 04/01/96 EACH OCCURRENCE $ 2,500,000
AGGREGATE $ 2,500,000
37
<PAGE>
CO LTR TYPE OF INSURANCE POLICY NUMBER
- ------ ----------------- -------------
A WORKER'S COMPENSATION WC 802521594 (RETRO)
9 AND WC 802521595 (DED.)
EMPLOYERS' LIABILITY
POLICY EFFECTIVE POLICY EXPIRATION LIMITS
DATE (MM/DD/YY) DATE (MM/DD/YY)
- ---------------- ----------------- --------------------------------------
04/01/95 04/01/96 STATUTORY LIMITS
04/01/95 04/01/96
EACH ACCIDENT $ 1,000,000
DISEASE--POLICY
LIMIT $ 1,000,000
DISEASE--EACH EMP. $ 1,000,000
38
<PAGE>
CO LTR TYPE OF INSURANCE POLICY NUMBER
- ------ ----------------- -------------
OTHER
POLICY EFFECTIVE POLICY EXPIRATION LIMITS
DATE (MM/DD/YY) DATE (MM/DD/YY)
- ---------------- ----------------- --------------------------------------
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS KSL, A DIVISION OF
BONNEVILLE INTERNATIONAL CORPORATION A UTAH CORPORATION ARE INCLUDED AS
ADDITIONAL INSUREDS BUT ONLY WITH RESPECT TO LIABILITIES ARISING OUT OF THE
LEASING OF PREMISES AT FAR FIELD TEST ANTENNA RANGE LOCATED ON THE OQUIRRH
MOUNTAINS RANGE IN SALT LAKE AND TOOELE COUNTIES, UTAH, COMMONLY KNOWN AS
FARNSWORTH PEAK BY THE NAME ISSUED.
CERTIFICATE HOLDER CANCELLATION
- ------------------ ------------
KSL SHOULD ANY OF THE ABOVE DESCRIBED
ATTN: GREG JAMES POLICIES BE CANCELLED BEFORE THE
BROADCAST HOUSE EXPIRATION DATE THEREOF. THE
55 NORTH 200 WEST ISSUING COMPANY WILL ENDEAVOR TO
P.O. BOX 1160 MAIL 30 DAYS WRITTEN NOTICE TO THE
SALT LAKE CITY, UT 84110-1160 CERTIFICATE HOLDER NAMED TO THE
LEFT, BUT FAILURE TO MAIL SUCH
NOTICE SHALL IMPOSE NO OBLIGATION
OR LIABILITY OF ANY KIND UPON THE
COMPANY, ITS AGENTS OR
REPRESENTATIVES.
authorized representative
39
<PAGE>
Schedule O
1. Requested Emergency Engineering/Technical Services. $50.00 per
hour. Hours shall be invoiced in tenths, with a minimum charge per request of
two-tenths of an hour.
2. Emergency Power Generator Use. This service is available only to
the capacity of the system. Tenants have priority based on their length of time
at the Site. Cost is $8.00/KVA (peak demand rate) per month. Should operation
time exceed fifty hours per year, an additional charge will be made to cover
the cost of additional fuel.
3. Use of Tools and Workshop. The room known as the PI room is
equipped with a work bench and tools, tool board, ladders, drill press,
grinder, extension power cords, goggles and face shield which may be used by
Lessee. Lessee shall be responsible for any loss, breakage or damage. The
cabinet labeled "Tenant Use" contains a minimal assortment of electronic test
equipment that is also available for use.
4. Specialized Equipment and Supplies. An additional charge will be
made for use of some items. The listing of such items is posted on the bulletin
board at the Site and use of these items is subject to permission of Lessor's
engineer on site.
5. Use of Parts and Supplies. Lessor does not stock, inventory, sell
or supply parts. In an emergency, the following rules apply:
A. The requested item must be available and not in immediate need
by Lessor;
B. Approval to use the item must be obtained from Lessor's
engineer on site; and
C. No exchange of money or parts will be allowed, but replacement
with identical and new parts on the basis of replace two items for any
one used within seven days.
40
<PAGE>
Schedule S
Seniority
1. KSL-TV (Operations Began) . . . . . . . . . . . . 1952
2. KSFI (FM) . . . . . . . . . . . . . . . . . . . . Nov. 1, 1957
3. KISN (FM) . . . . . . . . . . . . . . . . . . . . Nov. 11, 1968
4. U.S. Government, Secret Service . . . . . . . . . Jun. 1, 1972
5. KSOP (FM) . . . . . . . . . . . . . . . . . . . . Sep. 15, 1973
6. KRSP (FM) . . . . . . . . . . . . . . . . . . . . Dec. 14, 1973
7. Utah Transit Authority . . . . . . . . . . . . . Nov. 3, 1976
8. Petersen Electric . . . . . . . . . . . . . . . . Apr. 4, 1977
9. KBUL (FM) . . . . . . . . . . . . . . . . . . . . Jul. 1, 1977
10. KBER (FM) . . . . . . . . . . . . . . . . . . . . Jul. 1, 1977
11. Utah Transit Authority . . . . . . . . . . . . . Dec. 1, 1978
12. KBZN (FM) . . . . . . . . . . . . . . . . . . . . Feb. 1, 1979
13. KRCL (FM) . . . . . . . . . . . . . . . . . . . . Aug. 30, 1979
14. Questar . . . . . . . . . . . . . . . . . . . . . Jun. 20, 1981
15. Precision Electronics . . . . . . . . . . . . . . Jun. 26, 1981
16. KKAT (FM) . . . . . . . . . . . . . . . . . . . . Mar. 23, 1983
17. GTE Airfone . . . . . . . . . . . . . . . . . . . Sep. 14, 1990
18. KUMT (FM) . . . . . . . . . . . . . . . . . . . . Aug. 20, 1991
19. Technivision Inc., dba Omnivision . . . . . . . . Mar. 1992
20. Clairtel Communications Group, L.P. . . . . . . . Jun. 15, 1992
21. SMR of Utah, Inc. . . . . . . . . . . . . . . . . Nov. 15, 1992
22. Family Stations, Inc. . . . . . . . . . . . . . . July 6, 1994
23. Heywood Engineering and Consulting . . . . . . . July 1, 1995
24. Loral Communications Systems . . . . . . . . . . Nov. 1, 1995
41
<PAGE>
August 20, 1996
KSL, Division of Bonneville International
Broadcast House
55 North 300 West
P.O. Box 1160
Salt Lake City, Utah 84110-1160
Subject: Lockheed Martin Tactical Systems, Inc.
Exercise of Option for the Far Field Test Antenna Range
Located on the Oquirrh Mountains Range in Salt Lake and Tooele
Counties, Utah, Commonly Known as Farnsworth Peak
November 1, 1996 - October 31, 1998
Gentlemen:
Lockheed Martin Tactical Systems, Inc. formerly exercises its first two year
option for the subject Far Field Test Antenna Range for the period November 1,
1996 through October 31, 1998. The rental payment for the period November 1,
1996 through October 31, 1997 shall be $1,050/month plus the sum of $96/month
for access to one telephone line to be provided by Lessor. The rental payment
for the period of November 1, 1997 through October 31, 1998 shall be
$1,102.50/month plus the sum of $96/month for access to one telephone line to
be provided by Lessor.
Please indicate your concurrence with the above by signing below and returning
one of the two originals to us, letterhead address. Thank you.
Landlord Concurrence: Very truly yours,
KSL, a division of Bonneville
International Corporation LOCKHEED MARTIN TACTICAL
SYSTEMS, INC.
By: LMC Properties, Inc. a Lockheed
Martin company its duly
authorized representative, per
CPS 420
By: _________________________ John W. Wissmann
Date: _______________________ Senior Manager, Real Estate
42
<PAGE>
August 29, 1996
SENT BY FACSIMILE MACHINE
Ms. Joan Perkins
Lockheed Martin Tactical Systems, Inc.
3825 Fabian Way, M/S Z02
Palo Alto, California 94303-4697
Dear Ms. Perkins:
I write in follow-up to a telephone conversation yesterday with Tony
Tigert in your Salt City, Utah office. During my conversation, I agreed, on
behalf of my client, KSL, a division of Bonneville International Corporation,
to extend the time in which Lockheed Martin Tactical Systems, Inc. may exercise
its option to renew that certain Lease Agreement dated March 18, 1996 from
August 31, 1996 to September 30, 1996.
Please contact me if you have any questions or comments concerning the
foregoing. Thank you for your attention to this matter.
Very truly yours,
Boyd L. Hawkins
BJH/tmp
43
<PAGE>
October 9, 1996
KSL, Division of Bonneville International
Broadcast House
Attn: Kim Hake
55 North 300 West
P.O. Box 1160
Salt Lake City, Utah 84110-1160
Subject: Lockheed Martin Corporation
Exercise of Option for the Far Field Test Antenna Range
Located on the Oquirrh Mountains Range in Salt Lake and
Tooele Counties, Utah, Commonly Known as Farnsworth Peak.
November 1, 1996 - October 31, 1998
Dear Ms. Hake:
Lockheed Martin Corporation formally exercises its first two year option for
the subject Far Field Test Antenna Range for the period November 1, 1996
through October 31, 1998. The rental payment for the period November 1, 1996
through October 31, 1997 shall be $1,050/month plus the sum of $96/month for
access to one telephone line to be provided by Lessor. The rental payment for
the period November 1, 1997 through October 31, 1998 shall be $1,102.50/month
plus the sum of $96/month for access to one telephone line to be provided by
Lessor.
Please indicate your concurrence with the above by signing below and returning
one of the two originals to us at 191 Chesapeake Park Plaza, Baltimore,
Maryland 21220. Thank you.
Landlord Concurrence: Very truly yours,
KSL, a division of Bonneville
International Corporation LOCKHEED MARTIN TACTICAL
SYSTEMS, INC.
By: LMC Properties, Inc. a Lockheed
Martin Company its duly
authorized representative, per
CPS 420
By: _________________________ John W. (Jack) Wissmann
Senior Manager, Real Estate
Date: _______________________
44
<PAGE>
EXHIBIT B
DEFAULTS
45
<PAGE>
EXHIBIT 10.61
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS ASSIGNMENT AND ASSUMPTION OF LEASE (this "Assignment") is dated
as of April 29, 1997 among LOCKHEED MARTIN TACTICAL SYSTEMS, INC., a New York
corporation (the "Assignor"), L-3 COMMUNICATIONS CORPORATION, a Delaware
corporation (the "Assignee"), and UNISYS CORPORATION, a Delaware corporation
(the "Landlord"), with reference to the following:
RECITALS
A. The Landlord, as landlord, and the Assignor, as tenant, executed a
Lease Agreement dated May 5, 1995 (which, together with all modifications,
amendments and supplements thereof, is hereinafter referred to collectively as
the "Lease"), a copy of which is attached hereto and incorporated by reference
as Exhibit A, pursuant to which Landlord leased to the Assignor and the
Assignor leased from Landlord property and improvements described therein
located at 322 North 2200 West, Salt Lake City, Utah (Buildings D, D Annex and
Z) (the "Premises").
B. The Assignee is acquiring certain assets and assuming certain
liabilities from the Assignor including the Assignor's rights, leasehold
interest and obligations under the Lease.
C. In connection with such acquisition, the Assignor desires to
assign the Lease to the Assignee, and the Assignee desires to accept the
assignment of the Lease from the Assignor.
D. The Landlord has agreed to enter into this Assignment to, among
other things, evidence its consent to such assignment of the Lease.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Assignor, the Assignee and the
Landlord hereby covenant and agree as follows:
1. Assignment. The Assignor grants, assigns and transfers to the
Assignee, its successors and assigns, all of the Assignor's right, title and
1
<PAGE>
interest in, to and under the Lease (including, without limitation, any options
under the Lease and any rights to extend or renew the Lease) and the Assignee
accepts from the Assignor all of the Assignor's right, title and interest in,
to and under the Lease.
2. Assumption of Lease Obligation. Assignee assumes and agrees to
perform and fulfill all terms, covenants, conditions and obligations required
to be performed and fulfilled by the Assignor under the Lease, including,
without limitation, the obligation to make all payments due or payable on
behalf of the Assignor under the Lease as they become due and payable.
3. Representations of Assignor and Landlord. The Assignor and the
Landlord represent to the Assignee as follows:
(a) The Lease attached hereto as Exhibit A is a true, correct and
complete copy of the Lease (including all modifications, amendments and
supplements thereof) and the same are the only agreements between Landlord and
the Assignor with respect to the subject matter thereof.
(b) The Lease is in full force and effect and, except for the
modifications, amendments and supplements included in Exhibit A, the Lease has
not been modified, amended or supplemented.
(c) Except as set forth on Exhibit B, no default by the Assignor or
the Landlord has occurred and is continuing under the Lease, and no event has
occurred and is continuing which with the giving of notice or the lapse of time
or both would constitute a default thereunder.
(d) No minimum or base rent or other rental has been paid in advance
(except for the current month).
(e) The monthly amount of base rent due under the Lease as of May 1,
1997, is $64,417, and the minimum or base rent and all other rentals and other
payments due, owing and accruing under the Lease have been paid through April
30, 1997.
2
<PAGE>
(f) The term of the Lease commenced on May 5, 1995, and the current
term of the Lease expires on December 31, 2001.
4. Landlord's Consent.
The Landlord hereby consents to the Assignor's assignment of the
Lease to the Assignee and the Assignee's assumption of the Lease. Landlord's
consent to the Assignor's assignment of the Lease to the Assignee shall not be
deemed to release the Assignor from any of its obligations under the Lease or
to alter any provision of the Lease and/or the primary liability of the
Assignor for the payment of minimum or base rent or any additional rent due
under the Lease or for the performance of any other obligations to be performed
by the Assignor under the Lease.
5. Successors and Assigns. This Assignment shall be binding on and
inure to the benefit of the parties hereto, and their respective heirs,
personal representatives, successors and assigns, provided that this Section 5
shall not be construed to permit any future assignments of the Lease or
subletting of the Premises except as permitted by the Lease.
6. Counterparts. This Assignment may be signed in counterpart and, as
so executed, shall constitute a binding agreement.
7. Governing Law. This Assignment shall be governed by and construed
in accordance with the laws of the state in which the Premises are located.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
as of the date first above written.
WITNESS/ATTEST: ASSIGNOR:
LOCKHEED MARTIN TACTICAL
SYSTEMS, INC.
___________________________ By:_______________________(SEAL)
Name:
Title:
3
<PAGE>
ASSIGNEE:
L-3 COMMUNICATIONS CORPORATION
_____________________________ By:_______________________(SEAL)
Name:
Title:
4
<PAGE>
WITNESS/ATTEST LANDLORD:
UNISYS CORPORATION
_____________________________ By:_______________________(SEAL)
Name:
Title:
5
<PAGE>
STATE OF NEW YORK, COUNTY OF QUEENS, TO WIT:
On this the 23 day of May 1997, before me a notary public of
said State, Michael T. Shianese, the undersigned officer, personally appeared
Michael T. Shianese, who acknowledge himself to be an office of L-3
Communication, a Delaware corporation, and that he, as such Vice President,
being authorized so to do, executed the foregoing instrument for the purposes
therein contained, by signed the name of the corporation by himself as a Vice
President.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
------------------------
Notary Public
My Commission Expires:
STATE OF Maryland, COUNTY OF Montgomery, TO WIT:
On this the 30th day of April 1997, before me a notary public
of said State, Stephen M. Piper, the undersigned officer, personally appeared
before me, who acknowledge himself to be a Vice President & Asst. Secretary of
Lockheed Martin Tactical Systems, Inc., a New York corporation, and that he, as
such officer, being authorized so to do, executed the foregoing instrument for
the purposes therein contained, by signed the name of the corporation by
himself as a Vice President & Asst. Secretary.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
------------------------
Notary Public
My Commission Expires: Dec. 1, 2000
6
<PAGE>
--------------------------
Notary Public
My Commission Expires: Dec. 1, 2000
STATE OF PENNSYLVANIA, COUNTY OF MONTGOMERY, TO WIT:
On this the 29th day of April 1997, before me a notary public
of said State, Pennsylvania, the undersigned officer, personally appeared
Gregory T. Fisher, who acknowledged himself to be a Vice President of Unisys
Corporation, a Delaware corporation, and that he, as such Vice President, being
authorized so to do, executed the foregoing instrument for the purposes therein
contained, by signing the name of the corporation by himself as a Vice
President.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
------------------------
Notary Public
My Commission Expires:
7
<PAGE>
EXHIBIT A
THE LEASE
8
<PAGE>
EXHIBIT B
DEFAUTLS
NONE
9
<PAGE>
THIRD AMENDMENT TO LEASE
LORAL CORPORATION/UNISYS CORPORATION
Buildings D, D Annex and Z
322 North 2200 West
Salt Lake City, UT
In consideration of the mutual covenants contained herein, and for other good
and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree to amend the Lease dated May 5, 1995 as amended by First,
and _______ Second Amendments between Loral Corporation, as Lessor, and Unisys
Corporation, as Lessee, for the Demised Premises located in Buildings D, D
Annex and Z at 322 North 2200 West, Salt Lake City, Utah as follows:
1. Effective January 15, 1996 through December 31, 2001, Schedule B (the
"Demised Premises") as used in the Lease shall be increased by 4,584
rentable square feet which additional space is identified on Exhibit A
attached hereto.
2. Effective January 15, 1996 the rental shall be increased to reflect
said additional space utilizing the method described on Schedule C of
the Lease.
3. Except as modified herein and amended herein, all other terms and
conditions of the Sublease shall remain unchanged and in full force
and effect.
LESSEE: LESSOR:
UNISYS CORPORATION LORAL CORPORATION
a Delaware Corporation a New York Corporation
By: _____________________ By:___________________________
Richard J. L'Ecuyer W. B. Booker
Corporate Director Vice President and Controller
Real Estate Operations Loral Communication Systems
By:___________________________
Stephen L. Jackson,
Vice President
Loral Corporation
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SECOND AMENDMENT TO LEASE
LORAL Corporation/UNISYS CORPORATION
Buildings D, D Annex and Z
322 North 2200 West
Salt Lake City, UT
In consideration of the mutual covenants contained herein, and for other good
and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree to amend the Lease dated May 5, 1995 as amended by First
Amendment between Loral Corporation, as Lessor, and Unisys Corporation, as
Lessee, for the Demised Premises located in Buildings D, D Annex and Z at 322
North 2200 West, Salt Lake City, Utah as follows:
1. Effective December 1, 1995 through December 31, 2001, Schedule B (the
"Demised Premises") as used in the Lease shall be increased by 20,000
rentable square feet which additional space is identified on Exhibit A
attached hereto.
2. Effective December 1, 1995 the rental shall be increased to reflect
said additional space utilizing the method described on Schedule C of
the Lease.
3. Except as modified herein and amended herein, all other terms and
conditions of the Sublease shall remain unchanged and in full force
and effect
LESSEE: LESSOR:
UNISYS CORPORATION LORAL CORPORATION
a Delaware Corporation a New York Corporation
By:______________________ By:_________________________
Richard J. L'Ecuyer W. B. Booker
Corporate Director Vice President and Controller
Real Estate Operations Loral Communication Systems
By:___________________________
Stephen L. Jackson,
Vice President
LORAL CORPORATION
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FIRST AMENDMENT TO LEASE
LORAL CORPORATION/UNISYS CORPORATION
Buildings D, D Annex and Z
322 North 2200 West
Salt Lake City, UT
In consideration of the mutual covenants contained herein, and for other good
and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree to amend the Lease dated May 5, 1995 between Loral
Corporation, as Lessor, and Unisys Corporation, as Lessee, for the Demised
Premises located in Buildings D, D Annex and Z at 322 North 2200 West, Salt
Lake City, Utah as follows:
1. Effective December 1, 1995 through December 31, 2001, Schedule B (the
"Demised Premises") as used in the Lease shall be increased by 37,034
rentable square feet which additional spaces are identified on Exhibit
A attached hereto.
2. Effective December 1, 1995 the rental shall be increased to reflect
said additional space utilizing the method described on Schedule C of
the Lease.
3. Effective December 1, 1995 the parking site plan shown on Exhibit B of
the Lease shall be replaced with the attached Exhibit B. Lessee will
have exclusive use of the Building D Annex dock area, however Lessee
must continue to provide the U.S. Postal Service access as provided in
their Lease.
4. Except as modified herein and amended herein, all other terms and
conditions of the Sublease shall remain unchanged and in full force
and effect.
LESSEE: LESSOR:
UNISYS CORPORATION LORAL CORPORATION
a Delaware Corporation a New York Corporation
By:______________________ By:_________________________
Richard J. L'Ecuyer W. B. Booker
Corporate Director Vice and Controller
Real Estate Operations Loral Communication Systems
By:___________________________
Stephen L. Jackson,
Vice President
LORAL CORPORATION
12
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LEASE
Between
UNISYS CORPORATION,
as Lessor
and
LORAL CORPORATION,
as Lessee
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TABLE OF CONTENTS
Article Page
1. Demised Premises . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4. Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5. Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6. Alterations; Demising Costs; Signage . . . . . . . . . . . . . . . . 18
7. Maintenance and Repair . . . . . . . . . . . . . . . . . . . . . . . 19
8. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9. Assignment, Subletting and Encumbrances . . . . . . . . . . . . . . . 20
10. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11. Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13. Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . 25
14. Right to Inspect . . . . . . . . . . . . . . . . . . . . . . . . . . 26
15. Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
16. Damage and Destruction . . . . . . . . . . . . . . . . . . . . . . . 27
17. Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . 28
18. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . 28
19. Release of Lessor . . . . . . . . . . . . . . . . . . . . . . . . . 28
20. Surrender of Demised Premises . . . . . . . . . . . . . . . . . . . 28
21. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
22. Lessor's Inability to Perform . . . . . . . . . . . . . . . . . . . 29
23. Limitations or Liability . . . . . . . . . . . . . . . . . . . . . . 30
24. Asset Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . 30
25. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
26. Rider . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
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LEASE
LEASE, dated as of May 5, 1995, between UNISYS CORPORATION, a
Delaware corporation having an office at Township Line and Union Meeting Roads,
Blue Bell, Pennsylvania 19424 ("Lessor") and LORAL CORPORATION, a New York
corporation having an office at 600 Third Avenue, New York, New York 10016
("Lessee").
W I T N E S S E T H :
WHEREAS, Lessor is the owner of the real property, including
improvements thereon (collectively, the "Property") referenced on Schedule A
hereto; and
WHEREAS, Lessor desires to lease to Lessee, and Lessee desires
to hire from Lessor, certain premises at the Property upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter provided, Lessor and Lessee hereby agree as follows:
1. Demised Premises.
1.1. Lessor hereby leases to Lessee, and Lessee hereby leases
and hires from Lessor, the Demised Premises, as defined in Schedule B hereto,
together with the non-exclusive right to use the common areas of the Property
and such other rights as are necessary or desirable to provide Sublessee with
substantially the same rights and benefits as have been generally afforded to
and enjoyed by the Defense Systems unit of Unisys Corporation ("Defense
Systems") prior to the date hereof (including, without limitation, rights of
ingress and egress, parking consistent with past practice or otherwise as set
forth in the Rider attached to this Sublease, and access to public and private
utilities) for the lease term hereinafter stated and for the Base Rent and
Additional Rent (both as hereinafter defined) set forth herein, upon and
subject to all of the terms and provisions hereinafter provided or incorporated
in this Lease by reference.
1.2. Lessee agrees to accept the Demised Premises on the
Commencement Date (as hereinafter defined) in its "as is" condition and Lessor
shall not be obligated to perform any work or furnish any materials in, to or
about the Demised Premises in order to prepare the Demised Premises for
occupancy by Lessee or otherwise. Lessee hereby releases Lessor from any and
all liability resulting from (i) any latent or patent defects in the Demised
Premises, (ii) the failure of the Demised Premises to comply with any legal
requirements applicable thereto or (iii) the status of the title to the Demised
Premises, provided that the foregoing release of liability is not intended to
limit or otherwise affect any liability that Lessor or any affiliate of Lessor
may have to Lessee or any affiliate of Lessee which arises under any of the
other terms and conditions of this Lease or under the terms and conditions of
any other agreement. Lessee acknowledges that, except as expressly set forth
herein or as expressly set forth in any separate document, Lessor has made no
statements, representations, covenants or warranties with respect to (x) the
condition or manner of construction of the Property or any improvements
constructed in the Demised Premises, (y) the uses or purposes for which the
Demised Premises may be lawfully occupied or (z) any encumbrances, covenants,
restrictions or agreements affecting title
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to the Property or the Demised Premises. Lessee also agrees that, in executing
this Lease, it has not relied upon or been induced by any statements,
representations, covenants or warranties of any person other than those, if
any, set forth expressly in this Lease or in any other separate agreements by
or between Lessor and/or Lessee or any of their respective affiliates.
2. Term.
2.1. (a) The term of this Lease shall commence on the date
hereof (the "Commencement Date") and, unless earlier terminated or extended as
herein provided, shall expire on the Expiration Date. As used in this Lease,
(i) "Term" shall mean the term of this Lease, and (ii) "Expiration Date" shall
mean the Scheduled Expiration Date, as defined in Schedule C hereto; provided
that in the event of a termination of this Lease pursuant to the terms hereof
prior to the Scheduled Expiration Date, the "Expiration Date" shall mean such
date of termination of this Lease.
(b) References in this Lease to the "termination" of this
Lease include the stated expiration of the Term and any earlier termination
thereof pursuant to the provisions of this Lease, or by law. Except as
otherwise expressly provided in this Lease with respect to those obligations of
Lessee which by their nature or under the circumstances can only be, or under
the provisions of this Lease may be, performed after the termination of this
Lease, the Term and estate granted hereby shall end at noon on the date of
termination of this Lease as if such date were the Expiration Date, and neither
party shall have any further obligation or liability to the other after such
termination. Notwithstanding the foregoing, any liability of Lessor or Lessee
to make any payment under this Lease, including, without limitation, amounts
payable by Lessee as Base Rent or Additional Rent hereunder (both as
hereinafter defined), which shall have accrued prior to the termination of this
Lease shall survive the termination of this Lease.
3. Rent.
3.1. The rent ("Rent") payable during the Term under this
Lease shall consist of the following:
(a) the Base Rent, as defined in Schedule C hereto.
(b) additional rent ("Additional Rent") in an amount equal to
any and all other sums payable by Lessee to Lessor under this Lease.
3.2. Except as otherwise specifically provided in this Lease
(a) all payments of Base Rent shall be in equal monthly installments and shall
be made in advance on the first (1st) day of each month during the Term,
without notice (provided that if the amount of Base Rent is required to be
calculated by Lessor in accordance with Schedule C hereof, then Lessor shall
give Lessee prior written notice of such calculation, which notice shall
include an explanation of the basis for such calculation and reasonable backup
documentation relating thereto), and (b) all payments of Additional Rent shall
be made within 30 days after written notice from Lessor, in each case by check
payable to the order of "UNISYS CORPORATION" and addressed to Unisys
Corporation, P.O. Box 500, Blue Bell, Pennsylvania 19424-0003, Attention:
Disbursement & Control Dept., or to such other person or at such other place as
Lessor may from time to time designate in writing.
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<PAGE>
3.3. Lessee shall pay all Rent when due, in lawful money of
the United States which shall be legal tender for the payment of all debts,
public and private, at the time of payment. All sums due and payable by Lessor
or Lessee pursuant to the terms of this Lease that are not paid within five (5)
days of the due date therefor shall from and after the due date bear interest
at an annual percentage rate of ten percent (10%). All interest accrued and
payable by Lessee under this subsection as hereinabove provided shall be deemed
to be Additional Rent payable hereunder and due at such time or times as the
rent with respect to which such interest shall have accrued shall be payable
under this Lease.
3.4. Lessee agrees to pay, an Additional Rent, any revenue tax
or charge, occupancy tax, business privilege tax, business use tax or any other
tax that may be levied against the Demised Premises or Lessee's use or
occupancy thereof during the Term; provided, however, that in no event shall
Lessee be obligated to pay any income tax that is imposed upon and/or payable
by Lessor, and provided further that payments made by Lessee pursuant to this
Section 3.4 shall not be duplicative of amounts paid by Lessee pursuant to any
other provision of this Lease.
3.5. In the event that Lessee shall dispute any calculation of
Rent charged to Lessee by Lessor, then Lessee shall send to Lessor a written
notice, within 30 days of receipt by Lessee of such charge, setting forth the
basis for Lessee's dispute. Lessor and Lessee shall thereupon use reasonable
and good faith efforts to resolve such dispute. If the parties are unable to
resolve such dispute within 30 days after submission by Lessee of its dispute
notice, then the parties shall designate an independent certified public
accountant mutually acceptable to both parties (the "Independent Accountant")
to resolve such dispute and the fees and charges of the Independent Accountant
shall be shared equally by the parties. Both parties shall provide the
Independent Accountant with all information reasonably requested by the
Independent Accountant in connection with its review of such dispute, and both
parties shall request that the Independent Accountant complete its work
expeditiously and issue a written report to both parties setting forth its
determination. The written determination of the Independent Accountant shall be
final and shall be binding upon both Lessor and Lessee. All disputes to be
resolved pursuant to this Section 3.5 shall be so resolved in accordance with
the principles and standards set forth in Section 3.6 below.
3.6. All calculations by Lessor of Base Rent, Additional Rent
and any other amounts that are payable by Lessee hereunder shall be made in
accordance with Lessor's past practices during calendar year 1994 with respect
to Defense Systems, and all charges and allocations relating to the Demised
Premises and all accounting practices utilized by Lessor with respect to
amounts charged to Lessee under this Lease (including the capitalization,
amortization and expensing of costs incurred and funds expended) shall also be
made in such manner.
4. Use.
4.1. Lessee shall occupy and use the Demised Premises solely
for manufacturing, light assembly, engineering, research and development,
office and warehouse and such other uses as may be approved by Lessor (which
approval shall not be unreasonably withheld, delayed or conditioned), provided
that any such use shall be subject in all respects to the other terms and
provisions of this Lease, and subject to any and all
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<PAGE>
laws, statutes, ordinances, orders, regulations and requirements of all
federal, state and local governmental, public or quasi-public authorities,
whether now or hereafter in effect, which may be applicable to or in any way
affect the Demised Premises or any part thereof and all requirements,
obligations and conditions of all instruments of record on the date of this
Lease affecting the Demised Premises (collectively, "Legal Requirements").
5. Services.
5.1. It is the intent of the parties that Lessor shall
continue to provide to Lessee all services generally and customarily provided
by Unisys Corporation to the occupants of the Demised Premises prior to the
Commencement Date, together with any other services that may be appropriate
under the circumstances from time to time (such services being hereinafter
referred to collectively as the "Services"). In connection with the foregoing,
such Services shall include, without limitation, each of the services set forth
on Schedule D hereto, and such Services shall not include any of those items
set forth on Schedule D-1 hereto. Lessee shall pay to Lessor, in consideration
for the Services and as Additional Rent, an amount equal to Lessor's actual
costs in, to or for the benefit of the Demised Premises or Lessee which shall
be determined in accordance with the principles set forth in Section 3.6 above
("Actual Costs"). On a quarterly basis, Lessor shall provide to Lessee a
written statement, in reasonable detail, setting forth such Actual Costs for
Services. In the event that Lessee disputes Lessor's statement of Actual Costs,
such dispute shall be resolved in accordance with Section 3.5 hereof.
5.2. It is the intent of the parties that Lessee shall
continue to provide to Lessor, during the Term hereof, all reasonable services
generally and customarily provided by Defense Systems, prior to the
Commencement Date, to any other portions of the Property. Lessee shall perform
such services, and Lessor shall pay to Lessee a proportionate share of Lessee's
actual costs incurred in performing such services. On a quarterly basis, Lessee
shall provide to Lessor a written statement, in reasonable detail, setting
forth such costs. In the event of a dispute with respect to such costs, such
dispute shall be resolved in accordance with Section 3.5 hereof.
5.3. In the event that telephone switching equipment or other
telecommunications equipment utilized by Lessor or Lessee is located within the
premises occupied by the other party, then the party occupying such premises
shall grant the other party reasonable access to such telephone switching
equipment or other telecommunications equipment and other areas reasonably
required for such telecommunications use, subject in each case to reasonable
security requirements of the party granting such access.
5.4. The provisions of this Section shall survive the
expiration or earlier termination of this Lease.
6. Alterations; Demising Costs; Signage.
6.1. As used herein, the term "Alterations" shall mean,
collectively, any alterations, modifications installations, additions or
improvements to the Demised Premises. Without the prior written consent of
Lessor in each instance, which consent shall not be unreasonably withheld
conditioned or delayed, Lessee shall not make any (a) structural Alterations or
(b) non-structural Alterations having a design and construction cost in
18
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excess of $50,000 on a per project basis. Any Alterations consented to by
Lessor, or otherwise permitted under this Lease, shall be performed by Lessee,
at its sole cost and expense, in a good and workmanlike manner. Lessor shall
have the right to post notices of non-responsibility and similar notices, as
Lessor shall reasonably deem appropriate, on the Demised Premises while
Alterations are occurring.
6.2. Lessor and Lessee shall use reasonable and good faith
efforts to reach a mutual agreement as to whether any Alterations are necessary
and appropriate in order to separate the Demised Premises from the premises in
the Property occupied by Lessor. In the event that the parties reach such a
mutual agreement, then Lessor shall perform such agreed upon Alterations, and
Lessee shall, within 30 days after written demand by Lessor, reimburse Lessor
for one-half of the costs and expenses relating to such Alterations. Lessor may
request payment of Lessee's share of such costs, and (if requested) Lessee
shall pay its share of such costs, as such costs are incurred by Lessor during
the course of design and construction of such Alterations. Lessor shall require
that (a) any contractors or subcontractors performing any such work maintain
reasonable and appropriate liability insurance and (b) any such insurance
policies shall name Lessor and Lessee as additional insureds.
6.3. Lessee shall have the right to install reasonable and
appropriate signage, both at the entrance to the Demised Premises and in the
common areas of the Property, indicating Lessee's occupancy of the Demised
Premises, provided that the location, size and design of any such signage shall
be subject to the prior written consent of Lessor, which consent shall not be
unreasonably withheld or delayed.
6.4. In the event that the Demised Premises are measured or
re-measured pursuant to the terms of this Lease (inclusive of the Rider, if
any, and Schedule's attached hereto), Lessor and Lessee shall each pay one-half
(1/2) of the costs and expenses relating to such measurement or remeasurement.
7. Maintenance and Repair.
7.1. Except as provided to the contrary in Schedule D and
Schedule D-1 attached hereto, Lessor shall, at its sole cost and expense,
maintain the Premises in reasonably satisfactory repair and condition, except
for ordinary wear and tear, and will make all structural and nonstructural
repairs which may be required by law or required to keep the Premises in
reasonably satisfactory repair and condition, except for ordinary wear and
tear, and Lessor's Actual Costs for providing such maintenance and repair
Services shall be charged to Lessee as Additional Rent in accordance with
Section 5.1 hereof.
8. Insurance.
8.1. Lessee, at Lessee's sole expense, shall maintain for the
benefit of Lessor such policies of insurance (and in such form) with respect to
the Demised Premises which shall be reasonably satisfactory to Lessor as to
coverage and insurer (who shall be licensed to do business in the State in
which the Demised Premises are located) provided that such insurance shall at a
minimum include comprehensive general liability insurance protecting and
indemnifying Lessor and Lessee against any and all claims and liabilities for
injury or damage to persons or property occurring
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upon, in or about the Demised Premises, and the public portions of the
Property, caused by or resulting from or in connection with any act or omission
of Lessee or Lessee's employees, agents or invitees. Lessor shall be named as
an additional insured under any such policies of insurance obtained by Lessee,
and no such policy shall be subject to termination or modification unless at
least thirty (30) days' prior written notice (or ten (10) days' prior written
notice, if such termination results from Lessee's failure to pay the premiums
for such insurance) shall have been given by the applicable insurance company
to Lessor. Upon execution of this Lease by Lessee and at least thirty (30) days
prior to the expiration date of such policies, Lessee shall furnish to Lessor a
certificate or certificates of insurance confirming that the required insurance
is in full force and effect with all premiums paid current. Nothing contained
herein shall limit, or prohibit, Lessee from providing such coverage through
"blanket" policies of insurance and/or self-insuring therefor in a manner that
is consistent with the general corporate practices of Lessee.
8.2. Nothing contained in this Lease shall relieve Lessee from
any liability as a result of damage from fire or other casualty, but each party
shall look first to any insurance in its favor before making any claim against
the other party for recovery for loss or damage resulting from fire or other
casualty. To the extent that such insurance is in force and collectible and to
the extent permitted by law, Lessor and Lessee each hereby releases and waives
all right to recovery against the other or anyone claiming through or under the
other by way of subrogation or otherwise. The foregoing release and waiver
shall be in force only if the insurance policies of Lessor and Lessee provide
that such release or waiver does not invalidate the insurance; each party
agrees to use reasonable efforts to include such a provision in its applicable
insurance policies. If the inclusion of said provision would involve an
additional expense, either party, at its sole expense, may require such
provision to be inserted in the other's policy.
9. Assignment, Subletting and Encumbrances.
9.1. Lessee shall not sublease or mortgage, pledge or
otherwise encumber all or any part of the Demised Premises, assign or mortgage
this Lease (by operation of law or otherwise) or permit the Demised Premises to
be used or occupied by anyone other than Lessee, Lessee's divisions and other
Affiliates and Lessee's licensees, invitees, customers and vendors, without the
prior written consent of Lessor in each instance, which consent shall not be
unreasonably withheld, conditioned or delayed; provided, however, that Lessee,
upon at least 30 days' prior written notice to Lessor, may assign this Lease or
sublet all or part of the Demised Premises to (A) an Affiliate of Lessee, (B)
an entity into which Lessee is merged or consolidated, and (C) an entity which
acquires all or substantially all of the business or operations of Lessee. Any
consent by Lessor as hereinabove required shall not excuse Lessee from its
obligation to obtain the express written consent of Lessor to any further
action or matter with respect to which the consent of Lessor is hereinabove
required and Lessee shall not be released from any of its obligations
hereunder. The term "Affiliate", as used in this Section 9.1, shall have the
same meaning as is set forth in the Asset Purchase Agreement.
10. Liens.
10.1. Lessee shall not suffer or permit any mechanic's,
materialman's, vendor's, supplier's, laborer's or other similar liens
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(collectively, "mechanic's liens") to be filed against the Demised Premises, or
any part thereof, nor against Lessee's interest therein, by reason of work,
labor, services or materials supplied or claimed to have been supplied to
Lessee (except for mechanic's liens for payments that are not yet delinquent or
for payments that Lessee is contesting in good faith and in a diligent manner).
If any mechanic's lien described in the preceding sentence shall at any time be
filed against the Demised Premises, or any part thereof, or Lessee's interest
therein, Lessee shall, within forty-five (45) days after notice of the filing
thereof, cause the same to be discharged of record by payment, deposit, bond,
order of a court of competent jurisdiction or otherwise, or provide Lessor with
reasonable assurances as to Lessee's ability to satisfy such lien. If Lessee
shall fail to cause such lien to be discharged within such forty-five (45) day
period, then, in addition to any other right or remedy of Lessor, Lessor may,
but shall not be obligated to, discharge the same either by paying the amount
claimed to be due or by procuring the discharge of such lien by deposit or by
bonding proceedings, and in any such event Lessor shall be entitled to
reimbursement from Lessee for any reasonable costs expended by Lessor.
11. Default.
11.1. (a) Each of the following shall constitute an Event
of Default hereunder:
(i) if Lessee shall fail to pay when due any Rent or
any other amount Lessee may be required to pay hereunder, and Lessee shall fail
to remedy such default within seven (7) business days after written notice
thereof has been given to Lessee by Lessor, provided that an Event of Default
shall not be deemed to have occurred hereunder if Sublessee shall have timely
disputed in good faith its obligation to pay such Rent or the amount thereof;
or
(ii) if Lessee shall default in the observance or
performance of any term, covenant or condition of this Lease on Lessee's part
to be observed, performed or complied with (other than the payment of Base Rent
and Additional Rent and other amounts payable hereunder) and Lessee shall fail
to remedy such default within thirty (30) days after written notice to cure,
or, if such default is of such a nature that for reasons beyond Lessee's
control it cannot be completely remedied within said period of thirty (30)
days, then if Lessee (A) shall not promptly institute and thereafter diligently
prosecute to completion all steps necessary to remedy the same and (B) shall
not remedy the same within a reasonable time after the date of default; or
(iii) if any event shall occur or any contingency shall
arise whereby this Lease or the estate hereby granted or the unexpired balance
of the Term would, except as expressly permitted herein, by operation of law or
otherwise, devolve upon or pass to any person or entity other than Lessee, and
Lessee shall fail to remedy such default within sixty (60) days after written
notice thereof has been given to Lessee by Lessor;
(b) Upon the occurrence of any such Event of Default, Lessor
may, in addition to exercising any other available rights or remedies available
to Lessor under law, give to Lessee notice of its intention to end the Term at
the expiration of three (3) days from the date of the giving of such notice,
and, in the event such notice is given, this Lease and the Term and estate
hereby granted (whether or not the Term shall have commenced)
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shall terminate upon the expiration of said three (3) days with the same force
and effect as if that day were the Expiration Date, provided, however, that
Lessor and Lessee shall remain liable for the performance of their respective
obligations hereunder which survive the termination of this Lease and for
damages as provided in this Lease.
11.2. Notwithstanding anything to the contrary set forth
herein, this Lease shall immediately terminate if any of the following events
shall occur with respect to Lessee: (a) if Lessee shall (i) have applied for or
consented to the appointment of a receiver, trustee or liquidator, or other
custodian of Lessee, or any of its properties or assets, (ii) have made a
general assignment for the benefit of creditors, (iii) have commenced a
voluntary case for relief as a debtor under the United States Bankruptcy Code,
or any other applicable federal or state laws, or filed a petition to take
advantage of any bankruptcy, reorganization, insolvency, readjustment of debts,
dissolution or liquidation law or statute or an answer admitting the material
allegations of a petition filed against it in any proceeding under any such
law, or (iv) be adjudicated a bankrupt or insolvent; or (b) if without the
acquiescence or consent of Lessee, an order, judgment or decree shall have been
entered by any court of competent jurisdiction approving as properly filed a
petition seeking relief under the United States Bankruptcy Code, or any other
applicable federal or state laws, or any bankruptcy, reorganization,
insolvency, readjustment of debts, dissolution or liquidation law or statute
with respect to Lessee, or all or a substantial part of their respective
properties or assets, and such order, judgment or decree shall have continued
unstayed and in effect for any period of not less than ninety (90) days.
Neither Lessee, nor any person claiming through or under Lessee or by reason of
any statute or order of court shall, after such termination, be entitled to
possession of the Demised Premises but shall forthwith quit and surrender the
Demised Premises. Without limiting any of the foregoing provisions of this
Section 10.2, if pursuant to the United States Bankruptcy Code, or any other
applicable federal or state laws, Lessee is permitted to assign this Lease,
Lessee agrees that adequate assurance of future performance by an assignee
expressly permitted under such law shall be deemed to mean evidence in the form
of financial statements prepared and certified by a certified public accountant
that the assignee will have a net worth, after excluding the value of the
leasehold, sufficient to meet the remaining obligations under this Lease.
11.3. In the event of any breach by Lessee or any persons
claiming through or under Lessee of any of the terms, covenants or conditions
contained in this Lease, Lessor, after the giving of any notice required by the
terms of this Lease and the expiration of any notice and cure periods
hereunder, (a) shall be entitled to enjoin such breach and (b) shall have the
right to invoke any right and remedy available at law or in equity or by
statute or otherwise. The provisions of this Section 11.3 shall survive the
expiration or sooner termination of this Lease.
11.4. If this Lease and the Term shall terminate as provided
in Section 11.1 or in Section 11.2 above, or by or under any summary proceeding
or any other action or proceeding or if Lessor shall re-enter the Demised
Premises as hereinabove provided or by or under any summary proceeding or any
other action or proceeding, then in any of said events:
(a) Lessee shall pay to Lessor all Base Rent, Additional Rent
and other amount payable by Lessee hereunder to the date upon which this
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Lease and the Term shall have terminated or to the date of re-entry upon the
Demised Premises by Lessor, as the case may be;
(b) Lessor shall be entitled to retain all monies, if any,
paid by Lessee to Lessor, whether as advance Rent, security or otherwise, but
such monies shall be credited by Lessor against any Rent due at the time of
such termination or re-entry or, at Lessor's option, against any damages
payable by Lessee;
(c) Lessee shall be liable for and shall pay to Lessor, as
damages, any deficiency between the Base Rent and Additional Rent payable
hereunder for the period which otherwise would have constituted the unexpired
portion of the Term (conclusively presuming the Base Rent and Additional Rent
to be at the same rate as was payable for the year immediately preceding such
termination or re-entry less any Additional Rent for such one-year period
payable to Lessor by Lessee pursuant to Section 5.1 above) and the net amount,
if any, of rents ("Net Rent") collected under any reletting effected by Lessor
for any part of such period (after first deducting from the rents collected
under any such reletting all of Lessor's reasonable expenses in connection with
the termination of this Lease or Lessor's re-entry upon the Demised Premises
and in connection with such reletting including all reasonable repossession
costs, brokerage commissions, legal expenses, attorneys' fees, alteration or
similar costs and other expenses of preparing the Demised Premises for such
reletting);
(d) In the event that Lessor shall not have collected any
monthly deficiencies as aforesaid, Lessor shall be entitled to recover from
Lessee, and Lessee shall pay to Lessor, on demand, as and for liquidated and
agreed final damages, a sum equal to the amount by which the Base Rent and
Additional Rent payable hereunder for the period which otherwise would have
constituted the unexpired portion of the Term (conclusively presuming the Base
Rent and Additional Rent to be at the same rate as was payable for the year
immediately preceding such termination or re-entry less any Additional Rent for
such one-year period payable to Sublessor by Sublessee pursuant to Section 5.1
above) exceeds the then fair and reasonable rental value of the Demised
Premises for the same period, both discounted to present value at the rate of
eight percent (8%) per annum. If before presentation of proof of such
liquidated damages to any court, commission or tribunal, the Demised Premises,
or any part thereof, shall have been relet by Lessor for the period which
otherwise would have constituted the unexpired portion of the Term, or any part
thereof, the amount of rent upon such reletting shall be deemed, prima facie,
to be the fair and reasonable rental value for the part or the whole of the
Demised Premises so relet during the term of the reletting; and
(e) In no event shall Lessee be entitled to receive any excess
of Net Rent over the sums payable by Lessee to Lessor hereunder, and in no
event shall Lessee be entitled in any suit for the collection of damages
pursuant to this Article to a credit in respect of any Net Rent from a
reletting except to the extent actually received by Lessor prior to the
commencement of such suit.
11.5. If a default by Lessee shall have occurred and be
continuing with respect to any obligations of Lessee under this Lease, Lessor
may, at its option, upon reasonable prior notice to Lessee (unless Lessor
reasonably believes there to be an emergency threatening Lessor's property
outside the Demised Premises, or threatening substantial damage to Lessor's
interest in the Demised Premises as Lessor, in which event no notice shall be
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required and Lessor may act immediately), perform such obligations for the
account of, and at the expense of, Lessee. The sums so paid or incurred by
Lessor, in its sole discretion, together with interest at the rate specified in
Section 3.3 hereof, costs and damages shall be due from and paid by Lessee, as
Additional Rent, upon Lessee's receipt of written demand therefor from Lessor.
11.6. Nothing herein contained shall be construed as limiting
or precluding the recovery by Lessor against Lessee of any sums or damages to
which, in addition to the damages particularly provided above, Lessor may
lawfully be entitled by reason of any default hereunder on the part of Lessee;
provided, however, that in no event shall Lessor or Lessee be entitled to
special or consequential damages with respect to any matter arising hereunder
or relating hereto.
12. Indemnification.
12.1. Lessee shall indemnify and hold harmless Lessor and its
employees and agents from and against any and all loss, cost, liability, claim,
damage and expense, including, without limiting the generality of the
foregoing, reasonable attorneys' fees and expenses and court costs, penalties
and fines incurred in connection with or arising from any injury to Lessee or
for any damage to, or loss (by theft or otherwise) of, any of the property of
Lessee, irrespective of the cause of such injury, damage or loss and whether
occurring in or about the Demised Premises or the Property.
12.2. Lessee shall indemnify and hold harmless Lessor and its
officers, directors, shareholders and employees from and against any and all
loss, cost, liability, claims, damage and expenses, including, without limiting
the generality of the foregoing, reasonable attorneys' fees and expenses and
court costs, penalties and fines, whether or not due to third party claims,
suits or proceedings, incurred in connection with or arising from (a) any
default by Lessee in the observance or performance of, or compliance with, any
of the terms, covenants or conditions of this Lease on Lessee's part to be
observed, performed or complied with, (b) the use or occupancy or manner of use
or occupancy of the Demised Premises by Lessee or any of its agents, employees
or contractors, or the exercise by Lessee or any of its agents, employees or
contractors, of any rights granted to Lessee hereunder, (c) any acts, omissions
or negligence of Lessee or any of its agents, employees or contractors, in or
about the Demised Premises or the Property either prior to, during, or after
the termination of this Lease or (d) the condition of the Demised Premises, but
only to the extent that Lessee fails to perform any of its obligations
hereunder with respect to the condition of the Demised Premises. If any action
or proceeding shall be brought against Lessor by reason of any such claim,
Lessee shall be given prompt notice thereof and, upon notice from Lessor, shall
resist and defend such action or proceeding at Lessee's sole expense and employ
counsel therefor reasonably satisfactory to Lessor. Lessee shall pay to Lessor
on demand all sums which may be owing to Lessor by reason of the provisions of
this subsection. Lessee's obligations under this subsection shall survive the
Expiration Date or earlier termination of this Lease.
12.3. Lessor shall indemnify and hold harmless Lessee and
Lessee's officers, directors, shareholders and employees from and against any
and all loss, cost, liability, claims, damage and expenses, including, without
limiting the generality of the foregoing, reasonable attorneys' fees and
expenses and court costs, penalty and fines, whether or not due to third
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party claims, suits or proceedings, incurred in connection with or arising from
(a) any default by Lessor in the observance or performance of, or compliance
with, any of the terms, covenants or conditions of this Lease on Lessor's part
to be observed, performed or complied with, or (b) the gross negligence or
wilful misconduct of Lessor (in its capacity as lessor hereunder) or any of its
agents, employees or contractors (retained by Lessor in its capacity as lessor
hereunder), in or about the Demised Premises or the Property either prior to,
during, or after the termination of this Lease. If any action or proceeding
shall be brought against Lessee by reason of any such claim, Lessor shall be
given prompt notice thereof and, upon notice from Lessee, shall resist and
defend such action or proceeding at Lessor's sole expense and employ counsel
therefor reasonably satisfactory to Lessee. Lessor shall pay to Lessee on
demand all sums which may be owed to Lessee by reason of the provisions of this
subsection. Lessor's obligations under this subsection shall survive the
Expiration Date or earlier termination of this Lease.
12.4. Lessor shall not be liable for any loss or damage to
property of Lessee or any of its employees, guests, invitees or licensees by
reason of theft or otherwise. Lessor shall not be liable for any injury or
damage to persons or property resulting from fire, explosion, falling plaster,
steam, gas, electricity, water, rain or leaks from any part of the Demised
Premises or from the pipes, appliances or plumbing works or from the roof,
street or subsurface or from any other place or by dampness or by any other
cause of whatsoever nature, unless such injury or damage has been shown to have
been due solely to the gross negligence or willful act or omission of Lessor,
its affiliates, or the officers, directors, employees or agents of Lessor or
its affiliates in the course of their employment. Subject to the foregoing, all
property of Lessee or others kept or stored on the Demised Premises shall be so
kept or stored at the risk of Lessee only.
12.5. Notwithstanding anything in this Section 12 to the
contrary, neither party shall be required to indemnify the other party (an
"indemnitee") against the indemnitee's own negligence or wilful misconduct.
13. Hazardous Materials.
13.1. Lessee shall not cause or permit any Hazardous Material
(as hereinafter defined) to be brought upon, kept or used in or about the
Demised Premises by the agents, principals, employees, assigns, sublessees,
contractors, subcontractors, consultants or invitees of Lessee, except in full
compliance with applicable Legal Requirements. If Lessee breaches the
obligations stated in the preceding sentence, or if the introduction or release
of a Hazardous Material on the Demised Premises caused or permitted by Lessee
(or the aforesaid others) results in contamination of the Demised Premises or
any surrounding area(s), or if contamination of the Demised Premises or any
surrounding area(s) by Hazardous Material otherwise occurs for which Lessee is
legally, actually or factually liable or responsible (other than liability
which arises solely as a result of the tenancy created hereby or solely as a
result of Lessor's mere occupancy of the Demised Premises), then Lessee shall
fully and completely indemnify, defend and hold harmless Lessor (or any party
claiming by, through or under Lessor) from any and all claims, judgments,
damages, penalties, fines, costs, liabilities, expenses or losses, including,
without limitation: (i) diminution in the value of the Demised Premises; (ii)
any asserted damage to the Property or to neighboring properties or the
occupants of the Property or neighboring properties, and (iii) any sums paid in
settlement of claims,
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reasonable attorneys' fees, consultants fees and expert fees which arise or
arose before, during or after the term of this Lease as a consequence of such
contamination. This indemnification includes, without limitation, costs
incurred in connection with any investigation or site conditions or any
clean-up, remedial, removal or restoration work required by any federal, state
or local governmental agency or political subdivision because of Hazardous
Materials present in the soil or ground water on or under the Demised Premises
for which Lessee is responsible pursuant to the terms of this Lease. Without
limiting the foregoing, if the introduction or release of any Hazardous
Materials on, under or about the Demised Premises or any other surrounding
area(s) caused or permitted by Lessee (or the aforesaid others) results in any
contamination of the Demised Premises, Lessee shall immediately take all
actions at its sole expense as are necessary or appropriate to return the
Demised Premises to the condition existing prior to the introduction by Lessee
of any such Hazardous Materials thereto; provided that the prior written
approval (which approval shall not be unreasonable withheld, conditioned or
delayed) of such actions by Lessor shall be first obtained. The foregoing
obligations and responsibilities shall survive the expiration or earlier
termination of this Lease.
13.2. As used herein, the term "Hazardous Materials" means any
hazardous or toxic substance, material or waste, including, but not limited to,
those substances, materials, and wastes listed in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reorganization Act of 1986 (42 U.S.C. Section 9601
et seq., as amended), the Federal Clean Water Act, the Federal Clean Air Act,
the Federal Resource Conservation and Recovery Act, the Federal Toxic
Substances Control Act, the United States Department of Transportation
Hazardous Materials Table (49 CFR 172.101) or by the Environmental Protection
Agency as hazardous substances (40 CFR Part 301 and amendments thereto), and
all substances, materials and wastes that are defined as "toxic", "hazardous"
or "extremely hazardous" or are otherwise regulated under any applicable local,
state or federal law. In furtherance of, and not in limitation of the
foregoing, the term "Hazardous Materials" shall include asbestos,
asbestos-containing materials and petroleum.
13.3. Lessor and Lessee acknowledge and agree that the Asset
Purchase Agreement shall govern all matters relating to the presence of
Hazardous Materials in, on, under and about the Demised Premises prior to the
execution and delivery hereof.
14. Right to Inspect.
14.1. Lessor and the authorized representatives of Lessor
shall have the right to enter upon the Demised Premises upon reasonable advance
notice to Lessee at all reasonable times during usual business hours (and at
any time without notice in the case of an emergency) for the purpose of
inspecting the same, conducting an environmental review of Lessee's business
operations or exhibiting the same to prospective purchasers, tenants or
mortgagees.
15. Eminent Domain.
15.1. If all of the Demised Premises are taken by exercise of
the power of eminent domain (or conveyed by Lessor in lieu of such exercise)
this Lease will terminate on a date (the "termination date") which
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is the earlier of the date upon which the condemning authority takes possession
of the Demised Premises or the date on which title to the Demised Premises is
vested in the condemning authority. If more than 25% of the rentable area of
the Demised Premises is so taken, or if Lessee's rights of access to the
Demised Premises or Lessee's use of parking facilities at the Property are
materially impaired as a result of such a taking, then Lessee will have the
right to cancel this Lease by written notice to Lessor given within 20 days
after the termination date. If less than 25% of the rentable area of the
Demised Premises is so taken, or if the Lessee does not cancel this Lease
according to the preceding sentence, the Base Rent will be abated in the
proportion of the rentable area of the Demised Premises so taken to the
rentable area of the Demised Premises immediately before such taking, and
Lessee's Share will be appropriately recalculated. If 25% or more of the
Property is so taken, Lessor may cancel this Lease by written notice to Lessee
given within 30 days after the termination date. In the event of any such
taking, the entire award will be paid to Lessor and Lessee will have no right
or claim to any part of such award; however, Lessee will have the right to
assert a claim against the condemning authority in a separate action, so long
as Lessor's award is not otherwise reduced, for Lessee's moving expenses and
leasehold improvements owned by Lessee.
16. Damage and Destruction.
16.1. If the Demised Premises or the Property are damaged by
fire or other insured casualty, Lessor will give Lessee written notice of the
time which will be needed to repair such damage, as determined by Lessor in its
reasonable judgment, and the election (if any) which Lessor has made according
to this Section 16. Such notice will be given before the 30th day (the "notice
date") after the fire or other insured casualty.
16.2. If the Demised Premises or the building are damaged by
fire or other insured casualty to an extent which may be repaired within 120
days after the notice date, as reasonably determined by Lessor, Lessor will
promptly begin to repair the damage after the notice date and will diligently
pursue the completion of such repair. In that event this Lease will continue in
full force and effect except that Base Rent and (as appropriate) Additional
Rent will be abated on a pro rata basis from the date of the damage until the
date of the completion of such repairs (the "repair period") based on the
proportion of the rentable area of the Demised Premises that Lessee is unable
to use during the repair period.
16.3. If the Demised Premises or the Property are damaged by
fire or other insured casualty to an extent that may not be repaired within 120
days after the notice date, as reasonably determined by Lessor, then (a) Lessor
may cancel this Lease as of the date of such damage by written notice given to
Lessee on or before the notice date or (b) Lessee may cancel this Lease as of
the date of such damage by written notice given to Lessor within 10 business
days after Lessor's delivery of a written notice that the repairs cannot be
made within such 120-day period. If neither Lessor nor Lessee so elects to
cancel this Lease, Lessor will diligently proceed to repair the Property and
the Demised Premises, and Base Rent and (as appropriate) Additional Rent will
be abated on a pro rata basis during the repair period based on the proportion
of the rentable area of the Demised Premises that Lessee is unable to use
during the repair period.
16.4. Notwithstanding the provisions of this Section 16, if
a material portion of the Demised Premises or the Property is damaged by an
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uninsured casualty, or if the proceeds of insurance are insufficient to pay for
the repair of any material damage to the Demised Premises or the Property,
Lessor will have the option to repair such damage or cancel this Lease as of
the date of such casualty by written notice to Lessee on or before the notice
date, provided, however, that such termination shall not be effective if
Lessee, within 10 days after its receipt of such notice, delivers to Lessor the
written agreement of Lessee (in form and substance reasonably satisfactory to
Lessor) to pay or reimburse Lessor for the uninsured portion of the cost of
such repairs.
16.5. If any such damage by fire or other casualty is the
result of the negligence or wilful misconduct of Lessee, its agents,
contractors, employees, or invitees, there will be no abatement of Base Rent or
Additional Rent as otherwise provided for in this Section 16. Lessee will have
no rights to terminate this Lease on account of any damage to the Demised
Premises or the Property except as set forth in this Lease.
17. Remedies Cumulative.
17.1. Each right and remedy of Lessor under this Lease shall
be cumulative and be in addition to every other right and remedy of Lessor
under this Lease and now or hereafter existing at law or in equity, by statute
or otherwise.
18. Quiet Enjoyment.
18.1. Lessor covenants that, as long as Lessee shall pay the
Base Rent and Additional Rent and all other amounts Lessee shall be required to
pay hereunder and shall duly observe, perform and comply with all of the terms,
covenants and conditions of this Lease on its part to be observed, performed or
complied with, Lessee shall, subject to all of the terms of this Lease,
peaceably have, hold and enjoy the Demised Premises during the Term without
molestation or hindrance by Lessor.
19. Release of Lessor.
19.1. The term "Lessor", as used in this Lease so far as
covenants or obligations on the part of Lessor are concerned, shall be limited
to mean and include only the owner or owners at the time in question of the
Property, and in the event of any transfer or transfers of the fee interest in
the Property, Lessor herein named shall be automatically freed and relieved
from and after the date of such transfer of all liability with respect to the
performance of any covenants or obligations on the part of Lessor contained in
this Lease thereafter to be performed; provided, however, that no Lessor shall
be freed or relieved from any of its obligations or liabilities hereunder which
first arise or accrue prior to the transfer of such Lessor's interest in the
Property.
20. Surrender of Demised Premises.
20.1. Lessee shall, no later than the termination of this
Lease and in accordance with all of the terms of this Lease, vacate and
surrender to Lessor the Demised Premises, together with all Alterations, in
similar order, condition and repair as the same were in as of the Commencement
Date, and broom clean, reasonable wear and tear, damages resulting from a
casualty for which Lessee is not responsible, and other items the repair or
remediation of which is the responsibility of Lessor
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excepted. Tenant's obligation to observe or perform this covenant shall
survive the termination of this Lease.
20.2. Notwithstanding any provision of law or any judicial
decision to the contrary, no notice shall be required to terminate the Term on
the Expiration Date, and the Term shall expire on the Expiration Date without
notice being required from either party. In the event that Lessee remains
beyond the Expiration Date, it is the intention of the parties and it is hereby
agreed that a tenancy at sufferance shall arise at a monthly rent equal to 150%
of the monthly Base Rent in effect at the expiration of the Term. It is further
agreed that Lessee shall indemnify and hold harmless Lessor from and against
any and all liability, claims, demands, expenses, damages and judgments (other
than consequential or special damages) incurred by Lessor as a result of
Lessee's retaining possession, which indemnification obligation shall survive
the Expiration Date.
21. Notices.
21.1. All notices, consents, approvals or other communications
(collectively, a "Notice") required to be given under this Lease or pursuant to
law shall be in writing and, unless otherwise required by law, shall be
delivered personally or by overnight courier service or given by registered or
certified mail, return receipt requested, postage prepaid, to the parties at
the following addresses (unless such address shall be changed by Notice from
one party to the other):
To Lessor:
Unisys Corporation
P.O. Box 500
Blue Bell, PA 19424
Attention: Real Estate Administration
To Lessee:
Loral Corporation
600 Third Avenue
New York, NY 10016
Attention: Vice President/General Counsel
Any Notice given pursuant hereto shall be deemed to have been given and shall
be effective when received, or when delivered and refused.
22. Lessor's Inability to Perform.
22.1. This Lease and the obligation of Lessee to pay Rent
hereunder and perform all of the other covenants and agreements hereunder on
the part of Lessee to be performed shall in no way be affected, impaired or
excused because Lessor is unable to fulfill any of its obligations under this
Lease expressly or impliedly to be performed by Lessor or because Lessor is
unable to make, or is delayed in making, any repairs, additions, alterations,
improvements or decorations or is unable to supply or is delayed in supplying
any equipment or fixtures, if Lessor is prevented or delayed from so doing by
reason of strikes or labor trouble or by accident, adjustment of insurance or
by any cause whatsoever reasonably beyond Lessor's control, including but not
limited to, laws, governmental preemption in connection with a national
emergency or by reason of any rule, order or regulation or any federal,
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state, county or municipal authority or any department or subdivision thereof
or any government agency or by reason of the conditions of supply and demand
which have been or are affected by war or other emergency.
23. Limitations or Liability.
23.1. It is specifically understood and agreed that there
shall be absolutely no personal liability on the part of Lessor in respect of
any of the terms, covenants and conditions of this Lease, and Lessee shall look
solely to the interest of Lessor in the Demised Premises for the satisfaction
of each and every remedy of Lessee in the event of any breach or default by
Lessor, or by any successor in interest to Lessor, of any of the terms,
covenants and conditions of this Lease to be performed by Lessor.
23.2. Nothing in this Section is intended to limit or affect
any obligations of Lessor or any affiliate of Lessor which are contained in any
separate agreement.
24. Asset Purchase Agreement.
24.1. Notwithstanding anything to the contrary contained
herein, in the event of a conflict between the terms of this Lease and the
terms of the Asset Purchase Agreement, the terms of the Asset Purchase
Agreement shall govern.
24.2. As used herein, (a) the term "Asset Purchase Agreement"
shall mean the Asset Purchase Agreement, dated as of March 20, 1995, between
Unisys Corporation and Loral Corporation, as amended from time to time, and (b)
the term "Transaction Documents" shall mean all agreements between Lessor and
Lessee executed pursuant to, or in connection with, the Asset Purchase
Agreement.
25. Miscellaneous.
25.1. This Lease shall be governed by and construed in
accordance with the internal laws of the State in which the Demised Premises
are located, without regard to the conflicts of law principles thereof.
25.2. The section headings in this Lease and the table of
contents are inserted only as a matter of convenience for reference and are not
to be given any effect in construing this Lease.
25.3. If any of the provisions of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision or provisions to persons or circumstances other than those as to
whom or which it is held invalid or unenforceable, shall not be affected
thereby, and every provision of this Lease shall be valid and enforceable to
the fullest extent permitted by law.
25.4. All of the terms and provisions of this Lease shall be
binding upon and inure to the benefit of the parties hereto and, subject to the
provisions of Article 9 hereof, their respective successors and assigns.
25.5. Lessor has made no representations, warranties or
covenants to or with Lessee with respect to the subject matter of this Lease
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except as expressly provided herein or in the Transaction Documents and all
prior negotiations and agreements relating thereto are merged into this Lease.
This Lease may not be amended or terminated, in whole or in part, nor may any
of the provisions be waived, except by a written instrument executed by the
party against whom enforcement of such amendment, termination or waiver is
sought.
26. Rider. A Rider to this Lease is attached hereto and
incorporated herein by reference.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease
as of the day and year first above written.
UNISYS CORPORATION, as Lessor
By:___________________________
Name: Harold S. Barron
Title: Senior Vice President
LORAL CORPORATION, as Lessee
By:____________________________
Name: Eric J. Zahler
Title: Vice President
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Salt Lake City, UT (Owned)
RIDER
1. This Rider is a part of this Lease. In the event of any
contradiction or inconsistency between the provisions of this Rider and the
provisions of the other portions of this Lease, the provisions of this Rider
shall govern and prevail, and the contradicting and inconsistent provisions of
the other portions of this Lease shall be deemed amended accordingly.
2. Lessee (together with its employees, licensees, and
invitees) shall have the non-exclusive right to use the 280 parking spaces at
the Property designated on Schedule B to this Lease.
3. Lessee hereby agrees to provide the services described on
Schedule D-1 attached hereto, which services were previously provided by
Lessor's non-Defense Systems personnel, to the Demised Premises during the Term
hereof. In connection therewith, Lessor and Lessee shall share supplies and
equipment located at the Property for performance of their respective service
obligations with respect to the Property until the exhaustion of such supplies
and equipment. Thereafter, Lessor and Lessee shall separately purchase and use
such supplies and equipment as each may determine it requires for performance
of its respective service obligations.
4. With respect to contracts entered into by Lessor prior to
the date of this Lease relating in whole or in part to the provision of
services to the Demised Premises, which services Lessee has assumed the
obligation to provide as of the date of this Lease and which services were
previously provided by Lessor's non-Defense Systems personnel, (a) Lessor shall
endeavor to terminate such contracts at the earliest possible time, provided
Lessor shall not be obligated to breach such contracts and (b) Lessee shall be
obligated to pay all sums due under such contracts for the provision of goods
and services to the Demised Premises.
5. From the date hereof until the earlier of (a) the
Expiration Date and (b) the service of written notice by Lessor of its election
to terminate receipt of such services, Lessee shall continue to provide
security services to the portions of the Property not part of the Demised
Premises, of the type generally and customarily provided by Lessor's Defense
Systems unit to the Property prior to the date hereof.
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SCHEDULE A
PROPERTY
As used in this Lease, the "Property" shall mean Buildings D,
D Annex and Z at 322 North 2200 West, Salt Lake City, Utah.
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SCHEDULE B
DEMISED PREMISES
As used in this Lease, the "Demised Premises" shall mean
133,888 rentable square feet, minus the usable square footage of the cafeteria
located in Building D, measured in accordance with BOMA standards, located in
Buildings D, D Annex and Z at 322 North 2200 West, Salt Lake City, Utah, which
premises are identified on the plans attached hereto.
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SCHEDULE C
SCHEDULED EXPIRATION DATE/BASE RENT
As used in this Lease, "Scheduled Expiration Date" means
December 31, 2001.
As used in this Lease, "Base Rent" shall mean, with respect to
any calendar month, all actual costs and expenses relating to the Property
(including common areas and facilities) that are allocated by Lessor to the
Demised Premises for such month, provided that Lessor's method of allocation
shall be consistent with the method of allocation used by Unisys Corporation to
allocate costs to the Unisys Defense Systems unit with respect to the occupancy
of the Demised Premises by the Unisys Defense Systems unit during calendar year
1994. Such costs and expenses shall include cash items and non-cash items, such
as depreciation. In the event that Base Rent for any calendar quarter (as
calculated above) shall not be determinable by Lessor until after the end of
such calendar quarter, then Base Rent shall be payable during such calendar
quarter based upon Lessor's reasonable estimate of costs and expenses to be
allocated to the Demised Premises. Lessor shall, as soon as practicable after
the end of such calendar quarter, provide Lessee with a written statement of
the Base Rent amount for such calendar quarter and, subject to Section 3.5 of
the Lease, the parties shall promptly thereafter make any necessary
reconciliation payments.
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SCHEDULE D
SERVICES TO BE PROVIDED BY LESSOR
With respect to Buildings D and D-Annex:
1. Repair and maintenance of building structure, including
building shell, windows, exterior doors and roof.
2. Repair and maintenance of all common mechanical and
electrical equipment and equipment exterior to the building, including boilers,
major air conditioning equipment, air compressor, major electrical panels, main
fire water systems and risers, main water supplies and building sewer systems.
3. Repair and maintenance of all building grounds including
parking lots, landscaping and snow removal.
With respect to Building Z:
1. Repair and maintenance of all building grounds,
including parking lots, landscaping and snow removal.
2. Repair and maintenance of all utilities up to the
termination point with the building.
3. Repair and maintenance of main fire water systems and
risers.
37
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SCHEDULE D-1
SERVICES NOT TO BE PROVIDED BY LESSOR
With respect to the Demised Premises in Buildings D, D-Annex
and Z:
1. Interior maintenance, repairs and janitorial services.
2. Alterations (as permitted by this Lease), moving and
rearranging services.
3. Fire protection services and monitoring.
38
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EXHIBIT 10.62
SUBLEASE
Between
UNISYS CORPORATION,
as Sublessor
and
LORAL CORPORATION,
as Sublessee
BLDG E-F
<PAGE>
TABLE OF CONTENTS
Article Page
1. Demised Premises . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5. Master Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6. Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7. Alterations and Repairs; Demising Costs; Signage . . . . . . . . . . 12
8. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9. Assignment, Subletting and Encumbrances . . . . . . . . . . . . . . . 14
10. Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12. Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . 19
13. Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . 20
14. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . 20
15. Release of Sublessor . . . . . . . . . . . . . . . . . . . . . . . . 20
16. Surrender of Demised Premises . . . . . . . . . . . . . . . . . . . 21
17. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
18. Landlord Consents During Term . . . . . . . . . . . . . . . . . . . 22
19. Sublessor's Inability to Perform . . . . . . . . . . . . . . . . . . 22
20. Time Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
21. Limitations on Liability . . . . . . . . . . . . . . . . . . . . . . 23
22. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
23. Rider . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
<PAGE>
ASSIGNMENT AND ASSUMPTION OF SUBLEASE
THIS ASSIGNMENT AND ASSUMPTION OF SUBLEASE (this "Assignment") is
dated as of April 29, 1997 among Lockheed Martin Tactical Systems, Inc., a New
York corporation (the "Assignor"), L-3 Communications Corporation, a Delaware
corporation (the "Assignee"), and Unisys Corporation, a Delaware corporation,
tenant under a master lease by and between Unisys Corporation and Harris Trust
and Savings Bank as Trustee for Burroughs Employee's Retirement Fund (the
"Landlord"), with reference to the following:
RECITALS
A. The Landlord, as landlord, and the Assignor, as tenant, executed a
Sublease Agreement dated May 5, 1995, (which, together with all modifications,
amendments and supplements thereof, is hereinafter referred to collectively as
the "Sublease"), a copy of which is attached hereto and incorporated by
reference as Exhibit A, pursuant to which Landlord subleased to the Assignor
and the Assignor subleased from Landlord property and improvements described
therein located in Salt Lake City, Utah, (Buildings E and F) (the "Premises").
B. The Assignee is acquiring certain assets and assuming certain
liabilities from the Assignor including the Assignor's rights, leasehold
interest and obligations under the Sublease.
C. In connection with such acquisition, the Assignor desires to
assign the Sublease to the Assignee, and the Assignee desires to accept the
assignment of the Sublease from the Assignor.
D. The Landlord has agreed to enter into this Assignment to, among
other things, evidence its consent to such assignment of the Sublease.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Assignor, the Assignee and the
Landlord hereby covenant and agree as follows:
1. Assignment. The Assignor grants, assigns and transfers to the
Assignee, its successors and assigns, all of the Assignor's right, title and
interest in, to and under the Sublease (including, without limitation, any
options under the Sublease and any rights to extend or renew the Sublease) and
the Assignee accepts from the Assignor all of the Assignor's right, title and
interest in, to and under the Sublease.
2. Assumption of Sublease Obligation. The Assignee assumes and
agrees to perform and fulfill all terms, covenants, conditions and
obligations required to be performed and fulfilled by the Assignor under the
Sublease, including, without limitation, the obligation to make all payments
due or payable on behalf of the Assignor under the Sublease as they become
due and payable.
3. Representations of Assignor and Landlord. The Assignor and the
Landlord represent to the Assignee as follows:
(a) The Sublease attached hereto as Exhibit A is a true, correct and
complete copy of the Sublease (including all modifications, amendments
1
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and supplements thereof) and the same are the only agreements between Landlord
and the Assignor with respect to the subject matter thereof.
(b) The Sublease is in full force and effect and, except for the
modifications, amendments and supplements included in Exhibit A, the Sublease
has not been modified, amended or supplemented.
(c) Except as set forth on Exhibit B, no default by the Assignor or
the Landlord has occurred and is continuing under the Sublease, and no event
has occurred and is continuing which with the giving of notice or the lapse of
time or both would constitute a default thereunder.
(d) No minimum or base rent or other rental has been paid in advance
(except for the current month) and a security deposit in the amount of $0.00
has been paid to the Landlord.
(e) The monthly amount of base rent due under the Sublease as of May
1, 1997, is $221,500 and the minimum or base rent and all other rentals and
other payments due, owing and accruing under the Sublease have been paid
through April 30, 1997.
(f) The term of the Sublease commenced on May 5, 1995, and the
current term of the Sublease expires on December 31, 2001.
4. Landlord's Consent. The Landlord hereby consents to the Assignor's
assignment of the Sublease to the Assignee and the Assignee's assumption of the
Sublease. Landlord's consent to the Assignor's assignment of the Sublease to
the Assignee shall not be deemed to release the Assignor from any of its
obligations under the Sublease or to alter any provision of the Sublease and/or
the primary liability of the Assignor for the payment of minimum or base rent
or any additional rent due under the Sublease or for the performance of any
other obligations to be performed by the Assignor under the Sublease.
5. Successors and Assigns. This Assignment shall be binding on and
inure to the benefit of the parties hereto, and their respective heirs,
personal representatives, successors and assigns, provided that this Section 5
shall not be construed to permit any future assignments of the Sublease or
subletting of the Premises except as permitted by the Sublease.
6. Counterparts. This Assignment may be signed in counterpart
and, as so executed, shall constitute a binding agreement.
7. Governing Law. This Assignment shall be governed by and
construed in accordance with the laws of the state in which the Premises are
located.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
as of the date first above written.
WITNESS/ATTEST: ASSIGNOR:
LOCKHEED MARTIN TACTICAL SYSTEMS,
INC.
Renata J. Baker By: Stephen M. Piper (SEAL)
Name: Stephen M. Piper
Title: Vice President & Asst.
Secretary
ASSIGNEE:
L-3 COMMUNICATIONS CORPORATION
Robert By: M. Strianese (SEAL)
Name: Michael T. Strianese
Title: Vice President
WITNESS/ATTEST: LANDLORD:
UNISYS CORPORATION
Ronald C. Anderson By: Gregory T. Fischer (SEAL)
Assistant Secretary Name: Gregory T. Fischer
Title: Vice President
3
<PAGE>
STATE OF NEW YORK, COUNTY OF QUEENS, TO WIT:
On this the 23rd day of May, 1997, before me a notary public
of said State, Michael T. Strianese, the undersigned officer, personally
appeared Michael T. Strianese, who acknowledged himself to be an officer of
L-3 Communications, a Delaware corporation, and that he, as such Vice
President, being authorized so to do, executed the foregoing instrument for
the purposes therein contained, by signing the name of the corporation by
himself as a Vice President.
IN WITNESS WHEREOF, I hereunder set my hand and official
seal.
Elizabeth A. Maki
Notary Public
My Commission Expires: June 30, 1997
STATE OF MARYLAND, COUNTY OF MONTGOMERY, TO WIT:
On this the 2nd day of June, 1997, before me a notary public
of said State, Stephen M. Piper, the undersigned officer, personally appeared
before me, who acknowledged himself to be a Vice President & Asst. Secretary
of Lockheed Martin Tactical Systems, Inc., a New York corporation, and that
he, as such Officer, being authorized so to do, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by himself as a Vice President & Asst. Secretary.
IN WITNESS WHEREOF, I hereunto set my hand and official
seal.
Jennifer E. Bashaw
Notary Public
My Commission Expires: December 1, 2000
4
<PAGE>
STATE OF PENNSYLVANIA, COUNTY OF MONTGOMERY, TO WIT:
On this the 29th day of April, 1997, before me a notary
public of said State, Pennsylvania, the undersigned officer, personally
appeared Gregory T. Fischer, who acknowledged himself to be a Vice President
of Unisys Corporation, a Delaware corporation, and that he, as such Vice
President, being authorized so to do, executed the foregoing instrument for
the purposes therein contained, by signing the name of the corporation by
himself as a Vice President.
IN WITNESS WHEREOF, I hereunto set my hand and official
seal.
Robin Angstadt
Notary Public
My Commission Expires: Oct. 5, 1998
5
<PAGE>
EXHIBIT A
THE SUBLEASE
6
<PAGE>
SUBLEASE
SUBLEASE, dated as of May 5, 1995, between UNISYS CORPORATION,
a Delaware corporation having an office at Township Line and Union Meeting
Roads, Blue Bell, Pennsylvania 19424 ("Sublessor") and LORAL CORPORATION, a New
York corporation having an office at 600 Third Avenue, New
York, New York 10016 ("Sublessee").
W I T N E S S E T H :
WHEREAS, the landlord under the Master Lease described on
Schedule A hereto (the "Landlord") is the owner of the real property (including
improvements) described on such Schedule A (collectively, the "Property"), and
under the Master Lease the Landlord has leased to Sublessor certain premises at
the Property; and
WHEREAS, Sublessor desires to sublet to Sublessee, and
Sublessee desires to hire from Sublessor, a portion of the premises demised
under the Master Lease upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter provided, Sublessor and Sublessee hereby agree as follows:
1. Demised Premises.
1.01. Sublessor hereby sublets to Sublessee, and Sublessee
hereby sublets and hires from Sublessor, the Demised Premises, as defined in
Schedule B hereto, together with the non-exclusive right to use the common
areas of the Property and such other rights as are necessary or desirable to
provide Sublessee with substantially the same rights and benefits as have been
generally afforded to and enjoyed by the Defense Systems unit of Unisys
Corporation ("Defense Systems") prior to the date hereof (including, without
limitation, rights of ingress and egress, parking consistent with past practice
or otherwise as set forth in the Rider attached to this Sublease, and access to
public and private utilities) for the sublease term hereinafter stated and for
the Base Rent and Additional Rent (both as hereinafter defined) set forth
herein, upon and subject to all of the terms and provisions hereinafter
provided or incorporated in this Sublease by reference.
1.02. Sublessee agrees to accept the Demised Premises on the
Commencement Date (as hereinafter defined) in its "as is" condition and
Sublessor shall not be obligated to perform any work or furnish any materials
in, to or about the Demised Premises in order to prepare the Demised Premises
for occupancy by Sublessee or otherwise. Sublessee hereby releases Sublessor
from any and all liability resulting from (i) any latent or patent defects in
the Demised Premises, (ii) the failure of the Demised Premises to comply with
any legal requirements applicable thereto or (iii) the status of the title to
the Demised Premises, provided that the foregoing release of liability is not
intended to limit or otherwise affect any liability that Sublessor or any
affiliate of Sublessor may have to Sublessee or any affiliate of Sublessee
which arises under any of the other terms and conditions of this Sublease or
under the terms and conditions of any other agreement. Sublessee acknowledges
that, except as expressly set forth herein or as expressly set forth in any
separate document, Sublessor has made no statements, representations, covenants
or warranties with respect to (x) the condition or
7
<PAGE>
manner of construction of the Property or any improvements constructed in the
Demised Premises, (y) the uses or purposes for which the Demised Premises may
be lawfully occupied or (z) any encumbrances, covenants, restrictions or
agreements affecting title to the Property or the Demised Premises. Sublessee
also agrees that, in executing this Sublease, it has not relied upon or been
induced by any statements, representations, covenants or warranties of any
person other than those, if any, set forth expressly in this Sublease or in any
other separate agreements by or between Sublessor and/or Sublessee or any of
their respective affiliates.
2. Term.
2.01. (a) The term of this Sublease shall commence on the date
hereof (the "Commencement Date") and, unless earlier terminated or extended as
herein provided, shall expire on the Expiration Date. As used in this Sublease,
(i) "Term" shall mean the term of this Sublease, and (ii) "Expiration Date"
shall mean the Scheduled Expiration Date, as defined in Schedule C hereto;
provided that (A) in no event shall the Expiration Date occur later than 11:59
p.m. on the day immediately preceding the expiration of the term of the Master
Lease, and (B) in the event of a termination of this Sublease pursuant to the
terms hereof prior to the Scheduled Expiration Date, the "Expiration Date"
shall mean such date of termination of this Sublease.
(b) Notwithstanding anything to the contrary in this Sublease,
the Term shall be immediately terminated if the term of the Master Lease is
terminated for any reason prior to the Scheduled Expiration Date.
(c) References in this Sublease to the "termination" of this
Sublease include the stated expiration of the Term and any earlier termination
thereof pursuant to the provisions of this Sublease, or the Master Lease or by
law. Except as otherwise expressly provided in this Sublease with respect to
those obligations of Sublessee which by their nature or under the circumstances
can only be, or under the provisions of this Sublease may be, performed after
the termination of this Sublease, the Term and estate granted hereby shall end
at noon on the date of termination of this Sublease as if such date were the
Expiration Date, and neither party shall have any further obligation or
liability to the other after such termination. Notwithstanding the foregoing,
any liability of Sublessor or Sublessee to make any payment under this
Sublease, including, without limitation, amounts payable by Sublessee as Base
Rent or Additional Rent hereunder (both as hereinafter defined), which shall
have accrued prior to the termination of this Sublease shall survive the
termination of this Sublease.
3. Rent.
3.01. The rent ("Rent") payable during the Term under this
Sublease shall consist of the following:
(a) the Base Rent, as defined in Schedule C hereto.
(b) additional rent ("Additional Rent") in an amount equal to
any and all other sums payable by Sublessee to Sublessor under this Sublease.
8
<PAGE>
3.02. Except as otherwise specifically provided in this
Sublease (a) all payments of Base Rent shall be in equal monthly installments
and shall be made in advance on the first (1st) day of each month during the
Term, without notice (provided that if the amount of Base Rent is required to
be calculated by Sublessor in accordance with Schedule C hereof, then Sublessor
shall give Sublessee prior written notice of such calculation, which notice
shall include an explanation of the basis for such calculation and reasonable
backup documentation relating thereto), and (b) all payments of Additional Rent
shall be made within 30 days after written notice from Sublessor, in each case
by check payable to the order of "UNISYS CORPORATION" and addressed to Unisys
Corporation, P.O. Box 500, Blue Bell, Pennsylvania 19424-0003, Attention:
Disbursement & Control - Dept. or to such other person or at such other place
as Sublessor may from time to time designate in writing.
3.03. Sublessee shall pay all Rent when due, in lawful money
of the United States which shall be legal tender for the payment of all debts,
public and private, at the time of payment. All sums due and payable by
Sublessor or Sublessee pursuant to the terms of this Sublease that are not paid
within five (5) days of the due date therefor shall from and after the due date
bear interest at an annual percentage rate of ten percent (10%). All interest
accrued and payable by Sublessee under this subsection as hereinabove provided
shall be deemed to be Additional Rent payable hereunder and due at such time or
times as the rent with respect to which such interest shall have accrued shall
be payable under this Sublease.
3.04. Sublessee agrees to pay, as Additional Rent, any revenue
tax or charge, occupancy tax, business privilege tax, business use tax or any
other tax that may be levied against the Demised Premises or Sublessee's use or
occupancy thereof during the Term; provided, however, that in no event shall
Sublessee be obligated to pay any income tax that is imposed upon and/or
payable by Sublessor, and provided further that payments made by Sublessee
pursuant to this Section 3.4 shall not be duplicative of amounts paid by
Sublessee pursuant to any other provision of this Sublease.
3.05. In the event that Sublessee shall dispute any
calculation of Rent charged to Sublessee by Sublessor, then Sublessee shall
send to Sublessor a written notice, within 30 days of receipt by Sublessee of
such charge, setting forth the basis for Sublessee's dispute. Sublessor and
Sublessee shall thereupon use reasonable and good faith efforts to resolve such
dispute. If the parties are unable to resolve such dispute within 30 days after
submission by Sublessee of its dispute notice, then the parties shall designate
an independent certified public accountant mutually acceptable to both parties
(the "Independent Accountant") to resolve such dispute, and the fees and
charges of the Independent Accountant shall be shared equally by the parties.
Both parties shall provide the Independent Accountant with all information
reasonably requested by the Independent Accountant in connection with its
review of such dispute, and both parties shall request that the Independent
Accountant complete its work expeditiously and issue a written report to both
parties setting forth its determination. The written determination of the
Independent Accountant shall be final and shall be binding upon both Sublessor
and Sublessee. All disputes to be resolved pursuant to this Section 3.5 shall
be so resolved in accordance with the principles and standards set forth in
Section 3.7 below.
3.06. Sublessor shall furnish to Sublessee copies of any
material statements and other material documents and information which are
9
<PAGE>
provided to Sublessor by Landlord pursuant to the Master Lease. Without
limiting any other obligations of Sublessor hereunder, Sublessor agrees it
will, upon reasonable request from Sublessee, exercise on Sublessee's behalf,
and at Sublessee's sole cost, any rights of Sublessor under the Master Lease to
review and inspect records and otherwise obtain information from Landlord.
3.07. All calculations by Sublessor of Base Rent, Additional
Rent and any other amounts that are payable by Sublessee hereunder shall be
made in accordance with Sublessor's past practices during calendar year 1994
with respect to Defense Systems, and all charges and allocations relating to
the Demised Premises and all accounting practices utilized by Sublessor with
respect to amounts charged to Sublessee under this Sublease (including the
capitalization, amortization and expensing of costs incurred and funds
expended) shall also be made in such manner.
4. Use.
4.01. Sublessee shall occupy and use the Demised Premises only
for the uses permitted under the Master Lease and for no other purpose, and in
all respects only as permitted under the terms and provisions of this Sublease
and the Master Lease, and in accordance with any and all laws, statutes,
ordinances, orders, regulations and requirements of all federal, state and
local governmental, public or quasipublic authorities, whether now or hereafter
in effect, which may be applicable to or in any way affect the Demised Premises
or any part thereof and all requirements, obligations and conditions of all
instruments of record on the date of this Sublease affecting the Demised
Premises (collectively, "Legal Requirements").
5. Master Lease.
5.01. Subject to Section 5.3 below, this Sublease and all of
Sublessee's rights hereunder are and shall remain in all respects subject and
subordinate to (i) all of the terms and provisions of the Master Lease, a true
and complete copy of which has been delivered to and reviewed by Sublessee,
(ii) any and all amendments to the Master Lease or supplemental agreements
relating thereto hereafter made between Landlord and Sublessor and (iii) any
and all matters to which the tenancy of Sublessor, as tenant under the Master
Lease, is or may be subordinate. Sublessee shall in no case have any rights
under this Sublease greater than Sublessor's rights as tenant under the Master
Lease. The foregoing provisions shall be self-operative and no further
instrument of subordination shall be necessary to effectuate such provisions
unless required by Landlord or Sublessor, in which event Sublessee shall, upon
demand by Landlord or Sublessor at any time and from time to time, execute,
acknowledge and deliver to Sublessor and Landlord any and all instruments that
Sublessor or Landlord, in the reasonable discretion of either of them, may deem
necessary or proper to confirm such subordination of this Sublease, and the
rights of Sublessee hereunder, subject to Section 5.3(a) hereof.
5.02. Sublessee agrees that it shall neither act, nor omit to
act, in such a manner as to result in a default under the Master Lease,
provided that in no event shall Sublessee be responsible for acts and omissions
of Sublessor or Sublessor's agents, employees or contractors. Except as
otherwise specifically provided in the next sentence and elsewhere in this
Sublease, (i) all of the terms, covenants, conditions and agreements which
Sublessor is required to observe or perform with respect to the Demised
Premises as tenant under the Master Lease are hereby incorporated herein by
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reference and Sublessee shall observe and perform all of such terms, covenants,
conditions and agreements as if such terms, covenants, conditions and
agreements were set forth herein at length, and (ii) Sublessor may exercise all
of the rights, powers, privileges and remedies reserved to Landlord under the
Master Lease to the same extent as if fully set forth herein at length,
including, without limitation, all rights and remedies arising out of or with
respect to any default by Sublessee in the payment of Rent hereunder or the
observance or performance of the terms, covenants, conditions and agreements of
this Sublease and the Master Lease (except as specifically provided herein).
The terms and conditions of the Master Lease described on Schedule D hereto
shall not be incorporated herein by reference, nor shall any terms or
conditions of the Master Lease that, by their terms, are inapplicable to, or
inconsistent with this Sublease, be incorporated by reference herein. In
amplification of, and not in limitation of, the foregoing, in no event shall
any rights or options under the Master Lease to renew or extend the term
thereof be incorporated by reference in this Sublease for the benefit of
Sublessee. Notwithstanding the foregoing, any inconsistencies between the terms
of the Master Lease incorporated by reference hereunder and the other terms of
this Sublease or any of the Transaction Documents (as hereinafter defined)
shall be resolved in favor of such other terms of this Sublease or the terms of
the Transaction Documents, provided, however, that if such construction of
terms would cause Sublessor to be in default under the terms of the Master
Lease, then such inconsistency shall be resolved in favor of the Master Lease.
In addition, in the event that Sublessor is in default of any of its
obligations under the Master Lease as of the date hereof and such obligation is
not a DS Liability (as defined in the Asset Purchase Agreement), then Sublessee
shall not be required to cure such default by virtue of the incorporation by
reference provisions of this Sublease.
5.03. Sublessor agrees that it shall neither act, nor omit to
act, in such a manner as to result in a default under the Master Lease,
provided that in no event shall Sublessor be responsible for acts and omissions
of Sublessee or Sublessee's agents, employees or contractors. Provided that
Sublessee is not then in default under the terms of this Sublease beyond
applicable grace periods, Sublessor agrees that, during the Term hereof,
without the prior written consent of Sublessee, which consent shall not be
unreasonably withheld or delayed, Sublessor will not (a) consent to a
termination of the Master Lease (to the extent that Sublessor's consent is
required pursuant to the Master Lease) or amend or modify the Master Lease in
any way which would materially reduce, materially interfere with or otherwise
materially impair any rights, powers or remedies of Sublessee, decrease in any
material respect the obligations of Landlord or Sublessor which, under the
terms of this Sublease, run to the benefit of Sublessee or increase the
monetary obligations of Sublessee or increase in any material respect any other
obligations of Sublessor for which Sublessee is responsible hereunder, or (b)
consent (in the event that Sublessor's consent is required pursuant to the
Master Lease) to the subordination of the Master Lease to any mortgage,
underlying lease or similar instrument. Notwithstanding the foregoing, in no
event shall Sublessor be required under this Sublease to exercise any renewal
or extension option set forth in the Master Lease.
5.04. Notwithstanding anything to the contrary contained
herein, in the event of a conflict between the terms of this Sublease and the
terms of the Asset Purchase Agreement, the terms of the Asset Purchase
Agreement shall govern.
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5.05. As used herein, (a) the term "Asset Purchase Agreement"
shall mean the Asset Purchase Agreement, dated as of March 20, 1995, between
Unisys Corporation and Loral Corporation, as amended from time to time, and (b)
the term "Transaction Documents" shall mean all agreements between Sublessor
and Sublessee executed pursuant to, or in connection with, the Asset Purchase
Agreement other than this Sublease.
6. Services.
6.01. It is the intent of the parties that Sublessor shall
continue to provide to Sublessee all services, utilities, repairs and
facilities generally and customarily provided by Unisys Corporation to the
occupants of the Demised Premises prior to the Commencement Date, together with
any other services that may be appropriate under the circumstances from time to
time (such services being hereinafter referred to collectively as the
"Services"). In connection with the foregoing, such Services shall include,
without limitation, each of the services set forth on Schedule E hereto, and
such Services shall not include any of those items set forth on Schedule E-1
hereto. Sublessee shall pay to Sublessor, in consideration for the Services and
as Additional Rent, an amount equal to Sublessor's actual costs to perform such
Services in, to or for the benefit of the Demised Premises or Sublessee, which
shall be determined in accordance with the principles set forth in Section 3.7
above ("Actual Costs"). On a quarterly basis, Sublessor shall provide to
Sublessee a written statement, in reasonable detail, setting forth such Actual
Costs for Services. In the event that Sublessee disputes Sublessor's statement
of Actual Costs, such dispute shall be resolved in accordance with Section 3.5
hereof.
6.02. It is the intent of the parties that Sublessee shall
continue to provide to Sublessor, during the Term hereof, all reasonable
services generally and customarily provided by Defense Systems, prior to the
Commencement Date, to the other portions of the Property leased by Sublessor
under the Master Lease. Sublessee shall perform such services, and Sublessor
shall pay to Sublessee a proportionate share of Sublessee's actual costs
incurred in performing such services. On a quarterly basis, Sublessee shall
provide to Sublessor a written statement, in reasonable detail, setting forth
such costs. In the event of a dispute with respect to such costs, such dispute
shall be resolved in accordance with Section 3.5 hereof.
6.03. In the event that telephone switching equipment or other
telecommunications equipment utilized by Sublessor or Sublessee is located
within the premises occupied by the other party, then the party occupying such
premises shall grant the other party reasonable access to such telephone
switching equipment or other telecommunications equipment and other areas
reasonably required for such telecommunications use, subject in each case to
reasonable security requirements of the party granting such access.
6.04. The provisions of this Section shall survive the
expiration or earlier termination of this Sublease.
7. Alterations and Repairs; Demising Costs; Signage.
7.01. As used herein, the term "Alterations" shall mean,
collectively, any alterations, modifications, installations, additions or
improvements to the Demised Premises. Without the prior written consent of
Sublessor in each instance, which consent shall not be unreasonably withheld,
conditioned or delayed, Sublessee shall not make any (a) structural
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Alterations or (b) non-structural Alterations having a design and construction
cost in excess of $100,000 on a per project basis. Any Alterations consented to
by Sublessor, or otherwise permitted under this Sublease, shall be performed by
Sublessee, at its sole cost and expense, and in compliance with all of the
provisions of the Master Lease, including the provisions requiring Landlord's
prior written consent, and such other reasonable requirements of Sublessor.
Sublessor shall have the right to post notices of non-responsibility and
similar notices, as Sublessor shall reasonably deem appropriate, on the Demised
Premises while Alterations are occurring.
7.02. Sublessor shall have no obligations whatsoever to
Sublessee to make any repairs (except to the extent provided in Schedule E and
Schedule E-1 hereto) or Alterations in the Demised Premises to any systems
serving the Demised Premises or to any equipment, fixtures or furnishings in
the Demised Premises, or to comply with any violations of law with respect
thereto, or to restore the Demised Premises in the event of a fire or other
casualty therein or to perform any other duty with respect to the Demised
Premises which Landlord is required to perform under the Master Lease. Subject
to Section 6.2 and 6.3 hereof and Schedule E and Schedule E-1 hereto, Sublessee
shall look solely to Landlord for the making of any and all repairs in the
Demised Premises and the performance of any and all such other work and
responsibilities and only to the extent required by the terms of the Master
Lease.
7.03. Sublessor and Sublessee shall use reasonable and good
faith efforts to reach a mutual agreement as to whether any Alterations are
necessary and appropriate in order to separate the Demised Premises from the
premises in the Property occupied by Sublessor. In the event that the parties
reach such a mutual agreement, then Sublessor shall perform such agreed upon
Alterations, and Sublessee shall, within thirty (30) days after written demand
by Sublessor, reimburse Sublessor for one-half of the costs and expenses
relating to such Alterations. Sublessor may request payment of Sublessee's
share of such costs, and (if requested) Sublessee shall pay its share of such
costs, as such costs are incurred by Sublessor during the course of design and
construction of such Alterations. Sublessor shall require that (a) any
contractors or subcontractors performing any such work maintain reasonable and
appropriate liability insurance and (b) any such insurance policies shall name
Sublessor, Sublessee and Landlord as additional insureds.
7.04. Sublessee shall have the right to install reasonable and
appropriate signage, both at the entrance to the Demised Premises and in the
common areas of the Property, indicating Sublessee's occupancy of the Demised
Premises, provided that the location, size and design of any such signage shall
be subject to the prior written consent of Sublessor, which consent shall not
be unreasonably withheld or delayed.
7.05. Sublessee shall indemnify and hold harmless Sublessor
and Landlord from all costs, expenses, liabilities and obligations arising out
of the filing of any mechanic's or materialman's lien against the Demised
Premises by reason of any act or omission of Sublessee.
7.06. In the event that the Demised Premises are measured
or re-measured pursuant to the terms of this Sublease (inclusive of the
Rider, if any, and Schedules attached hereto), Sublessor and Sublessee shall
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each pay one-half (1/2) of the costs and expenses relating to such measurement
or re-measurement.
8. Insurance.
8.01. Sublessee, at Sublessee's sole expense, shall maintain
for the benefit of Sublessor and Landlord such policies of insurance (and in
such form) as are required by the Master Lease with respect to the Demised
Premises which shall be reasonably satisfactory to Sublessor as to coverage and
insurer (who shall be licensed to do business in the State in which the Demised
Premises are located) provided that such insurance shall at a minimum include
comprehensive general liability insurance protecting and indemnifying
Sublessor, Landlord and Sublessee against any and all claims and liabilities
for injury or damage to persons or property occurring upon, in or about the
Demised Premises, and the public portions of the Property, caused by or
resulting from or in connection with any act or omission of Sublessee or
Sublessee's employees, agents or invitees. Sublessor and Landlord shall each be
named as an additional insured under any such policies of insurance obtained by
Sublessee, and no such policy shall be subject to termination or modification
unless at least thirty (30) days' prior written notice (or ten (10) days' prior
written notice, if such termination results from Sublessee's failure to pay the
premium for such insurance) shall have been given by the applicable insurance
company to Sublessor and Landlord. Upon execution of this Sublease by Sublessee
and at least thirty (30) days prior to the expiration date of such policies,
Sublessee shall furnish to Landlord and Sublessor a certificate or certificates
of insurance confirming that the required insurance is in full force and effect
with all premiums paid current. Nothing contained herein shall limit, or
prohibit Sublessee from providing such coverage through "blanket" policies of
insurance and/or self-insuring therefor in a manner that is consistent with
the general corporate practices of Sublessee.
8.02. Nothing contained in this Sublease shall relieve
Sublessee from any liability as a result of damage from fire or other casualty,
but each party shall look first to any insurance in its favor before making any
claim against the other party for recovery for loss or damage resulting from
fire or other casualty. To the extent that such insurance is in force and
collectible and to the extent permitted by law, Sublessor and Sublessee each
hereby releases and waives all right to recovery against the other or anyone
claiming through or under the other by way of subrogation or otherwise. The
foregoing release and waiver shall be in force only if the insurance policies
of Sublessor and Sublessee provide that such release or waiver does not
invalidate the insurance; each party agrees to use reasonable efforts to
include such a provision in its applicable insurance policies. If the inclusion
of said provision would involve an additional expense, either party, at its
sole expense, may require such provision to be inserted in the other's policy.
9. Assignment, Subletting and Encumbrances.
9.01. Sublessee shall not sublease or mortgage, pledge or
otherwise encumber all or any part of the Demised Premises, assign or mortgage
this Sublease (by operation of law or otherwise) or permit the Demised Premises
to be used or occupied by anyone other than Sublessee, Sublessee's divisions
and other Affiliates, and Sublessee's licensees, invitees, customers and
vendors, without the prior written consent of Sublessor in each instance, which
consent shall not be unreasonably withheld,
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conditioned or delayed; provided, however, that Sublessee, upon at least 30
days prior written notice to Sublessor and upon Sublessee's obtaining any
required consent of Landlord under the Master Lease, may assign this Sublease
or sublet all or part of the Demised Premises to (A) an Affiliate of Sublessee,
(B) an entity into which Sublessee is merged or consolidated, and (C) an entity
which acquires all or substantially all of the business or operations of
Sublessee. Any consent by Sublessor and/or Landlord as hereinabove required
shall not excuse Sublessee from its obligation to obtain the express written
consent of Sublessor and/or Landlord to any further action or matter with
respect to which the consent of Sublessor and Landlord is hereinabove required
and Sublessee shall not be released from any of its obligations hereunder. The
term "Affiliate", as used in this Section 9.1, shall have the same meaning as
is set forth in the Asset Purchase Agreement.
10. Default.
10.01. (a) Each of the following shall constitute an Event
of Default hereunder:
(i) if Sublessee shall fail to pay when due any Rent
or any other amount Sublessee may be required to pay hereunder, and Sublessee
shall fail to remedy such default within seven (7) business days after written
notice thereof has been given to Sublessee by Sublessor, provided that any
Event of Default shall not be deemed to have occurred hereunder if Sublessee
shall have timely disputed in good faith its obligation to pay such Rent or the
amount thereof; or
(ii) subject to Section 10.1(b) below, if Sublessee
shall default in the observance or performance of any term, covenant or
condition of this Sublease on Sublessee's part to be observed, performed or
complied with (other than the payment of Base Rent and Additional Rent and
other amounts payable hereunder) and Sublessee shall fail to remedy such
default within thirty (30) days after written notice to cure, or, if such
default is of such a nature that for reasons beyond Sublessee's control it
cannot be completely remedied within said period of thirty (30) days, then if
Sublessee (A) shall not promptly institute and thereafter diligently prosecute
to completion all steps necessary to remedy the same and (B) shall not remedy
the same within a reasonable time after the date of default; or
(iii) if any event shall occur or any contingency shall
arise whereby this Sublease or the estate hereby granted or the unexpired
balance of the Term would, except as expressly permitted herein, by operation
of law or otherwise, devolve upon or pass to any person or entity other than
Sublessee, and Sublessee shall fail to remedy such default within sixty (60)
days after written notice thereof has been given to Sublessee by Sublessor;
(b) Upon the occurrence of any such Event of Default,
Sublessor may, in addition to exercising any other available rights or
remedies, give to Sublessee notice of its intention to end the Term at the
expiration of three (3) days from the date of the giving of such notice, and,
in the event such notice is given, this Sublease and the Term and estate hereby
granted (whether or not the Term shall have commenced) shall terminate upon the
expiration of said three (3) days with the same force and effect as if that day
were the Expiration Date, provided, however, that Sublessor and Sublessee shall
remain liable for the performance of their respective obligations hereunder
which survive the termination of this Sublease and for damages as provided in
this Sublease.
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10.02. Notwithstanding anything to the contrary set forth
herein, this Sublease shall immediately terminate if any of the following
events shall occur with respect to Sublessee: (a) if Sublessee shall (i) have
applied for or consented to the appointment of a receiver, trustee or
liquidator, or other custodian of Sublessee, or any of its properties or
assets, (ii) have made a general assignment for the benefit of creditors, (iii)
have commenced a voluntary case for relief as a debtor under the United States
Bankruptcy Code, or any other applicable federal or state laws, or filed a
petition to take advantage of any bankruptcy, reorganization, insolvency,
readjustment of debts, dissolution or liquidation law or statute or an answer
admitting the material allegations of a petition filed against it in any
proceeding under any such law, or (iv) be adjudicated a bankrupt or insolvent;
or (b) if without the acquiescence or consent of Sublessee, an order, judgment
or decree shall have been entered by any court of competent jurisdiction
approving as properly filed a petition seeking relief under the United States
Bankruptcy Code, or any other applicable federal or state laws, or any
bankruptcy, reorganization, insolvency, readjustment of debts, dissolution or
liquidation law or statute with respect to Sublessee, or all or a substantial
part of their respective properties or assets, and such order, judgment or
decree shall have continued unstayed and in effect for any period of not less
than ninety (90) days. Neither Sublessee, nor any person claiming through or
under Sublessee or by reason of any statute or order of court shall, after such
termination, be entitled to possession of the Demised Premises but shall
forthwith quit and surrender the Demised Premises. Without limiting any of the
foregoing provisions of this Section 10.2, if pursuant to the United States
Bankruptcy Code, or any other applicable federal or state laws, Sublessee is
permitted to assign this Sublease, Sublessee agrees that adequate assurance of
future performance by an assignee expressly permitted under such law shall be
deemed to mean evidence in the form of financial statements prepared and
certified by a certified public accountant that the assignee will have a net
worth, after excluding the value of the leasehold, sufficient to meet the
remaining obligations under this Sublease.
10.03. In the event of any breach by Sublessee or any persons
claiming through or under Sublessee of any of the terms, covenants or
conditions contained in this Sublease, Sublessor, after the giving of any
notice required by the terms of this Sublease and the expiration of any notice
and cure periods hereunder, (a) shall be entitled to enjoin such breach and (b)
shall have the right to invoke any right and remedy available at law or in
equity or by statute or otherwise. The provisions of this Section 10.3 shall
survive the expiration or sooner termination of this Sublease.
10.04. If this Sublease and the Term shall terminate as
provided in Section 10.1 or in Section 10.2 above, or by or under any summary
proceeding or any other action or proceeding or if Sublessor shall re-enter the
Demised Premises as hereinabove provided or by or under any summary proceeding
or any other action or proceeding, then in any of said events:
(a) Sublessee shall pay to Sublessor all Base Rent, Additional
Rent and other amount payable by Sublessee hereunder to the date upon which
this Sublease and the Term shall have terminated or to the date of re-entry
upon the Demised Premises by Sublessor, as the case may be;
(b) Sublessor shall be entitled to retain all monies, if
any, paid by Sublessee to Sublessor, whether as advance Rent, security or
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otherwise, but such monies shall be credited by Sublessor against any Rent due
at the time of such termination or re-entry or, at Sublessor's option, against
any damages payable by Sublessee;
(c) Sublessee shall be liable for and shall pay to Sublessor,
as damages, any deficiency between the Base Rent and Additional Rent payable
hereunder for the period which otherwise would have constituted the unexpired
portion of the Term (conclusively presuming the Base Rent and Additional Rent
to be at the same rate as was payable for the year immediately preceding such
termination or re-entry less any Additional Rent for such one-year period
payable to Sublessor by Sublessee pursuant to Section 6.2 above) and the net
amount, if any, of rents ("Net Rent") collected under any reletting effected
pursuant to the incorporation herein of any provision of the Master Lease for
any part of such period (after first deducting from the rents collected under
any such reletting all of Sublessor's reasonable expenses in connection with
the termination of this Sublease or Sublessor's re-entry upon the Demised
Premises and in connection with such reletting including all reasonable
repossession costs, brokerage commissions, legal expenses, attorneys' fees,
alteration or similar costs and other expenses of preparing the Demised
Premises for such reletting);
(d) In the event that Sublessor shall not have collected any
monthly deficiencies as aforesaid, Sublessor shall be entitled to recover from
Sublessee, and Sublessee shall pay to Sublessor, on demand, as and for
liquidated and agreed final damages, a sum equal to the amount by which the
Base Rent and Additional Rent payable hereunder for the period which otherwise
would have constituted the unexpired portion of the Term (conclusively
presuming the Base Rent and Additional Rent to be at the same rate as was
payable for the year immediately preceding such termination or re-entry less
any Additional Rent for such one-year period payable to Sublessor by Sublessee
pursuant to Section 6.2 above) exceeds the then fair and reasonable rental
value of the Demised Premises for the same period, both discounted to present
value at the rate of eight percent (8%) per annum. If before presentation of
proof of such liquidated damages to any court, commission or tribunal, the
Demised Premises, or any part thereof, shall have been relet by Sublessor for
the period which otherwise would have constituted the unexpired portion of the
Term, or any part thereof, the amount of rent upon such reletting shall be
deemed, prima facie, to be the fair and reasonable rental value for the part or
the whole of the Demised Premises so relet during the term of the reletting;
and
(e) In no event shall Sublessee be entitled to receive any
excess of Net Rent over the sums payable by Sublessee to Sublessor hereunder,
and in no event shall Sublessee be entitled in any suit for the collection of
damages pursuant to this Article to a credit in respect of any Net Rent from a
reletting except to the extent actually received by Sublessor prior to the
commencement of such suit.
10.05. Nothing herein contained shall be construed as limiting
or precluding the recovery by Sublessor against Sublessee of any sums or
damages to which, in addition to the damages particularly provided above,
Sublessor may lawfully be entitled by reason of any default hereunder or under
the terms of the Master Lease incorporated herein on the part of Sublessee;
provided, however, that notwithstanding any provision of the Master Lease or
the Sublease to the contrary, in no event shall Sublessor or Sublessee be
entitled to special or consequential damages with respect to any matter arising
hereunder or relating hereto.
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11. Indemnification.
11.01. Sublessee shall indemnify and hold harmless Sublessor
and its employees and agents from and against any and all loss, cost,
liability, claim, damage and expense, including, without limiting the
generality of the foregoing, reasonable attorneys' fees and expenses and court
costs, penalties and fines incurred in connection with or arising from any
injury to Sublessee or for any damage to, or loss (by theft or otherwise) of,
any of the property of Sublessee, irrespective of the cause of such injury,
damage or loss and whether occurring in or about the Demised Premises or the
Property.
11.02. Sublessee shall indemnify and hold harmless Sublessor
and its officers, directors, shareholders and employees from and against any
and all loss, cost, liability, claims, damage and expenses, including, without
limiting the generality of the foregoing, reasonable attorneys' fees and
expenses and court costs, penalties and fines, whether or not due to third
party claims, suits or proceedings, incurred in connection with or arising from
(a) any default by Sublessee in the observance or performance of, or compliance
with, any of the terms, covenants or conditions of this Sublease or the terms
of the Master Lease incorporated herein on Sublessee's part to be observed,
performed or complied with, (b) the use or occupancy or manner of use or
occupancy of the Demised Premises by Sublessee or any of its agents, employees
or contractors, or the exercise by Sublessee or any of its agents, employees or
contractors, of any rights granted to Sublessee hereunder, (c) any acts,
omissions or negligence of Sublessee or any of its agents, employees or
contractors, in or about the Demised Premises or the Property either prior to,
during, or after the termination of this Sublease or (d) the condition of the
Demised Premises, but only to the extent that Sublessee fails to perform any of
its obligations hereunder with respect to the condition of the Demised
Premises. If any action or proceeding shall be brought against Sublessor by
reason of any such claim, Sublessee shall be given prompt notice thereof and,
upon notice from Sublessor, shall resist and defend such action or proceeding
at Sublessee's sole expense and employ counsel therefor reasonably satisfactory
to Sublessor. Sublessee shall pay to Sublessor on demand all sums which may be
owing to Sublessor by reason of the provisions of this subsection. Sublessee's
obligations under this subsection shall survive the Expiration Date or earlier
termination of this Sublease.
11.03. Sublessor shall indemnify and hold harmless Sublessee
and Sublessee's officers, directors, shareholders and employees from and
against any and all loss, cost, liability, claims, damage and expenses,
including, without limiting the generality of the foregoing, reasonable
attorneys' fees and expenses and court costs, penalty and fines, whether or not
due to third party claims, suits or proceedings, incurred in connection with or
arising from (a) any default by Sublessor in the observance or performance of,
or compliance with, any of the terms, covenants or conditions of this Sublease
or the Master Lease on Sublessor's part to be observed, performed or complied
with, or (b) the gross negligence or wilful misconduct of Sublessor (in its
capacity as sublessor hereunder) or any of its agents, employees or contractors
(retained by Sublessor in its capacity as sublessor hereunder), in or about the
Demised Premises or the Property either prior to, during, or after the
termination of this Sublease. If any action or proceeding shall be brought
against Sublessee by reason of any such claim, Sublessor shall be given prompt
notice thereof and, upon notice from Sublessee, shall resist and defend such
action or proceeding at Sublessor's
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sole expense and employ counsel therefor reasonably satisfactory to Sublessee.
Sublessor shall pay to Sublessee on demand all sums which may be owed to
Sublessee by reason of the provisions of this subsection. Sublessor's
obligations under this subsection shall survive the Expiration Date or earlier
termination of this Sublease.
11.04. Sublessor shall not be liable for any loss or damage to
property of Sublessee or any of its employees, guests, invitees or licensees by
reason of theft or otherwise. Sublessor shall not be liable for any injury or
damage to persons or property resulting from fire, explosion, falling plaster,
steam, gas, electricity, water, rain or leaks from any part of the Demised
Premises or from the pipes, appliances or plumbing works or from the roof,
street or subsurface or from any other place or by dampness or by any other
cause of whatsoever nature, unless such injury or damage has been shown to have
been due solely to the gross negligence or willful act or omission of
Sublessor, its affiliates, or the officers, directors, employees or agents of
Sublessor or its affiliates in the course of their employment. Subject to the
foregoing, all property of Sublessee or others kept or stored on the Demised
Premises shall be so kept or stored at the risk of Sublessee only.
11.05. Notwithstanding anything in this Section 11 to the
contrary, neither party shall be required to indemnify the other party (an
"indemnitee") against the indemnitee's own negligence or wilful misconduct.
12. Hazardous Materials.
12.01. Sublessee shall not cause or permit any Hazardous
Material (as hereinafter defined) to be brought upon, kept or used in or about
the Demised Premises by the agents, principals, employees, assigns, sublessees,
contractors, subcontractors, consultants or invitees of Sublessee, except in
full compliance with applicable Legal Requirements. If Sublessee breaches the
obligations stated in the preceding sentence, or if the introduction or release
of a Hazardous Material on the Demised Premises caused or permitted by
Sublessee (or the aforesaid others) results in contamination of the Demised
Premises or any surrounding area(s), or if contamination of the Demised
Premises or any surrounding area(s) by Hazardous Material otherwise occurs for
which Sublessee is legally, actually or factually liable or responsible (other
than liability which arises solely as a result of the subtenancy created hereby
or solely as a result of Sublessee's mere occupancy of the Demised Premises),
then Sublessee shall fully and completely indemnify, defend and hold harmless
Sublessor (or any party claiming by, through or under Sublessor) from any and
all claims, judgments, damages, penalties, fines, costs, liabilities, expenses
or losses, including, without limitation: (i) diminution in the value of the
Demised Premises; (ii) any asserted damage to the Property or to neighboring
properties or the occupants of the Property or neighboring properties, and
(iii) any sums paid in settlement of claims, reasonable attorneys' fees,
consultants fees and expert fees which arise or arose before, during or after
the term of this Sublease as a consequence of such contamination. This
indemnification includes, without limitation, costs incurred in connection with
any investigation or site conditions or any clean-up, remedial, removal or
restoration work required by any federal, state or local governmental agency or
political subdivision because of Hazardous Materials present in the soil or
ground water on or under the Demised Premises for which Sublessee is
responsible pursuant to the terms of this Sublease. Without limiting the
foregoing, if the introduction or release of any Hazardous Materials on,
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under or about the Demised Premises or any other surrounding area(s) caused or
permitted by Sublessee (or the aforesaid others) results in any contamination
of the Demised Premises, Sublessee shall immediately take all actions at its
sole expense as are necessary or appropriate to return the Demised Premises to
the condition existing prior to the introduction by Sublessee of any such
Hazardous Materials thereto; provided that the prior written approval (which
approval shall not be unreasonably withheld, conditioned or delayed) of such
actions by Sublessor shall be first obtained. The foregoing obligations and
responsibilities shall survive the expiration or earlier termination of this
Sublease.
12.02. As used herein, the term "Hazardous Materials" means
any hazardous or toxic substance, material or waste, including, but not limited
to, those substances, materials, and wastes listed in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reorganization Act of 1986 (42 U.S.C. Section 9601
et seq., as amended), the Federal Clean Water Act, the Federal Clean Air Act,
the Federal Resource Conservation and Recovery Act, the Federal Toxic
Substances Control Act, the United States Department of Transportation
Hazardous Materials Table (49 CFR 172.101) or by the Environmental Protection
Agency as hazardous substances (40 CFR Part 301) and amendments thereto, and
all substances, materials and wastes that are defined as "toxic", "hazardous"
or "extremely hazardous" or are otherwise regulated under any applicable local,
state or federal law. In furtherance of, and not in limitation of, the
foregoing, the term "Hazardous Materials" shall include asbestos,
asbestos-containing materials and petroleum.
12.03. Sublessor and Sublessee acknowledge and agree that the
Asset Purchase Agreement shall govern all matters relating to the presence of
Hazardous Materials in, on, under and about the Demised Premises prior to the
execution and delivery hereof.
13. Remedies Cumulative.
13.01. Each right and remedy of Sublessor under this Sublease
shall be cumulative and be in addition to every other right and remedy of
Sublessor under this Sublease and now or hereafter existing at law or in
equity, by statute or otherwise.
14. Quiet Enjoyment.
14.01. Sublessor covenants that, as long as Sublessee shall
pay the Base Rent and Additional Rent and all other amounts Sublessee shall be
required to pay hereunder and shall duly observe, perform and comply with all
of the terms, covenants and conditions of this Sublease on its part to be
observed, performed or complied with, Sublessee shall, subject to all of the
terms of the Master Lease and this Sublease, peaceably have, hold and enjoy the
Demised Premises during the Term without molestation or hindrance by Sublessor.
15. Release of Sublessor.
15.01. The term "Sublessor", as used in this Sublease so far
as covenants or obligations on the part of Sublessor are concerned, shall be
limited to mean and include only the owner or owners at the time in question of
the tenant's interest under the Master Lease, and in the event of any transfer
or transfers of the tenant's interest in the Master Lease,
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Sublessor herein named (and in case of any subsequent transfer or conveyance,
the then transferor of the tenant's interest in the Master Lease) shall be
automatically freed and relieved from and after the date of such transfer of
all liability with respect to the performance of any covenants or obligations
on the part of Sublessor contained in this Sublease thereafter to be performed;
provided, however, that no Sublessor shall be freed or relieved from any of its
obligations or liabilities hereunder which first arise or accrue prior to the
transfer of such Sublessor's interest as tenant under the Master Lease.
16. Surrender of Demised Premises.
16.01. Sublessee shall, no later than the termination of this
Sublease and in accordance with all of the terms of this Sublease and the
Master Lease (including, without limitation, any restoration obligations in the
Master Lease that are applicable to the Demised Premises and are incorporated
by reference herein), vacate and surrender to Sublessor the Demised Premises,
together with all Alterations, in similar order, condition and repair, as the
same were in as of the Commencement Date, and broom clean, reasonable wear and
tear, damages resulting from a casualty for which Sublessee is not responsible,
and other items the repair or remediation of which is the responsibility of
Sublessor or Landlord excepted. Tenant's obligation to observe or perform this
covenant shall survive the termination of this Sublease.
16.02. Notwithstanding any provision of law or any judicial
decision to the contrary, no notice shall be required to terminate the Term on
the Expiration Date, and the Term shall expire on the Expiration Date without
notice being required from either party. In the event that Sublessee remains
beyond the Expiration Date, it is the intention of the parties and it is hereby
agreed that a tenancy at sufferance shall arise at a monthly rent equal to 150%
of the monthly Base Rent in effect at the expiration of the Term plus any
amounts charged against Sublessor as lessee under the Master Lease for holdover
rent or penalty. It is further agreed that Sublessee shall indemnify and hold
harmless Sublessor from and against any and all liability, claims, demands,
expenses, damages and judgments (other than consequential or special damages)
incurred by Sublessor as a result of Sublessee's retaining possession, which
indemnification obligation shall survive the Expiration Date.
17. Notices.
17.01. All notices, consents, approvals or other
communications (collectively, a "Notice") required to be given under this
Sublease or pursuant to law shall be in writing and, unless otherwise required
by law, shall be delivered personally or by overnight courier service or given
by registered or certified mail, return receipt requested, postage prepaid, to
the parties at the following addresses (unless such address shall be changed by
Notice from one party to the other):
To Sublessor:
Unisys Corporation
P.O. Box 500
Blue Bell, PA 19424
Attention: Real Estate Administration
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To Sublessee:
Loral Corporation
600 Third Avenue
New York, NY 10016
Attention: Vice President/General Counsel
Any Notice given pursuant hereto shall be deemed to have been given and shall
be effective when received, or when delivered and refused.
18. Landlord Consents During Term.
18.01. Wherever in this Sublease the consent or approval of
Sublessor is required for any act or thing, Sublessor agrees that it shall not
unreasonably withhold, condition or delay such consent or approval. If the
consent or approval of Landlord is required under the Master Lease for the same
act or thing, if Sublessor is required or willing to give its consent or
approval to Sublessee when such consent or approval is required hereunder,
Sublessor agrees that it will promptly forward Sublessee's request for such a
consent or approval to Landlord. If Sublessor is required or has determined to
give its consent or approval, Sublessor shall cooperate reasonably with
Sublessee in endeavoring to obtain Landlord's consent or approval (including
commencing and prosecuting an appropriate legal action if, in Sublessor's
judgment, Landlord wrongfully withholds or delays its approval or consent) upon
and subject to the following terms and conditions: (a) Sublessee shall
reimburse Sublessor for any reasonable out-of-pocket costs incurred by
Sublessor in connection with seeking such consent or approval, (b) Sublessor
shall not be required to make any payments to Landlord or to enter into any
agreements or to modify the Master Lease or this Sublease in order to obtain
any such consent or approval and (unless Sublessee reimburses Sublessor for
such payment or performs any other obligations imposed on Sublessor by
Landlord) and (c) if Sublessee agrees or is otherwise obligated to make any
payments to Sublessor or Landlord in connection with such request for such
consent or approval, Sublessee shall have made arrangements for such payments
which are satisfactory to Sublessor. Except as hereinafter expressly provided,
nothing contained in this Section shall be deemed to require Sublessor to give
any consent or approval because Landlord has given such consent or approval.
Whenever either party to this Sublease expressly agrees not to unreasonably
withhold its consent, such consent shall also not be unreasonably delayed or
conditioned.
18.02. Notwithstanding the foregoing provisions of this
Section or any other provision of this Sublease to the contrary, if and to the
extent that it is provided in the consent to this Sublease from Landlord or in
any other agreement entered into by and among Landlord, Sublessor and Sublessee
in connection with the approval by Landlord of this Sublease that Landlord and
Sublessee may deal directly in connection with the provision of various
services to be provided to the Demised Premises or for Sublessee to deal
directly with Landlord in connection with obtaining certain consents and
approvals then if and to the extent so provided in such consent and/or
agreement the granting of a consent or approval by Landlord shall be deemed to
be the granting of a like consent or approval by Sublessor.
19. Sublessor's Inability to Perform.
19.01. This Sublease and the obligation of Sublessee to pay
Rent hereunder and perform all of the other covenants and agreements
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hereunder on the part of Sublessee to be performed shall in no way be affected,
impaired or excused because Sublessor is unable to fulfill any of its
obligations under this Sublease expressly or impliedly to be performed by
Sublessor or because Sublessor is unable to make, or is delayed in making, any
repairs, additions, alterations, improvements or decorations or is unable to
supply or is delayed in supplying any equipment or fixtures, if Sublessor is
prevented or delayed from so doing by reason of strikes or labor trouble or by
accident, adjustment of insurance or by any cause whatsoever reasonably beyond
Sublessor's control, including but not limited to, laws, governmental
preemption in connection with a national emergency or by reason of any rule,
order or regulation or any federal, state, county or municipal authority or any
department or subdivision thereof or any government agency or by reason of the
conditions of supply and demand which have been or are affected by war or other
emergency.
20. Time Limits.
20.01. Except with respect to actions to be taken by Sublessee
for which time limits are specifically set forth in this Sublease, which time
limits shall control for the purposes of this Sublease, the time limits
provided in the Master Lease for the giving or making of any Notice (as
hereinafter defined) by the tenant thereunder to Landlord, the holder of any
leasehold mortgage or any other party, or for the performance of any act,
condition or covenant by the tenant thereunder, or for the exercise of any
right, remedy or option by the tenant thereunder, are changed for the purposes
of this Sublease, by shortening the same in each instance by five (5) days,
provided that in no event shall such time limit be reduced to less that two (2)
business days) so that any Notice may be given or made, or any act, condition
or covenant performed, or option hereunder exercised, by Sublessor within the
time limit relating thereto contained in the Master Lease.
20.02. Except with respect to actions to be taken by Sublessor
for which longer time limits are specifically set forth in this Sublease, which
time limits shall control for the purposes of this Sublease, the time limits
provided in the Master Lease for the giving or making of any Notice by Landlord
or the performance of any act, covenant or condition by Landlord for the
exercise of any right, remedy or option by Landlord thereunder are changed for
the purposes of this Sublease, by lengthening the same in each instance by five
(5) days, so that any Notice may be given or made, or any act, condition or
covenant performed or option hereunder exercised by Landlord within the number
of days respectively set forth above, after the time limits relating thereto
contained in the Master Lease.
21. Limitations on Liability.
21.01. Nothing in this Section is intended to limit or affect
any obligations of Sublessor or any affiliate of Sublessor which are contained
in any separate agreement.
22. Miscellaneous.
22.01. This Sublease shall be governed by and construed in
accordance with the internal laws of the State in which the Demised Premises
are located, without regard to the conflicts of law principles thereof.
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22.02. The section headings in this Sublease and the table of
contents are inserted only as a matter of convenience for reference and are not
to be given any effect in construing this Sublease.
22.03. If any of the provisions of this Sublease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Sublease, or the application of
such provision or provisions to persons or circumstances other than those as to
whom or which it is held invalid or unenforceable, shall not be affected
thereby, and every provision of this Sublease shall be valid and enforceable to
the fullest extent permitted by law.
22.04. All of the terms and provisions of this Sublease shall
be binding upon and inure to the benefit of the parties hereto and, subject to
the provisions of Article 9 hereof, their respective successors and assigns.
22.05. Sublessor has made no representations, warranties or
covenants to or with Sublessee with respect to the subject matter of this
Sublease except as expressly provided herein or in the Transaction Documents
and all prior negotiations and agreements relating thereto are merged into this
Sublease. This Sublease may not be amended or terminated, in whole or in part,
nor may any of the provisions be waived, except by a written instrument
executed by the party against whom enforcement of such amendment, termination
or waiver is sought and unless the same is permitted under the terms and
provisions of the Master Lease.
23. Rider. A Rider to this Sublease is attached hereto and
incorporated herein by reference.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, Sublessor and Sublessee have executed this
Sublease as of the day and year first above written.
UNISYS CORPORATION, as Sublessor
By: Harold S. Barron
Name: Harold S. Barron
Title: Senior Vice President
LORAL CORPORATION, as Sublessee
By: Eric J. Zahler
Name: Eric J. Zahler
Title: Vice President
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Salt Lake City, UT
(Leased)
RIDER
1. This Rider is a part of this Sublease. In the event of any
contradiction or inconsistency between the provisions of this Rider and the
provisions of the other portions of this Sublease, the provisions of this Rider
shall govern and prevail, and the contradicting and inconsistent provisions of
the other portions of this Sublease shall be deemed amended accordingly.
2. (a) The parties agree to endeavor in good faith to cause
the Landlord to execute, in substitution for the Master Lease, (i) a lease
directly with Unisys Corporation for Building B at the Property (the "Unisys
Lease") and (ii) a lease directly with Loral Corporation for Buildings E and F
at the Property (the "Loral Lease"), which leases shall be on terms and
conditions satisfactory to Sublessor and Sublessee, each in the exercise of its
reasonable discretion, provided, however, that Sublessor shall in no event be
required to execute any lease in substitution for the Master Lease unless
Landlord agrees to release Sublessor from all continued liability with respect
to Buildings E and F at the Property from and after the date of any such
substitute lease. Sublessor and Sublessee shall each pay one half of all
mutually agreed upon costs directly related to the substitution of the Loral
Lease and the Unisys Lease for the Master Lease.
(b) If the Landlord requires the Unisys Lease and the Loral
Lease to contain an obligation to purchase the Property in substitution for the
Purchase Obligation (as defined below) (a "Substitute Purchase Obligation"),
then (i) the Unisys Lease shall contain such Substitute Purchase Obligation
with respect to the introduction or release of a Hazardous Material on the
portion of the Property demised under the Unisys Lease, (ii) the Loral Lease
shall contain such Substitute Purchase Obligation with respect to the
introduction or release of a Hazardous Material on the portion of the Property
demised under the Loral Lease, and (iii) the Unisys Lease and the Loral Lease
shall provide that Sublessor and Sublessee shall share such Substitute Purchase
Obligation in proportion to their relative fault and shall acquire the Property
pursuant to such Substitute Purchase Obligation as tenants in common. Sublessor
shall be obligated to perform Sublessee's obligation under the Substitute
Purchase Obligation, as provided in this Section 2(b), in proportion to
Sublessor's fault in causing such obligation to arise. Sublessee shall be
obligated to perform Sublessor's obligation under the Substitute Purchase
Obligation, as provided in this Section 2(b), in proportion to Sublessee's
fault in causing such obligation to arise.
(c) Sublessor and Sublessee shall use reasonable and good
faith efforts to reach a mutual agreement as to whether any Alterations are
necessary and appropriate in order to separate the premises demised under the
Unisys Lease from the premises demised under the Loral Lease. In the event that
the parties reach such a mutual agreement, then Sublessor shall perform such
agreed upon Alterations, and Sublessee shall, within thirty (30) days after
written demand by Sublessor, reimburse Sublessor for one-half of the costs and
expenses relating to such Alterations. Sublessor may request payment of
Sublessee's share of such costs, and (if requested) Sublessee shall pay its
share of such costs, as such costs are incurred by Sublessor
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during the course of design and construction of such Alterations. Sublessor
shall require that (i) any contractors or subcontractors performing any such
work maintain reasonable and appropriate liability insurance and (ii) any such
insurance policies shall name Sublessor, Sublessee and Landlord as additional
insureds.
(d) In the event that the Unisys Lease and the Loral Lease are
executed in substitution of the Master Lease, then this Sublease shall
terminate upon such execution.
3. The respective obligations of Sublessor and Sublessee in
respect of the obligation to purchase the Property pursuant to Section 13.2(d)
of the Master Lease (the "Purchase Obligation") shall be governed by the terms
of the Asset Purchase Agreement. In the event that Sublessor purchases the
Property pursuant to the Purchase Obligation, Sublessor and Sublessee shall
enter into a lease with respect to the Demised Premises on substantially the
same terms and conditions as set forth in this sublease.
4. Except as provided in the Asset Purchase Agreement,
Sublessee shall have no liability under this Sublease for Hazardous Materials
existing on the Demised Premises as of the date hereof.
5. Sublessee (together with its employees, licensees, and
invitees) shall have the exclusive right to use the 978 parking spaces at the
Property designated on Schedule B to this Sublease.
6. Sublessee hereby agrees to perform repairs and maintenance
on, and to provide such other services as may be required to the Demised
Premises, other than the services enumerated on Schedule E attached hereto,
during the Term hereof, which services were previously provided by Sublessor's
non-Defense Systems personnel. In connection therewith, Sublessor and Sublessee
shall share supplies and equipment located at the Property for performance of
their respective service obligations with respect to the Property until the
exhaustion of such supplies and equipment. Thereafter, Sublessor and Sublessee
shall separately purchase and use such supplies and equipment as each may
determine it requires for performance of its respective service obligations.
7. With respect to contracts entered into by Sublessor prior
to the date of this Sublease relating in whole or in part to the provision of
services to the Demised Premises, which services Sublessee has assumed the
obligation to provide as of the date of this Sublease and which services were
previously provided by Sublessor's non-Defense Systems personnel, (a) Sublessor
shall endeavor to terminate such contracts at the earliest possible time,
provided Sublessor shall not be obligated to breach such contracts and (b)
Sublessee shall be obligated to pay all sums due under such contracts for the
provision of goods and services to the Demised Premises.
8. From the date hereof until the earlier of (a) the
Expiration Date or (b) the service of written notice by Sublessor of its
election to terminate receipt of such services, Sublessee shall continue to
provide security services to the portions of the Property not part of the
Demised Premises, of the type generally and customarily provided by Sublessor's
Defense Systems unit to the Property prior to the date hereof.
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SCHEDULE A
MASTER LEASE
As used in this Sublease, (a) "Master Lease" shall mean the
Special Net Lease dated December 31, 1986 between Harris Trust and Savings Bank
as Trustee for Burroughs Employees' Retirement Fund as lessor and Unisys
Corporation as lessee, as amended by the letter dated October 15, 1991 from
Unisys Corporation to Harris Trust Savings Bank, Trustee and (b) the "Property"
shall mean the real property located at 640 North 2200 West, Buildings B, E and
F, Salt Lake City, Utah.
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SCHEDULE B
DEMISED PREMISES
As used in this Sublease, the "Demised Premises" shall mean
261,945 rentable square feet at 640 North 2200 West, Salt Lake City, Utah in
Buildings E and F together with the portion of the Property located to the
north of the line marked "Dividing Line" on the plan attached hereto.
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SCHEDULE C
SCHEDULED EXPIRATION DATE/BASE RENT
As used in this Sublease, "Scheduled Expiration Date" shall
mean December 31, 2001.
As used in Sublease, "Base Rent" shall mean, with respect to
any calendar month, all actual costs and expenses relating to the Property
(including common areas and facilities) that are allocated by Sublessor to the
Demised Premises for such month, provided that Sublessor's method of allocation
shall be consistent with the method of allocation used by Unisys Corporation to
allocate costs to the Unisys Defense Systems unit with respect to the occupancy
of the Demised Premises by the Unisys Defense Systems unit during calendar year
1994 and notwithstanding the fact that some portion of such costs are
disallowed as "contract pass-through items" under certain government contracts
performed by Sublessee at the Demised Premises. The foregoing costs and
expenses shall include cash items and non-cash items, such as depreciation. In
the event that Base Rent for any calendar quarter (as calculated above) shall
not be determinable by Sublessor until after the end of such calendar quarter,
then Base Rent shall be payable during such calendar quarter based upon
Sublessor's reasonable estimate of costs and expenses to be allocated to the
Demised Premises. Sublessor shall, as soon as practicable after the end of such
calendar quarter, provide Sublessee with a written statement of the Base Rent
amount for such calendar quarter and, subject to Section 3.5 of the Sublease,
the parties shall promptly thereafter make any necessary reconciliation
payments.
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SCHEDULE D
EXCLUDED MASTER LEASE TERMS
Sections 3 (with respect only to the options to extend the term of the Master
Lease granted thereon), 5, 42-44, inclusive, and 45.1(a) of the Master Lease.
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SCHEDULE E
SERVICES TO BE PROVIDED BY SUBLESSOR
Repair and maintenance of major utilities until the
Expiration Date.
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SCHEDULE E-1
SERVICES NOT TO BE PROVIDED BY SUBLESSOR
[Intentionally left blank.]
33
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EXHIBIT B
DEFAULTS
NONE
34
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EXHIBIT 10.7
LIMITED NONCOMPETITION AGREEMENT
This Limited Noncompetition Agreement between Lockheed Martin Corporation
("Lockheed Martin") and L-3 Communications Corporation ("L-3") is dated as of
April 30, 1997 with reference to the following:
Recitals
WHEREAS, Lockheed Martin, Lehman Brothers Capital Partners III, L.P.,
Frank C. Lanza, Robert V. LaPenta and L-3 Communications Holdings, Inc.
("Holdings") have entered into a Transaction Agreement dated as of March 28,
1997 (as amended by Amendment No. 1 to Transaction Agreement dated as of
April 11, 1997, and as it may be further amended from time to time, the
"Transaction Agreement"); and
WHEREAS, the Transaction Agreement contemplates that the business and
assets of certain business elements of Lockheed Martin, the Business Units,
will be sold upon the terms and subject to the conditions of the Transaction
Agreement to Holdings; and
WHEREAS, Section 12.01 of the Transact on Agreement provides that the
obligations of Lockheed Martin, Holdings and the Purchasers to consummate the
Closing are subject to the satisfaction (or waiver) of certain enumerated
conditions one of which (contained with Section 12.01(e)) is that Lockheed
Martin and Holdings shall have executed and delivered the noncompetition
agreement contemplated by Section 9.09 of the Transaction Agreement; and
WHEREAS, Holdings will conduct the businesses sold to it under the
Transaction Agreement through L-3, a wholly-owned subsidiary of Holdings.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements of the parties contained herein, Lockheed Martin and
L-3 agree as follows:
1. Capitalized terms used but not defined in this Limited Noncompetition
Agreement shall have the meanings ascribed to them in the Transaction
Agreement.
2. Subject to the provisions of Paragraph 3, Paragraph 4, Paragraph 5 and
Paragraph 6 hereof, the Lockheed Martin Companies shall not sell products
anywhere in the world in competition with products of L-3 listed on "Attachment
A" hereto, or being supplied as of the Closing Date by the Business in
connection with its Performance of the specific programs listed on "Attachment
A" hereto (collectively, the "competing businesses"), in each instance for the
applications listed opposite the product or program listed on Attachment A and
for a period of three years commencing as of the Closing Date.
3. The provisions of Paragraph 2 shall prohibit the acquisition by
Lockheed Martin or any of its Affiliates of all or any part of a business or
Person (whether through the acquisition of assets, securities or other
ownership interest, the effecting of a merger, business combination,
reorganization, exchange or recapitalization or other similar transaction)
1
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(the "Acquired Business") with any Person where a primary purpose of the
acquisition is the avoidance of the prohibitions of Paragraph 2. For purposes
of the foregoing, in the case of any such acquisition by Lockheed Martin or any
of its Affiliates where the competing business conducted by the Acquired
Business represents greater than 35% of the revenues of the Acquired Business
for its most recently completed fiscal year, a primary purpose of the
transaction shall be deemed to be the avoidance of the prohibitions of
Paragraph 2. Notwithstanding the provisions of the preceding sentence, the
provisions of Paragraph 2 shall not prohibit the acquisition by Lockheed Martin
or any of its Affiliates of an Acquired Business where the competing business
conducted by the Acquired Business represents greater than 35% of the revenues
of the Acquired Business (a "Disqualifying Acquisition," and the portion of the
Acquired Business that is a competing business being the "Disqualified
Business"), provided that Lockheed Martin or any of its Affiliates offers to
sell and assign the Disqualified Business (and associated liabilities) obtained
and assumed in the Disqualifying Acquisition for cash to L-3 within 90 days of
the consummation of the Disqualifying Acquisition at the fair market value of
such Disqualified Business (and associated liabilities) with the benefit of
substantially similar representations, warranties and indemnification periods
from the fair market value of such Disqualified Business (and associated
liabilities), L-3 and such Lockheed Martin or their representatives shall meet
within 15 days of the date such offer is made and attempt mutually to determine
in good faith such fair market value. If L-3 and Lockheed Martin are unable to
determine a mutually acceptable fair market value within 20 days after their
initial meeting, L-3 and Lockheed Martin shall mutually engage (and share
equally in the fees and expenses of) an investment banking firm to determine
within 20 days of such firm's engagement the fair market value of the
Disqualified Business (and associated liabilities), which determination shall
be binding upon L-3 and Lockheed Martin for purposes of Lockheed Martin's offer
to L-3 as contemplated herein. Lockheed Martin shall not be obligated to keep
its offer to L-3 open for more than 20 days after final determination of the
fair market value of the Disqualified Business and its assumption of the
associated liabilities within 75 days of such acceptance, otherwise Lockheed
Martin and its Affiliates shall be permitted to keep and operate, or divest,
such Disqualified Business (and associated liabilities) in Lockheed Martin's
sole discretion.
4. The prohibitions of Paragraph 2 shall not apply to:
(a) businesses operated and managed by Lockheed Martin or its
Affiliates on behalf of the U.S. Government; or
(b) Acquired Businesses where the acquisition is permitted under
Paragraph 3; provided that in the case of any such acquisition (i) the
competing business was being conducted by the Acquired Business as of the
closing of the acquisition of the Acquired Business or (ii) Lockheed Martin or
the Acquired Business can affirmatively demonstrate that the Acquired Business
was considering entering the competing business as of the closing of the
acquisition of the Acquired Business, or (iii) the competing business is
reasonably related to the businesses referenced in either or both of the
preceding clauses (i) or (ii); or
(c) the acquisition by Lockheed Martin or any of its Affiliates of
not greater than twenty percent of the voting securities of any Person engaged
in a competing business; or
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(d) the acquisition by Lockheed Martin or any of its Affiliates of
any non-voting securities of any Person engaged in a competing business.
5. Notwithstanding the provisions of Paragraph 2, nothing in this Limited
Noncompetition Agreement shall prevent Lockheed Martin or any of its Affiliates
from:
(a) continuing to engage without impediment in any business,
including but not limited to the unrestricted sale of products related to that
business, conducted by Lockheed Martin or any of its Affiliates as of Closing
(other than businesses conducted by Lockheed Martin solely through the Business
Units), any such business being hereinafter referred to as an "Existing
Business"; or
(b) entering into any business and thereafter engaging without
impediment in such business, including but not limited to the unrestricted sale
of products related to that business where Lockheed Martin can affirmatively
demonstrate that, as of the Closing, Lockheed Martin or any of its Affiliates
or any business element thereof (excluding the Business Units) was considering
entering such business, any such business being hereinafter referred to as a
"Planned Business"; or
(c) entering into any business and thereafter engaging without
impediment in such business, including but not limited to the unrestricted sale
of products related to that business, where such business is reasonably related
to either or both an Existing Business or a Planned Business.
6. For the purposes of Paragraph 2, the sale by Lockheed Martin or its
Affiliates (including, without limitation, any Acquired Business) of systems
manufactured, assembled, fabricated or integrated by Lockheed Martin or its
Affiliates (which systems may themselves be subsystems or components of larger
systems) where the system manufactured, assembled, fabricated or integrated by
Lockheed Martin or its Affiliates (A) includes as one or more subsystems,
components, subcomponents or other parts of the system products sold by (i) L-3
or (ii) third-party sources other than L-3 or (B) where such system includes as
one or more subsystems, components, subcomponents or other parts of the system
products manufactured, assembled, fabricated or integrated by Lockheed Martin
or its Affiliates shall be deemed not to be a sale in competition with products
sold by L-3 and, therefore, is permitted under Paragraph 2; provided, however,
that, if sale of the product manufactured, assembled, fabricated or integrated
is not permitted by any of the exceptions to Paragraph 2 other than by clause
(B) of this Paragraph 6, then prior to manufacturing the subsystem, component,
subcomponent or other part of the system Lockheed Martin shall in its good
faith business judgment (which may include, but is not limited to,
consideration of the optimum combination of performance, schedule, quality,
cost, customer preference, ability to provide a total solution and/or turnkey
system and other factors considered relevant to the decision by the Lockheed
Martin company making the make/buy decision) consider procuring the item from
L-3 and provided further that items manufactured by Lockheed Martin or any of
its Affiliates in reliance on the exception provided by clause (B) of this
Paragraph 6 may only be sold during the term of this Limited Noncompetition
Agreement as part of a system qualifying for the exception provided by clause
(B) of this Paragraph 6.
7. Lockheed Martin acknowledges that in the event of its or its
Subsidiaries' breach of the covenants contained in this Limited
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Noncompetition Agreement, money damages would be an inadequate remedy.
Accordingly, without prejudice to the rights of L-3 also to seek such damages
or other remedies available to it, L-3 may seek, and Lockheed Martin shall not
contest the appropriateness of injunctive or other equitable relief in any
proceeding that L-3 may bring to enforce the covenants contained in this
Limited Noncompetition Agreement. No waiver of any breach of the covenants
contained in this Limited Noncompetition Agreement shall be implied from
forbearance or failure of L-3 to take action in respect thereof.
8. Lockheed Martin and L-3 agree that, if any provision of this Limited
Noncompetition Agreement should be adjudicated to be invalid or unenforceable,
such provision shall be deemed deleted herefrom with respect, and only with
respect, to the operation of such provision in the particular jurisdiction in
which such adjudication was made. To the extent any such provisions may be
valid and enforceable in such jurisdiction by limitations on the scope of the
activities, geographical area or time period covered, L-3 and Lockheed Martin
agree that such provision instead shall be deemed limited to the extent, and
only to the extent, necessary to make such provision enforceable to the fullest
extent permissible under the laws and public policies in such jurisdiction.
9. All notices, requests and other communications to any party
hereunder shall be in writing (including telecopy or similar writing) and
shall be given,
if to Lockheed Martin:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Attention: Marcus C. Bennett
Telecopy: (301) 897-6083
with a copy to:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Attention: Frank H. Menaker, Jr.
Telecopy: (301) 897-6791
and
Miles & Stockbridge, a
Professional Corporation
10 Light Street
Baltimore, Maryland 21202
Attention: Glenn C. Campbell
Telecopy: (410) 385-3700
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If to L-3:
L-3 Communications Corporation
600 Third Avenue
New York, New York 10016
Attention: General Counsel
Telecopy: (212) 805-5494
with copies to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: David B. Chapnick
Telecopy: (212) 455-2502
and
Lehman Brothers Capital Partners III, L.P.
3 World Financial Center
New York, New York 10285
Attention: Steven Berkenfeld
Telecopy: (212) 526-2198
and
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Attention: Frank H. Menaker, Jr.
Telecopy: (301) 897-6791
or to such other address or telecopy number and with such other copies, as such
party may hereafter specify for the purpose by notice to the other parties.
Each such notice, request or other communication shall be effective (i) if
given by telecopy, when such telecopy is transmitted to the telecopy number
specified in this Paragraph 9 and evidence of receipt is received or (ii) if
given by any other means, upon delivery or refusal of delivery at the address
specified in this Paragraph 9.
10. Any provision of this Limited Noncompetition Agreement may be amended
or waived if, and only if, such amendment or waiver is in writing and signed,
in the case of an amendment, by Lockheed Martin and L-3, or in the case of a
waiver, by the party against whom the waiver is to be effective. No failure or
delay by any party in exercising any right, power or privilege under this
Limited Noncompetition Agreement shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
11. The provisions of this Limited Noncompetition Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns; provided that no party may assign, delegate or
otherwise transfer any of its right or obligations under this Agreement without
the consent of Lockheed Martin, in the case of L-3, and L-3 in the case of
Lockheed Martin. Notwithstanding the foregoing, the provisions of
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this Limited Noncompetition Agreement shall not apply to any of the Lockheed
Martin Companies to the extent that such companies no longer are Subsidiaries
of Lockheed Martin.
12. As used in this Limited Noncompetition Agreement, any reference to the
plural shall include the singular, and the singular shall include the plural.
With regard to each and every term and condition of this Limited Noncompetition
Agreement, the parties understand and agree that the same have or has been
mutually negotiated, prepared and drafted, and that if at any time the parties
desire or are required to interpret or construe any such term or condition or
any agreement or instrument subject hereto, no consideration shall be given to
the issue of which party actually prepared, drafted or requested any term or
condition of this Limited Noncompetition Agreement.
13. This Limited Noncompetition Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof, supersedes all
prior agreements, understandings and negotiations, both written and oral,
between the parties with respect to the subject matter thereof, and satisfies
all obligations, covenants and agreements of Lockheed Martin under Section 9.09
of the Transaction Agreement.
14. This Limited Noncompetition Agreement shall be construed in
accordance with and governed by the law of the State of New York.
15. This Limited Noncompetition Agreement may be signed in counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. This Limited Noncompetition
Agreement shall become effective when each party hereto shall have received a
counterpart hereof signed by the other parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Limited
Noncompetition Agreement as of the date first set forth above.
LOCKHEED MARTIN CORPORATION
By: /s/ Stephen M. Piper
Stephen M. Piper
Assistant Secretary
L-3 COMMUNICATIONS CORPORATION
By: /s/ Michael T. Strianese
Michael T. Strianese
Vice President, Finance and
Controller
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Exhibit 10.8
ASSET PURCHASE AGREEMENT
________________________________________________________________________________
Between
L-3 COMMUNICATIONS CORPORATION
and
CALIFORNIA MICROWAVE, INC.
________________________________________________________________________________
Dated as of December 19, 1997
<PAGE>
TABLE OF CONTENTS
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ARTICLE I SALE AND PURCHASE OF THE ASSETS . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Books and Records; Intellectual Property . . . . . . . . . . . . . . 4
ARTICLE II THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Place and Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . 5
2.4 Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Excluded Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 Consent of Third Parties . . . . . . . . . . . . . . . . . . . . . . 8
2.7 Adjustment of Purchase Price . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . . . 11
3.1 Authorization, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Corporate Status . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 No Conflicts, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 12
3.5 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . 12
3.6 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.7 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.9 Compliance with Laws; Governmental
Approvals and Consents; Governmental
Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.10 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.11 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.12 Territorial Restrictions . . . . . . . . . . . . . . . . . . . . . . 18
3.13 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.14 Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.15 Product Warranties . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.16 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . 18
3.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.18 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.19 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . 20
3.20 Employees, Labor Matters, etc. . . . . . . . . . . . . . . . . . . . 20
3.21 Employee Benefit Plans and Related Matter . . . . . . . . . . . . . . 21
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3.22 Brokers, Finders, etc. . . . . . . . . . . . . . . . . . . . . . . . 21
3.23 Suppliers and Customers . . . . . . . . . . . . . . . . . . . . . . . 22
3.24 Order Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.25 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.26 Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . 23
4.1 Corporate Status; Authorization, etc. . . . . . . . . . . . . . . . . 23
4.2 No Conflicts, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.3 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.4 Brokers, Finders, etc. . . . . . . . . . . . . . . . . . . . . . . . 24
4.5 Adequate Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE V COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.1 Covenants of Seller . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.2 Covenants of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VI CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.1 Conditions to Obligations of Each Party . . . . . . . . . . . . . . . 31
6.2 Conditions to Obligations of Buyer . . . . . . . . . . . . . . . . . 32
6.3 Conditions to Obligations of Seller . . . . . . . . . . . . . . . . . 35
ARTICLE VII EMPLOYEES AND EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . 35
7.1 Employment of Seller's Employees . . . . . . . . . . . . . . . . . . 35
7.2 Welfare and Fringe Benefit Plans . . . . . . . . . . . . . . . . . . 36
ARTICLE VIII TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE IX INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.1 By Seller. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.2 By Buyer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.3 Adjustments to Indemnification Payments. . . . . . . . . . . . . . . 39
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9.4 Indemnification Procedures. . . . . . . . . . . . . . . . . . . . . . 39
9.5 Expiration of Representations and Warranties, etc. . . . . . . . . 40
9.6 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE X DEFINITIONS, MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.1 Definition of Certain Terms . . . . . . . . . . . . . . . . . . . . . 41
10.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.3 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.5 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
10.6 Arbitration Procedure. . . . . . . . . . . . . . . . . . . . . . . . 51
10.7 Attorneys Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.8 Liability for Transfer Taxes . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
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EXHIBITS
EXHIBIT A Form of Cross-License Agreement
EXHIBIT B Form of Technology License Agreement
EXHIBIT C Form of Trademark License Agreement
EXHIBIT D Form of Supply Agreement
SCHEDULES
SCHEDULE 1.2 Excluded Assets
SCHEDULE 2.4(a) Retention Incentive Agreements
SCHEDULE 3.2(b) Qualification to Do Business; Good Standing
SCHEDULE 3.3 Conflicts
SCHEDULE 3.4 September Balance Sheet
SCHEDULE 3.5 Undisclosed Liabilities
SCHEDULE 3.6(a) Contested Taxes
SCHEDULE 3.7 Absence of Changes
SCHEDULE 3.8 Litigation
SCHEDULE 3.9(a) Compliance with Laws
SCHEDULE 3.9(b) Governmental Approvals and other Consents
SCHEDULE 3.9(c) Government Contracts
SCHEDULE 3.10 Asset Exceptions
SCHEDULE 3.11(a) Contracts
SCHEDULE 3.11(c) Defaults and Consents under Contracts
SCHEDULE 3.13 Inventory Exceptions
SCHEDULE 3.15 Product Warranties
SCHEDULE 3.16(a) Owned Intellectual Property
SCHEDULE 3.16(b) Intellectual Property Licensing Arrangements
SCHEDULE 3.16(c) Infringement by Third Parties
SCHEDULE 3.16(d) Claims by Third Parties
SCHEDULE 3.17 Insurance
SCHEDULE 3.18(a) Owned Real Property
SCHEDULE 3.18(b) Leases
SCHEDULE 3.19(a) Environmental Matters
SCHEDULE 3.21(a) Employee Benefit Plans
SCHEDULE 3.23 Suppliers and Customers
SCHEDULE 3.24 Backlog
SCHEDULE 4.2 Governmental Approvals and other Consents
SCHEDULE 5.2(e) Letters of Credit; Performance and Surety Bonds
SCHEDULE 5.2(f) Severance Agreements
SCHEDULE 6.2(c) Consents
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of December 19, 1997,
between L-3 Communications Corporation, a Delaware corporation (the "Buyer"),
and California Microwave, Inc., a Delaware corporation (the "Seller").
R E C I T A L S:
A. Seller is in the business of designing, integrating
and installing satellite communications systems (with a principal focus on the
telephony, video broadcasting, multimedia, trunk and VSAT hub niches) in the
United States and certain other countries through an unincorporated division
(the "STS Division").
B. Buyer wishes to purchase or acquire from Seller, and
Seller wishes to sell, assign and transfer to Buyer, substantially all of the
assets of the STS Division, and Buyer has agreed to assume certain of the
liabilities of such Division, all for the purchase price and upon the terms and
subject to the conditions hereinafter set forth.
C. Capitalized terms used herein without separate
definition have the meanings given to such terms in Section 10.1.
NOW THEREFORE, in consideration of the mutual covenants,
representations and warranties made herein, and of the mutual benefits to be
derived hereby, the parties hereto agree as follows:
ARTICLE I
SALE AND PURCHASE OF THE ASSETS
1.1 Assets. Subject to and upon the terms and conditions
set forth in this Agreement, at the Closing, Seller shall sell, transfer,
convey, assign and deliver to Buyer, and Buyer shall purchase and acquire from
Seller, all right, title and interest of Seller in and to the properties,
assets and rights of every nature, kind and description, tangible and
intangible (including goodwill), whether real, personal or mixed, whether
accrued, contingent or otherwise and whether now existing or hereinafter
acquired (other than the Excluded Assets) that primarily relate to and are used
in the Business as the same may exist on the Closing Date (collectively, the
"Assets"), including, without limitation,
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(a) the Owned Real Property described on Schedule
3.18(a) and the property leased at 125 Kennedy Drive, Hauppauge, New York,
described on Schedule 3.18(b) (the "Kennedy Facility");
(b) all machinery, equipment, furniture,
furnishings, vehicles, tools, dies, molds and other tangible personal property;
(c) all inventories of raw materials, work in
process, finished products, goods, spare parts, replacement and component
parts, and office and other supplies (whether on hand, in-transit or on order)
(collectively, the "Inventories");
(d) all rights in Intellectual Property owned by
Seller and used primarily in the Business;
(e) the GMACS and Universal System Controller;
(f) all rights under all Contracts;
(g) all credits, prepaid expenses, deferred
charges, advance payments, security deposits and prepaid items;
(h) all notes and accounts receivable held by
Seller (including intercompany and interdivisional accounts receivable) and all
notes, bonds and other evidences of indebtedness of and rights to receive
payments from any Person (in all cases, whether or not billed) and the benefit
of security therefor;
(i) all Books and Records;
(j) to the extent their transfer is permitted by
law, all Governmental Approvals, including all applications therefor;
(k) all rights to causes of action, lawsuits,
claims and demands of any nature available to or being pursued by Seller with
respect to the Assets or the Assumed Liabilities (subject to Section 1.2(e));
(l) all guarantees, warranties, indemnities and
similar rights in favor of Seller with respect to the Assets;
(m) all computer hardware and software used
exclusively in the Business, including all rights under licenses and other
instruments or agreements relating thereto;
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(n) all assets reflected on the Final Closing
Statement of Net Assets;
(o) the Names and Logos "Satellite Transmission
Systems" alone or in any combination of words, or any combination, variation or
derivation of any such name or mark; and
(p) the cash and the cash equivalents in the
non-U.S. bank accounts as provided in Section 2.7(b).
Subject to the terms and conditions hereof, at the Closing,
the Assets shall be transferred or otherwise conveyed to Buyer free and clear
of all Liens excepting only those Liens listed in the first and fourth
paragraphs of Schedule 3.10 and Permitted Liens.
1.2 Excluded Assets. Seller shall retain and not
transfer, and Buyer shall not purchase or acquire, the following assets
(collectively, the "Excluded Assets"):
(a) the assets listed on Schedule 1.2;
(b) the name and mark "California Microwave" and
any name or mark derived from or including the foregoing;
(c) all cash and cash equivalents and similar
type investments, such as certificates of deposit, treasury bills and other
marketable securities other than non-U.S. bank accounts as provided in Section
2.7(b);
(d) all Books and Records relating to or used in
the business of Seller and not primarily relating to or used in the Business;
(e) all insurance policies and all rights to
causes of action, lawsuits, claims and demands, rights of recovery and set-off,
and proceeds, under or with respect to insurance policies except to the extent
provided for in Section 5.1(e);
(f) all rights to causes of action, lawsuits,
claims and demands of any nature available to or being pursued by Seller with
respect to the Excluded Assets or the Excluded Liabilities;
(g) all Intellectual Property not used primarily
in the Business;
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(h) all right, title and interest of the Seller
in and to prepaid Taxes of the Business (except to the extent reflected on the
Final Closing Statement of Net Assets), and any claims for any refund, rebate
or abatement with respect to Taxes of the Business (except to the extent
reflected on the Final Closing Statement of Net Assets) for any period or
portion thereof through the Closing Date and any interest payable with respect
thereto; and
(i) the lease of the warehouse located at 65
Commerce Drive, Hauppauge, New York.
1.3 Books and Records; Intellectual Property.
(a) From and after the Closing and until the
sixth anniversary thereof, (i) Seller agrees to grant to Buyer, upon reasonable
notice and during normal business hours, reasonable access to any Books and
Records that pertain to the operations of the Business but that are not Books
and Records that primarily relate to the Business, and (ii) Buyer agrees to
grant to Seller, upon reasonable notice and during normal business hours,
reasonable access to any Books and Records included in the Assets that pertain
to the operation of the Business on or prior to the Closing Date, for any
reasonable business purpose of Seller.
(b) At the Closing, Seller shall grant to Buyer a
fully-paid, nonexclusive license to use intellectual property of Seller used in
the operation of the Business but not constituting Intellectual Property that
primarily relates to the Business. Such license shall be substantially in the
form of the Cross-License Agreement between Buyer and Seller attached as
Exhibit A hereto (the "Cross- License Agreement").
(c) At the Closing, Buyer shall grant to Seller a
fully-paid, non-exclusive license to use the GMACS, Universal System Controller
and the patent pending referenced in Schedule 3.16(a). Such license shall be
substantially in the form of the Technology License Agreement between Buyer and
Seller attached as Exhibit B hereto (the "Technology License Agreement").
(d) At the Closing, Buyer shall grant to Seller a
fully-paid, non-exclusive license to use the trademarks, service marks,
tradenames and service names associated with the GMACS and the Universal System
Controller. Such agreement shall be substantially in the form of the Trademark
License Agreement between Buyer and Seller attached as Exhibit C hereto (the
"Trademark License Agreement").
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ARTICLE II
THE CLOSING
2.1 Place and Date. The closing of the sale and purchase
of the Assets (the "Closing") and the assumption of the Assumed Liabilities
shall take place at 10:00 A.M. local time on the 26th day of January, 1998 at
the offices of Whitman Breed Abbott & Morgan LLP, 200 Park Avenue, New York, NY
10166, or such other time and place upon which the parties may agree. The day
on which the Closing actually occurs is herein sometimes referred to as the
"Closing Date."
2.2 Purchase Price. On the terms and subject to the
conditions set forth in this Agreement, Buyer agrees to pay to Seller at the
Closing an aggregate of U.S. $27 million, subject to adjustment as provided for
in Section 2.7 (the "Purchase Price"), and to assume the Assumed Liabilities as
provided in Section 2.4. The Purchase Price shall be paid by the wire transfer
of immediately available funds to such bank account or accounts as are
specified by Seller in written instructions given to Buyer at least three days
prior to the Closing.
2.3 Allocation of Purchase Price. The parties agree to
allocate the aggregate of the Purchase Price and the Assumed Liabilities
(collectively, the "Aggregate Purchase Price") among the Assets, including
solely for this purpose the agreements contained in Section 5.1(f), in
accordance with Section 1060 of the Code as mutually agreed to by the parties
within 180 days following the Closing. All such mutually agreed to allocations
shall be (a) at the election and expense of Buyer, based upon appraisal(s)
prepared by independent firm(s) selected by Buyer and approved by Seller (such
approval not to be unreasonably withheld or delayed), and (b) used by each
party in preparing any filings required pursuant to Section 1060 of the Code or
any similar provisions of state or local law and all relevant income and
franchise tax returns, subject to adjustment to reflect the adjustment to the
Purchase Price provided for in Section 2.7. Neither Buyer nor Seller will take
any position before any taxing authority or in any judicial proceeding that is
inconsistent with such mutually agreed to allocations without the prior consent
of the other party. The parties shall in good faith exercise reasonable
efforts to support such reported allocations in any audit proceedings initiated
by any taxing authority.
2.4 Assumption of Liabilities. Subject to the terms and
conditions set forth herein, at the Closing, Buyer shall assume and agree to
pay, honor and discharge when due only the following liabilities and
obligations relating to the Assets or the Business: (a) all payment
obligations of Seller under all retention incentive agreements as set forth in
Schedule
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2.4(a), but only to the extent that such payment obligations relate to the
failure of Buyer to hire employees of the STS Division or the involuntary
termination by Buyer without cause of the employment of any Transferred
Employee after the Closing; (b) all product warranty obligations of the
Business; (c) all liabilities and obligations of Seller to be performed from
and after the Closing Date under or relating to Contracts and Governmental
Approvals included in the Assets; (d) all liabilities and obligations of Seller
relating to or arising out of the operation of the Business and reflected on
the June Balance Sheet and/or the September Balance Sheet or disclosed in the
notes thereto other than those relating to income taxes; and (e) to the extent
reflected on the Final Closing Statement of Net Assets, all trade and other
accounts payable and other liabilities (other than those relating to income
taxes) arising out of or in respect of the ordinary course of business of the
Business (including intercompany and interdivisional trade accounts payable)
consistent with past practice since September 30, 1997 (collectively, the
"Assumed Liabilities").
2.5 Excluded Liabilities. Other than for the Assumed
Liabilities, Buyer shall not be responsible for any other debts, claims,
commitments, liabilities or obligations of Seller or the Business
(collectively, the "Excluded Liabilities"), including without limitation any
and all liabilities, obligations or commitments of Seller (except those that
constitute Assumed Liabilities) relating to and arising out of any of the
following:
(a) any liability, obligation or commitment that,
in accordance with GAAP, was required to have been shown as a liability in the
Financial Statements or in the notes thereto and was not so shown, unless
reflected on the Final Closing Statement of Net Assets;
(b) except as expressly assumed by Buyer pursuant
to Article VII hereof or as accrued or otherwise reflected on the Final Closing
Statement of Net Assets, (i) the sponsorship, administration, contribution
obligation of any entity under any Employee Benefit Plan or termination of any
Employee Benefit Plan on or prior to the Closing Date, or (ii) the termination
of employment of any employee of the Business by Seller;
(c) any cause of action or judicial or
administrative action, suit, proceeding or investigation, pending or threatened
on the Closing Date, relating to periods prior to the Closing Date, that is not
disclosed on Schedule 3.8 hereto;
(d) any failure or alleged failure to comply
with, or any violation or alleged violation of, (i) any law, rule, regulation,
statute, ordinance, permit, judgment, injunction, order, decree, license or
other Governmental Approval applicable to the Business or the Assets or (ii)
any
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Contract, in each case which failure or violation occurred or was alleged to
have occurred prior to the Closing Date;
(e) any infringement or alleged infringement of
the rights of any other person or entity arising out of the use of any
Intellectual Property in connection with the Business prior to the Closing
Date;
(f) any rights of any other Person relating to
the Intellectual Property pursuant to any license, sublicense or agreement
required to be disclosed and not so disclosed;
(g) any obligations against Seller with respect
to any notes, bonds, accounts receivable or other evidences of indebtedness of
or rights to receive payment from any Person that have been transferred to a
third person by Seller;
(h) any liability for any Taxes imposed on Seller
arising from the operation of the Business on or before the Closing Date;
(i) the Excluded Assets;
(j) all Environmental Liabilities and Costs
arising from, relating to, in respect of, or incurred in connection with (i)
any real property, business entities or assets, whether domestic or foreign,
formerly owned, occupied or operated by or in connection with the Business and
not owned, occupied or operated by or in connection with the Business as of the
Closing Date, (ii) the transportation or disposal of any Hazardous Substances
to or at any offsite facility or location by or in connection with the Business
occurring prior to the Closing Date and (iii) conditions existing or events
occurring on or prior to the Closing Date on any real property owned, occupied
or operated by or in connection with the Business as of the Closing Date;
(k) all obligations of Seller under all retention
agreements, severance agreements (subject to the provisions of Section 5.2(f)),
change of control agreements and similar arrangements not listed on Schedule
2.4(a);
(l) all obligations of Seller under all retention
incentive agreements listed on Schedule 2.4(a) (including any payments due
thereunder upon and by reason of the sale of the STS Division), other than
those payment obligations of Seller referred to in Section 2.4(a);
(m) any claim, litigation, action or proceeding,
whether or not now pending or threatened, relating to the Business or the
Assets to the
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extent based on or arising out of or based upon product liability with respect
to products shipped or sold prior to the Closing; or
(n) all intercompany obligations and liabilities
owed by the Business to Seller other than intercompany or interdivisional trade
accounts payable reflected on the Final Closing Statement of Net Assets.
2.6 Consent of Third Parties. Notwithstanding anything
to the contrary in this Agreement, this Agreement shall not constitute an
agreement to assign or transfer any Governmental Approval, instrument,
contract, lease, permit or other agreement or arrangement or any claim, right
or benefit arising thereunder or resulting therefrom if an assignment or
transfer or an attempt to make such an assignment or transfer without the
consent of a third party would constitute a breach or violation thereof or
affect adversely the rights of Buyer or Seller thereunder; and any transfer or
assignment to Buyer by Seller of any interest under any such Governmental
Approval, instrument, contract, lease, permit or other agreement or arrangement
that requires the consent of a third party shall be made subject to such
consent or approval being obtained. In the event any such consent or approval
is not obtained on or prior to the Closing Date, Seller shall (i) continue to
use all reasonable efforts to obtain any such approval or consent after the
Closing Date until such time as such consent or approval has been obtained
without any third party cost to Buyer, (ii) hold such Governmental Approval,
instrument, contract, lease, permit or other agreement or arrangement on behalf
of Buyer, (iii) cooperate with Buyer in any lawful arrangement to provide that
Buyer shall receive the benefits under any such Governmental Approval,
instrument, contract, lease or permit or other agreement or arrangement,
including performance by Seller, as agent, and (iv) enforce and perform for the
account of Buyer any rights of Seller arising from such Government Approval,
instrument, contract, lease, permit or other agreement or arrangement, provided
that Buyer shall undertake to pay or satisfy the corresponding liabilities for
the enjoyment of such benefit to the extent Buyer would have been responsible
therefor if such consent or approval had been obtained. Nothing in this
Section 2.6 shall be deemed a waiver by Buyer of its right to receive an
effective assignment of all of the Assets.
2.7 Adjustment of Purchase Price.
(a) Calculation of Adjustment. The Purchase
Price shall be (i) increased by the amount that the Closing Date Net Assets (as
hereinafter defined), are greater than $25,099,080 (which amount is the book
value of the net assets as shown on the adjusted September Balance Sheet (the
"Target Net Assets"); or (ii) decreased by the amount that the Closing Date Net
Assets are less than the Target Net Assets. The term "Closing Date Net Assets"
as used herein shall mean the book value of the Assets set forth on the Final
Closing
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Statement of Net Assets (as hereinafter defined) in excess of the amount of the
Assumed Liabilities set forth on the Final Closing Statement of Net Assets,
determined in accordance with the procedures set forth below. The amount of
any decrease or increase to the Purchase Price pursuant to this Section 2.7(a)
plus interest from and including the Closing Date to but excluding the date of
payment at the Prime Rate (as hereinafter defined) shall be paid by Seller or
Buyer, as the case may be, by wire transfer in immediately available funds
within five (5) business days after the Final Closing Statement of Net Assets
is agreed to by Seller and Buyer or is determined by the Neutral Auditor (as
hereinafter defined). For purposes of this Agreement, "Prime Rate" means the
prime rate of interest in effect on the Closing Date as stated in the "Money
Rates" section of the Wall Street Journal.
(b) Preparation of Closing Statement of Net
Assets. As soon as practicable, and in any event within sixty (60) days after
the Closing Date, Seller shall cause Ernst & Young LLP ("E&Y") to prepare an
audited statement of net assets for the Business consisting of the Assets and
the Assumed Liabilities, as of the close of business on the Closing Date
determined on a pro forma basis as if the parties hereto had not consummated
the transactions contemplated by this Agreement (the "Closing Statement of Net
Assets"), to be prepared in accordance with United States generally accepted
accounting principles ("GAAP") applied on a basis consistent with the September
30, 1997 Financial Statements (including the September Balance Sheet) through
full application of the policies and procedures used in preparing the September
30, 1997 Financial Statements (including the September Balance Sheet) and
taking into account the type of adjustments included in the September Balance
Sheet set forth in Schedule 3.4, and with changes in contract estimates at
completion ("EAC's") and estimates to complete ("ETC's") determined on a basis
consistent with the method used for the determination of the September 30, 1997
Financial Statements (including the September Balance Sheet); provided that,
for purposes of the Closing Statement of Net Assets, the cash and cash
equivalents held in non-US bank accounts for the benefit of the STS Division
shall be transferred to Buyer and shall be reflected as assets of the STS
Division and shall be included in the calculation of any Purchase Price
adjustment required by this Section. The Closing Statement of Net Assets shall
be accompanied by the report of E&Y thereon and by a certificate of Seller's
Chief Financial Officer, each of which shall state that the Closing Statement
of Net Assets presents fairly, in all material respects, the Assets and Assumed
Liabilities presented on such statement as provided for in this Agreement at
the Closing Date in conformity with GAAP consistently applied with the
September 30, 1997 Financial Statements, except that it does not contain all
the notes required by GAAP. Buyer shall provide Seller, E&Y and the Neutral
Auditor such access to the Books and Records as may reasonably be required for
the preparation and/or review of the Closing
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Statement of Net Assets. All fees and expenses of E&Y relating to the
preparation of the Closing Statement of Net Assets shall be borne equally by
Seller and Buyer.
(c) Review of Closing Statement of Net Assets.
After receipt of the Closing Statement of Net Assets, Buyer shall have thirty
(30) days to review it. Buyer and its authorized representatives shall have
full access to all Books and Records and appropriate employees of the Seller
and its accountants to the extent required to complete their review of the
Closing Statement of Net Assets including work papers used in preparation
thereof. Unless the Buyer delivers written notice to Seller on or prior to the
30th day after receipt of the Closing Statement of Net Assets specifying in
reasonable detail all disputed items and the basis therefor, the parties shall
be deemed to have accepted and agreed to the Closing Statement of Net Assets.
If Buyer so notifies the Seller of an objection to the Closing Statement of Net
Assets, the parties shall, within thirty (30) days following the date of such
notice (the "Resolution Period") attempt to resolve their differences and any
resolution by them as to any disputed amount shall be final, binding,
conclusive and nonappealable for all purposes under this Agreement.
(d) Resolution. If at the conclusion of the
Resolution Period the parties have not reached an agreement on the objections,
then all amounts remaining in dispute may, at the election of either party, be
submitted to Price Waterhouse or another large international accounting firm
not otherwise engaged by either party (the "Neutral Auditor"). Each party
agrees to execute, if requested by the Neutral Auditor, a reasonable engagement
letter. All fees and expenses relating to the work, if any, to be performed by
the Neutral Auditor shall be borne equally by Seller and Buyer, unless the
Neutral Auditor finds one party acted in bad faith in which case that party
pays all. Except as provided in the preceding sentence, all other costs and
expenses incurred by the parties in connection with resolving any dispute
hereunder before the Neutral Auditor shall be borne by the party incurring such
cost and expense. The Neutral Auditor shall act as an arbitrator to determine,
based solely on the presentations by Seller and Buyer, and not by independent
review, only those issues still in dispute. The Neutral Auditor's
determination shall be made within thirty (30) days of its engagement (which
engagement shall be made no later than five (5) business days after the
election by either party to submit the objections to the Neutral Auditor) or as
soon thereafter as possible, shall be set forth in a written statement
delivered to Seller and Buyer and shall be final, binding, conclusive and
nonappealable for all purposes hereunder. The term "Final Closing Statement of
Net Assets," as hereinafter used, shall mean the definitive Closing Statement
of Net Assets agreed to by Seller and Buyer in accordance with Section 2.7(c)
or the definitive Closing Statement of Net Assets resulting
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from the determination made by the Neutral Auditor in accordance with this
Section 2.7(d) (in addition to those items theretofore agreed to by Seller and
Buyer).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 Authorization, etc. Seller has the corporate power
and authority to execute and deliver this Agreement, to perform fully its
obligations thereunder, and to consummate the transactions contemplated hereby.
The execution and delivery by Seller of this Agreement, and the consummation of
the transactions contemplated hereby, have been duly authorized by all
requisite corporate action of Seller. Seller has duly executed and delivered
this Agreement. This Agreement is a legal, valid and binding obligation of
Seller, enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar laws affecting creditor's rights generally and by
general equitable principles.
3.2 Corporate Status.
(a) Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with full corporate power and authority to carry on the Business and to own or
lease and to operate the properties of the Business as and in the places where
the Business is conducted and such properties are owned, leased or operated.
(b) Seller is duly qualified or licensed to do
business and is in good standing in each of the jurisdictions in which the
operation of the Business or the character of the properties owned, leased or
operated by it in connection with the Business makes such qualification or
licensing necessary, except where the failure to be so qualified or licensed
would not have a Material Adverse Effect. Such jurisdictions are listed on
Schedule 3.2(b).
(c) Seller has delivered to Buyer complete and
correct copies of its certificate of incorporation and by-laws in each case, as
amended and in effect on the date hereof and on the Closing Date. Seller is
not in violation of any of the provisions of its certificate of incorporation
or by-laws or other organizational documents.
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3.3 No Conflicts, etc. The execution, delivery and
performance by Seller of this Agreement and the consummation of the
transactions contemplated hereby, do not and will not conflict with or result
in a violation of or a default under (with or without the giving of notice or
the lapse of time or both), or result in the acceleration of or give rise to
any party the right to terminate, modify or cancel under, or result in the loss
of any rights, privileges, options or alternatives under, or result in the
creation of any Lien on any assets of Seller (including the Assets) under (i)
any Applicable Law applicable to Seller or any of the Assets, (ii) the
certificate of incorporation or by-laws of Seller or (iii) except as set forth
in Schedule 3.3, any Contract or other agreement or instrument to which Seller
is a party or by which Seller or the Assets is bound. Except as specified in
Schedule 3.3 and as may be required under the HSR Act, no Governmental Approval
or other Consent is required to be obtained or made by Seller in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
3.4 Financial Statements. Seller has delivered to Buyer
(a) the audited balance sheet (the "June Balance Sheet") and the related
statements of operations and cash flows of the Business as at and for the
fiscal year ended June 30, 1997 and (b) the unaudited balance sheet and the
unaudited adjusted balance sheet, a copy of which is attached hereto as
Schedule 3.4 (the "September Balance Sheet") and the related statement of
income of the Business as at and for the three-month period ended September 30,
1997 (collectively, the "Financial Statements"). The September 30, 1997
Financial Statements have been prepared on a basis consistent with the June 30,
1997 Financial Statements. The Financial Statements are in accordance with the
books and records of the STS Division, have been prepared in accordance with
GAAP and fairly present the financial condition and results of operations of
the Business as at and for the periods specified, except that the September 30,
1997 Financial Statements do not contain notes required by GAAP.
3.5 Absence of Undisclosed Liabilities. Seller has no
debts, claims, liabilities or obligations of any nature, whether known or
unknown, absolute, accrued, contingent or otherwise and whether due or to
become due, asserted or unasserted, arising out of or relating to the Business,
except (a) as set forth in Schedule 3.5, (b) as and to the extent disclosed or
reserved against in the September Balance Sheet, and (c) liabilities and
obligations that were incurred after September 30, 1997 in the ordinary course
of business consistent with prior practice.
3.6 Taxes. Seller has (or by the Closing will have) duly
and timely filed all Tax Returns relating to the Business with respect to Taxes
required to be filed on or before the Closing Date. Except for Taxes set forth
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on Schedule 3.6(a), which are being contested in good faith and by appropriate
proceedings, the following Taxes have (or by the Closing Date will have) been
duly and timely paid: (i) all Taxes shown to be due on the Tax Returns, (ii)
all deficiencies and assessments of Taxes of which notice has (or by the
Closing Date will have) been received by Seller that are or may become payable
by Buyer or chargeable as a lien upon the Business, and (iii) all other Taxes
in respect of periods prior to the Closing.
3.7 Absence of Changes. Except as set forth in Schedule
3.7 (which Schedule includes, as Schedule 3.7(a), certain STS Division summary
financial data showing the actual results of the STS Division for the quarter
ended September 30, 1997 and the STS Division's forecasted results, by quarter,
for the fiscal year ending June 30, 1998) and for the results shown and changes
forecast in Schedule 3.7(a), since September 30, 1997, Seller has not in
connection with or relating to the Business or the Assets:
(a) suffered any material adverse change in the
financial condition, results of operation or Assets of the Business, other than
changes in the STS Division's intercompany account with CMI corporate, which
changes represent (i) the results of operations of the STS Division, (ii) the
cash advanced to the STS Division by CMI corporate or repaid by the STS
Division to CMI corporate, and (iii) certain allocations between CMI corporate
and the STS Division, which allocations were made in the ordinary course of
business consistent in type and amount with past practice;
(b) incurred, assumed, guaranteed or discharged
any obligation or liability, absolute, accrued, contingent or otherwise,
whether due or to become due, or any indebtedness for borrowed money, except
current liabilities for trade or business obligations incurred in connection
with the purchase of goods or services in the ordinary course of business
consistent with prior practice;
(c) mortgaged, pledged or subjected to Lien, any
property, business or assets, tangible or intangible;
(d) sold, transferred, leased to others or
otherwise disposed of any of the Assets, except for inventory sold in the
ordinary course of business, or cancelled or compromised any debt or claim, or
waived or released any right of substantial value;
(e) received any notice of termination of any
material contract, lease or other agreement;
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(f) suffered any damage, destruction or loss
(whether or not covered by insurance), in any case or in the aggregate, in
excess of $150,000;
(g) transferred or granted any rights under, or
entered into any settlement regarding the breach or infringement of, any
Intellectual Property, or modified any existing rights with respect thereto;
(h) made any change in the rate of compensation,
commission, bonus or other direct or indirect remuneration payable, or paid or
agreed or orally promised to pay, conditionally or otherwise, any bonus,
incentive, retention or other compensation, retirement, welfare, fringe or
severance benefit or vacation pay, to or in respect of any employee,
distributor or agent of the Business, other than increases in the ordinary
course of business consistent with past practice in the compensation payable to
those employees of the Business earning less than $50,000 per annum each;
(i) encountered any labor union organizing
activity, had any actual or threatened employee strikes, work stoppages,
slowdowns or lockouts, or had any material change in its relations with its
employees, distributors, agents, customers or suppliers;
(j) entered into any transaction, contract or
commitment other than in the ordinary course of business or paid or agreed to
pay any legal, accounting, brokerage, finder's fee, Taxes or other expenses in
connection with, or incurred any severance pay obligations by reason of, this
Agreement or the transactions contemplated hereby;
(k) made any grant of credit to any customer or
distributor on terms or in amounts materially more favorable than had been
extended to that customer or distributor in the past; or
(l) taken any action or omitted to take any
action that would result in the occurrence of any of the foregoing.
Seller makes no representation or warranty as to the
realization of any results forecast in Schedule 3.7(a).
3.8 Litigation. Except as set forth on Schedule 3.8,
there is no action, claim, demand, suit, proceeding, arbitration, grievance,
citation, summons, subpoena, inquiry or investigation, civil, criminal,
regulatory or otherwise, in law or in equity, pending or, to the knowledge of
Seller, threatened against or relating to Seller in connection with the Assets
or the Business seeking unspecified damages, damages in excess of $50,000 or
any
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injunctive or other equitable relief or against or relating to the transactions
contemplated by this Agreement.
3.9 Compliance with Laws; Governmental Approvals and
Consents; Governmental Contracts.
(a) Except as disclosed in Schedule 3.9(a),
Seller has complied in all respects with all Applicable Laws applicable to the
Business or the Assets, except for any non-compliance that has not had or would
not result in, individually or in the aggregate, a Material Adverse Effect.
(b) Schedule 3.9(b) sets forth all Governmental
Approvals and other Consents necessary for, or otherwise material to, the
conduct of the Business as conducted by Seller. Except as set forth in
Schedule 3.9(b), all such Governmental Approvals and Consents have been duly
obtained and are in full force and effect, and Seller is in compliance in all
material respects with each of such Governmental Approvals and Consents held by
it with respect to the Assets and the Business.
(c) Schedule 3.9(c) sets forth all Contracts with
any Governmental Authority.
3.10 Assets.
(a) Except for those Liens listed on Schedule
3.10, on the date hereof, Seller has good and valid title to all the Assets
free and clear of any and all Liens other than Permitted Liens. Except for
those Liens listed as Items 1 and 4 on Schedule 3.10, on the Closing Date,
Seller will have good and valid title to all the Assets free and clear of any
and all Liens other than Permitted Liens. The Assets include all material
assets required for the continued conduct of the Business by Buyer as now being
conducted or material to the financial condition or results of operations of
the Business, except for the Excluded Assets. The Assets do not include stock
or equity interests in any Person.
(b) All material property and assets owned or
utilized by the Business are in good operating condition and repair (except for
ordinary wear and tear), free from any defects (except such minor defects as do
not interfere with the use thereof in the conduct of the normal operations),
and are sufficient to carry on the Business as presently conducted. All
buildings, plants and other structures utilized by the Business are in good
condition and repair (except for ordinary wear and tear).
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3.11 Contracts.
(a) Schedule 3.11(a) contains a complete and
correct list of all agreements, contracts, commitments, orders, licenses,
leases, and other instruments and arrangements (whether written or oral) of the
types described below to which Seller is a party or by which it or any of its
assets is bound in connection with the Business, the Assets or the Assumed
Liabilities (the "Contracts"):
(i) leases, licenses, permits,
franchises, insurance policies, Governmental Approvals and other contracts
concerning or relating to the Real Property;
(ii) employment, consulting, agency,
collective bargaining or other similar contracts, agreements, and other
instruments and arrangements relating to or for the benefit of employees, sales
representatives, distributors, dealers, agents, or (if material) independent
contractors;
(iii) loan agreements, indentures, letters
of credit, mortgages, security agreements, pledge agreements, deeds of trust,
bonds, notes, guarantees, and other agreements and instruments relating to the
borrowing of money or obtaining of or extension of credit;
(iv) licenses, licensing arrangements and
other contracts providing in whole or in part for the use of, or limiting the
use of, any Intellectual Property;
(v) brokerage or finder's agreements;
(vi) joint venture, partnership and
similar contracts involving a sharing of profits or expenses (including but not
limited to joint research and development and joint marketing contracts);
(vii) asset purchase agreements and other
acquisition or divestiture agreements, including but not limited to any
agreements relating to the sale, lease or disposal of any Assets (other than
sales of inventory in the ordinary course of business) or involving continuing
indemnity or other obligations;
(viii) any contract with respect to which
the aggregate amount that could reasonably be expected to be paid or received
thereunder in the future exceeds $100,000 per annum;
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(ix) sales agency, manufacturer's
representative, marketing or distributorship agreements;
(x) contracts, agreements or
arrangements with respect to the representation of the Business in foreign
countries;
(xi) purchase commitments for inventory
items or supplies that, together with amounts on hand, constitute in excess of
six months normal usage;
(xii) any agreement, understanding,
contract or commitment (written or oral) with (x) any employee, agent,
consultant, distributor, dealer or franchisee other than those involving in the
aggregate consideration or other expenditure of less than $100,000, or (y) any
Affiliate;
(xiii) any collective bargaining agreements
with any unions, guilds, shop committees or other collective bargaining groups;
(xiv) any guarantee of the payment or
performance of any Person agreement to indemnify any Person, or act as a
surety, or other agreement to be contingently or secondarily liable for the
obligations of any Person other than (x) the endorsement of checks in the
ordinary course of business and (y) guarantees or agreements which in the
aggregate do not exceed $100,000;
(xv) any outstanding bid or proposal or
any outstanding customer option relating to Contracts in the Backlog in excess
of $100,000; and
(xvi) any other contracts, agreements or
commitments that are material to the Business.
(b) Seller has furnished Buyer with access to all
written Contracts, together with all amendments thereto, set forth in Schedule
3.11(a). Seller has furnished Buyer with a complete and accurate summary of
all oral contracts listed on Schedule 3.11(a).
(c) There does not exist under any Contract any
event of default or event or condition that, after notice or lapse of time or
both, would constitute a violation, breach or event of default thereunder on
the part of Seller or, to the knowledge of Seller, any other party thereto
except as set forth in Schedule 3.11(c) and except for such events or
conditions that, individually and in the aggregate, (i) have not had or
resulted in a Material Adverse Effect and (ii) have not materially impaired the
ability of Seller to
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perform its obligations under the Agreement. Except as set forth in Schedule
3.11(c), each Contract is a legal, valid, binding and enforceable obligation of
Seller and, to the knowledge of Seller, the other parties thereto. Except as
set forth in Schedule 3.11(c), no consent of any third party is required under
any Contract as a result of or in connection with the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby.
3.12 Territorial Restrictions. Seller is not restricted
by any agreement or understanding with any other Person from carrying on the
Business anywhere in the world.
3.13 Inventories. Except as set forth on Schedule 3.13
and net of reserves as reflected in the September Balance Sheet or to be
reflected in the Final Closing Statement of Net Assets, (a) Inventories are of
such quality as to meet the quality control standards of Seller and any
applicable governmental quality control standard and are usable in the ordinary
course of business in amounts consistent with past practice, and (b)
Inventories that are finished goods are saleable in the ordinary course of
business.
3.14 Receivables. Seller's receivables (including
accounts receivable, loans receivable and advances) which have arisen in
connection with the Business and which are reflected in the September Balance
Sheet or will be reflected in the Final Closing Statement of Net Assets, and
all such receivables which will have arisen since the date of the Financial
Statements, have arisen only from bona fide transactions in the ordinary course
of business. Seller has no knowledge of any facts or circumstances generally
(other than general economic conditions) which would result in any material
increase in the uncollectability of such receivables as a class in excess of
the reserves therefor set forth on the Financial Statements. To Seller's
knowledge, there has not been any material adverse change in the collectability
of such receivables since September 30, 1997.
3.15 Product Warranties. Except as set forth in Schedule
3.15 and for warranties under Applicable Law, (a) there are no warranties
express or implied, written or oral, with respect to the products of the
Business and (b) except as reflected in the Financial Statements or as incurred
in the ordinary course of business thereafter there are no pending or
threatened claims with respect to any such warranty. Seller is not aware of
any facts that indicate that the reserves for product warranties reflected in
the September Balance Sheet are materially understated. Schedule 3.15 sets
forth a list of all pending or, to the knowledge of Seller, threatened product
warranty claims in excess of $50,000.
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3.16 Intellectual Property. Schedule 3.16(a) sets forth a
complete and correct list of all material Intellectual Property that is owned
by Seller and used in connection with the Business (the "Owned Intellectual
Property"). Schedule 3.16(b) sets forth a complete and correct list of all
material written or oral licenses and arrangements, (i) pursuant to which the
use by any Person of Intellectual Property is permitted by Seller and (ii)
pursuant to which the use by Seller of Owned Intellectual Property is permitted
by any Person (collectively, the "Intellectual Property Licenses"). The Owned
Intellectual Property and the Intellectual Property Licenses (including the
GMACS and Universal System Controller) constitute all Intellectual Property
necessary to operate the Business consistent with past practice. On the date
hereof and at the Closing, all Intellectual Property Licenses are or will be in
full force and effect in accordance with their terms, and are free and clear of
any Liens (other than Permitted Liens). To the knowledge of Seller, the
conduct of the Business does not infringe the rights of any third party in
respect of any Intellectual Property, except as set forth on Schedule 3.16(c).
To the knowledge of Seller, none of the Intellectual Property is being
infringed by third parties. Except as set forth on Schedule 3.16(d), there is
no claim or demand of any Person pertaining to, or any proceeding which is
pending or, to the knowledge of Seller, threatened, that challenges the rights
of Seller in respect of any Intellectual Property, or claims that any default
exists under any Intellectual Property License.
3.17 Insurance. Schedule 3.17 contains a list of all
insurance policies maintained by Seller for the benefit of or in connection
with the Assets or the Business and no notice of cancellation, termination, or
reduction of coverage, and no notice of intention to cancel, terminate or
reduce coverage, has been received. Seller has given Buyer access to complete
and correct copies of all such policies together with all riders and amendments
thereto. Such policies are in full force and effect, and all premiums due
thereon have been paid.
3.18 Real Property.
(a) Owned Real Property. Schedule 3.18(a)
contains a complete and correct list of all Owned Real Property setting forth
the address and owner of each parcel of Owned Real Property and generally
describing all improvements thereon including, without limitation, the
properties reflected as being so owned on the Financial Statements and not
disposed of after the date of the Financial Statements in the ordinary course
of Business. Seller has, or on the Closing Date will have, good and marketable
fee simple title to the Owned Real Property indicated on Schedule 3.18(a) as
being owned by it, free and clear of all Liens other than Permitted Liens.
There are no outstanding options or rights of first refusal to purchase the
Owned Real Property, or any
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portion thereof or interest therein. Notwithstanding the foregoing provisions,
for the purposes of this Section 3.18, Section 3.10, and the last sentence of
Section 1.1, Permitted Liens shall not include, with the exception of the
mortgage liens and easements of record described on Schedule 3.18(c), any
mortgage lien encumbering the Owned Real Property or the Kennedy Facility or
any easement of record.
(b) Leases. Schedule 3.18(b) contains a complete
and correct list of all Leases setting forth the address, landlord and tenant
for each Lease. Seller has delivered to Buyer correct and complete copies of
the Leases. Each Lease is legal, valid, binding and enforceable, and in full
force and effect, except as may be limited by bankruptcy, insolvency,
reorganization and similar Applicable Laws affecting creditors generally and by
the availability of equitable remedies. Seller is not in default, violation or
breach in any respect under any Lease, and no event or condition has occurred
and is continuing that constitutes or, with notice or the passage of time or
both, would constitute a default, violation or breach in any respect under any
Lease. No renewal or extension options have been granted to tenants. Schedule
3.18(c) sets forth all easements, covenants, mortgages and restrictions of
record encumbering the Owned Real Property and the Leased Real Property subject
to the lease from the Suffolk County Industrial Development Agency.
3.19 Environmental Matters.
(a) Compliance with Environmental Law. To the
knowledge of Seller, Seller is and has been in compliance in all material
respects with all applicable Environmental Laws pertaining to any of the
properties and assets of the Business and the use by Seller thereof. Except as
disclosed on Schedule 3.19(a) hereto, Seller has obtained all material permits,
licenses and other authorizations that are required under Environmental Law
necessary to operate the Business and the same are listed on Schedule 3.19(a)
hereto. No violation by Seller is being alleged of any applicable
Environmental Law relating to any of the Assets.
(b) Other Environmental Matters. To the
knowledge of Seller, Seller has not caused or taken any action that resulted
in, and Seller is not subject to, any material liability or obligation on the
part of Seller, relating to (x) the environmental conditions on, under, or
about the Real Property or other properties or assets owned, leased, operated
or used by Seller in the Business including without limitation, the air, soil
and groundwater conditions at such properties or (y) the use, management,
handling, transport, treatment, generation, storage, disposal or Release of any
Hazardous Materials by Seller.
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3.20 Employees, Labor Matters, etc. Seller is not a party
to or bound by any collective bargaining agreement and there are no labor
unions or other organizations representing, purporting to represent or
attempting to represent any employees employed in the operation of the
Business. Since August 31, 1994, there has not occurred or, to the knowledge
of Seller, been threatened any material strike, slowdown, picketing, work
stoppage, concerted refusal to work overtime or other similar labor activity
with respect to any employees employed in the operation of the Business. There
are no labor disputes currently subject to any grievance procedure, arbitration
or litigation and there is no representation petition pending or, to the
knowledge of Seller, threatened with respect to any employee employed in the
operation of the Business.
3.21 Employee Benefit Plans and Related Matters.
(a) Schedule 3.21(a) lists each pension,
retirement, profit-sharing, deferred compensation, bonus or other incentive
plan, or other employee benefit program, arrangement, agreement or
understanding, or medical, vision, dental or other health plan, or life
insurance or disability plan, or any other employee benefit plan, including,
without limitation, any "employee benefit plan" as defined in Section 3(3) of
ERISA, to which Seller contributes or is a party or is bound and under which it
may have liability and under which employees or former employees of the
Business (or their beneficiaries) are eligible to participate or derive a
benefit ("Employee Benefit Plans"). Seller has delivered to Buyer true,
correct and complete copies of all Employee Benefit Plans. The Assets are not
subject to any Lien in favor of, or enforceable by, the Pension Benefit
Guaranty Corporation.
(b) Compliance; Liability.
(i) No liability has been or is expected
to be incurred by Seller under or pursuant to Title I or IV of ERISA or the
penalty, excise tax or joint and several liability provisions of the Code or
ERISA relating to employee benefit plans and, to the knowledge of the Seller,
no event, transaction or condition has occurred or exists that could result in
any such liability to the Business or, following the Closing, Buyer or any such
Employee Benefit Plan.
(ii) No Employee Benefit Plan is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA, a
"multiple employer plan" within the meaning of Section 413(c) of the Code, or a
defined benefit plan within the meaning of Section B(35) of ERISA.
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3.22 Brokers, Finders, etc. With the exception of fees
and expenses payable to J.P. Morgan & Co. Incorporated and certain employees of
Seller and its Affiliates which shall be paid by Seller, all negotiations
relating to this Agreement, and the transactions contemplated hereby, have been
carried on without the participation of any Person acting on behalf of Seller
or its Affiliates in such manner as to give rise to any valid claim against
Buyer for any brokerage or finder's commission, fee or similar compensation, or
for any bonus payable to any officer, director, employee, agent or sales
representative of or consultant to Seller or its Affiliates upon consummation
of the transactions contemplated hereby or thereby.
3.23 Suppliers and Customers. Schedule 3.23 attached
hereto sets forth the twenty (20) largest suppliers and all sole source
suppliers and the twenty (20) largest customers of the Business for the period
July 1, 1996 through the date hereof. During the period July 1, 1996 through
the date hereof, (a) none of the 20 largest customers referred to in the next
preceding sentence has cancelled in whole or in part its agreement or
commitment with Seller or the Business to purchase products or services (or
threatened in writing to do any of the foregoing). During the period July 1,
1996 through the date hereof, none of the sole source suppliers referred to in
the first sentence of this Section has cancelled in whole or in part its
agreement or commitment to supply services or supplies to Seller or the
Business (or threatened in writing to do any of the foregoing). To Seller's
knowledge, the relationship of Seller with each of its suppliers and each of
its customers is a good commercial working relationship. Seller does not have
knowledge that any such supplier or customer intends to cancel or otherwise
substantially modify its relationship with Seller or the Business or limit its
services, supplies or materials to Seller or the Business, or its usage or
purchase of the services and products of the Business either as a result of the
transactions contemplated hereby or otherwise.
3.24 Order Backlog. A true and complete list of (a) all
firm product and service purchase orders and contracts for the sale of goods or
the delivery of services by Seller in connection with the Business to Persons
other than Governmental Authorities, and (b) all firm funded product and
service purchase orders and contracts for the sale of goods or the delivery of
services by Seller in connection with the Business to Governmental Authorities
(collectively, the "Backlog") pending as of the latest practical date prior to
the date of this Agreement is set forth in Schedule 3.24 attached hereto.
3.25 Disclosure. No representation or warranty of Seller
in this Agreement and the Schedules or certificates attached hereto or
delivered by Seller in accordance with the terms hereof contains any untrue
statement of a material fact or omits any statement of a material fact
necessary in order to
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make the statements contained herein or therein, in light of the circumstances
in which they were made, not misleading.
3.26 Mortgages. If any parcel of Owned Real Property is
encumbered by one or more existing mortgages (each, an "Existing Mortgage"), no
written notice has been received from the mortgagee(s) asserting that a default
or breach exists thereunder or under any note or other obligation secured
thereby which remains uncured. Seller knows of no default, or event which with
notice or the passage of time will constitute a default, under the Existing
Mortgage(s) or under any note or other obligation secured thereby which has
occurred and is continuing. Seller has delivered to Buyer complete copies of
the documents constituting the Existing Mortgage(s) and the note(s) secured
thereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 Corporate Status; Authorization, etc. Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation with full corporate power and
authority to execute and deliver the Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The
execution and delivery by Buyer of this Agreement, and the consummation of the
transactions contemplated hereby, have been duly authorized by all requisite
corporate action of Buyer. Buyer has duly executed and delivered this
Agreement. This Agreement is a valid and legally binding obligation of Buyer,
enforceable against Buyer in accordance with its terms.
4.2 No Conflicts, etc. The execution, delivery and
performance by Buyer of the Agreement, and the consummation of the transactions
contemplated hereby, do not and shall not conflict with or result in a
violation of or under (with or without the giving of notice or the lapse of
time, or both) (i) the certificate of incorporation or by-laws or other
organizational documents of Buyer, (ii) any Applicable Law applicable to Buyer
or any of its properties or assets or (iii) any contract, agreement or other
instrument applicable to Buyer or any of its properties or assets, except, in
the case of clause (iii), as set forth in Schedule 4.2 and for violations and
defaults that, individually and in the aggregate, have not and shall not
materially impair the ability of Buyer to perform its obligations under the
Agreement. Except as specified in Schedule 4.2 and except as required under
the HSR Act, no Governmental Approval or other Consent is required to be
obtained or made by Buyer in
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connection with the execution and delivery of the Agreement or the consummation
of the transactions contemplated hereby.
4.3 Litigation. There is no action, claim, suit or
proceeding pending, or to Buyer's knowledge threatened, by or against or
affecting Buyer in connection with or relating to the transactions contemplated
by this Agreement or of any action taken or to be taken in connection herewith
or the consummation of the transactions contemplated hereby.
4.4 Brokers, Finders, etc. All negotiations relating to
this Agreement and the transactions contemplated hereby have been carried on
without the participation of any Person acting on behalf of Buyer in such
manner as to give rise to any valid claim against Seller for any brokerage or
finder's commission, fee or similar compensation.
4.5 Adequate Funds. Buyer has all funds necessary to
enable it to perform this Agreement in accordance with its terms.
ARTICLE V
COVENANTS
5.1 Covenants of Seller.
(a) Public Announcements. Except as required by
Applicable Law (in which case the nature of the announcement shall be described
to Buyer prior to dissemination to the public), Seller shall not make any
public announcement in respect of this Agreement or the transactions
contemplated hereby without the prior written consent of Buyer.
(b) Conduct of Business. From the date hereof to
the Closing Date, except as permitted or required by this Agreement or as
otherwise consented to by Buyer in writing, Seller shall:
(i) carry on the Business in the
ordinary course, in substantially the same manner as heretofore conducted, and
use all reasonable best efforts to maintain the Business in good operating
condition and repair, and preserve its relationships with customers, suppliers
and others having business dealings with the Business;
(ii) not grant (or commit to grant) any
increase in the compensation (including incentive or bonus compensation) of any
employee employed in the operation of the Business other than increases in the
ordinary course of business consistent with past practice in the
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compensation payable to those employees of the Business earning less than
$50,000 per annum each; or institute, adopt or amend (or commit to institute,
adopt or amend) any compensation or benefit plan, policy, program or
arrangement or collective bargaining agreement applicable to any such employee.
(iii) not sell, assign, voluntarily
encumber, grant a Lien on or license with respect to, or dispose of, any of the
Assets having a fair market value of at least $50,000 individually or $100,000
in the aggregate, or incur any liabilities or obligations (including, without
limitation, liabilities with respect to capital leases or guarantees thereof)
in excess of $100,000 individually or in the aggregate, except for sales and
dispositions made or liabilities incurred, including the creation of purchase
money security interests, in the ordinary course of business consistent with
past practice;
(iv) take any action inconsistent with,
the representations and warranties of Seller hereunder or that would cause any
of the representations and warranties of Seller hereunder to become untrue in
any material respect; and
(v) not make, give or grant any bid or
proposal, or any customer option relating to contracts in the Backlog,
involving an amount in excess of $250,000 (or amend, supplement or terminate
any existing bid or proposal, or any existing customer option relating to
contracts in the Backlog, involving an amount in excess of $250,000), in each
case without the prior approval of Buyer (which approval shall not be
unreasonably withheld or delayed).
(c) Access and Information. (i) Prior to and
after the Closing, Seller shall (and shall cause its accountants, counsel,
consultants, employees and agents to) give Buyer and its respective
accountants, counsel, consultants, employees and agents, reasonable access
during normal business hours to, and furnish them with all documents, records,
work papers and information with respect to, all properties, assets, books,
contracts, commitments, reports and records relating to the Business, as Buyer
shall from time to time reasonably request. In addition, Seller shall permit
Buyer, and its accountants, counsel, consultants, employees and agents,
reasonable access to such personnel of Seller during normal business hours as
may be necessary to Buyer in its review of the properties, assets and business
affairs of the Business and the above-mentioned documents, records and
information. Buyer and Buyer's agents shall have the right, upon giving
reasonable advance notice to enter upon and inspect the Real Property,
including physical inspection of the surface and sub-surface land and all
improvements and the major components thereof, including heating, plumbing, air
conditioning,
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electrical equipment and wiring and roof. Buyer shall indemnify and hold
Seller harmless from and against any and all costs and liabilities resulting
from the negligence or willful misconduct of any third party engaged by Buyer
to perform such inspections, and Buyer shall return the Real Property to
substantially the same condition as before such inspections. Inspections shall
be conducted during times reasonably convenient to Seller and the Business.
(ii) Buyer shall remain bound by the
terms of its existing Confidentiality Agreement with Seller, dated August 6,
1997 (the "Confidentiality Agreement"), except that from and after the Closing:
(A) the terms "Evaluation Material" and "Notes" as defined and used in the
Confidentiality Agreement, shall no longer include information concerning the
Business and properties of the STS Division; (B) clause (d) of the second
paragraph of the Confidentiality Agreement shall cease to have any further
force and effect insofar as the provisions thereof relate to the STS Division
or the Business; and (C) the seventh and eighth paragraphs of the
Confidentiality Agreement shall cease to have any further force and effect
insofar as the provisions thereof relate to the STS Division or the Business.
(d) Further Actions.
(i) Seller agrees to use commercially
reasonable efforts to take all actions and to do all things necessary, proper
or advisable to consummate the transactions contemplated hereby by the Closing
Date.
(ii) Seller, as promptly as practicable,
shall file or supply, or cause to be filed or supplied, all applications,
notifications and information required to be filed or supplied by Seller
pursuant to Applicable Law in connection with the Agreement, the sale and
transfer of the Assets pursuant to the Agreement and the consummation of the
other transactions contemplated hereby, including but not limited to filings
pursuant to the HSR Act.
(iii) Seller, as promptly as practicable,
shall use all reasonable efforts to obtain, or cause to be obtained, all
Consents (including, without limitation, all Governmental Approvals and any
Consents required under any Contract) necessary to be obtained by it in order
to consummate the sale and transfer of the Assets pursuant to the Agreement and
the consummation of the other transactions contemplated hereby.
(iv) Seller shall coordinate and
cooperate with Buyer in exchanging such information and supplying such
assistance as may be reasonably requested by Buyer in connection with the
filings and other actions contemplated by Section 5.2.
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(e) Further Assurances. Following the Closing,
Seller shall from time to time, execute and deliver such additional
instruments, documents, conveyances or assurances and take such other actions
as shall be necessary, or otherwise reasonably requested by Buyer, to confirm
and assure the rights and obligations provided for in this Agreement and render
effective the consummation of the transactions contemplated hereby. Seller
until the Closing shall maintain in force in respect of the Business the
existing insurance covering the Business, subject to normal variations required
by ordinary operations of the Business. Seller shall cooperate with Buyer in
order to afford Buyer the benefit of all insurance policies covering the
Business for periods prior to the Closing to the extent that the claims
thereunder relate to any of the Assets or the Assumed Liabilities.
(f) Noncompete. Seller will not and will cause
its Subsidiaries and operating units and Affiliates not to (collectively, the
"Restricted Parties and individually, a "Restricted Party"), for a period of
three years following the Closing (the "Non- Competition Period"), manufacture,
sell or provide products or services which are competitive to the Primary
Activities, except that this provision shall not preclude (i) EFData Corp. from
manufacturing, selling or providing products which it currently manufactures,
sells or provides; (ii) EFData Corp. from providing services under those
contracts where the EFData Corp. manufactured product content (consisting of
products of the type currently manufactured by EFData Corp.) exceeds 50% of the
contract value; (iii) the GCS unit of CMI from providing products and services
to U.S. Government entities which it currently provides to such U.S. Government
customers; or (iv) the bona fide sale, whether by a merger or otherwise, of all
or substantially all of the properties and assets of Seller (in one transaction
or a series of related transactions) to a Person that is not an Affiliate of
Seller that manufactures or sells products or services competitive to the
Primary Activities or restrict the activities of any such acquiring Person
after such sale (other than any such sale in which the stockholders of Seller
immediately before the transaction or series of related transactions possess
immediately thereafter 50% or more of the voting power of Seller or the
acquiring Person or any parent entity of either). "Primary Activities" shall
mean the manufacture and global sale of portable L- Band satellite
communications terminals for use in the Inmarsat-B system, the manufacture and
global sale of single-channel digital video exciters and receivers, using
MPEG-2 or equivalent digital compression algorithms, for satellite-based
applications, the manufacture and global sale of X-Band frequency converters
for satellite applications, and the bidding and executing of satellite
communications projects and/or contracts with commercial customers or foreign
governmental authorities in which the primary added-value is system design,
integration, installation and/or program management.
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Seller will not use or permit the use of any of the
intellectual property licensed to it pursuant to the Technology License
Agreement or the Trademark License Agreement in a manner that would cause a
violation of this Section 5.1(f).
During the Non-Competition Period, Seller will not, and will
cause its Affiliates not to, (i) directly or indirectly, induce or solicit, or
aid or assist any Person to induce or solicit, any employees, salespersons,
agents, consultants, distributors, representatives, advisors, customers or
suppliers of the Business to terminate, curtail or otherwise limit their
employment by or business relationship with the Business, or (ii) license,
assign or otherwise grant any interest in the Name or Logo "California
Microwave" (alone or in any combination of words, or any combination, variation
or derivation of such Name or Logo), for use by any Person in connection with
the manufacturing, marketing, sale or provision of any products or services
which are competitive to the Primary Activities.
(g) No Solicitation. From the date hereof to the
Closing Date, Seller shall cause its employees, directors, agents and
Affiliates to immediately suspend any existing negotiations or discussions
relating to any sale, joint venture or other transfer of actual or beneficial
ownership of the STS Division, its operations or any of its assets associated
therewith (other than inventory in the ordinary course of business)
(collectively a "Transaction") and Seller shall not, and shall cause its
employees, directors, agents and Affiliates to not, (a) solicit any proposals
or offers relating to a Transaction, or (b) negotiate or discuss with any third
party concerning any proposal or offer for a Transaction.
(h) Post-Closing Confidentiality. From and after
the Closing, Seller will, and will cause its Affiliates to, hold in strict
confidence, and will not use to the detriment of Buyer or any of its
Affiliates, all information with respect to the Business. Notwithstanding the
foregoing, Seller may disclose such information (i) if compelled to disclose
the same by judicial or administrative process or by other requirements of law,
(ii) if the same hereafter is in the public domain through no fault of Seller,
or (iii) if the same is later acquired by Seller from another source and Seller
is not aware that such source is under an obligation to another Person to keep
such information confidential.
(i) Mail; Payments. Seller authorizes and
empowers Buyer from and after the Closing Date to receive and open all mail and
other communications received by Buyer and to act with respect to such
communications in such manner as Buyer may elect if such communications relate
to the Business other than the Excluded Assets or Excluded Liabilities,
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or, if such communications do not relate to the Business or relate to the
Excluded Assets or Excluded Liabilities, to forward the same promptly to
Seller. Seller and Buyer shall promptly deliver to the other any cash, checks
or other instruments of payment to which the other is entitled and shall hold
the same in trust for the other until such delivery.
(j) Performance of Contracts. With respect to
each Contract, Governmental Approval, Lease and Intellectual Property License,
Seller shall duly perform and comply with all agreements and conditions
required thereby to be performed or complied with by it prior to or on the
Closing Date.
5.2 Covenants of Buyer.
(a) Public Announcements. Except as required by
Applicable Law (in which case the nature of the announcement shall be described
to the Seller prior to dissemination to the public), Buyer shall not, and shall
not permit its Affiliates to, make any public announcement in respect of this
Agreement or the transactions contemplated hereby without the prior written
consent of Seller.
(b) Further Actions.
(i) Buyer agrees to use commercially
reasonable efforts to take all actions and to do all things necessary, proper
or advisable to consummate the transactions contemplated hereby by the Closing
Date.
(ii) Buyer shall, as promptly as
practicable, file or supply, or cause to be filed or supplied, all
applications, notifications and information required to be filed or supplied by
Buyer pursuant to Applicable Law in connection with this Agreement, Buyer's
acquisition of the Assets pursuant to this Agreement and the consummation of
the other transactions contemplated thereby, including but not limited to
filings pursuant to the HSR Act.
(iii) Buyer shall coordinate and cooperate
with Seller in exchanging such information and supplying such reasonable
assistance as may be reasonably requested by Seller in connection with the
filings and other actions contemplated by Section 5.1.
(c) Further Assurances. Following the Closing,
Buyer shall, from time to time, execute and deliver such additional
instruments, documents, conveyances or assurances and take such other actions
as shall be necessary, or otherwise reasonably requested by Seller, to confirm
and assure
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the rights and obligations provided for in this Agreement and render effective
the consummation of the transactions contemplated hereby.
(d) Use of Business Names by Buyer.
(i) Buyer acknowledges that Seller has
the absolute and exclusive proprietary right to all names, marks, trade names,
trademarks, service names and service marks (collectively, "Names")
incorporating "California Microwave" or any similar Name and to all corporate
symbols or logos (collectively, "Logos") incorporating California Microwave or
any similar Name. All rights of Seller and its respective affiliates to which
and the goodwill represented thereby and pertaining thereto are being retained
by Seller. Buyer agrees that it will not, and will cause the Business not to,
use the Name California Microwave or any similar Name or any Logo incorporating
such Name or any similar Name in any manner, including in connection with the
sale of any products or services or otherwise in the conduct of its business,
except as expressly permitted by clause (ii) of this Section 5.2(d).
(ii) For a period of six months from the
Closing Date (the "Window Period"), Seller shall and hereby irrevocably grants,
effective as of the Closing Date, on a fully-paid, royalty-free basis, the
Buyer the right to use the California Microwave Logo and the California
Microwave Name in connection with the operation of the Business as currently
conducted including, during the Window Period, to (A) use any molds or castings
included in the equipment or machinery included in the Assets despite the
appearance thereon and on the products manufactured therewith of the Name
California Microwave or the California Microwave Logo, (B) market and sell all
such products produced by the Business and (C) use any other assets on hand
included in the Assets, including, without limitation, any catalogs, invoices,
packaging material or stationery, bearing the California Microwave Name or
California Microwave Logo. Immediately upon the expiration of the Window
Period, Buyer shall cease to use in any manner the Name California Microwave or
the California Microwave Logo incorporating such Name and remove or obliterate
such Name or the California Microwave Logo from any molds, castings, products
or other assets and clearly and prominently mark the new name of the Business
thereon. At all times following the Closing, Buyer shall indicate that neither
Buyer nor the Business are affiliated with Seller or any of its affiliates.
(e) Substitute Letters of Credit and Bonds.
Buyer shall use commercially reasonable efforts to furnish as of the Closing or
as soon as practicable thereafter, its own letters of credit or performance or
surety bonds in substitution for the letters of credit and bonds referred to in
Schedule 5.2(e)
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attached hereto and agrees to reimburse Seller for any out-of-pocket bank fees
or charges incurred by Seller by reason of any of the same remaining
outstanding from and after 30 days after the Closing Date.
(f) Reimbursement of Certain Severance
Obligations. Schedule 5.2(f) lists three severance agreements heretofore
entered into between Seller and each of Messrs. Maloney, Strean and Pinto (each
an "Executive"), respectively (each a "Severance Agreement"). If (i) an
Executive becomes employed by Buyer as of the Closing Date as a Transferred
Employee, (ii) there shall occur thereafter a termination by such Executive of
his employment with Buyer for Good Reason (as defined below) within one year
after the Closing Date, and (iii) as a result of the termination of employment
of the type described in clause (ii) above, Seller shall be obligated to make
any cash payment to such Executive pursuant to the provisions of the Severance
Agreement with such Executive, then Buyer shall reimburse Seller for any such
cash payment it so makes to such Executive, such reimbursement to occur
promptly upon receipt by Buyer of evidence of the making of such payment;
provided, however, that the reimbursement obligation of Buyer to Seller under
this Section 5.2(f) with respect to any Executive shall not in any event exceed
the amount that would have been payable to such Executive under his retention
incentive agreement that is listed on Schedule 2.4(a) in the event of an
involuntary termination by Buyer without cause of the employment of such
Executive after the Closing; provided further, however, Buyer shall have no
reimbursement obligation to Seller under this Section 5.2(f) if Buyer otherwise
is obligated to make a payment to the Executive under his retention incentive
agreement pursuant to Section 2.4(a).
As used herein, "Good Reason" means the occurrence of any of
the following: (x) the assignment to the Executive in question of duties
inconsistent with, or a substantial alteration in the nature or status of, such
Executive's responsibilities with respect to the Business at the STS Division
immediately before the Closing; (y) a reduction in the Employee's base salary
or in the benefits that Buyer is required to provide such Executive pursuant to
Section 7.2; or (z) such Executive's relocation to a work site requiring an
increase in one-way commute from such Executive's residence of more than 35
miles.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Obligations of Each Party. The
obligations of the parties to consummate the transactions contemplated hereby
shall be subject to the fulfillment on or prior to the Closing Date of the
following conditions:
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(a) HSR Act Notification. In respect of the
notifications of Buyer and Seller pursuant to the HSR Act, the applicable
waiting period and any extensions thereof shall have expired or been terminated
without the receipt of any objection from any Governmental Authority.
(b) No Injunction, etc. Consummation of the
transactions contemplated hereby shall not have been restrained, enjoined or
otherwise prohibited by any Applicable Law, including any order, injunction,
decree or judgment of any court or other Governmental Authority. No court or
other Governmental Authority shall have determined that any Applicable Law
makes illegal the consummation of the transactions contemplated hereby, and no
proceeding with respect to the application of any such Applicable Law to such
effect shall be pending.
(c) Supply and License Agreements. Buyer and
Seller shall have entered into the Cross-License Agreement (substantially in
the form of Exhibit A), the Technology License Agreement (substantially in the
form of Exhibit B), the Trademark License Agreement (substantially in the form
of Exhibit C) and the Supply Agreement (substantially in the form of Exhibit
D).
6.2 Conditions to Obligations of Buyer. The obligations
of Buyer to consummate the transactions contemplated hereby shall be subject to
the fulfillment (or waiver by Buyer) on or prior to the Closing Date of the
following additional conditions:
(a) Representations, Performance. Each of the
representations and warranties of Seller contained in this Agreement that is
qualified as to materiality shall be true and correct and each such
representation and warranty that is not so qualified shall be true and correct
in all material respects in each case on the date hereof and at and as of the
Closing Date as though made on and as of the Closing Date. Seller shall have
duly performed and complied in all material respects with all agreements and
conditions required by the Agreement to be performed or complied with by it
prior to or on the Closing Date. Seller shall have delivered to Buyer a
certificate, dated the Closing Date and signed by its duly authorized officer,
to the foregoing effect.
(b) No Material Adverse Change. Since the date
hereof, (i) there shall not have occurred any material adverse change in the
financial condition, results of operations or Assets of the Business, except
for the results shown and changes forecast in Schedule 3.7(a), and other than
changes in the STS Division's intercompany account with CMI corporate, which
changes represent (x) the results of operations of the STS Division, (y) the
cash advanced to the STS Division by CMI corporate or repaid by the STS
Division
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to CMI corporate, and (z) certain allocations between CMI corporate and the STS
Division, which allocations shall have been made in the ordinary course of
business consistent in type and amount with past practice, and (ii) there shall
not have occurred, in the aggregate, any change in the ETC's and EAC's of the
Business' Contracts such as to cause a material adverse change in its financial
quarterly contribution.
(c) Consents. Seller shall have obtained and
shall have delivered to Buyer copies of (i) all Governmental Approvals required
to be obtained by Seller in connection with the execution and delivery of the
Agreement and the consummation of the transactions contemplated hereby or
thereby and (ii) all Consents (including, without limitation, all Consents
required under any Contract) necessary to be obtained in order to consummate
the sale and transfer of the Assets pursuant to this Agreement and the
consummation of the other transactions contemplated hereby and listed on
Schedule 6.2(c). Buyer shall have obtained the Consents listed on Schedule
4.2.
(d) Corporate Proceedings. All corporate and
other proceedings of Seller in connection with this Agreement and the
transactions contemplated hereby, and all documents and instruments incident
thereto, shall be reasonably satisfactory in substance and form to Buyer and
its counsel, and Buyer and its counsel shall have received all such documents
and instruments, or copies thereof, certified if requested, as may be
reasonably requested.
(e) Transfer Documents. Seller shall have
delivered to Buyer at the Closing all documents, certificates and agreements
necessary to transfer to Buyer title to the Assets, free and clear of any and
all Liens thereon, other than Permitted Liens, including without limitation:
(i) a bill of sale, assignment and
general conveyance, in form and substance reasonably satisfactory to Buyer,
dated the Closing Date, with respect to the Assets (other than any Asset to be
transferred pursuant to any of the instruments referred to in any other clause
of this Section 6.2);
(ii) assignments of all Contracts,
Intellectual Property and any other agreements and instruments constituting
Assets, dated the Closing Date, assigning to Buyer all of Seller's right, title
and interest therein and thereto;
(iii) a bargain and sale deed with
covenants against grantor's acts, dated as of the Closing Date, with respect to
each parcel of Owned Real Property;
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(iv) an assignment of lease, dated as of
the Closing Date, with respect to each Lease;
(v) certificates of title to all motor
vehicles included in the Assets to be transferred to Buyer hereunder, duly
endorsed for transfer to Buyer as of the Closing Date; and
(vi) an assignment of lease, assignment
of sale agreement, and consent by the Suffolk County Industrial Development
Agency and other necessary parties to assignment of lease and sale agreement,
and any other documents, consents or approvals necessary to convey all of
Seller's interest in the property leased from the Suffolk County Industrial
Development Agency.
(f) Title Policies. Buyer shall have received
from a nationally recognized title insurance company at its expense (the "Title
Company") a title insurance policy issued to Buyer in form and substance
reasonably satisfactory to it with respect to the Owned Real Property,
insuring Buyer and issued as of the Closing Date by the Title Company, showing
Buyer to have a fee simple title to the Owned Real Property, subject only to
Permitted Liens and the mortgage liens and easements of record described on
Schedule 3.18(c). In conjunction with the receipt of the foregoing title
policy, Seller shall deliver to Buyer a Certificate of Occupancy for each of
the Owned Real Property and the Kennedy Facility issued by the municipal
authority having the jurisdiction allowing the property to be used as a
commercial or industrial building in the manner presently used.
(g) FIRPTA Certificate. Buyer shall have
received a certificate of Seller, dated the Closing Date and sworn to under
penalty of perjury, setting forth the name, address and federal tax
identification number of Seller and stating that Seller is not a "foreign
person" within the meaning of Section 1445 of the Code, such certificate to be
in the form set forth in the Treasury Regulations thereunder.
(h) Environmental Reports. Buyer at its own
expense shall have received from an environmental consulting firm of its
choice, an environmental site assessment report and analytical report covering
the Real Property (including analyses of samples, soil and groundwater taken
from all areas of the Real Property as may be deemed appropriate by such
consulting firm), which reports shall be in form, scope and substance
satisfactory to Buyer
in all respects. In addition, Buyer shall be reasonably satisfied with the
results of its due diligence investigation of environmental matters in respect
of the Real Property.
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6.3 Conditions to Obligations of Seller. The obligation
of Seller to consummate the transactions contemplated hereby shall be subject
to the fulfillment (or waiver by Seller), on or prior to the Closing Date, of
the following additional conditions:
(a) Representations, Performance, etc. Each of
the representations and warranties of Buyer contained in this Agreement that is
qualified as to materiality shall be true and correct and each such
representation and warranty that is not so qualified shall be true and correct
in all material respects in each case on the date hereof and at and as of the
Closing Date as though made on and as of the Closing Date. Buyer shall have
duly performed and complied in all material respects with all agreements and
conditions required by this Agreement to be performed or complied with by it
prior to or on the Closing Date. Buyer shall have delivered to Seller a
certificate, dated the Closing Date and signed by its duly authorized officer,
to the foregoing effect.
(b) Assumption Agreement. Seller shall have
received from Buyer an Assumption Agreement, in substance and form satisfactory
to Seller, under which Buyer shall have assumed the Assumed Liabilities.
(c) Corporate Proceedings. All corporate
proceedings of Buyer in connection with this Agreement and the transactions
contemplated hereby, and all documents and instruments incident thereto, shall
be reasonably satisfactory in substance and form to Seller, and its counsel,
and Seller and its counsel shall have received all such documents and
instruments, or copies thereof, certified if requested, as may be reasonably
requested.
(d) Consents and Approvals. Seller shall have
obtained all Governmental Approvals necessary to consummate the transactions
contemplated hereby.
ARTICLE VII
EMPLOYEES AND EMPLOYEE BENEFIT PLANS
7.1 Employment of Seller's Employees. Buyer intends to
offer employment, effective as of the Closing Date, to all employees who are
employed by Seller in the STS Division primarily in the operation of the
Business at then current wage or salary levels. Those employees who accept
such offers of employment and become employees of Buyer shall be referred to
herein as the "Transferred Employees". Effective as of the Closing Date, Buyer
shall assume the liability of Seller in respect of the Transferred Employees
for accrued but unpaid salaries, wages, vacation and sick pay and 1998 cash
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incentive compensation, but only to the extent such liability is accrued or
otherwise reflected on the Final Closing Statement of Net Assets. Buyer shall
not have any liability with respect to any employee of Seller or Employee
Benefit Plan or any claim thereof or related thereto except to the extent
expressly provided in this Article VII with respect to Transferred Employees
and except as provided in Section 2.4(a).
7.2 Welfare and Fringe Benefit Plans. Following the
Closing Date and through December 31, 1998, Buyer shall provide Transferred
Employees with life insurance, medical coverage, and other employee welfare
benefit plans, programs, policies or arrangements, other than stock-based plans
relating to equity securities (or their equivalent, such as phantom stock plans
or SARs) or (except as provided in the next sentence) any incentive bonus
programs based on the achievement of financial targets, on a basis comparable
in the aggregate to those provided Transferred Employees prior to the Closing
Date. Buyer will provide or establish a cash incentive bonus program(s) based
on the achievement of financial targets to those Transferred Employees who
currently are eligible for cash incentive bonus program(s) of Seller based on
the achievement of financial targets, which cash incentive program(s) of Buyer
shall be comparable in the aggregate to such cash incentive bonus program(s) of
Seller.
ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement may be terminated at any
time prior to the Closing Date:
(a) by the written agreement of Buyer and Seller;
(b) by either Seller or Buyer by written notice
to the other party if the transactions contemplated hereby shall not have been
consummated pursuant hereto by 5:00 p.m. California time on February 15, 1998,
unless such date shall be extended by the mutual written consent of Seller and
Buyer;
(c) by Buyer by written notice to Seller if (i)
the representations and warranties of Seller shall not have been true and
correct in all material respects as of the date when made or (ii) if any of the
conditions set forth in Section 6.1 or 6.2 shall not have been, or if it becomes
apparent that any of such conditions will not be, fulfilled by 5:00 p.m.
California time on February 15, 1998, unless such failure shall be due to the
failure of Buyer to
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perform or comply with any of the covenants, agreements or conditions hereof to
be performed or complied with by it prior to the Closing; or
(d) by Seller by written notice to Buyer if (i)
the representations and warranties of Buyer shall not have been true and
correct in all material respects as of the date when made or (ii) if any of the
conditions set forth in Section 6.1 or 6.3 shall not have been, or if it
becomes apparent that any of such conditions will not be, fulfilled by 5:00
p.m. California time on February 15, 1998, unless such failure shall be due to
the failure of Seller to perform or comply with any of the covenants,
agreements or conditions hereof to be performed or complied with by it prior to
the Closing.
8.2 Effect of Termination. In the event of the
termination of this Agreement pursuant to the provisions of Section 8.1, this
Agreement shall become void and have no effect, without any liability to any
Person in respect hereof or of the transactions contemplated hereby on the part
of any party hereto, or any of its directors, officers, employees, agents,
consultants, representatives, advisers, stockholders or Affiliates, except as
specified in Section 10.2 and except for any liability resulting from such
party's breach of this Agreement.
ARTICLE IX
INDEMNIFICATION
9.1 By Seller. Subject to the terms and conditions of
this Article IX, Seller covenants and agrees to defend, indemnify and hold
harmless Buyer, its officers, directors, employees, agents, advisers,
representatives and Affiliates (collectively, the "Buyer Indemnitees") from and
against, and pay or reimburse Buyer Indemnitees for, any and all claims,
liabilities, obligations, losses, fines, costs, proceedings, deficiencies or
damages (whether absolute, accrued, conditional or otherwise and whether or not
resulting from third party claims), including out-of-pocket expenses and
reasonable attorneys' fees incurred in the investigation or defense of any of
the same or in asserting any of their respective rights hereunder
(collectively, "Losses"), resulting from or arising out of:
(i) Any misrepresentation or breach of any
warranty of Seller contained in this Agreement; provided that any claim for
indemnification by Buyer under this clause (i) may be made no later than 18
months from and after the Closing Date, excepting only that any claim for
misrepresentation or breach of warranty under Sections 3.6, 3.10(a), 3.18(a),
3.19 and 3.21 may be made no later than a date thirty days from and after the
expiration of the period of the applicable statute of limitations;
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(ii) any failure of Seller to perform any covenant
or agreement made or contained in this Agreement or fulfill any obligation in
respect thereof;
(iii) any Excluded Liabilities;
(iv) any and all Benefit Liabilities in respect of
Employees except, with respect to Transferred Employees, to the extent assumed
by Buyer pursuant to Article VII; and
(v) any product liability claim with respect to
products manufactured by Seller and sold prior to the Closing.
Seller shall not be required to indemnify Buyer Indemnitees
with respect to any claim for indemnification resulting from or arising out of
matters described in clauses (i) and (v) above pursuant to this Section unless
and until the aggregate amount of all claims against Seller exceeds $270,000
and then only to the extent such aggregate amount exceeds $270,000. Claims
thereafter may be asserted regardless of amount. Seller's maximum liability to
Buyer Indemnitees under clauses (i) and (v) of this Section shall not exceed
$13,750,000.
9.2 By Buyer. Subject to the terms and condition of this
Article IX, Buyer covenants and agrees to defend, indemnify and hold harmless
Seller and its officers, directors, employees, agents, advisers,
representatives and Affiliates (collectively, the "Seller Indemnitees") from
and against any and all Losses resulting from or arising out of:
(i) any misrepresentation or breach of warranty
of Buyer contained in this Agreement or in any Schedule of Buyer; provided that
any claim for indemnification by Seller under this paragraph (i) may be made no
later than 18 months from and after the Closing Date;
(ii) any failure of Buyer to perform any covenant
or agreement made or contained in the Agreement or fulfill any other obligation
in respect thereof;
(iii) the Assumed Liabilities;
(iv) claims made on or drawings under any of the
letters of credit or performance or surety bonds referred to in Schedule 5.2(e)
attached hereto;
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(v) the use by Buyer of any Seller tradenames or
trademarks after the Closing Date other than as permitted or contemplated by
Section 5.2(d); and
(vi) the operation of the Business by Buyer or
Buyer's ownership, operation or use of the Assets following the Closing Date
except to the extent that such Loss is the result of any action of Seller prior
to the Closing.
Buyer shall not be required to indemnify Seller Indemnitees
with respect to any claim for indemnification resulting from or arising out of
matters described in clause (i) above pursuant to this Section unless and until
the aggregate amount of all claims against Buyer exceeds $270,000 and then only
to the extent such aggregate amount exceeds $270,000. Buyer's maximum
liability to Seller Indemnitees under clause (i) of this Section shall not
exceed $13,750,000.
9.3 Adjustments to Indemnification Payments. Any payment
made by Seller to Buyer Indemnitees, on the one hand, or by Buyer to Seller
Indemnitees, on the other hand, pursuant to this Article IX in respect of any
claim shall be net of any insurance proceeds realized by and paid to the
Indemnified Party in respect of such claim. The Indemnified Party shall use
its reasonable efforts to make insurance claims relating to any claim for which
it is seeking indemnification pursuant to this Article IX; provided that the
Indemnified Party shall not be obligated to make such an insurance claim if the
Indemnified Party in its reasonable judgment believes that the cost of pursuing
such an insurance claim together with any corresponding increase in insurance
premiums or other chargebacks to the Indemnified Party, as the case may be,
would exceed the value of the claim for which the Indemnified Party is seeking
indemnification.
9.4 Indemnification Procedures. In the case of any claim
asserted by a third party against a party entitled to indemnification under
this Agreement (the "Indemnified Party"), notice shall be given by the
Indemnified Party to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party has actual
knowledge of any claim as to which indemnity may be sought, and the Indemnified
Party shall permit the Indemnifying Party (at the expense of such Indemnifying
Party) to assume the defense of any third party claim or any litigation with a
third party resulting therefrom, provided that (i) the counsel for the
Indemnifying Party who shall conduct the defense of such claim or litigation
shall be reasonably satisfactory to the Indemnified Party, (ii) the Indemnified
Party may participate in such defense at such Indemnified Party's expense, and
(iii) the omission by any Indemnified Party to give notice as provided herein
shall not relieve the
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Indemnifying Party of its indemnification obligation under this Agreement except
and only to the extent that such Indemnifying Party is materially damaged as a
result of such failure to give notice. Except with the prior written consent of
the Indemnified Party, no Indemnifying Party, in the defense of any such claim
or litigation, shall consent to entry of any judgment or enter into any
settlement that provides for injunctive or other nonmonetary relief affecting
the Indemnified Party or that does not include as an unconditional term thereof
the giving by each claimant or plaintiff to such Indemnified Party of a release
from all liability with respect to such claim or litigation. In the event that
the Indemnified Party shall in good faith determine that the conduct of the
defense of any claim subject to indemnification hereunder or any proposed
settlement of any such claim by the Indemnifying Party might be expected to
affect adversely the Indemnified Party's Tax liability or the ability of Buyer
to conduct its business, or that the Indemnified Party may have available to it
one or more defenses or counterclaims that are inconsistent with one or more of
those that may be available to the Indemnifying Party in respect of such claim
or any litigation relating thereto, the Indemnified Party shall have the right
at all times to take over and assume control over the defense, settlement,
negotiations or litigation relating to any such claim at the sole cost of the
Indemnifying Party, provided that if the Indemnified Party does so take over and
assume control, the Indemnified Party shall not settle such claim or litigation
without the written consent of the Indemnifying Party, such consent not to be
unreasonably withheld. In the event that the Indemnifying Party does not accept
the defense of any matter as above provided, the Indemnified Party shall have
the full right to defend against any such claim or demand and shall be entitled
to settle or agree to pay in full such claim or demand. In any event, the
Indemnifying Party and the Indemnified Party shall cooperate in the defense of
any claim or litigation subject to this Article IX and the records of each shall
be available to the other with respect to such defense.
9.5 Expiration of Representations and Warranties, etc.
All representations and warranties contained in this Agreement shall survive
the Closing for a period of 18 months; provided that the representations and
warranties stated in Sections 3.6, 3.10(a), 3.18(a), 3.19 and 3.21 shall
survive the Closing for the applicable statute of limitations.
9.6 Exclusive Remedy. The indemnifications provided for
in this Article IX shall be the sole and exclusive post-Closing remedies
available to either party against the other party for any claims under or based
upon this Agreement.
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ARTICLE X
DEFINITIONS, MISCELLANEOUS
10.1 Definition of Certain Terms. The terms defined in
this Section 10.1, whenever used in this Agreement (including in the
Schedules), shall have the respective meanings indicated below for all purposes
of this Agreement. All references herein to a Section, Article or Schedule are
to a Section, Article or Schedule of or to this Agreement, unless otherwise
indicated.
Affiliate: of a Person means a Person that directly or
indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, the Person. "Control" (including the terms
"Controlled by" and "under common control with") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of voting securities, by
contract or credit arrangement, as trustee or executor, or otherwise.
Aggregate Purchase Price: has the meaning set forth in
Section 2.3.
Agreement: means this Asset Purchase Agreement (including the
Exhibits and the Schedules), as the same from time to time may be amended,
supplemented or waived.
Applicable Law: all applicable provisions of all (i)
constitutions, treaties, statutes, laws (including the common law), rules,
regulations, ordinances, codes or orders of any Governmental Authority, (ii)
Governmental Approvals and (iii) orders, decisions, injunctions, judgments,
awards and decrees of or agreements with any Governmental Authority.
Assets: has the meaning set forth in Section 1.1.
Assumed Liabilities: has the meaning set forth in Section
2.4.
Backlog: has the meaning set forth in Section 3.24.
Books and Records: all books and records, including manuals,
price lists, mailing lists, lists of customers, production data, sales and
promotional materials, purchasing materials, personnel records, manufacturing
and quality control records and procedures, research and development files,
accounting records, tax records and litigation files (regardless of the media
in which stored), in each case relating to or used in the Business.
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Business: the business currently conducted by Buyer through
its STS Division, as described in Recital A at the head of this Agreement.
Buyer: has the meaning set forth in the first paragraph of
this Agreement.
Buyer Indemnitees: has the meaning set forth in Section 9.1.
Buyer's Arbitrator: has the meaning set forth in Section
10.6(c).
Closing: has the meaning set forth in Section 2.1.
Closing Date: has the meaning set forth in Section 2.1.
Closing Statement of Net Assets: has the meaning set forth in
Section 2.7(b).
Code: the Internal Revenue Code of 1986, as amended.
Consent: any consent, approval, authorization, waiver,
permit, grant, franchise, concession, agreement, license, exemption or order
of, registration, certificate, declaration or filing with, or report or notice
to, any Person, including but not limited to any Governmental Authority.
Cross-License Agreement: has the meaning set forth in Section
1.3(b).
Disputes: has the meaning set forth in Section 10.6(a).
Disputing Person: has the meaning set forth in Section
10.6(b).
$ or dollars: lawful money of the United States.
E&Y: has the meaning set forth in Section 2.7(b).
EAC's: has the meaning set forth in Section 2.7(b).
Employee Benefit Plans: has the meaning set forth in Section
3.21(a).
Environmental Laws: all Applicable Laws relating to the
protection of the environment, to human health and safety, or to any emission,
discharge, generation, processing, storage, holding, abatement,
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existence, Release, threatened Release, arranging for the disposal or
transportation of any Hazardous Substances.
Environmental Liabilities and Costs: all Losses imposed by,
under or pursuant to Environmental Laws, including all fees, disbursements and
expenses of counsel based on, arising out of or otherwise in respect of: (i)
the ownership or operation of the Business or Real Property, by Seller, and
(ii) the environmental conditions existing on the Closing Date on, under,
above, or about any Real Property owned, leased or operated by Seller.
ERISA: the Employee Retirement Income Security Act of 1974,
as amended.
ETC's: has the meaning set forth in Section 2.7(b).
Excluded Assets: has the meaning set forth in Section 1.2.
Excluded Liabilities: has the meaning set forth in Section
2.5.
Executive: has the meaning set forth in Section 5.2(f).
Existing Mortgage: has the meaning set forth in Section 3.6.
Final Closing Statement of Net Assets: has the meaning set
forth in Section 2.7(d).
Final Determination: has the meaning set forth in Section
10.6(e).
Financial Statements: has the meaning set forth in Section
3.4.
GAAP: generally accepted accounting principles as in effect
in the United States.
Good Reason: has the meaning set forth in Section 5.2(f).
Governmental Approval: any Consent of, with or to any
Governmental Authority.
Governmental Authority: any nation or government, any state
or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including, without limitation, any government authority, agency,
department, board, commission or instrumentality of the United States, any State
of the
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United States or any political subdivision thereof, and any tribunal or
arbitrator(s) of competent jurisdiction, and any self- regulatory organization.
Hazardous Substances: any substance that: (i) requires
investigation, removal or remediation under any Environmental Law, or is
defined, listed or identified as a "hazardous waste" or "hazardous substance"
thereunder, or (ii) is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic, or otherwise hazardous and is regulated
by any Governmental Authority or Environmental Law.
HSR Act: the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"include" and "including" shall be construed as if followed by
the phrase "without being limited to".
Indemnified Party: has the meaning set forth in Section 9.4.
Indemnifying Party: has the meaning set forth in Section 9.4.
Intellectual Property: any and all United States and foreign:
(a) patents (including design patents, industrial designs and utility models)
and patent applications (including docketed patent disclosures awaiting filing,
reissues, divisions, continuations-in-part and extensions), patent disclosures
awaiting filing determination, inventions and improvements thereto; (b)
trademarks, service marks, trade names, trade dress, logos, business and
product names, slogans, and registrations and applications for registration
thereof but excluding the name "California Microwave;" (c) copyrights
(including software) and registrations thereof; (d) inventions, processes,
designs, formulae, trade secrets, know-how, industrial models, confidential and
technical information, manufacturing, engineering and technical drawings,
product specifications and confidential business information; (e) mask work and
other semiconductor chip rights and registrations thereof; (f) intellectual
property rights similar to any of the foregoing; and (g) copies and tangible
embodiments thereof (in whatever form or medium, including electronic media).
Intellectual Property Licenses: has the meaning set forth in
Section 3.16.
Inventories: has the meaning set forth in Section 1.1(c).
IRS: the Internal Revenue Service.
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Kennedy Facility: has the meaning set forth in Section
1.1(a).
June Balance Sheet: has the meaning set forth in Section 3.4.
Leased Real Property: means all space leased pursuant to the
Leases.
Leases: means the real property leases, subleases, use
agreements, licenses and occupancy agreements pursuant to which Seller is the
lessee, sublessee, user, licensee or occupant related to the Business, other
than real property leases, subleases, licenses and occupancy agreements
included in Excluded Assets.
Lien: any mortgage, pledge, hypothecation, right of others,
claim, security interest, encumbrance, lease, sublease, license, occupancy
agreement, adverse claim or interest, easement, covenant, encroachment, burden,
title defect, title retention agreement, voting trust agreement, interest,
equity, option, lien, right of first refusal, charge or other restrictions or
limitations.
Logos: has the meaning set forth in Section 5.2(d).
Losses: has the meaning set forth in Section 9.1.
Material Adverse Effect: any event, occurrence, fact,
condition, change or effect that is materially adverse to the business,
operations, results of operations, financial condition, properties, assets or
liabilities of the Business.
Names: has the meaning set forth in Section 5.2(d).
Neutral Auditor: has the meaning set forth in Section 2.7(d).
Non-Competition Period: has the meaning set forth in Section
5.1(f).
Notice of Arbitration: has the meaning set forth in Section
10.6(b).
Owned Intellectual Property: has the meaning set forth in
Section 3.16.
Owned Real Property: the real property owned by Seller and
used primarily in the Business, together with all other structures, facilities,
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improvements, fixtures, systems, equipment and items of property presently or
hereafter located thereon attached or appurtenant thereto and all easements,
licenses, rights and appurtenances relating to the foregoing.
Permitted Liens: (i) Liens reserved against in the September
Balance Sheet, to the extent so reserved, (ii) Liens for Taxes not yet due and
payable or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on
Seller's books in accordance with GAAP, (iii) contract rights of third parties
to Contracts, or (iv) Liens that, individually and in the aggregate, do not and
would not materially detract from the value of any of the property or assets of
the Business or materially interfere with the use thereof as currently used or
contemplated to be used or otherwise.
Person: any natural person, firm, partnership, association,
corporation, company, limited liability company, trust, business trust,
Governmental Authority or other entity.
Prime Rate: has the meaning set forth in Section 2.7(a).
Purchase Price: has the meaning set forth in Section 2.2.
Real Property: the Owned Real Property and the Leased Real
Property.
Release: any releasing, disposing, discharging, injecting,
spilling, leaking, leaching, pumping, dumping, emitting, escaping, emptying,
seeping, dispersal, migration, transporting, placing and the like, including
without limitation, the moving of any materials through, into or upon, any
land, soil, surface water, ground water or air, or otherwise entering into the
environment.
Resolution Period: has the meaning set forth in Section
2.7(c).
Seller: has the meaning set forth in the first paragraph of
this Agreement.
Seller Indemnitees: has the meaning set forth in Section 9.2.
Seller's Arbitrator: has the meaning set forth in Section
10.2(c).
September Balance Sheet: has the meaning set forth in Section
3.4.
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Severance Agreement: has the meaning set forth in Section
5.2(f).
STS Division: has the meaning set forth in Recital A at the
head of this Agreement.
Subsidiaries: each corporation or other Person in which a
Person owns or controls, directly or indirectly, capital stock or other equity
interests representing at least 50% of the outstanding voting stock or other
equity interests.
Target Net Assets: has the meaning set forth in Section
2.7(a).
Tax: any federal, state, provincial, local or foreign income,
alternative, minimum, accumulated earnings, personal holding company,
franchise, capital stock, net worth, capital, profits, windfall profits, gross
receipts, value added, sales, use, goods and services, excise, customs duties,
transfer, conveyance, mortgage, registration, stamp, documentary, recording,
premium, severance, environmental (including taxes under Section 59A of the
Code), real property, personal property, ad valorem, intangibles, rent,
occupancy, license, occupational, employment, unemployment insurance, social
security, disability, workers' compensation, payroll, health care, withholding,
estimated or other similar tax, duty or other governmental charge or assessment
or deficiencies thereof, and including any interest, penalties or additions to
tax attributable to the foregoing.
Tax Return: any return, report, declaration, form, claim for
refund or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
Technology License Agreement: has the meaning set forth in
Section 1.3(c).
Title Company: has the meaning set forth in Section 6.2(f).
Trademark Consent Agreement: has the meaning set forth in
Section 1.3(d).
Transaction: has the meaning set forth in Section 5.1(g).
Transaction Expenses: has the meaning set forth in Section
10.2.
Transfer Taxes: has the meaning set forth in Section 10.8.
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Transferred Employee: has the meaning set forth in Section
7.1.
Treasury Regulations: the regulations prescribed pursuant to
the Code.
Window Period: has the meaning set forth in Section 5.2(d).
10.2 Expenses. Except to the extent otherwise provided
hereby, Seller, on the one hand, and Buyer, on the other hand, shall bear their
respective expenses, costs and fees (including filing fees (if any) required in
connection with the HSR Act and attorneys', auditors' and financing commitment
fees) in connection with the transactions contemplated hereby, including the
preparation, execution and delivery of this Agreement and compliance herewith
(the "Transaction Expenses"), whether or not the transactions contemplated
hereby shall be consummated.
10.3 Severability. If any provision of this Agreement,
including any phrase, sentence, clause, Section or subsection is inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative, or unenforceable to any extent whatsoever.
10.4 Notices. All notices, requests, demands, waivers and
other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (a)
delivered personally, (b) mailed by first-class, registered or certified mail,
return receipt requested, postage prepaid, or (c) sent by next-day or overnight
mail or delivery or (d) sent by facsimile transmission or telegram.
(i) if to Buyer, to
L-3 Communications Corporation
600 Third Avenue
New York, NY 10016
Facsimile: 212/805-5494
Attention: Christopher C. Cambria, Esq.
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with a copy to:
Whitman Breed Abbott & Morgan LLP
200 Park Avenue
New York, NY 10166
Facsimile: 212/351-3131
Attention: James P. Gerkis, Esq.
(ii) if to Seller, to
California Microwave, Inc.
555 Twin Dolphin Drive
Redwood City, California 94065
Attn: George L. Spillane
Facsimile: 650/596-6600
with a copy to:
Richard W. Canady, Esq.
Howard, Rice, Nemerovski, Canady,
Falk & Rabkin
A Professional Corporation
Three Embarcadero Center, 7th Floor
San Francisco, California 94111
Facsimile: 415/399-3041
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other
communications shall be deemed to have been received (w) if by personal
delivery on the day after such delivery, (x) if by certified or registered
mail, on the seventh business day after the mailing thereof, (y) if by next-day
or overnight mail or delivery, on the day delivered, (z) if by facsimile or
telegram, on the next day following the day on which such facsimile or telegram
was sent, provided that a copy is also sent by certified or registered mail.
10.5 Miscellaneous.
(a) Headings. The headings contained in this
Agreement are for purposes of convenience only and shall not affect the meaning
or interpretation of this Agreement.
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(b) Entire Agreement. This Agreement (including
the Schedules and Exhibits hereto) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
(c) Counterparts. This Agreement may be executed
(including by facsimile transmission) with counterpart signature pages or in
several counterparts, each of which shall be deemed an original and all of
which shall together constitute one and the same instrument.
(d) Governing Law, etc. This Agreement shall be
governed in all respects, including as to validity, interpretation and effect,
by the internal laws of the State of New York without giving effect to the
conflict of laws rules thereof. Buyer and Seller hereby irrevocably submit to
the jurisdiction of the courts of the State of New York, and the Federal courts
of the United States of America located in the Southern District of New York
solely in respect of the interpretation and enforcement of the provisions of
this Agreement and of the documents referred to in this Agreement, and hereby
waive, and agree not to assert, as a defense in any action, suit or proceeding
for the interpretation or enforcement hereof or of any such document, that it
is not subject thereto or that such action, suit or proceeding may not be
brought or is not maintainable in said courts or that the venue thereof may not
be appropriate or that this Agreement or any of such document may not be
enforced in or by said courts, and the parties hereto irrevocably agree that
all claims with respect to such action or proceeding shall be heard and
determined in such a New York State or Federal court. Buyer and Seller hereby
consent to and grant any such court jurisdiction over the person of such
parties and over the subject matter of any such dispute and agree that mailing
of process or other papers in connection with any such action or proceeding in
the manner provided in Section 10.4, or in such other manner as may be
permitted by law, shall be valid and sufficient service thereof.
(e) Bulk Sales. Buyer and Seller hereby waive
compliance by the other with the provisions of the bulk sales laws of any
jurisdiction.
(f) Binding Effect. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors and permitted assigns.
(g) Assignment. This Agreement shall not be
assignable or otherwise transferable by any party hereto without the prior
written consent of the other party hereto; provided that from and after the
Closing Buyer shall have the right to assign its rights (but not its
obligations) hereunder.
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(h) No Third Party Beneficiaries. Except as
provided in Section 8.2 with respect to indemnification of Indemnified Parties
hereunder, nothing in this Agreement shall confer any rights upon any person or
entity other than the parties hereto and their respective heirs, successors and
permitted assigns.
(i) Amendment; Waivers, etc. No amendment,
modification or discharge of this Agreement, and no waiver hereunder, shall be
valid or binding unless set forth in writing and duly executed by the party
against whom enforcement of the amendment, modification, discharge or waiver is
sought. Any such waiver shall constitute a waiver only with respect to the
specific matter described in such writing and shall in no way impair the rights
of the party granting such waiver in any other respect or at any other time.
Neither the waiver by any of the parties hereto of a breach of or a default
under any of the provisions of this Agreement, nor the failure by any of the
parties, on one or more occasions, to enforce any of the provisions of this
Agreement or to exercise any right or privilege hereunder, shall be construed
as a waiver of any other breach or default of a similar nature, or as a waiver
of any of such provisions, rights or privileges hereunder.
10.6 Arbitration Procedure.
(a) Buyer and Seller agree that the arbitration
procedure set forth below shall be the sole and exclusive method for resolving
and remedying any and all disputes regarding claims for money damages based
upon, arising out of or in any way connected with this Agreement or the
transactions contemplated herein (the "Disputes"). Nothing in this Section
10.6 shall prohibit a party hereto from instituting litigation to enforce any
Final Determination (as defined below). The parties hereby agree and
acknowledge that, except as otherwise provided in this Section 10.6 or in the
Commercial Arbitration Rules of the American Arbitration Association as in
effect from time to time, the arbitration procedures and any Final
Determination hereunder shall be governed by and shall be enforced pursuant to
the Uniform Arbitration Act as in effect in the State of New York.
(b) In the event that any party asserts that
there exists a Dispute, such party shall deliver a written notice to each other
party involved therein specifying the nature of the asserted Dispute and
requesting a meeting to attempt to resolve the same. If no such resolution is
reached within 45 days after such delivery of such notice, the party delivering
such notice of Dispute (the "Disputing Person") may, within 75 days after
delivery of such notice, commence arbitration hereunder by delivering to each
other party involved therein a notice of arbitration (a "Notice of
Arbitration") and by filing a copy of such Notice of Arbitration with the New
York City office of the American
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Arbitration Association. Such Notice of Arbitration shall specify the matters
as to which arbitration is sought, the nature of any Dispute, the claims of
each party to the arbitration and the amount and nature of damages or other
relief sought to be recovered as a result of any alleged claim and any other
matters required by the Commercial Arbitration Rules of the American
Arbitration Association as in effect from time to time to be included therein.
(c) Buyer and Seller each shall select one
arbitrator expert in the subject matter of the Dispute (the arbitrators so
selected shall be referred to herein as "Buyer's Arbitrator" and "Seller's
Arbitrator," respectively). In the event that either party fails to select an
arbitrator as set forth herein within 30 days after the delivery of a Notice of
Arbitration, then the matter shall be resolved by the arbitrator selected by
the other party. Seller's Arbitrator and Buyer's Arbitrator shall select a
third independent, neutral arbitrator expert in the subject matter of the
Dispute, and the three arbitrators so selected shall resolve the Dispute
according to the procedures set forth in this Section 10.6. If Seller's
Arbitrator and Buyer's Arbitrator are unable to agree on a third arbitrator
within 20 days after their selection, Seller's Arbitrator and Buyer's
Arbitrator shall each prepare a list of three independent arbitrators.
Seller's Arbitrator and Buyer's Arbitrator shall each have the opportunity to
designate as objectionable and eliminate one arbitrator from the other
arbitrator's list within ten days after submission thereof, and the third
arbitrator shall then be selected by lot from the arbitrators remaining on the
lists submitted by Seller's Arbitrator and Buyer's Arbitrator.
(d) The arbitrators selected pursuant to Section
10.6(c) shall determine the allocation of the costs and expenses of
arbitration.
(e) The arbitration shall be conducted in New
York City, under the Commercial Arbitration Rules of the American Arbitration
Association as in effect from time to time, except as otherwise set forth
herein or as modified by the agreement of Buyer and Seller. The arbitrators
shall conduct the arbitration such that a final result, determination, finding,
judgment and/or award (the "Final Determination") is made or rendered as soon
as practicable, but in no event later than 120 days after the delivery of the
Notice of Arbitration nor later than ten days following completion of the
arbitration. The Final Determination shall be made in writing, shall state the
basis for such determination and shall be agreed upon and signed by the sole
arbitrator or by at least two of the three arbitrators (as the case may be).
The Final Determination shall be final and binding on all parties, and there
shall be no appeal from or reexamination of the Final Determination, except for
fraud, perjury, evident partiality or misconduct by an arbitrator prejudicing
the rights of any party and to correct manifest clerical errors.
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(f) Buyer and Seller may enforce any Final
Determination in any state or federal court having jurisdiction over the
Dispute. For the purpose of any action or proceeding instituted with respect
to any Final Determination, each party hereto hereby irrevocably submits to the
jurisdiction of such courts, irrevocably consents to the service of process by
registered mail or personal service and hereby irrevocably waives, to the
fullest extent permitted by law, any objection which it may have or hereafter
have as to personal jurisdiction, the laying of the venue of any such action or
jurisdiction, the laying of the venue of any such action or proceeding brought
in any such court and any claim that any such action or proceeding brought in
any court has been brought in an inconvenient form.
10.7 Attorneys Fees. In the event any party hereto
initiates any legal action arising out of or in connection with this Agreement,
the prevailing party shall be entitled to recover from the other party all
reasonable attorneys' fees, expert witness fees and expenses incurred by the
prevailing party in connection therewith.
10.8 Liability for Transfer Taxes. Buyer and Seller shall
each be responsible for and pay in a timely manner 50% of all sales (including,
without limitation, bulk sales), use, value added, documentary, stamp, gross
receipts, registration, transfer, conveyance, excise, recording, license and
other similar Taxes and fees ("Transfer Taxes"), arising out of or in
connection with or attributable to the transactions effected pursuant to this
Agreement. Each party hereto shall prepare and timely file all Tax Returns
required to be filed in respect of Transfer Taxes (including, without
limitation, all notices required to be given with respect to bulk sales taxes)
that are the primary responsibility of such party under applicable law;
provided, however, that such party's
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preparation of any such Tax Returns shall be subject to the other party's
approval, which approval shall not be withheld or delayed unreasonably.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
L-3 COMMUNICATIONS CORPORATION
By:_____________________________________
Name: Robert Mehmel
Title: Vice President
CALIFORNIA MICROWAVE, INC.
By:_____________________________________
Name: George L. Spillane
Title: Vice President and Secretary
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EXHIBIT A
CROSS-LICENSE AGREEMENT
CROSS-LICENSE AGREEMENT dated as of _________________, 1998 (this
"Agreement"), between L-3 Communications Corporation, a Delaware corporation
("L-3"), and California Microwave, Inc., a Delaware corporation ("CMI").
RECITALS
WHEREAS, L-3 and CMI have entered into that certain Asset Purchase
Agreement dated as of December 19, 1997 (the "Purchase Agreement"), in
connection with the sale and purchase of the Assets (as defined below) of the
Satellite Transmission System Division of CMI (the "STS Division"), which sale
and purchase has closed or is closing effective as of the date hereof (the
"Closing Date") simultaneously with the execution and delivery of this
Agreement; and
WHEREAS, effective as of the Closing Date the parties hereto and their
respective Subsidiaries currently own or have licenses to use various
intellectual property rights heretofore used primarily (in some circumstances)
and not primarily (in other circumstances) in connection with the Business (as
defined below) of the STS Division; and
WHEREAS, the parties hereto have determined that this Agreement is
appropriate in order to effectuate the purposes of the Purchase Agreement as
described therein, and in order to promote a clear understanding of their
respective intellectual property rights subsequent to the Closing Date;
NOW, THEREFORE, in consideration of the mutual agreements, undertakings
and covenants herein and therein, the sufficiency and receipt of which hereby
are acknowledged, the parties hereby agree as follows:
ARTICLE I. DEFINITIONS.
Section 1.01 General. As used in this Agreement, the following terms shall
have the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
<PAGE>
"Affiliate" shall have the meaning set forth in the Purchase Agreement.
"Agreement" shall have the meaning specified in the first paragraph
hereof.
"Assets" shall have the meaning set forth in the Purchase Agreement.
"Business" shall have the meaning set forth in the Purchase Agreement.
"Closing" shall have the meaning set forth in the Purchase Agreement.
"Closing Date" shall have the meaning specified in the recitals to this
Agreement.
"CMI Intellectual Property" shall have the meaning specified in Section
2.02.
"Intellectual Property" shall have the meaning set forth in the Purchase
Agreement. Notwithstanding the foregoing and for the purposes of this Agreement
only, Intellectual Property shall not include: (a) Intellectual Property
relating to the GMACS software or to the Universal System Controller; (b) the
U.S. patent application serial number No. 08/815,593 filed March 12, 1997
entitled "Wireless Communications Systems Having Fixed and Dynamically Assigned
Links" and any right in or to the invention subject thereof throughout the
world; or (c) any trademarks, service marks, trade names, trade dress, logos,
business and product names, slogans, registrations and applications for
registration in respect of any of the intellectual property referred to in
either clause (a) or clause (b) above.
"L-3 Intellectual Property" shall have the meaning specified in Section
2.01.
"Notice" shall have the meaning specified in Section 10.03.
"Purchase Agreement" shall have the meaning specified in the recitals to
this Agreement.
"STS Division" shall have the meaning specified in the recitals to this
Agreement.
"Subsidiary", shall have the meaning set forth in the Purchase Agreement.
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"Term" shall have the meaning specified in Section 8.01.
ARTICLE II. OWNERSHIP OF INTELLECTUAL PROPERTY ASSETS.
Section 2.01. The parties agree that, as a result of the Closing under the
Purchase Agreement, L-3 and its Subsidiaries will acquire and own all right,
title and interest, including the right to sue and collect past and future
damages, in any Intellectual Property which relates primarily to the Business
(the "L-3 Intellectual Property").
Section 2.02. The parties agree that, as a result of the Closing under the
Purchase Agreement CMI and its Subsidiaries own all right, title and interest,
including the right to sue and collect past and future damages, in any
Intellectual Property which is being used as of the Closing Date in the
operation of the Business but does not constitute Intellectual Property that
relates primarily to the Business (the "CMI Intellectual Property").
Section 2.03. The confirmation of ownership of the Intellectual Property
rights provided for under Sections 2.01 and 2.02 is subject to all pre-existing
third party rights, obligations and restrictions as of the Closing Date.
ARTICLE III. INTELLECTUAL PROPERTY LICENSES.
Section 3.01. L-3, on behalf of itself and its Subsidiaries, hereby grants
as of the Closing Date to CMI and its Subsidiaries a non-assignable, worldwide,
fully paid-up, non-exclusive license for the duration of the Term, including the
right to grant sublicenses (but such sublicenses may be granted only to
Subsidiaries, contractors for whom Licensee is acting as a subcontractor (who
will also have the right to sub-license to end-user customers) and end-user
customers of Licensee), under the L-3 Intellectual Property, to manufacture,
have manufactured, use, offer to sell, and sell, lease, license or otherwise
transfer any and all methods, apparatus, processes, compositions and products,
and offer and provide any services, in each case in connection with all fields
of activity other than the fields of activity of the Business of L-3. Any
sublicense permitted hereunder shall not extend beyond the Term.
Section 3.02. CMI, on behalf of itself and its Subsidiaries, hereby grants
as of the Closing Date to L-3 and its Subsidiaries a non-assignable, worldwide,
fully paid-up, non-exclusive license for the duration of the Term, including the
right to grant sublicenses (but such
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sublicenses may be granted only to Subsidiaries, contractors for whom Licensee
is acting as a subcontractor (who will also have the right to sub-license to
end-user customers) and end-user customers of Licensee), under the CMI
Intellectual Property, to manufacture, have manufactured, use, offer to sell,
and sell, lease, license or otherwise transfer any and all methods, apparatus,
processes, compositions and products, and offer and provide any services, in
each case in connection with all fields of activity other than the fields of
activity of the business of CMI. Any sublicense permitted hereunder shall not
extend beyond the Term.
Section 3.03. The rights granted by the parties under Sections 3.01 and
3.02 are subject to all pre-existing third party rights, obligations and
restrictions as of the Closing Date.
Section 3.04. Each of the parties hereto understands and agrees that,
except as otherwise expressly provided, no party hereto is in this Agreement
making any representation or warranty whatsoever, including, without limitation,
as to title, value or legal sufficiency. The foregoing provisions of this
Section shall not, however, limit, modify or impact in any manner whatsoever any
of the representations and warranties of CMI or L-3 in the Purchase Agreement,
all of which shall remain unaffected hereby.
Section 3.05. The rights granted by the parties under Sections 3.01 and
3.02 are limited to the Intellectual Property owned by the parties as of the
Closing Date and do not include any intellectual property rights that are
acquired or come into existence thereafter.
Section 3.06. Except as may be specifically provided for in this Agreement
or the Purchase Agreement, the parties agree that no party shall be obligated to
provide any technical assistance, or to transfer any technical information or
documentation associated therewith, to any other party.
ARTICLE IV. UNDERTAKINGS.
Section 4.01. To the extent that the grants of Intellectual Property
rights and licenses under Article III herein would violate or be prohibited by
any agreement with a third party, and such Intellectual Property actually is
used by the grantee party, then the granting party undertakes to use reasonable
efforts to obtain the necessary consent(s) from such third party so as to be
permitted to make such grants. However, each party hereto understands and agrees
that no party hereto is, in this Agreement
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representing or warranting in any way that the obtaining of any consents or
approvals, the execution and delivery of any amendatory agreements and the
making of any filings or applications, possibly contemplated by this Agreement
will satisfy the provisions of any and all applicable agreements or the
requirements of any or all applicable laws or judgments. The foregoing
provisions of this Section shall not, however limit, modify or impact in any
manner whatsoever any of the representations and warranties of CMI or L-3 in the
Purchase Agreement, all of which shall remain unaffected hereby.
Section 4.02. To the extent a party or its Subsidiaries shall require
technical assistance in connection with technology, technical information or
software transferred or licensed from another party, then that technical
assistance may be provided (but shall not be required to be provided), if at
all, pursuant to a separate agreement entered into by the parties pursuant to
terms and conditions agreed to by the parties.
ARTICLE V. CONFIDENTIALITY.
From and after the Closing Date, each party will, and will cause its
Subsidiaries to, hold in strict confidence, and will not use to the detriment of
the other party or any of such party's Subsidiaries, all information that is
licensed pursuant to this Agreement; provided, however, that either party may
disclose any of such information to third parties performing services on behalf
of the disclosing party who have a need to know such information in order to
perform such services and have agreed in writing to maintain the same
confidential. Also, each party may disclose such information to contractors or
end user customers of such party who have a need to know such information and
have agreed in writing to maintain the confidentiality of the same or, in the
case of any such disclosure to the U.S. government, if such party has taken all
reasonable steps to maintain the confidentiality of the same. Notwithstanding
the foregoing, either party may disclose such information (i) by judicial or
administrative process or by other requirements of law, (ii) if the same
hereafter is in the public domain through no fault of such party, or (iii) if
the same is later acquired by such party from another source and the other party
is not aware that such source is under an obligation to another Person to keep
such information confidential.
ARTICLE VI. INFRINGEMENT.
Section 6.01. If L-3 determines that a person or entity is infringing on
or unlawfully using CMI Intellectual
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Property, L-3 shall notify CMI. CMI, in its sole discretion, may take all
necessary action, including, without limitation, filing suit and enjoining the
alleged infringement, at CMI's sole expense; and CMI, as a result thereof, shall
retain all damages and other compensation received as a result of taking such
actions against such infringement. L-3 shall not take any action in connection
with such infringement or unlawful use (including without limitation any action
to settle or compromise any such claim, action or proceeding).
Section 6.02. If CMI determines that a person or entity is infringing on
or unlawfully using L-3 Intellectual Property, CMI shall notify L-3. L-3, in its
sole discretion, may take all necessary action, including, without limitation,
filing suit and enjoining the alleged infringement, at L-3's sole expense; and
L-3, as a result thereof, shall retain all damages and other compensation
received as a result of taking such actions against such infringement. CMI shall
not take any action in connection with such infringement or unlawful use
(including without limitation any action to settle or compromise any such claim,
action or proceeding).
ARTICLE VII. INDEMNITY.
Section 7.01. L-3 agrees to indemnify and hold CMI, its Affiliates and
their respective officers, directors, employees and agents, harmless from and
against any damages, liabilities, losses and expenses arising out of any claim
by any third party, including, without limitation, reasonable attorneys' fees
and amounts paid in settlement of any claim, of any kind or nature whatsoever,
which may be sustained or suffered as a result of any use by L-3 of CMI
Intellectual Property.
Section 7.02. CMI agrees to indemnify and hold L-3, its Affiliates and
their respective officers, directors, employees and agents, harmless from and
against any damages, liabilities, losses and expenses arising out of any claim
by any third party, including, without limitation, reasonable attorneys' fees
and amounts paid in settlement of any claim, of any kind or nature whatsoever,
which may be sustained or suffered as a result of any use by CMI of L-3
Intellectual Property.
ARTICLE VIII. TERM AND TERMINATION.
Section 8.01. This Agreement shall commence on the Closing Date and shall
continue for a period of one year thereafter unless sooner terminated as
provided herein (the "Term").
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Section 8.02. This Agreement may be terminated by any party with respect
to the other party upon written notice to the other party if the other party
fails to perform or otherwise breaches in any material respect an obligation
under this Agreement; provided, however, that such party failing to perform or
otherwise breaching shall have 30 days from the date notice of intention to
terminate is received to cure the failure to perform or breach of an obligation.
Section 8.03. This Agreement shall terminate automatically without action
by either party if any party shall cease or threaten to cease paying its debts
when due in the ordinary course or to carry on its business, become insolvent,
propose a compromise or arrangement with its creditors or otherwise take
advantage of any law for the relief of debtors, a receiver is appointed for any
of the other party's assets or any step or proceeding is taken to have the other
party declared bankrupt or be liquidated, dissolved, wound up or reorganized.
Section 8.04. Termination under this Section 8 will be effected by notice
given by the terminating party to the other party, except with respect to a
situation described in Section 8.03 where no notice shall be required.
Section 8.05. Any termination of this Agreement shall not affect any of
the rights of either party hereto which shall have arisen prior to such
termination.
Section 8.06. Upon termination or expiration of this Agreement, (a) each
party's rights with respect to use of the other party's Intellectual Property in
any way shall be as if this Agreement had not been entered into, and (b) each
party shall cease using the other party's Intellectual Property immediately in
any way.
ARTICLE IX. MISCELLANEOUS.
Section 9.01. Entire Agreement. This Agreement, together with the Purchase
Agreement, constitutes the entire agreement and understanding between and among
the parties with respect to the subject matter hereof and shall supersede any
prior agreements and understandings among the parties with respect to such
subject matter.
Section 9.02. Counterparts. This Agreement may be executed with
counterpart signature pages or in one or more counterparts, all of which shall
be one and the same Agreement, and shall become effective when one or more
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counterparts have been signed by each of the parties and delivered to all the
parties.
Section 9.03. Notices. All notices, consents, requests, waivers or other
communications required or permitted under this Agreement (each a "Notice")
shall be in writing and shall be sufficiently given (a) if hand delivered or
sent by telecopy, (b) if sent by nationally recognized overnight courier, or (c)
if sent by registered or certified mail, postage prepaid, return receipt
requested, and in each case addressed as follows:
If to L-3:
L-3 Communications Corporation
600 Third Avenue
New York, NY 10016
Attention: Christopher C. Cambria, Esq.
with a copy to:
Whitman Breed Abbott & Morgan LLP
200 Park Avenue
New York, NY 10166
Attention: James P. Gerkis, Esq.
If to CMI:
California Microwave, Inc.
555 Twin Dolphin Drive
Redwood City, California 94065
Attn: George L. Spillane
with a copy to:
Richard W. Canady, Esq.
Howard, Rice, Nemerovski, Canady,
Falk & Rabkin
A Professional Corporation
Three Embarcadero Center, 7th Floor
San Francisco, California 94111
or such other address as shall be furnished by any of the parties in a Notice.
Any Notice shall be deemed given upon receipt.
Section 9.04. Waivers. The failure of any party to require strict
performance by any other party of any provision in this Agreement will not waive
or diminish the other party's right to demand strict performance thereafter of
that or any other provision hereof.
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Section 9.05. Amendments. This Agreement may be amended, supplemented or
waived only by a subsequent writing signed by each of the parties.
Section 9.06. Assignment. This Agreement may not be assigned by any party
without the consent of the other parties.
Section 9.07. Successors and Assigns. All terms and conditions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the successors and permitted assigns of the parties.
Section 9.08. Subsidiaries. Each of the parties hereto shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Subsidiary of such party or
by any entity that becomes a Subsidiary of such party on and after the Closing
Date.
Section 9.09. Third Party Beneficiaries. Except with respect to
indemnified parties referred to in Article VII, each party intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto.
Section 9.10. Specific Performance. Each of the parties hereto
acknowledges that there is no adequate remedy at law for failure by such parties
to comply with the provisions of this Agreement and that such failure would
cause immediate harm that would not be adequately compensable in damages, and
therefore agree that in the event of a breach or threatened breach of any
provision of this Agreement by either party, the other party, may, in addition
to all other remedies, immediately obtain and enforce injunctive relief
prohibiting the breach or compelling specific performance without the
requirement of posting a bond or other security, in addition to all other
remedies available to the parties hereto under this Agreement.
Section 9.11. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREUNDER.
Section 9.12. Severability. If any provision of this Agreement 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 hereof, or the application of such provision to persons or
circumstances other than those as to
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which it has been held invalid or unenforceable, shall remain in full force and
effect and in no way be affected, impaired or invalidated thereby.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
L-3 COMMUNICATIONS CORPORATION
By:
--------------------------------
Name:
Title:
CALIFORNIA MICROWAVE, INC.
By:
--------------------------------
Name:
Title:
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EXHIBIT B
TECHNOLOGY LICENSE AGREEMENT
TECHNOLOGY LICENSE AGREEMENT dated as of ___________, 1998 (this
"Agreement"), between L-3 Communications Corporation, a Delaware corporation
("Licensor"), and California Microwave, Inc., a Delaware corporation
("Licensee").
RECITALS
WHEREAS, Licensor and Licensee have entered into that certain Asset
Purchase Agreement dated as of December 19, 1997 (the "Asset Purchase
Agreement"), in connection with the sale and purchase of certain assets of the
Satellite Transmission System Division of Licensee (the "STS Division"), which
sale and purchase has closed or is closing as of the date hereof (the "Closing
Date") simultaneously with the execution and delivery of this Agreement; and
WHEREAS, Licensor wishes to grant to Licensee a license to the Software,
the Patent Application and the USC (each as defined below), on the terms and
conditions hereof; and
WHEREAS, Licensee wishes to acquire a license from Licensor to the
Software, the Patent Application and the USC on the terms and conditions hereof;
NOW, THEREFORE, in consideration of the mutual agreements, undertakings
and covenants herein and therein, the receipt and sufficiency of which hereby
are acknowledged, the parties hereby agree as follows:
ARTICLE I. DEFINITIONS
Section 1.01. General. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Field of Use" shall mean use in satellite earth stations contracted for
by the United States Government.
"Patent Application" shall mean U.S. patent application serial number No.
08/815,593 filed March 12, 1997 entitled "Wireless Communications System Having
Fixed and Dynamically Assigned Links" and any United States
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patents issued pursuant to such patent application, including any additions,
divisions, reissues, continuations or continuations in part, renewals and
extensions thereof.
"Person" shall mean any natural person, firm, partnership, association,
corporation, company, trust, business trust, governmental authority or other
entity.
"Software" shall mean the current version of the GMACS software (GMACS 16)
and related know-how, including source code, object code and associated
documentation as distributed by Licensee to its customers on or prior to the
Closing Date, and the current version of any software and related know-how,
including source code, object code and associated documentation, incorporated in
the USC as distributed by Licensee to its customers on or prior to the Closing
Date.
"Subsidiary" shall mean each corporation or other Person in which Licensee
owns or controls, directly or indirectly, capital stock or other equity
interests representing at least 50% of the outstanding voting stock or other
equity interests.
"USC" shall mean the Universal Systems Controller product as distributed
by Licensee to its customers on or prior to the Closing Date, but excluding any
and all software incorporated therein.
ARTICLE II. LICENSE
Section 2.01. Subject to the terms and conditions of this Agreement,
Licensor hereby grants to Licensee a non-exclusive, worldwide, perpetual, fully
paid-up, nonterminable right and license under any and all patents, copyrights,
trade secrets, know-how, and any and all other intellectual property and
proprietary rights (i) to copy, support and use the Software within Licensee and
its Subsidiaries only (as well as new versions thereof created pursuant to
Article IV) in the Field of Use, as well as any documentation relating thereto,
and (ii) except for the Software as incorporated in the USC, to make, have made,
use, sell, license, lease or otherwise transfer the USC (as well as improvements
thereto made under Article IV) in the Field of Use. In addition to the
foregoing, and subject to the terms and conditions of this Agreement, Licensor
hereby grants to licensee a non-exclusive, worldwide, perpetual, fully paid-up,
nonterminable, right and license within the Field of Use under any and all
patents, copyrights, trade secrets, know-how, and any and all other intellectual
property and proprietary rights (x) to sublicense third parties to use object
code versions of the Software and documentation concerning the use thereof, and
(y) to
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sublicense the source code for the Software for internal use by sublicensee and
to the extent necessary to enable Licensee or its sublicensee to fulfill its
contractual obligations to the U.S. Government in accordance with ordinary and
reasonable U.S. Government contracting practices, subject, inter alia, to the
restrictions of Article III hereof. Any sublicensee must impose such terms and
conditions as Licensor may reasonably specify for protecting its rights in and
to the Software, the USC and the Patent Application and shall not be in conflict
with this Agreement. Any such sublicense shall be personal to and
non-transferable by, the sublicensee.
Section 2.02. Pursuant to the license hereunder, and subject, inter alia,
to Article III hereof, Licensee, as well as any third party working for or on
behalf thereof or permitted sublicensee, may use the Software on any computers,
at any location, by any number of users, and on any number of computers at any
time.
Section 2.03. Subject to the terms and conditions of this Agreement,
(including but not limited to Section 2.05 hereof) Licensor hereby grants to
Licensee a non-exclusive, perpetual, fully paid-up, non-terminable right and
license under the Patent Application to make, have made, use, sell, license,
lease or otherwise transfer products covered thereby.
Section 2.04. Licensee shall make no use of the Software or the USC,
except as expressly permitted by the licenses granted under this Agreement.
Section 2.05. None of the rights and licenses granted hereunder to
Licensee shall be used in contravention of or to avoid full compliance with the
provisions of Section 5.1(f) of the Asset Purchase Agreement.
Section 2.06. Licensor extends no right or license under any of its
intellectual property or in or to any of its products, services or assets except
to the extent as expressly set forth in (a) this Agreement, (b) the
Cross-License Agreement of even date herewith between Licensor and Licensee, and
(c) the Trademark License Agreement of even date herewith between Licensor and
Licensee.
Section 2.07. If Licensee determines that a person or entity is infringing
or unlawfully using any intellectual property relating to the Software, the USC
or the Patent Application, Licensee shall notify Licensor. Licensor, in its sole
discretion, may take all necessary action, including, without limitation, filing
suit and enjoining the alleged infringement, at Licensor's sole expense; and
Licensor, as a result thereof, shall retain all
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damages and other compensation received as a result of taking such actions
against such infringement. Licensee shall not take any action in connection with
such infringement or unlawful use (including without limitation any action to
settle or compromise any such claim, action or proceeding).
ARTICLE III. NONDISCLOSURE
Licensee shall maintain the source code for the Software confidential, and
shall not disclose such source code to any third party except (i) for third
parties performing services on behalf of Licensee who have a need to know such
source code in order to perform such services and have agreed in writing to
maintain the same confidential, (ii) for contractors with respect to which
Licensee is acting as subcontractor who have a need to know such source code in
order to perform services for the U.S. Government and have agreed in writing to
maintain the confidentiality of the same, (iii) for the U.S. Government, as may
be required by U.S. government procurement regulations so long as Licensee takes
all reasonable steps to maintain the confidentiality of the same or (iv) as may
be required under software escrow arrangements required by such contractors or
the U.S. Government so long as Licensee takes all reasonable steps to maintain
the confidentiality of the same.
ARTICLE IV. RIGHT TO MODIFY THE SOFTWARE AND USC
Subject to the terms and conditions of this Agreement, Licensee shall have
the right within the Field of Use, in its sole discretion, either by itself or
by a third party, to make improvements to the USC, and to create new versions of
the Software. Any such improvements to the USC and any such new versions of the
Software made by Licensee after the execution of this Agreement shall be owned
exclusively by Licensee, and Licensor shall have no right therein.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
Neither party makes any representations or warranties under this
Agreement, whether express or implied, except for those representations and
warranties made in the Asset Purchase Agreement which are incorporated herein by
reference in their entirety.
ARTICLE VI. GMACS AND USC TRADEMARKS
Licensee acknowledges that Licensor is the sole owner of the GMACS and USC
trademarks throughout the world and shall make no use thereof or of any
trademark, trade name, service mark or other designation confusingly similar
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thereto anywhere in the world, except as expressly provided in the Trademark
License Agreement entered into between Licensor and Licensee concurrently
herewith.
ARTICLE VII. INDEPENDENT CONTRACTORS
The parties hereto are acting as independent contractors in connection
with this Agreement and nothing herein shall be deemed to cause this Agreement
to create an agency, partnership or joint venture between the parties.
ARTICLE VIII. INDEMNIFICATION
Licensee acknowledges that the Software, the USC and the invention that is
the subject of the Patent Application were designed and developed by its STS
Division prior to the Closing Date. Licensee agrees to indemnify and hold
Licensor, its Affiliates and their respective officers, directors, employees and
agents, harmless from and against any damages, liabilities, losses and expenses,
(including, without limitation, reasonable attorneys' fees) and amounts paid in
settlement of any claim, of any kind or nature whatsoever, which may be
sustained or suffered as a result of any cause of action, claim, demand, suit or
proceeding asserted by Licensee or any third party that relates to or arises
from any manufacture, use, sale, lease, license or other transfer by Licensee,
any Affiliate or sublicensee of Licensee or any transferee from Licensee, such
Affiliate or such sublicensee, of the USC, the Software or any product or method
relating to the Patent Application (including, without limitation, processing,
packaging, distribution, or advertising of any thereof).
ARTICLE IX. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement and understanding between
and among the parties with respect to the subject matter hereof and shall
supersede any prior agreements and understandings, whether written or oral,
among the parties with respect to such subject matter.
ARTICLE X. COUNTERPARTS
This Agreement may be executed with counterpart signature pages or in one
or more counterparts, all of which shall be one and the same Agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to all the parties.
ARTICLE XI. NOTICES
All notices, consents, requests, waivers or other communications required
or permitted under this Agreement
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(each a "Notice") shall be in writing and shall be sufficiently given (a) if
hand delivered or sent by telecopy, (b) if sent by nationally recognized
overnight courier, or (c) if sent by registered or certified mail, postage
prepaid, return receipt requested, and in each case addressed as follows:
If to Licensor:
L-3 Communications Corporation
600 Third Avenue
New York, NY 10016
Attention: Christopher C. Cambria, Esq.
with a copy to:
Whitman Breed Abbott & Morgan LLP
200 Park Avenue
New York, NY 10166
Attention: James P. Gerkis, Esq.
If to Licensee:
California Microwave, Inc.
555 Twin Dolphin Drive
Redwood City, California 94065
Attn: George L. Spillane
with a copy to:
Richard W. Canady, Esq.
Howard, Rice, Nemerovski, Canady,
Falk & Rabkin
A Professional Corporation
Three Embarcadero Center, 7th Floor
San Francisco, California 94111
or such other address as shall be furnished by any of the parties in a Notice.
Any Notice shall be deemed given upon receipt.
ARTICLE XII. WAIVERS
The failure of any party to require strict performance by any other party
of any provision in this Agreement will not waive or diminish the first party's
right to demand strict performance thereafter of that or any other provision
hereof.
ARTICLE XIII. AMENDMENTS
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This Agreement may be amended, supplemented or waived only by a subsequent
writing signed by each of the parties.
ARTICLE XIV. HEADINGS
Headings used in this Agreement are for reference purposes only and shall
not be deemed a part of this Agreement.
ARTICLE XV. SUCCESSORS AND ASSIGNS
All terms and conditions of this Agreement shall be binding upon and inure
to the benefit of and be enforceable by the successors and assigns of the
parties.
ARTICLE XVI. THIRD PARTY BENEFICIARIES
Each party intends that this Agreement shall not benefit or create any
right or cause of action in or on behalf of any person other than the parties
hereto.
ARTICLE XVII. SPECIFIC PERFORMANCE
Each of the parties hereto acknowledges that there is no adequate remedy
at law for failure by such parties to comply with the provisions of this
Agreement and that such failure would cause immediate harm that would not be
adequately compensable in damages, and therefore agree that, in the event of a
breach or threatened breach of any provision of this Agreement by either party,
the other party, may, in addition to all other remedies, immediately obtain and
enforce injunctive relief prohibiting the breach or compelling specific
performance without the requirement of posting a bond or other security, in
addition to all other remedies available to the parties hereto under this
Agreement.
ARTICLE XVIII. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAWS THEREUNDER.
ARTICLE XIX. SEVERABILITY
If any provision of this Agreement 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 hereof, or the
application of such provision to persons or circumstances other than those as to
which it has been held
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invalid or unenforceable, shall remain in full force and effect and in no way be
affected, impaired or invalidated thereby.
ARTICLE XX. ASSIGNMENT
Licensee may not assign this Agreement or any of the licenses granted
hereby without the prior written consent of Licensor; provided, however, that,
in case of any partial assignment of this Agreement relating solely to GMACS or
the USC, such consent shall not be unreasonably withheld. Licensor may assign
this Agreement to any person in Licensor's sole discretion.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the date first above written.
L-3 COMMUNICATIONS CORPORATION
By:
--------------------------------
Name:
Title:
CALIFORNIA MICROWAVE, INC.
By:
--------------------------------
Name:
Title:
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EXHIBIT C
TRADEMARK LICENSE AGREEMENT
Trademark License Agreement dated as of _________, 1998 (this
"Agreement"), between L-3 Communications Corporation, a Delaware corporation
("Licensor"), and California Microwave, Inc., a Delaware corporation
("Licensee").
RECITALS
WHEREAS, Licensee and Licensor have entered into that certain Asset
Purchase Agreement dated as of December 19, 1997 (the "Purchase Agreement"), in
connection with the sale and purchase of certain assets of the Satellite
Transmission System Division of Licensor (the "STS Division"), which sale and
purchase has closed or is closing as of the date hereof (the "Closing Date")
simultaneously with the execution and delivery of this Agreement;
WHEREAS, the STS Division has for many years used the trademark GMACS in
connection with the GMACS Product (as defined below);
WHEREAS, the STS Division has for many years used the trademark USC in
connection with the USC Product (as defined below);
WHEREAS, the Government Electronics Division of Licensee has distributed
the GMACS Product and the USC Product for use in satellite earth stations
contracted for by the United States Government (the "CMI Market");
WHEREAS, Licensee wishes to use the mark GMACS within the CMI Market from
and after the Closing Date for a reasonable period of time to permit a
transition to a replacement mark which does not include the formative GMACS; and
WHEREAS, Licensee wishes to use the mark USC within the CMI Market from
and after the Closing Date for a reasonable period of time to permit a
transition to a replacement mark which does not include the formative USC;
NOW, THEREFORE, in consideration of the mutual agreements, undertakings
and covenants herein and therein, and other good and valuable consideration, the
receipt and sufficiency of which hereby are acknowledged, the parties hereby
agree as follows:
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ARTICLE I. DEFINITIONS
Section 1.01. General. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Affiliate" shall have the meaning set forth in the Purchase Agreement.
"Agreement" shall have the meaning set forth in the first paragraph
hereof.
"Closing Date" shall have the meaning specified in the recitals to this
Agreement.
"CMI Market" shall have the meaning set forth in the recitals to this
Agreement.
"GMACS Product" shall mean the current version of GMACS (GMACS 16)
software as distributed by Licensee to its customers on or before the Closing
Date.
"Notice" shall have the meaning specified in Section 10.03.
"Purchase Agreement" shall have the meaning specified in the recitals to
this Agreement.
"STS Division" shall have the meaning specified in the recitals to this
Agreement.
"Trademarks" shall mean the GMACS and USC trademarks.
"USC Product" shall mean the Universal Systems Controller product as
distributed by Licensee to its customers on or before the Closing Date.
ARTICLE II. LICENSE
Section 2.01. Licensor hereby grants to Licensee, on the terms and
conditions set forth herein, a non-exclusive, worldwide, fully-paid-up license
(a) to use the trademark GMACS in connection with the promotion and distribution
of the GMACS Product, and (b) to use the trademark USC in connection with the
promotion and distribution of the USC Product.
Section 2.02. Licensee and its Affiliates shall not use, and shall not
permit the use of any Trademark outside the CMI Market.
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Section 2.03. Licensee shall only use the Trademarks in connection with
products adhering to Licensor's quality standards, which may be modified by
Licensor from time to time in its sole discretion. Licensee shall only use the
Trademarks in a manner as approved by Licensor, which may be modified by
Licensor from time to time in its sole discretion. Licensee recognizes the high
reputation of the GMACS Product and the USC Product and that it is essential to
Licensor's interests that Licensor's quality standards be maintained at all
times.
Section 2.04. Licensee will use the Trademarks strictly in compliance with
applicable legal requirements and will use such markings in connection therewith
as may be required for such compliance.
Section 2.05. Licensor may terminate this Agreement due to a material
breach by Licensee. For purposes of this Agreement, "material breach" by
Licensee shall include but shall not be limited to (a) any failure to observe
Licensor's quality standards, and (b) any use of the Trademarks other than a use
approved by Licensor.
Section 2.06. (a) Within a reasonable period of time following the Closing
Date (and in any event by thirty (30) days thereafter), Licensee will adopt a
mark not including the formative GMACS or any word or symbol confusingly similar
thereto to replace the GMACS mark. Notwithstanding the foregoing, neither
Licensee nor any Affiliate thereof shall use or permit the use of the GMACS mark
or of any trademark, service mark or trade name including the formative GMACS or
any word or symbol confusingly similar thereto anywhere in the world after the
date that is 180 days after the Closing Date.
(b) Within a reasonable period of time following the Closing Date,
(and in any event by thirty (30) days thereafter), Licensee will adopt a mark
not including the formative USC or any word or symbol confusingly similar
thereto to replace the USC mark. Notwithstanding the foregoing, neither Licensee
nor any Affiliate thereof shall use or permit the use of the USC mark or of any
trademark, service mark or trade name including the formative USC or any word or
symbol confusingly similar thereto anywhere in the world after the date that is
180 days after the Closing Date.
Section 2.07. The parties agree that, subject to the rights of Licensee
hereunder, the GMACS and USC trademarks are and shall be owned exclusively by
Licensor and Licensee will execute and deliver such instruments of title as
Licensor may request to confirm such ownership by Licensor. Any and all use of
the Trademarks by Licensee shall inure to the benefit of Licensor.
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Section 2.08. None of the rights and licenses granted hereunder to
Licensee shall be used in contravention of or to avoid full compliance with the
provisions of Section 5.1(f) of the Purchase Agreement.
Section 2.09. If Licensee determines that a person or entity is infringing
or unlawfully using the GMACS mark, the USC mark or any trademark, service mark
or trade name confusingly similar thereto, Licensee shall notify Licensor.
Licensor, in its sole discretion, may take all necessary action, including,
without limitation, filing suit and enjoining the alleged infringement, at
Licensor's sole expense; and Licensor, as a result thereof, shall retain all
damages and other compensation received as a result of taking such actions
against such infringement. Licensee shall not take any action in connection with
such infringement or unlawful use (including without limitation any action to
settle or compromise any such claim, action or proceeding).
Section 2.10. Neither party makes any representations or warranties under
this Agreement (it being understood and agreed that any representations and
warranties relating to the subject matter of this Agreement are made in the
Purchase Agreement).
ARTICLE III. INDEMNIFICATION
Licensee acknowledges that the GMACS Product and the USC Product were
designed and developed by its STS Division prior to the Closing Date. Licensee
agrees to indemnify and hold Licensor, and its officers, directors, affiliates,
employees and agents, harmless from and against any damages, liabilities, losses
and expenses, (including, without limitation, reasonable attorneys' fees) and
amounts paid in settlement of any claim, of any kind or nature whatsoever, which
may be sustained or suffered as a result of any use by Licensee of the
Trademarks (including, without limitation, whether by manufacturing, processing,
packaging, distribution, sale or advertising)
ARTICLE IV. MISCELLANEOUS
Section 4.01. Entire Agreement. This Agreement, together with the Purchase
Agreement, constitutes the entire agreement and understanding between and among
the parties with respect to the subject matter hereof and shall supersede any
prior agreements and understandings among the parties with respect to such
subject matter.
Section 4.02. Counterparts. This Agreement may be executed with
counterpart signature pages or in one or more counterparts, all of which shall
be one and the same Agreement, and shall become effective when one or more
counterparts have
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been signed by each of the parties and delivered to all the parties.
Section 4.03. Notices. All notices, consents, requests, waivers or other
communications required or permitted under this Agreement (each a "Notice")
shall be in writing and shall be sufficiently given (a) if hand delivered or
sent by telecopy, (b) if sent by nationally recognized overnight courier, or (c)
if sent by registered or certified mail, postage prepaid, return receipt
requested, and in each case addressed as follows:
If to Licensor:
L-3 Communications Corporation
600 Third Avenue
New York, NY 10016
Attention: Christopher C. Cambria, Esq.
with a copy to:
Whitman Breed Abbott & Morgan LLP
200 Park Avenue
New York, NY 10166
Attention: James P. Gerkis, Esq.
If to Licensee:
California Microwave, Inc.
555 Twin Dolphin Drive
Redwood City, California 94065
Attn: George L. Spillane
with a copy to:
Richard W. Canady, Esq.
Howard, Rice, Nemerovski, Canady,
Falk & Rabkin
A Professional Corporation
Three Embarcadero Center, 7th Floor
San Francisco, California 94111
or such other address as shall be furnished by any of the parties in a Notice.
Any Notice shall be deemed given upon receipt.
Section 4.04. Waivers. The failure of any party to require strict
performance by any other party of any provision in this Agreement will not waive
or diminish the other party's right to demand strict performance thereafter of
that or any other provision hereof.
Section 4.05. Amendments. This Agreement may be amended, supplemented or
waived only by a subsequent writing signed by each of the parties.
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Section 4.06. Successors and Assigns. All terms and conditions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the successors and permitted assigns of the parties.
Section 4.07. Subsidiaries. Each of the parties hereto shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Subsidiary of such party or
by any entity that becomes a Subsidiary of such party on and after the Closing
Date.
Section 4.08. Third Party Beneficiaries. Each party intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto.
Section 4.09. Specific Performance. Each of the parties hereto
acknowledges that there is no adequate remedy at law for failure by such parties
to comply with the provisions of this Agreement and that such failure would
cause immediate harm that would not be adequately compensable in damages, and
therefore agree that in the event of a breach or threatened breach of any
provision of this Agreement by either party, the other party, may, in addition
to all other remedies, immediately obtain and enforce injunctive relief
prohibiting the breach or compelling specific performance without the
requirement of posting a bond or other security, in addition to all other
remedies available to the parties hereto under this Agreement.
Section 4.10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREUNDER.
Section 4.11. Severability. If any provision of this Agreement 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 hereof, 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 in no way be affected,
impaired or invalidated thereby.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the date first above written.
L-3 COMMUNICATIONS CORPORATION
By:
--------------------------------
Name:
Title:
CALIFORNIA MICROWAVE, INC.
By:
--------------------------------
Name:
Title:
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EXHIBIT D
STS SUPPLY AGREEMENT
THIS STS SUPPLY AGREEMENT (this "Agreement") is dated ____________ __,
1998 and is entered into between California Microwave, Inc., a Delaware
corporation ("CMI"), and L-3 Communications Corporation, a Delaware corporation
("L-3").
RECITALS
A. CMI and L-3 have entered into an asset purchase agreement dated as of
December 19, 1997 (the "Purchase Agreement") with respect to the acquisition by
L-3 from CMI of certain assets of the business of designing, integrating and
installing satellite communications systems in the United States and certain
other countries (such business is the "STS Division").
B. CMI and L-3 each desire to continue at favored customer prices certain
supply arrangements currently in effect between the STS Division of CMI, on
the one hand, and other subsidiaries and divisions of CMI, on the other hand,
after the date of closing (the "Closing Date") of the purchase by L-3 of the
assets of CMI contemplated by the Purchase Agreement.
NOW THEREFORE, as a condition to the closing of the transactions
contemplated by the Purchase Agreement, and in consideration of the mutual
covenants, representations and warranties made herein, and of the mutual
benefits to be derived hereby, the parties hereto agree as follows:
1. Supply of Products by CMI. Upon the terms and subject to the conditions
hereof, for two years from the Closing Date, CMI shall, or shall cause its
subsidiaries (including EF Data Corp. ("EF Data")) to, sell to L-3, and L-3
shall purchase from CMI and/or its subsidiaries the following products and
subassemblies (the "STS Products") needed in operating the STS Division's
business after the Closing Date that CMI or EF Data currently supplies to the
STS Division: satellite communications modems, codecs, transceivers, converters,
Verticom "brick" converter modules (the "Brick Modules"), the ICU-64 Channel
Unit for LYNXX (the "LYNXX"), the PL/5617-1 Modulator card for PROGENY (the
"Card") (the Brick Modules, the LYNXX and the Card are the "Source Products")
and network products. Without limiting the obligation of L-3 to purchase STS
Products under the preceding sentence, the quantities of STS Products to be
purchased by L-3 pursuant to this Section shall be at the sole discretion of L-3
and no minimum quantities of STS Products are required to be purchased
hereunder, Notwithstanding the preceding two sentences, if CMI provides written
notice to L-3 specifying any STS Products subject to this Section that CMI
intends to discontinue making or selling, CMI will be relieved of any obligation
to sell to L-3 any such product as of one year from the date that CMI so
notifies L-3.
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2. Provision of Services by L-3. For two years from the Closing Date, CMI
shall exclusively engage L-3 to provide the following services (the "Services")
to CMI for the benefit of CMI's customers that have requested CMI to arrange for
the procurement of satellite communications system engineering and/or satellite
communications systems integration services for commercial (ie, non-U.S.
government) projects or for foreign governmental authorities projects: system
design, integration, installation and/or program management. Without limiting
the obligation of CMI to purchase the Services under the preceding sentence, the
quantities of Services to be purchased by CMI pursuant to this Section shall be
at the sole discretion of CMI and no minimum quantities of Services are required
to be purchased hereunder. Notwithstanding the preceding two sentences, if L-3
provides written notice to CMI specifying any Services subject to this Section
that L-3 intends to discontinue providing, L-3 will be relieved of any
obligation to provide to CMI any such Services as of one year from the date that
L-3 so notifies CMI.
3. SIVAM Project.
(a) It is the understanding of the parties that in connection with
the SIVAM project proposals, as currently proposed or as may otherwise be
amended (the "SIVAM Proposals"), L-3 shall have exclusive access to and
communication with Raytheon Corporation ("Raytheon"), whether oral or written,
exclusive of CMI or any of its subsidiaries (including, without limitation,
CMI's Microwave Networks division (the "MN Division"), CMI's Microwave Data
Systems division ("Data Systems") and EF Data, with respect to or in connection
with the SIVAM Project including, without limitation, any proposal, discussion,
marketing, negotiation, pricing, settlement, procurement, arrangement or
understanding with respect to the SIVAM Project.
(b) From the Closing Date to December 31, 1998 (the "Supply
Period"), CMI shall, and shall cause its subsidiaries (including EF Data) to,
deliver to L-3 the products specified in the SIVAM Proposals (the "SIVAM
Products") in accordance with the quantities, product specifications and time
period proposed by such divisions in the SIVAM Proposals, and L-3 shall
purchase, during such Supply Period, the SIVAM Products from such divisions or
subsidiaries in accordance with the SIVAM Proposals, provided that:
(i) CMI accepts the terms and conditions of and performs its
duties under, as subcontractor to L-3, the contract or agreement awarded by
Raytheon to L-3 for the SIVAM Project, including, without limitation, payments
made under a vendor trust arrangement generally required by Raytheon; and
(ii) the pricing for each SIVAM Product quoted by CMI
(including EF Data, the MN Division and Data Systems) is competitive with, and
in no event more than 5% above, any proposal made in good faith by a legitimate
party which seeks to sell such SIVAM Product to L-3 and which agrees to perform
the duties and obligations as a subcontractor to L-3 under
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the SIVAM Project with respect to such Product. In the event that L-3 is
permitted to purchase a SIVAM Product from a party other than CMI or EF Data
pursuant to this clause (ii) because that product has not met the conditions set
forth in this clause (ii), L-3 will remain obligated to purchase from CMI all of
the other SIVAM Products so long as those products meet the conditions in this
clause (ii) and clause (i) above and subject to the other terms and conditions
hereof.
As used herein, the term "Product" shall mean a STS Product or a SIVAM
Product.
4. Prices.
(a) Source Products. CMI shall sell (or cause its subsidiaries to
sell) each Source Product to L-3 at the unit price (the "Unit Price") listed for
such Source Products on Schedule 4(a) attached hereto. The prices set forth in
Schedule 4(a) are not subject to increase during the first six months from the
Closing Date. Thereafter, CMI, or its subsidiaries, may increase such prices,
except that in no event shall (i) the Unit Price of any Source Product be less
favorable than the unit price given to other customer for such Source Product in
like quantities and (ii) any such increase in price increase the gross margin
percentage of CMI or its subsidiaries with respect to such Source Product from
its current gross margin percentage thereon. Upon L-3's written request, CMI
will provide L-3 with reasonable access during normal business hours to the
books and records of CMI and its subsidiaries for the sole purpose of
verifying the gross margin percentages with respect to the Source Products.
(b) STS Products. CMI shall sell (or cause its subsidiaries to
sell) the STS Products, other than the Source Products, at prices no less
favorable than the prices given to other customers of such products in like
quantities.
(c) Services. L-3 shall provide the Services to CMI at prices no
less favorable than the prices given to other customers of such Services in like
quantities.
5. Additional Terms and Conditions.
(a) CMI Terms and Conditions. Any sale of the STS Products by CMI or
any of its subsidiaries under this Agreement shall be subject to and governed by
the then-current standard terms and conditions (including as to warranty) of
CMI (or its subsidiaries), which terms and conditions shall be no less
favorable that those given to other customers for the same or similar products.
(b) L-3 Terms and Conditions. Any sale of the Services by L-3 under
this Agreement shall be subject to and governed by the then-current standard
terms and conditions (including as to warranty) of L-3, which terms
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and conditions shall be no less favorable that those given to other customers
for the same or similar services.
6. Specifications. CMI shall, or cause its subsidiaries to, manufacture
and deliver the STS Products in accordance with the electrical, mechanical,
physical, environmental and other specifications as in effect as of the Closing
Date, or if the STS Product is a non-standard product, then according to the
specifications agreed to in writing by L-3 and CMI from time to time. In the
event an improvement or a technical change in the specifications of the STS
Products is made by CMI, CMI shall be required to provide the STS Products which
meet such improved or changed specifications; provided, however, that no such
improvement or change in specifications shall be made to LYNXX without the prior
written consent of L-3. CMI shall, or cause its subsidiaries to, manufacture and
deliver the SIVAM Products to L-3 in accordance with the specifications therefor
in the SIVAM Proposals.
7. Maintenance of Standards. If CMI fails to maintain the quality,
delivery or performance standards currently applicable to the Products, or fails
to achieve standards of quality or performance specified by CMI with respect to
new variations of the standard Products, then L-3 shall have such remedies as
may be provided in the then-current standard terms and conditions of CMI, and,
if CMI fails to cure any such deficiency in any Product within 60 days after
written notice thereof by L-3, L-3 shall no longer be obligated to purchase such
Product pursuant to this Agreement.
8. Ordering. Each order by L-3 for STS Products (a "Purchase Order") will
specify the STS Products, the quantity, the appropriate specifications
corresponding to such STS Products (if necessary), and the date of delivery,
provided that the number of days from the date of the Purchase Order through the
date of delivery is at least 60 days. Notwithstanding the foregoing, the parties
hereafter may agree in writing to use a blanket purchase agreement with specific
agreed call out schedules in lieu of the foregoing ordering mechanism. Orders by
L-3 for SIVAM Products shall be made in accordance with the SIVAM Proposals.
9. Delivery.
(a) All STS Products will be delivered freight paid F.O.B. (CMI's
(or its subsidiary's) plant).
(b) L-3 reserves the right to inspect the STS Products and to
confirm the quantity of the STS Products within 30 days from the date of
delivery. Any claims for discrepant deliveries shall be reported by L-3 to CMI
in writing within such 30-day period. If L-3 fails to make such a claim within
the time specified, such order will be deemed accepted by L-3. Upon CMI
receiving notice from L-3 of such discrepancy, L-3 will have such remedies as
may be provided in the then-current standard terms and conditions of CMI.
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(c) CMI undertakes to keep L-3 promptly and regularly informed of
difficulties that CMI expects in meeting L-3's needs for delivery in accordance
with lead time(s) stated in any Purchase Order.
(d) CMI shall deliver the SIVAM Products in accordance with the
SIVAM Proposal.
10. Raw and Packaging Materials. CMI will purchase and supply all raw
materials and packaging materials necessary for the manufacture of the STS
Products. CMI will be responsible for the sampling and testing of all such raw
materials and packaging materials and for ensuring an adequate inventory of such
raw materials and packaging materials to supply the STS Products.
11. Terms of Sale. With respect to any Products or Services sold
hereunder, the selling party will invoice the other party at the time of
delivery or provision. Each invoice will be itemized in reasonable detail. The
non-selling party will pay to the selling party the amount of such invoice
within 60 days of the date of such invoice.
12. Confidentiality. Each party will preserve the confidentiality of the
other party's Confidential Information (defined below), will not use same except
in connection with the performance of its obligations hereunder, and will return
same upon request by the other party. This Section will survive expiration or
earlier termination of this Agreement for a period of three years thereafter.
"Confidential Information" means all proprietary information (including but not
limited to formulas, compilations, data, know-how, specifications, techniques,
inventions, devices, projections, drawings and plans, whether of a technical,
operational, financial or other nature) which hereafter is, or in the past has
been, disclosed in writing and marked as confidential by either party (the
"Disclosing Party") to the other party (the "Receiving Party"), and which is of
such a nature that its value would be impaired if disclosed to third parties,
but shall not include any such information that: (i) becomes part of the public
domain through no fault of the Receiving Party; (ii) at the time of receipt is
known to the Receiving Party as shown by its written records; (iii) becomes
known to the Receiving Party from another source and the Receiving Party is not
aware that such source is under an obligation to another Person to keep such
information confidential; or (iv) is required to be disclosed by the Receiving
Party as a result of judicial or administrative process or by other requirements
of law.
13. Indemnity.
(a) With respect to any Products or Services sold hereunder, the
selling party agrees to indemnify and hold the other party and its affiliates
and their respective officers, directors, employees and agents, harmless from
and against any damages, liabilities, losses, expenses, (including, without
limitation, reasonable attorneys' fees) and amounts paid in settlement of any
claim, of any kind or nature whatsoever, which may be sustained or suffered as a
result of the infringement or alleged infringement of the copyrights or
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U.S. patents of third parties or the breach by CMI of its represention in the
fourth sentence of Section 3.16 of the Purchase Agreement, and to defend, at its
expense, any actions, claims or suits against purchasing party based upon such
infringement or alleged infringement. If the use of any products furnished
hereunder is enjoined as a result of such a suit, the selling party at its
option, and at no expense to the other party, shall obtain for the other party
the right to use said products, substitute an equivalent product reasonably
acceptable to selling party and extend this indemnity thereto, or accept the
return of products and reimburse the other party the purchase price thereof,
less a charge for reasonable wear and tear. This indemnity does not extend to
any suit based upon any infringement or alleged infringement of any patent or
copyright to the extent due to the combination of any products furnished by the
selling party and other elements not supplied by or on behalf of the selling
party nor does it extend to any products to the extent such products infringe as
a result of the other party's design or formula.
(b) The purchasing party agrees to notify the selling party in
writing of any suit. At its request and at its expense the selling party shall
have the right to control the defense of said suit. Except with the prior
written consent of the purchasing party, no selling party, in the defense of any
such claim or litigation, shall consent to entry of any judgment or enter into
any settlement that provides for injunctive or other nonmonetary relief
affecting the purchasing party or that does not include as an unconditional term
thereof the giving by each claimant or plaintiff to such purchasing party of a
release from all liability with respect to such claim or litigation. In the
event that the purchasing party shall in good faith determine that the conduct
of the defense of any claim subject to indemnification hereunder or any proposed
settlement of any such claim by the selling party might be expected to affect
adversely the purchasing party's tax liability or the ability of the purchasing
party to conduct its business, or that the purchasing party may have available
to it one or more defenses or counterclaims that are inconsistent with one or
more of those that may be available to the selling party in respect of such
claim or any litigation relating thereto, the purchasing party shall have the
right at all times to take over and assume control over the defense, settlement,
negotiations or litigation relating to any such claim at the sole cost of the
selling party, provided that if the purchasing party does so take over and
assume control, the purchasing party shall not settle such claim or litigation
without the written consent of the selling party, such consent not to be
unreasonably withheld. In the event that the selling party does not accept the
defense of any matter as above provided, the purchasing party shall have the
full right to defend against any such claim or demand and shall be entitled to
settle or agree to pay in full such claim or demand. In any event, the selling
party and the purchasing party shall cooperate in the defense of any claim or
litigation subject to this Section and the records of each shall be available to
the other with respect to such defense.
(c) The foregoing Sections 13(a) and (b) state the entire liability
of the selling party for patent or copyright infringement. This Section will
survive the expiration or earlier termination of this Agreement.
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14. Term. This Agreement shall commence on the date first set forth above
and shall expire on the second anniversary of the Closing Date unless earlier
terminated pursuant to Section 15.
15. Termination.
(a) Either party may terminate this Agreement for any material
breach of this Agreement by the other party if the party seeking to terminate
has specified such breach in writing and such breach has not been cured by the
breaching party within thirty (30) days after receipt of the written notice.
(b) Termination under this Section will be effected by notice given
by the terminating party to the other party.
(c) Any termination of this Agreement will not affect any of the
rights of either party hereto that arose prior to such termination or any
liability resulting from either party's breach of this Agreement.
16. Consequences of Termination. Upon expiration or earlier termination of
this Agreement, each party will promptly return to the other all documents,
samples and other tangible items containing or representing Confidential
Information and all copies thereof, and certify, if requested by the other
party, that it has complied with the terms of this sentence. This Section will
survive expiration or earlier termination of this Agreement.
17. Sales Convey No Right to Manufacture or Copy. The Products and
Services offered for sale hereunder are offered for sale and are sold by each
party subject in every case to the condition that such sale does not convey any
license, expressly or by implication, to manufacture, duplicate or otherwise
copy or reproduce any of the Products or Services, unless expressly provided in
such sale.
18. Export Control Compliance. Each party agrees to comply fully with the
United States Export Control Administration Regulations, the United States
Department of State International Traffic in Arms Regulations and any other
United States government regulations applicable to the export or disclosure of
Products or Services provided hereunder or Confidential Information hereunder
insofar as they may control or limit the sale or use of Products or Services.
Each party also agrees to comply fully with the United States Foreign Corrupt
Practices Act.
19. Force Majeure. Except for either party's payment obligations to the
other party for Products or Services previously delivered or provided hereunder,
failure of either party to perform its obligations under this Agreement
(including but not limited to failure to make sales or deliveries of Products or
Services) shall be excused to the extent that such failure is attributable to
any cause beyond the reasonable control of the defaulting party, including,
without limitation, acts of God, fires, earthquakes, wars, sabotage, accidents,
embargo, riots, labor disputes, actions of any government or
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governmental agency or failure of same to act where action is required, and the
inability of such party to obtain material from its suppliers or to obtain
equipment or transportation; and the time during which such party may perform
will be extended to coincide with the time performance has been prevented,
hindered or delayed as a result of the foregoing. Should either party wish to
claim relief from its obligations hereunder by reason of this Section, such
party shall give notice to the other party without delay of the occurrence of
the event or circumstances in question.
20. Governing Law. This Agreement shall be governed in all respects,
including as to validity, interpretation and effect, by the internal laws of the
State of New York, without giving effect to the conflict of laws rules thereof.
The parties hereby agree that this Agreement shall not be governed by the United
Nations Convention on Contracts for the International Sale of Goods.
21. Assignment. The Agreement shall not be assignable or otherwise
transferable by either party hereto without the prior written consent of the
other party, which consent will not be unreasonably withheld. This Agreement
will bind and inure to the benefit of the successors and permitted assigns of
the parties hereto. References to a party herein also are deemed to be
references to any successor or permitted assign of such party.
22. Notices. All notices, consents, approvals, requests, demands, waivers
and other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, or (c) sent by next-day or overnight mail or
delivery or (d) sent by facsimile transmission or telegram.
if to L-3, to
L-3 Communications Corporation
600 Third Avenue
New York, NY 10016
Facsimile: 212/805-5494
Attn: Christopher C. Cambria
if to CMI, to
California Microwave, Inc.
555 Twin Dolphin Drive
Redwood City, California 94065
Facsimile:650/596-6682
Attn: George L. Spillane
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
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All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day
after such delivery, (x) if by certified or registered mail, on the seventh
business day after the mailing thereof, (y) if by next-day or overnight mail or
delivery, on the day delivered, (z) if by facsimile or telegram, on the next day
following the day on which such facsimile or telegram was sent, provided that a
copy is also sent by certified or registered mail.
23. Certain Definitions. All capitalized terms used herein and not defined
in this Section shall have the meanings assigned to them herein. When used
herein, the following terms shall have the meaning specified below:
"include" and "including" shall be construed as if followed by the
phrase "without being limited to",
"Person" means an individual, a corporation, a joint venture, a
partnership, a firm, an association, a limited liability company, a business
trust or any other legal entity or any governmental authority or
instrumentality.
24. General.
(a) It is agreed that each of parties hereto is acting as an
independent contractor and nothing contained in this Agreement shall be
construed to constitute either as a partner, agent or employee of the other.
Neither party is authorized to act for or bind the other except as specifically
provided herein.
(b) The failure of a party at any time to require performance by the
other party of any provision hereof shall in no way affect the right of the
party thereafter to enforce same against the other party, nor shall waiver by
either party of the breach of any provision hereof be taken or held to be a
waiver of any succeeding breach of such provision or as a waiver of the
provision itself or as a waiver of a breach of any other provision.
(c) If any term or provision of this Agreement is invalid, illegal
or incapable of being enforced by any rule of law or public policy, such
provisions will be narrowed (or deleted, if necessary) to the minimum extent
necessary to make it and the rest of this Agreement enforceable,
(d) This Agreement or any provision hereof may not be changed,
waived, discharged or terminated orally, but only by a statement in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought.
(e) This Agreement and the Purchase Agreement constitute the entire
agreement between the parties relating to the subject matter hereof and
supersede all prior and contemporaneous agreements and understandings of
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the parties relating thereto. The terms of this Agreement may not be modified
except by a writing signed by both of the parties.
(f) This Agreement may be executed with counterpart signature pages
or in any number of counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument,
(g) The agreements that comprise this Agreement, the Purchase
Agreement and any terms and conditions of either party that apply to a sale of
products or services hereunder shall have the following order of priority in the
event of a conflict between any of them: (i) the Purchase Agreement, (ii) this
Agreement and (iii) the terms and conditions of the selling party then in effect
with respect to such sale,
(h) The headings contained in this Agreement are inserted for
reference only and shall not be used to aid in the construction hereof.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
L-3 Communications Corporation
By:
----------------------------------
Name:
Title:
California Microwave, Inc.
By:
----------------------------------
Name:
Title:
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SOURCE PRODUCTS PRICE LIST
(Schedule 4a)
Description STS/PN Quantity Pricing
- ----------- ------ -------- -------
ICU 64 Channel Unit 01070-00714 Any $5,500.00
EF Data
Modulator, Progeny, XP 01070-A71224-1 Any $5,500.00
EF DATA Not-to-exceed
Ku-Band Modulator
"Brick" 01070-A68551-1 1-9 (A)
VERTICOM 10-24
25-49
50
C-Band U/C 70Mhz
"Brick" 01070-A69532-1 1-9 (A)
VERTICOM 10-24
25-49
50
(A) To be purchased by L-3 directly from Verticom with EF Data's consent and
with EF Data agreeing to arrange with Verticom for L-3 to make such direct
purchases.
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ASSET PURCHASE AGREEMENT
BETWEEN
FAP TRUST
AND
L-3 COMMUNICATIONS CORPORATION
FEBRUARY 10, 1998
<PAGE>
TABLE OF CONTENTS
Page
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ARTICLE I
DEFINITIONS ............................. 1
ARTICLE II
PURCHASE AND SALE .......................... 6
II.1 Purchase and Sale ........................................ 6
II.2 Cash Purchase Price ...................................... 6
II.3 Adjustment of Cash Purchase Price ........................ 7
II.4 Post-Closing Payment ..................................... 8
II.5 Dispute Resolution ....................................... 11
II.6 Closing .................................................. 12
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER ............... 13
III.1 Due Organization of Seller ............................... 13
III.2 Requisite Consents; Nonviolation ......................... 13
III.3 Due Organization of the Company .......................... 14
III.4 Acquired Assets .......................................... 14
III.5 Subsidiaries, etc ........................................ 14
III.6 Financial Data ........................................... 14
III.7 No Material Changes ...................................... 14
III.8 Undisclosed Liabilities .................................. 15
III.9 Governmental Authorizations; Compliance with Law ......... 15
III.10 Litigation ............................................... 16
III.11 Employee Benefit Plans ................................... 16
III.12 Intellectual Property .................................... 17
III.13 Real and Personal Property ............................... 18
III.14 Insurance ................................................ 19
III.15 Tax Matters .............................................. 19
III.16 Environmental Matters .................................... 20
III.17 Contracts ................................................ 21
III.18 Inventory ................................................ 22
III.19 Accounts Receivable ...................................... 22
III.20 Condition of Plant and Equipment ......................... 22
III.21 Customers and Suppliers .................................. 22
III.22 Bank Accounts ............................................ 23
III.23 Brokers, Finders, Etc .................................... 23
III.24 Employees ................................................ 23
<PAGE>
Page
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III.25 Government Contracts ..................................... 23
III.26 Government Furnished Equipment ........................... 25
III.27 Organizational Conflicts of Interest ..................... 25
III.28 Affiliate Transactions ................................... 25
III.29 Disclosure in the Seller's Schedule ...................... 25
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER ............... 25
IV.1 Due Incorporation; Requisite Power and Authority ......... 25
IV.2 Requisite Consents; Nonviolation ......................... 26
IV.3 Broker's Fees ............................................ 26
ARTICLE V
CERTAIN TRANSACTIONS AND AGREEMENTS
PRIOR TO THE CLOSING DATE ...................... 26
V.1 Confidentiality .......................................... 26
V.2 Business Organization .................................... 26
V.3 Cooperation .............................................. 27
V.4 Subsidiary Merger ........................................ 28
V.5 No Seller Distributions .................................. 28
V.6 Further Assurances ....................................... 28
ARTICLE VI
COVENANTS REGARDING POST CLOSING ACTIVITIES ............. 29
VI.1 Employee Matters ......................................... 29
VI.2 Seller's Indemnification ................................. 30
VI.3 Contracts Requiring Consent to Assignment ................ 33
VI.4 Company Plans ............................................ 33
VI.5 Research and Experimental Expenses ....................... 33
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF BUYER AND SELLER ............ 34
VII.1 Government Approvals; Litigation ......................... 34
VII.2 Permits and Approvals .................................... 34
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Page
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ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS .................. 34
VIII.1 Representations and Warranties; Performance .............. 34
VIII.2 Escrow Agreement ......................................... 34
VIII.3 Subsidiary Merger ........................................ 35
VIII.4 Material Adverse Change .................................. 35
VIII.5 Proceedings .............................................. 35
VIII.6 Ilex Agreement ........................................... 35
VIII.7 Non-Competition Agreements ............................... 35
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF SELLER ................. 35
IX.1 Representations and Warranties; Performance .............. 35
IX.2 Proceedings .............................................. 35
IX.3 Ilex Agreement ........................................... 36
ARTICLE X
FEES AND EXPENSES .......................... 36
X.1 Expenses ................................................. 36
X.2 Fees or Commissions of Brokers ........................... 36
ARTICLE XI
TERMINATION ............................. 36
XI.1 Termination of Agreement ................................. 36
XI.2 Effect of Termination .................................... 36
ARTICLE XII
MISCELLANEOUS ............................ 37
XII.1 Time of the Essence ...................................... 37
XII.2 Entire Agreement ......................................... 37
XII.3 Press Releases and Public Announcements .................. 37
XII.4 Counterparts ............................................. 37
XII.5 Descriptive Headings ..................................... 37
XII.6 Notices .................................................. 37
XII.7 Arbitration .............................................. 38
XII.8 Choice of Law ............................................ 39
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Page
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XII.9 Bulk Sale and Other Tax Filings .......................... 39
XII.10 Transfer Taxes; Sales Tax ................................ 39
XII.11 Binding Effect; Benefits ................................. 39
XII.12 Assignability ............................................ 39
XII.13 Waiver and Amendment ..................................... 39
XII.14 Attorneys' Fees .......................................... 40
XII.15 Severability ............................................. 40
XII.16 No Recourse .............................................. 40
EXHIBIT A Seller's Schedule
EXHIBIT VIII.2 Form of Assignment of Escrow Agreement
EXHIBIT VIII.7 Form of Assignment of Non-Competition Agreements
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") dated as of February 10,
1998 is entered into by and among L-3 COMMUNICATIONS CORPORATION, a Delaware
corporation ("Buyer") and FAP TRUST, a Connecticut trust ("Seller").
RECITALS
WHEREAS, the Buyer wishes to purchase from Seller, and Seller wishes to
sell to the Buyer, all of the Acquired Assets (as hereinafter defined) subject
to the assumption by the Buyer of the Assumed Liabilities (as hereinafter
defined), upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
ARTICLE I
DEFINITIONS
As used herein:
"Acquired Assets" means all of the assets (tangible and intangible)
of the Seller, including those of the Acquired Company (as hereinafter defined)
(except for those assets listed in the proviso to this definition), including,
without limitation, all of its right, title and interest in and to:
(a) Leaseholds and subleaseholds of real property to which it is a
party, and all, improvements, fixtures, and fittings thereon, and
easements, rights-of-way, and other appurtenants thereto (such as
appurtenant rights in and to public streets);
(b) Tangible personal property (such as machinery, equipment,
inventories of raw materials and supplies, manufactured and purchased
parts, goods in process and finished goods, furniture, automobiles,
trucks, tractors, trailers, tools, jigs, and dies);
(c) Intellectual Property, goodwill associated therewith, licenses
and sublicenses granted and obtained with respect thereto, and rights
thereunder, remedies against infringements thereof, and rights to
protection of interests therein under the laws of all jurisdictions;
(d) Leases, subleases, and rights thereunder;
(e) Agreements, contracts, indentures, mortgages, instruments,
security interests, guaranties, other similar arrangements, and rights
thereunder;
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(f) Accounts, notes, and other receivables, except those excluded
under clause (iv) of the proviso to this definition;
(g) Claims, deposits, prepayments, refunds, causes of action, choses
in action, rights of recovery, rights of set off, and rights of
recoupment;
(h) Franchises, approvals, permits, licenses, orders, registrations,
certificates, variances, and similar rights obtained from governments and
governmental agencies;
(i) Prepaid expenses, except those excluded under clause (v) of the
proviso to this definition;
(j) Books, records, ledgers, files, documents, correspondence,
lists, plats, architectural plans, drawings, and specifications, creative
materials, advertising and promotional materials, studies, reports, and
other printed or written materials (collectively, the "Books and
Records"), except those excluded under clause (i) of the proviso to this
definition; and
(k) All cash and all bank accounts and brokerage accounts and
similar accounts and cash equivalents, including deposits in transit,
except as set forth in clause (iii) of the proviso to this definition.
PROVIDED, HOWEVER, that notwithstanding the foregoing, the Acquired Assets shall
not include:
(i) With respect to the Company, the corporate charter,
qualifications to conduct business as a foreign corporation,
arrangements with registered agents relating to foreign
qualifications, taxpayer and other identification numbers, seals,
minute books, stock transfer books, blank stock certificates,
original Tax Returns and other documents relating to the
organization, maintenance, and existence of the Company as a
corporation;
(ii) Any assets or rights which are not assignable pursuant to
the terms of the document or instrument creating same or which are
only assignable with the consent of a third party who refuses to
grant such consent, which shall be transferred as and when such
consent is obtained and otherwise as provided in Section VI.3 of
this Agreement;
(iii) Any cash held on deposit in a tax reserve account
established by the Company for the payment of any federal, state,
local or foreign income Taxes payable with respect to periods prior
to the date three (3) Business Days prior to the Closing Date, so
long as notice of the amount of such cash and the account number of
such account shall be provided to the Buyer not later than such
third Business Day); and
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(iv) $1,000,000 book value of trade accounts receivable of the
Acquired Company (which specific receivables shall be identified and
reasonably agreed upon by the parties on or prior to the Closing
Date); and
(v) Prepaid expenses relating to the expenses incurred in
connection with the negotiation and consummation of the transactions
contemplated by this Agreement.
"Acquired Company" means the direct and indirect assets, liabilities
and business as a going concern of the Company transferred to Seller in the
dissolution and liquidation of the Company.
"Agreement" has the meaning set forth in the preface above.
"Assumed Liabilities" means all Liabilities of the Acquired Company
(except for those Liabilities expressly excluded in the proviso to this
definition), including, but not limited to:
(a) All Liabilities of the Company to be performed following the
Closing expressly provided for under or incurred pursuant to the terms of
the written agreements, contracts, employment agreements, leases,
licenses, instruments and other items which are included as Acquired
Assets, but only to the extent any required consents to the assignment
thereof have been obtained or Buyer has otherwise expressly agreed to
assume liability under such agreement;
(b) All Liabilities for product warranty claims or any use of or
defect in any of the products or services sold by the Company, the
Subsidiary or the Acquired Company prior to the Closing Date;
(c) Liabilities to employees of Acquired Company arising out of
workers' compensation or disability leaves of absence if said employee is
entitled to an offer of employment pursuant to this Agreement and any
other similar obligations or liabilities; and
(d) Liabilities resulting from, arising out of or caused by any
breach of contract by the Company, the Subsidiary or the Acquired Company,
tort, infringement, violation of law or any environmental liability or
contamination, including, without limitation, Liabilities arising out of
or relating in any way to any Government Bid, Government Contract or
Government Disclosure.
PROVIDED, HOWEVER, that notwithstanding the foregoing, the Assumed Liabilities
shall not include:
(A) Any Liability of the Acquired Company or Seller for income
and other Taxes, including, but not limited to, any Taxes arising in
connection with the consummation of the transactions contemplated
hereby; provided, however, that any Taxes (other than federal,
state, local or foreign income Taxes and other
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than Taxes arising in connection with the consummation of the
transactions contemplated hereby) accrued on the Closing Statement
of Net Assets shall be Assumed Liabilities;
(B) Except as otherwise provided for in this Agreement
(including, without limitation, as provided for in Section VI.1
hereof), any Liability of the Company related to the employment or
compensation of employees and former employees (including with
respect to any Company Plan or any post-retirement benefits plan, if
any));
(C) Except as otherwise provided for in this Agreement, any
Liability of the Company for costs and expenses incurred in
connection with this Agreement and the transactions contemplated
hereby; or
(D) Any Liability of Seller which was not related to the
Company, the Subsidiary or the Business or arising under this
Agreement.
"Business" means the business conducted or proposed or planned to be
conducted by the Acquired Company on and as of the Closing Date.
"Buyer" has the meaning set forth in the preface above.
"Closing" has the meaning set forth in Section II.6 below.
"Closing Date" has the meaning set forth in Section II.6 below.
"Company" means Ilex Systems, Inc.
"Code" means the Internal Revenue Code of 1986, as amended.
"Employee" has the meaning set forth in Section VI.1 below.
"GAAP" means United States generally accepted accounting principles
as in effect as of the date hereof.
"Government Bid" means any offer to sell made by the Acquired
Company prior to the Closing Date which, if accepted, would result or may result
in a "Government Contract".
"Government Contract" means any prime contract, subcontract, teaming
agreement or arrangement, joint venture, basic ordering agreement, pricing
agreement, letter contract, purchase order, delivery order, change order,
Government Bid or other arrangement of any kind between the Acquired Company and
(i) the U.S. Government, (ii) any prime contractor of the U.S. Government in its
capacity as a prime contractor or (iii) any subcontractor with respect to any
contract of a type described in clauses (i) or (ii) above.
"Government Disclosure" means any certification, representation,
warranty or statement by the Acquired Company to the U.S. Government in that
capacity, or any agent or
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instrumentality thereof, which in any way relates to the operation of the
Business or any business of the Acquired Company carried on prior to the Closing
Date.
"Knowledge of Seller" (or any similar expression) shall mean the
actual knowledge of (i) W. Jeffrey Kramer, Vice President of First Union
National Bank, trustee of Seller, Frederick Forster, Jeffrey Furman or Howard
Tieg or (ii) each of Joseph Lopez, John Medea, Joseph Leadley, Scott Feldman,
and all of the Vice Presidents and the members of the Board of Directors of the
Company and the Subsidiary (provided, however, that for purposes of Section
III.27, the individuals referred to in clause (ii) shall be limited to Joseph
Lopez, John Medea, Thomas Deet and Robert Marchand), after, only in the case of
those individuals referred to in clause (ii) of this definition, a reasonable
investigation or inquiry of the subject matter thereof by or on behalf of such
individuals.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Ilex Agreement" means the agreement, dated as of February 9, 1998
by and among Seller, the Company and shareholders of the Company.
"Liability" or "Liabilities" means any direct or indirect
indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility, fixed or unfixed, choate or inchoate, liquidated or
unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise.
"Losses" means all losses, liabilities, obligations, amounts paid in
settlement, costs and expenses, including court costs, and reasonable attorneys'
fees and expenses, incurred in connection with any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, injunction, judgment,
order, decree, ruling.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, a limited liability company, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Purchase Price" shall mean the sum of (i) any amounts paid by Buyer
under Sections II.2 and II.4 and (ii) the amount of the adjustment, if any, to
the Cash Purchase Price (as hereinafter defined) pursuant to Section II.3.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Seller's Schedule" has the meaning set forth in Article III below.
"Subsidiary" means Hygienetics Environmental Services, Inc., a
California corporation, all of the issued and outstanding shares of capital
stock of which are owned by the Company.
"Subsidiary Merger" means the merger of the Subsidiary with and into
the Company.
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"Tax" and "Taxes" means all taxes, charges, fees, levies or other
assessments imposed by any federal, state, local or foreign taxing authority,
whether disputed or not, including without limitation, income, profits, gross
receipts, capital, estimated, excise, occupational, custom, duty, ad valorem,
value-added, stamp, property, sales, transfer, withholding, real estate, use,
employment, payroll, alternative or add-on minimum, environmental (including
Taxes under Section 59A of Code) and franchise taxes and such terms shall
include any interest, penalties or additions attributable to or imposed on or
with respect to such assessments and any expenses incurred in connection with
the settlement of any tax liability.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
ARTICLE II
PURCHASE AND SALE
II.1 Purchase and Sale.
(a) General. On and subject to the terms and conditions of this Agreement,
the Buyer agrees to purchase from Seller and Seller agrees to sell, transfer,
convey, assign and deliver to the Buyer, all of the Acquired Assets at the
Closing for the consideration specified below in Section II.2.
(b) Assumption of Liabilities. On and subject to the terms and conditions
of this Agreement, the Buyer agrees to assume and become responsible for the
Assumed Liabilities at the Closing.
II.2 Cash Purchase Price.
(a) Subject to adjustment as set forth in Section II.3, at the Closing (as
defined in Section II.6), as consideration for the purchase of the Acquired
Assets, Buyer agrees to pay in aggregate:
(i) Fifty-One Million Nine Hundred Twenty-Three Thousand Dollars
($51,923,000), plus or minus, respectively;
(ii) the amount equal to one hundred seven and one-half percent
(107.5%) of the amount by which the Estimated Closing Date Net Assets (as
defined in Section II.3) as determined in accordance with Section II.3 below
exceeds or fails to equal Ten Million Two Hundred Thousand Dollars
($10,200,000). The above consideration, in the aggregate, is hereinafter
referred to from time to time as the "Cash Purchase Price."
(b) The Cash Purchase Price shall be paid on the Closing Date by wire
transfer in immediately available funds to the account designated by the Seller
in a written notice delivered
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to Buyer at least 5 Business Days (as defined in Section II.3) prior to the
Closing Date (as defined in Section II.6);
(c) (i) If the Company shall be awarded the Software Engineering and
Technical Support ("SWEATS") contract at Fort Huachuca upon the terms of the bid
proposal submitted by the Company in effect as of November 25, 1997, or awarded
the SWEATS contract based on such bid as amended after the date of this
Agreement with the prior written consent of Buyer, in addition to the Cash
Purchase Price, Buyer shall pay to the Seller as additional consideration for
the Acquired Assets in aggregate an amount (the "SWEATS Payment") equal to (i)
$3,762,500, if the SWEATS contract is awarded to the Company as a "prime"
contractor, or (ii) $1,612,500, if the SWEATS contract is awarded to the Company
as a subcontractor. The SWEATS Payment shall be paid by Buyer within 30 days
following the later of (x) the Business Day following the expiration of the
period to protest the SWEATS contract award and (y) the date of final resolution
of any bid protest raised in respect of the award of the SWEATS contract. No
payment shall be due from Buyer if any such bid protest is upheld.
(d) The parties to this Agreement agree to allocate the Purchase Price in
accordance with the rules under Section 1060 of the Internal Revenue Code of
1986, as amended (the "Code") and the Treasury Regulations promulgated
thereunder. The parties recognize that the Purchase Price does not include
Buyer's acquisition expenses and that Buyer will allocate such expenses
appropriately. The Seller and Buyer agree to act in accordance with such
allocations (including any modifications thereto reflecting any post-closing
adjustment of the Purchase Price pursuant to Sections II.3 and II.4, as
applicable) in any relevant Tax returns or filings, including any forms or
reports required to be filed pursuant to Section 1060 of the Code, the Treasury
Regulations promulgated thereunder or any provisions of local, state and
Commonwealth law ("1060 Forms"), and to cooperate in the preparation of any 1060
Forms and to file such 1060 Forms in the manner required by applicable law.
II.3 Adjustment of Cash Purchase Price.
(a) Preparation of Estimated Closing Statement of Net Assets. At least
five Business Days prior to the Closing Date, the Seller shall cause to be
delivered to Buyer a statement of estimated Acquired Assets and Assumed
Liabilities (the "Estimated Closing Statement of Net Assets") as of the date
three Business Days prior to the Closing Date. The Estimated Closing Statement
of Net Assets shall be prepared in the same manner and in accordance with the
procedures that the Closing Statement of Net Assets is to be prepared pursuant
to Section II.3(c), except that it shall be unaudited. The term "Estimated
Closing Date Net Assets" shall mean the book value of the Acquired Assets set
forth on the Estimated Closing Statement of Net Assets in excess of the amount
of the Assumed Liabilities set forth on the Estimated Closing Statement of Net
Assets, determined in accordance with the procedures set forth in Section
II.3(c). For the purposes of this Agreement, "Business Day" means any day that
is not a Saturday, Sunday or day in which banks in New York, New York or San
Francisco, California are authorized or obligated by law or governmental action
to close.
(b) Calculation of Adjustment. The Cash Purchase Price shall be (i)
increased by one hundred seven and one-half percent (107.5%) of the amount that
the Closing Date Net Assets (as hereinafter defined) is greater than the
Estimated Closing Date Net Assets; or (ii) decreased by
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one hundred seven and one-half percent (107.5%) of the amount that the Closing
Date Net Assets is less than the Estimated Closing Date Net Assets. The term
"Closing Date Net Assets" as used herein shall mean the book value of the
Acquired Assets set forth on the Final Closing Statement of Net Assets (as
hereinafter defined) in excess of the amount of the Assumed Liabilities set
forth on the Final Closing Statement of Net Assets, determined in accordance
with the procedures set forth in Section II.3(c). The amount of any decrease or
increase to the Cash Purchase Price pursuant to this Section II.3(b) plus
interest from the Closing Date at the Prime Rate (as hereinafter defined) shall
be paid by the Seller or Buyer, as the case may be, by wire transfer in
immediately available funds within five (5) Business Days after the Final
Closing Statement of Net Assets agreed to on behalf of the Seller and Buyer or
is determined by the Neutral Auditor (as hereinafter defined). For purposes of
this Agreement, "Prime Rate" means the rate of interest announced from time to
time by Bank of America as its prime rate of interest.
(c) Preparation of Closing Statement of Net Assets. As soon as
practicable, and in any event within thirty (30) days after the Closing Date,
the Buyer shall cause to be prepared a statement of net assets for the Business
consisting of the Acquired Assets and the Assumed Liabilities, as of the close
of business on the date three (3) Business Days prior to the Closing Date
determined on a pro forma basis as if the parties to the Ilex Agreement had not
consummated the transactions contemplated thereby on such date (the "Closing
Statement of Net Assets"). The Closing Statement of Net Assets will be prepared
in accordance with United States generally accepted accounting principles
("GAAP") applied on a basis consistent with the September Balance Sheet through
full application of the policies and procedures used in preparing the September
Balance Sheet and with changes in contract estimates at completion ("EAC's") and
estimates to complete ("ETC's") determined on a basis consistent with the method
used for the determination of the September Balance Sheet, and will, at the
option of the Buyer, be audited by an independent public accounting firm
selected by Buyer (the "Auditor"). The Closing Statement of the Net Assets shall
be accompanied by an Auditor's report based upon the audit of the Audited
Closing Statement of Net Assets stating that such statement presents fairly, in
all material respects, the Acquired Assets and Assumed Liabilities presented on
such statement as provided for in this Agreement at the third Business Day prior
to the Closing Date in conformity with GAAP consistently applied with the
September Balance Sheet, except as modified by any modification which is
mutually agreed upon by the parties hereto. Buyer shall provide the Auditor
access to the Books and Records as may reasonably be required for the
preparation of the Closing Statement of Net Assets. Buyer shall be responsible
for the costs and expenses of the Auditor in preparing the Closing Statement of
Net Assets.
II.4 Post-Closing Payment.
(a) As additional consideration for the Acquired Assets ("Additional
Consideration"), Buyer shall make the payments or deliveries to the Seller
required pursuant to this Section II.4. With respect to each of fiscal years of
the Acquired Company ending December 31, 1998, 1999 and 2000, respectively.
Buyer shall pay to the Seller in aggregate for any such fiscal year an amount in
cash (subject to Section II.4(c)) equal to the product of (i) $3,000,000 for
1998, $3,300,000 for 1999 and $3,630,000 for 2000 and (ii) a percentage (the
"Percentage") calculated by dividing (x) EBIT (as defined below) for the
Acquired Company for each in each of fiscal 1998, 1999 and 2000 by (y)
$8,800,000 for 1998, $10,300,000 for 1999 and $12,300,000 for 2000, respectively
provided that the maximum Percentage for any fiscal year shall be 120%.
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No Additional Consideration will be due to the Seller under this Section II.4 in
respect of any fiscal year if the Percentage for that fiscal year shall be less
than 60%. "EBIT" means for any fiscal year operating income of the Acquired
Company before interest and income taxes; provided that for purposes of
calculating EBIT there shall be eliminated (i) the effect of any purchase
accounting adjustments (including any increase in depreciation or amortization
of tangible or intangible assets of the Business resulting from a write-up of
the Acquired Assets for accounting purposes) in connection with the acquisition
of the Company, (ii) all costs and expenses paid in connection with financing
and refinancing the purchase of the Company, (iii) all operating income, if any,
attributable to the SWEATS contract, (iv) all gains (or losses) from
extraordinary items and investments, (v) the cumulative effect of changes in
accounting principles and (vi) the effect (whether revenue or expense) as a
result of any allocation by Buyer of any Buyer-incurred general and
administration expenses or management fees (but only to the extent such
allocation of expenses or fees exceeds amounts which would be an expense of the
operation of the Acquired Company on a stand-alone basis consistent with the
Company's method of operation prior to February 10, 1998). In the event of the
disposition or discontinuation of any of the Acquired Company's current
businesses or operations or the addition of any business or operation to the
Acquired Company, the target EBIT amount referred to above shall be adjusted
appropriately (determined in good faith by the Buyer, in consultation with the
Seller) to reflect such disposition, discontinuation or addition, for purposes
of calculating the Percentage.
(b) For each of the 1998, 1999 and 2000 fiscal years, Buyer shall, no
later than 45 days following the availability of financial statements for such
period, prepare and deliver to Seller a report (the "EBIT Report") reflecting in
reasonable detail Buyer's calculation of EBIT for the applicable fiscal year
(including any adjustments to Buyer's financial statements made in connection
with such calculation), together with a copy of the financial statements from
which such calculation is derived. EBIT will be calculated in accordance with
GAAP applied on a basis consistent with the Financial Statements (as defined in
Section II.6) and with changes to EAC's and ETC's determined on a basis
consistent with the methods used in the Financial Statements.
(c) Any payment of Additional Consideration with respect to any fiscal
year shall be payable to the Seller within 30 days after the date on which the
calculation of EBIT for such fiscal year shall have been finally determined
pursuant to this Section II.4 and Section II.5; provided that no such payment of
Additional Consideration (except portions thereof as to which Early Cash Payment
Elections (as defined in Section II.4(e)) have been received by Buyer in
accordance with Section II.4(e)) with respect to any fiscal year shall be
payable by Buyer pursuant to this Section II.4 prior to the earlier of (i) the
date 60 days following the completion of the initial sale to the public pursuant
to an effective registration statement (other than a registration statement on
Form S-4 or Form S-8 or any similar or successor form) (the "Initial Public
Offering") filed under the Securities Act of 1933, as amended (the "Securities
Act"), of shares of the Class A Common Stock, par value $.0l per share of L-3
Communications Holdings Inc. ("Holdings") (or such other class of common stock
of Holdings issued to the holders of such Class A Common Stock in connection
with a reclassification thereof) ("Class A Common Stock") and (ii) September 30,
2001. Seller shall not be permitted to elect to receive shares in lieu of
Additional Consideration for any fiscal year in an amount less than $250,000
unless the Seller is electing to receive shares for all of such Additional
Consideration for such fiscal year. Each cash payment pursuant to this Section
II.4 shall be made by wire transfer of immediately
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available funds to the account designated by the Seller in a written notice to
Buyer given at least 5 Business Days prior to the date of payment.
(d) Prior to the date of any payment of Additional Consideration pursuant
to Section II.4(b) (other than payments pursuant to Early Cash Payment
Elections), Buyer shall offer the Seller the opportunity to elect to receive, in
lieu of such payment, any Additional Consideration in the form of shares of
Freely Tradable (as defined below) Class A Common Stock. Such offer of such
shares shall be made in a transaction meeting the requirements of the Securities
Act (and any applicable state securities laws). The number of shares of Class A
Common Stock to be delivered if the Seller elects to receive such shares
pursuant to such offer shall be determined by dividing (i) the amount of such
payment of Additional Consideration by (ii) $20 to the extent such Additional
Consideration relates to fiscal 1998, $22 to the extent such Additional
Consideration relates to fiscal 1999 and $24.20 to the extent such Additional
Consideration relates to fiscal 2000. In the event of any change in the
outstanding Class A Common Stock by reason of stock split, stock combination,
reclassification or similar event, the number of shares to be delivered pursuant
to the preceding sentence shall be adjusted appropriately (e.g., if the
outstanding shares of Class A Common Stock are split on a two-for-one basis, the
$20, $22 and $24.20 amounts referred to in clause (ii) would be adjusted to be
$10, $11 and $12.10, respectively). In the event that the Initial Public
Offering is not completed by August 1, 2001, no offer to elect to receive shares
of Class A Common Stock shall be made pursuant to this Section II.4(d). If the
Seller elects to receive shares pursuant to this Section II.4(d) such shares
will be delivered by registered mail to the address designated by the Seller in
a written notice to Buyer given at least five (5) Business Days prior to the
date of delivery. No fractional shares of Class A Common Stock will be issuable
pursuant to this Section II.4. In lieu thereof, any person who would otherwise
be entitled to a fractional share pursuant to the provisions hereof shall
receive an amount in cash equal to the amount of Additional Consideration which
would have been payable in cash with respect to such fraction. For purposes of
this Section II.4, "Freely Tradable" shall mean Class A Common Stock which (a)
may be sold (without legal restriction) to any member of the public, including a
sale by or through a securities exchange and/or broker-dealer, without the
necessity of (I) obtaining an opinion of counsel, obtaining permission or
authorization of the United States Securities & Exchange Commission or any state
securities administrator, (II) providing any advance notice to any such body or
(III) taking other action to remove any legend or legend condition applicable to
such shares of Class A Common Stock that would delay the sale thereof and (b) is
not subject to any material delay in attempting the sale thereof on a public
securities exchange due to any attribute of the Class A Common Stock.
(e) At any time and from time to time, the Seller shall have the right, by
written notice (an "Early Cash Payment Election") to Buyer, to elect to require
Buyer to pay to the Seller the cash amount of any Additional Consideration
payable to the Seller pursuant to Section II.4(c), with the date of payment
being determined pursuant to the first sentence of such Section without regard
to the proviso thereto.
(f) Upon a Change of Control (as hereinafter defined) that occurs prior to
the earlier to occur of the dates referred to in clauses (i) and (ii) of the
proviso to the first sentence of Section II.4(c), the Seller shall receive in
connection with such Change of Control all Additional Consideration payable to
the Seller pursuant to Section II.4(c) but not then paid by reason of the
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proviso contained in the first sentence of such Section prior to the date of
such Change of Control the amount and kind of consideration the Seller would
have received in respect of the shares of Class A Common Stock which the Seller
would have been entitled to elect to receive pursuant to subsection (d) of this
Section II.4 if there had been an Initial Public Offering immediately prior to
the date of the Change of Control. Such amount shall be payable at such time as
the holders of Class A Common Stock receive consideration in connection with
such Change of Control. In the event of a Change of Control, notwithstanding
anything to the contrary contained herein, any Additional Consideration which
becomes payable pursuant to Section II.4(c) following the date of such Change of
Control shall be payable in cash.
For purposes of this Section II.4(f), "Change of Control" shall mean (i)
an acquisition by any person (other than stockholders of Holdings as of the
Closing Date or any of their affiliates) of more than 50% of the combined voting
power of the outstanding voting securities entitled to vote generally of
Holdings or (ii) the sale of substantially all of the direct or indirect assets
of Holdings to any person (other than stockholders of Holdings as of the Closing
Date or any of their affiliates).
(g) The rights of the Seller under this Section II.4 shall be assignable
(in whole or in part) by Seller, subject to the following requirements: (i) any
such assignment shall be made prior to the date six months following the Closing
Date; (ii) if such assignment is to more than one person or entity, (1) any
payment or delivery pursuant to this Section II.4 shall be pro rata, based on
the relative percentage of Additional Consideration to which such person or
entity is entitled hereunder, (2) the $250,000 limitation contained in Section
II.4(c) shall apply to each such person or entity and (3) adequate provision
shall be made in connection with such assignment so that one assignee in
connection with any disputes concerning the calculation and determination of any
amounts payable pursuant to this Section II shall be authorized to resolve any
and all disputes with the Buyer on behalf of all assignees; and (iii)
notwithstanding any such assignment, the right of offset against Seller referred
to in the last sentence of Section VI.2(a) shall continue to apply
notwithstanding such assignment (i.e., a claim against the Seller under Section
VI.2 may be satisfied by exercising such right of offset against amounts due to
an assignee of Seller).
II.5 Dispute Resolution.
(a) Review of Closing Statement of Net Assets and EBIT Report. After
receipt of the Closing Statement of Net Assets or the EBIT Report, Buyer or the
Seller, as the case may be, shall have thirty (30) days to review it. Buyer or
the Seller, as applicable, and their respective authorized representatives shall
have full access to all Books and Records and employees of the Company and, with
respect to the Closing Statement of Net Assets, the Auditor to the extent
required to complete their review of the Closing Statement of Net Assets or the
EBIT Report, as applicable, including Auditor work papers used in preparation or
the Closing Statement of Net Assets. Unless the Buyer delivers written notice to
the Seller, or the Seller delivers written notice to Buyer, on or prior to, the
30th day after receipt of the Closing Statement of Net Assets or the EBIT Report
specifying in reasonable detail all disputed items and the basis therefor, the
parties shall be deemed to have accepted and agreed to the Closing Statement of
Net Assets or the EBIT Report. The parties shall, within thirty (30) days
following the date of such notice (the "Resolution Period"), attempt to resolve
their differences and any resolution by them as to any
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disputed amount shall be final, binding, conclusive and nonappealable for all
purposes under this Agreement.
(b) Resolution. If at the conclusion of the Resolution Period the parties
have not reached an agreement on the objections, then all amounts remaining in
dispute may, at the election of either party, be submitted to Price Waterhouse
or another large international accounting firm not otherwise engaged by either
party (the "Neutral Auditor"). Each party agrees to execute if requested by the
Neutral Auditor, a reasonable engagement letter. All fees and expenses relating
to the work, if any, to be performed by the Neutral Auditor shall be borne
equally by the Seller and Buyer, unless the Neutral Auditor finds one party
acted in bad faith in which case that party pays all such fees and expenses.
Except as provided in the preceding sentence, all other costs and expenses
incurred by the parties in connection with resolving any dispute hereunder
before the Neutral Auditor shall be borne by the party incurring such cost and
expense. The Neutral Auditor shall act as an arbitrator to determine, based
solely on the presentations by the Seller and Buyer, and not by independent
review, only those issues still in dispute. The Neutral Auditor's determination
shall be made within thirty (30) days of its engagement (which engagement shall
be made no later than five (5) business days after an election by either party
to submit the objections to the Neutral Auditor) or as soon thereafter as
possible, shall be set forth in a written statement delivered to the Seller and
Buyer and shall be final, binding, conclusive and nonappealable for all purposes
hereunder. The term "Final Closing Statement of Net Assets" shall mean the
definitive Closing Statement of Net Assets agreed to in accordance with Section
II.5(a) or the definitive Closing Statement of Net Assets resulting from the
determination made by the Neutral Auditor in accordance with this Section
II.5(b).
II.6 Closing.
(a) Subject to satisfaction or waiver of the conditions to closing set
forth in Articles VII, VIII and IX, the closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the local close of
business, or such other time as the parties may mutually agree (the "Effective
Time") on February 26, 1998, at the offices of Pillsbury Madison & Sutro LLP,
235 Montgomery Street, San Francisco, California, or at such other date and
place as the parties may mutually agree (the "Closing Date").
(b) At the Closing (i) Seller will execute, acknowledge (if appropriate),
and deliver to the Buyer (A) an assignment of lease(s), in reasonable customary
form, (B) such other instruments of sale, transfer, conveyance, and assignment
as the Buyer and its counsel may reasonably request; and (C) an Assignment of
Non-Competition Agreements in the form attached hereto as Exhibit VIII.5 (the
"Assignment of Non-Competition Agreements"); (ii) the Buyer will execute,
acknowledge (if appropriate), and deliver to Seller such instruments of
assumption as Seller and its counsel reasonably may request; (iii) the Buyer
will deliver to Seller the consideration specified in sections II.2 and II.3
herein; and (iv) the Buyer and Seller will execute and deliver an Assignment of
Escrow Agreement, in the form attached hereto as Exhibit VIII.2 (the "Assignment
of Escrow").
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to the Buyer as follows (except as
specified to the contrary in the disclosure schedule prepared by Seller and
attached hereto as Exhibit A (the "Seller's Schedule"). The Seller's Schedule is
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Article III):
III.1 Due Organization of Seller; Authorization; Title to Acquired Assets.
Seller is a trust duly organized and is validly existing and in good standing
under the laws of the State of Connecticut. Seller has all requisite trust power
and authority to execute, deliver and perform its obligations under this
Agreement, the Assignment of Non-Competition Agreements and the Assignment of
Escrow Agreement (collectively, the "Transaction Documents"), and consummate all
the transactions in the manner contemplated by the Transaction Documents. This
Agreement has been and, when delivered, the remainder of the Transaction
Documents will have been, duly executed and delivered by Seller and duly
authorized and approved by all necessary action on the part of Seller. This
Agreement constitutes and, when delivered, the remainder of the Transaction
Documents will constitute, the valid and binding obligations of Seller,
enforceable against Seller in accordance with its or their terms, subject to
bankruptcy and similar laws and equitable principles regarding the enforcement
of contracts. As of the Closing Date, following Seller's acquisition of the
Company pursuant to the Stock Purchase Agreement, the Company will be dissolved
in accordance with applicable law and all of its assets and Liabilities will be
distributed to Seller. Seller does not have and will not as of Closing Date have
any Liabilities other than the Assumed Liabilities except as set forth in
Section III.1 of the Seller's Schedule. At the Closing, the Seller will hold the
entire legal, equitable and beneficial title (in the case of assets owned by the
Acquired Company) and interest in the assets of the Company and the Subsidiary
and will transfer to Buyer good title to the Acquired Assets, free and clear of
all liens, claims, encumbrances and restrictions of any kind or nature
whatsoever ("Liens").
III.2 Requisite Consents; Nonviolation. The execution, delivery and
performance of this Agreement by Seller and, when delivered, the execution,
delivery and performance of the remainder of the Transaction Documents by Seller
do not on the date hereof and will not on the Closing Date (a) require the
consent, approval or authorization of any governmental person or entity or other
third party (except such approvals or filings as may be required to comply with
applicable state securities and antitrust laws), (b) violate or conflict with
the trust agreement under which Seller is organized, (c) constitute a default
under, violate or conflict with, result in the acceleration of or give rise to
any party the right to terminate, modify or cancel, or result in the loss of any
rights, privileges, options or alternatives under or result in the creation of
any Liens on any assets of the Company or the Subsidiary under or require the
consent of any other party to any material contract, note, lease, mortgage or
other agreement or instrument to which the Seller or the Company or the
Subsidiary is a party or by which the Seller or the Company or the Subsidiary is
bound or to which any Seller, the Company or the Subsidiary or any of their
respective properties is subject (except any Liens held by Seller's lender which
Liens shall be released at or prior to Closing) or (d) violate or conflict with
the charter documents of the Company or the Subsidiary or any material statute,
ordinance, rule, regulation, order, judgment or degree of any court or
governmental or regulatory agency or authority applicable to the Seller
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or the Company or the Subsidiary or by which any of their respective properties
or assets may be bound.
III.3 Due Organization of the Company and the Subsidiary.
The Company and the Subsidiary (i) have been duly organized and are
validly existing and in good standing as corporations under the laws of the
State of California, (ii) except as set forth in Section III.3 of the Seller's
Schedule, are duly qualified to do business in and are in good standing under
the laws of every jurisdiction where each of them is required to be so
qualified, except where the failure to be so qualified would not materially
adversely affect their properties, assets, results of operations or financial
condition and (iii) have all requisite corporate power and authority to own or
lease and to operate their properties and carry on the Business.
III.4 Acquired Assets. The Acquired Assets constitute all of the property
and assets necessary to conduct the business of the Company and the Subsidiary
as currently conducted and as conducted immediately prior to the Subsidiary
Merger.
III.5 Subsidiaries, etc. The Company does not, directly or indirectly, own
or control any equity interest in any corporation, partnership, joint venture or
other legal entity other than, prior to the Subsidiary Merger, its ownership of
all of the outstanding capital stock of the Subsidiary.
III.6 Financial Data. Buyer has been provided with (a) the unaudited
consolidated balance sheet of the Company at September 30, 1997 (the "September
Balance Sheet"), together with the related unaudited consolidated statements of
income and shareholders equity for the nine-month period ended September 30,
1997, and (b) the audited consolidated balance sheets of the Company at December
31, 1996 and 1995, together with the related unaudited consolidated statements
of income and shareholder equity and the notes thereto (the "Financial
Statements"). The Financial Statement are in accordance with the Company's books
and records, have been prepared in accordance with GAAP, consistently applied,
and fairly present the financial position of the Company and the Subsidiary as
of their respective dates and the results of the Company's and the Subsidiary's
operations for the periods then ended.
III.7 No Material Changes. Since September 30, 1997, there has not been
(a) any material adverse change (or any event specifically relating to the
Company that would reasonably be expected to result in such a change) in the
business, financial condition or results of operations of the Acquired Company,
or any change that could materially delay or impair the ability of Seller to
effect the Closing on materially and adversely affect the operation of the
business of the Acquired Company after the Closing Date as the Company had been
operated immediately prior to Seller's acquisition thereof pursuant to the Stock
Purchase Agreement, (b) any damage, destruction or loss (whether or not covered
by insurance) individually or in the aggregate in excess of $100,000; (c) any
labor dispute or any labor union organizing activity, or any actual or
threatened strike, work stoppage, slowdown or lockout, or any material change in
its relationship with employees, customers, distributors or suppliers; (d) any
sale, lease, transfer or other disposition of any asset of the Company or the
Subsidiary having a fair material value in excess of $l00,000 or for proceeds in
excess of $100,000; or (e) army discharge or satisfaction of any obligation or
liability of the Company or the Subsidiary other than in the ordinary course of
business in accordance with the terms of such obligation or liability.
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Since September 30, 1997, except in connection with the transactions
contemplated hereby, neither the Company nor the Subsidiary has engaged in any
of the following transactions, (i) issued or committed to issue any shares of
common stock (except upon exercise of duly issued stock options which were
outstanding as of such date) or other ownership interest of the Company or the
Subsidiary, or any obligations, understanding or commitment regarding the
issuance of capital stock or any option, right, warrant or other security
exercisable or exchangeable for or convertible into capital stock of the Company
or the Subsidiary, (ii) redeemed, purchased or otherwise acquired or committed
to acquire any shares or other ownership interest of the Company or the
Subsidiary, (iii) effected a split or reclassification of any shares of the
Company or the Subsidiary or a recapitalization of the Company or the
Subsidiary, (iv) made any change in the compensation of, or increased benefits
available to, any officer, other employee, sales agent or representative of the
Company or the Subsidiary under any bonus or pension plan or other contract or
commitment, or paid or agreed or promised to pay, whether conditionally or
otherwise, any bonus, incentive, retention or composition, or increased or
agreed or promised to increase any retirement, welfare, fringe or severance
benefits or vacation pay, to or in respect of any officer, other employee, sales
agent or representative of the Company or the Subsidiary, other than, with
respect to any employee other than officers, in the ordinary course of business
and consistent with past practice, (v) incurred, assumed or guaranteed any
obligation or liability, whether absolute, accrued, contingent or otherwise, or
any indebtedness for borrowed money, except current liabilities for trade or
business obligations incurred in connection with the purchase of goods or
services in the ordinary course of the business consistent with past practice,
(vi) mortgaged, pledged or subjected to any lien any property or assets,
tangible or intangible of the Company or the Subsidiary, (vii) transferred or
granted any rights under, or entered into any settlement regarding the breach or
infringement of, any Intellectual Property, or modified any existing rights with
respect thereto, (viii) received any notice of termination or of default or
breach of any material contract, lease or other agreement, (ix) made any capital
expenditures, or commitments to make any capital expenditure in excess of
$250,000 in the aggregate (x) entered into any transaction, contract or
commitment with any affiliate of the Company or (xi) entered into any
transaction, contract or commitment other than in the ordinary course of
business.
III.8 Undisclosed Liabilities. The Acquired Company has no debts, claims,
liabilities or obligations (whether absolute, contingent or otherwise) which are
material to the Acquired Company, except for (a) those reflected, reserved
against or otherwise disclosed in the September Balance Sheet or the notes
thereto and not heretofore paid or discharged or (b) those incurred in, or as a
result of, the ordinary course of business of the Company and the Subsidiary
since the date of the September Balance Sheet to the extent reflected in the
Closing Statement of Net Assets.
III.9 Governmental Authorizations; Compliance with Law.
(a) The Acquired Company has all material governmental licenses, permits,
approvals and other governmental authorizations necessary to permit the
operation of the business of the Company as presently conducted and is in
compliance in all material respects with such governmental licenses, permits,
approvals and other governmental authorizations. Section III.9 of the Seller's
Schedule sets forth a complete and accurate list of all such governmental
licenses, permits, approvals and other governmental authorizations.
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(b) The Acquired Company is in compliance in all material respects with
all laws, statutes, ordinances, rules, regulations, orders, judgements or
degrees applicable to it and its business and none of Seller, the Company or the
Subsidiary has received any notice that any violation or potential violation or
any action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand or notice has been filed or commenced against the Company or the
Subsidiary alleging failure to comply.
III.10 Litigation. There is no pending or, to the Knowledge of the Seller,
threatened action, suit, arbitration proceeding or investigation in any court or
before any governmental commission or agency against the Company or the
Subsidiary seeking unspecified damages, damages in excess of $50,000, or
injunctive or other equitable relief. There is no order, judgment or decree of
any court or governmental authority or agency which specifically applies to the
Company or the Subsidiary except as listed in Section III.10 of the Seller's
Schedule.
III.11 Employee Benefit Plans.
(a) Section III.11 of the Seller's Schedule contains a true and complete
list of each "employee benefit plan" (within the meaning of section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
including, without limitation, multi-employer plans within the meaning of ERISA
section 3(37)), stock purchase, stock option, severance, employment, change-in-
control, fringe benefit, collective bargaining, bonus, incentive, deferred
compensation and all other employee benefit plans, agreements, programs,
policies or other arrangements, whether or not subject to ERISA (including any
funding mechanism therefor now in effect or required in the future as a result
of the transaction contemplated by this Agreement or otherwise), whether formal
or informal, oral or written, legally binding or not, under which any employee
or former employee of the Company or its Subsidiary has any present or future
right to benefits or under which the Company or its Subsidiary has any present
or future liability. All such plans, agreements, programs, policies and
arrangements shall be collectively referred to as the "Company Plans".
(b) With respect to each Company Plan, the Seller has delivered to the
Buyer a current, accurate and complete copy (or, to the extent no such copy
exists, an accurate summary thereof) and, to the extent applicable; (i) any
related trust agreement or other funding instrument; (ii) the most recent
determination letter, if applicable; (iii) any summary plan description and
other written communications (or a description of any oral communications) by
the Company or its Subsidiary to their employees concerning the extent of the
benefits provided under a Company Plan; and (iv) for the three most recent years
(A) the Form 5500 and attached schedules, (B) audited financial statements, (C)
actuarial valuation reports and (D) attorney's response to an auditor's request
for information.
(c) (i) Each Company Plan has been established and administered in
accordance with its terms, and in compliance with the applicable provisions of
ERISA, the Code and other applicable laws, rules and regulations; (ii) each
Company Plan which is intended to be qualified within the meaning of Code
section 401(a) is so qualified and has received a favorable determination letter
as to its qualification, and nothing has occurred, whether by action or failure
to act, that could reasonably be expected to cause the loss of such
qualification; (iii) no event has occurred and no condition exists that would
subject the Company or its Subsidiary, either directly
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or by reason of their affiliation with any member of their "Controlled Group"
(defined as any organization which is a member of a controlled group of
organizations within the meaning of Code sections 414(b), (c), (m) or (o)), to
any tax, fine, lien, penalty or other liability imposed by ERISA, the Code or
other applicable laws, rules and regulations; (iv) for each Company Plan with
respect to which a Form 5500 has been filed, no material change has occurred
with respect to the matters covered by the most recent Form since the date
thereof; (v) no "reportable event" (as such term is defined in ERISA section
4043), "prohibited transaction" (as such term is defined in ERISA section 406
and Code section 4975) or "accumulated funding deficiency" (as such term is
defined in ERISA section 302 and Code section 412 (whether or not waived)) has
occurred with respect to any Company Plan; and (vi) no Company Plan provides
retiree welfare benefits and neither the Company nor its Subsidiary have any
obligations to provide any retiree welfare benefits.
(d) None of the Company Plans is subject to Title IV of ERISA and none of
the Company Plans is a multi-employer Plan (within the meaning of Section
400l(a)(3) of ERISA).
(e) With respect to any Company Plan, (i) no actions, suits or claims
(other than routine claims for benefits in the ordinary course) are pending or
threatened, (ii) to the Knowledge of Seller, no facts or circumstances exist
that could give rise to any such actions, suits or claims, and (iii) no written
or oral communication has been received from the PBGC in respect of any Company
Plan subject to Title IV of ERISA concerning the funded status of any such plan
or any transfer of assets and liabilities from any such plan in connection with
the transactions contemplated herein.
(f) No Company Plan exists that could result in the payment to any present
or former employee of the Company or its Subsidiary of any money or other
property or accelerate or provide any other rights or benefits to any present or
former employee of the Company or its Subsidiary as a result of the transaction
contemplated by this Agreement, whether or not such payment would constitute a
parachute payment within the meaning of Code section 280G.
III.12 Intellectual Property. Each of the Company and the Subsidiary owns
or has the right to use all Intellectual Property necessary to conduct their
businesses substantially as such businesses are currently conducted. All of the
material Intellectual Property owned by the Company and the Subsidiary that has
been issued or registered by or filed with any Governmental Authority (as
defined in Section III.25(b)) and all material license agreements in which the
Company or the Subsidiary is the licensee of Intellectual Property or by which
the Company or the Subsidiary permits any person to use the Intellectual
Property owned by it are listed in Section III.12(a) of the Seller's Schedule.
As of the date hereof and at the Closing, all Intellectual Property licenses are
and will be in full force and effect in accordance with their terms, and are and
will be free and clear of any Liens. Except as set forth in Section III.12(b) of
the Seller's Schedule, (i) all of the Intellectual Property owned or used by the
Company or the Subsidiary is valid, subsisting and unexpired, has not been
abandoned, and is not the subject of any Lien; (ii) no judgment, decree,
injunction, rule or order has been rendered by any court, tribunal or other
government entity which would limit, cancel or question the validity of, or the
Company or the Subsidiary's rights in and to, any Intellectual Property; (iii)
the Company has taken adequate steps to protect, maintain and safeguard its
Intellectual Property and its rights therein including any Intellectual Property
for which improper or unauthorized disclosure would
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impair its value or validity, and has executed appropriate agreements (including
nondisclosure agreements and employee assignments) and made appropriate filings
and registrations in connection with the foregoing, (iv) there is no claim or
demand pertaining to, or any proceeding which is pending, or to the Knowledge of
the Seller, threatened that challenges the rights of the Company or the
Subsidiary to or the validity of any of its Intellectual Property or claims that
a default exists under license by the Company or the Subsidiary of Intellectual
Property and (v) to the Knowledge of Seller, none of the Company's or the
Subsidiary's Intellectual Property is being infringed or otherwise impaired by
third parties.
"Intellectual Property" means all intellectual property, including without
limitation all (i) inventions, discoveries, processes, formulae, designs,
methods, techniques, procedures, concepts, developments, technology, new and
useful improvements thereof and know-how relating thereto, whether or not
patented or eligible for patent protection; copyrights and copyrightable works,
including computer applications, programs, software, databases and related
items; trademarks, service marks, trade names, brand names, corporate names,
logos and trade dress, the goodwill of any business symbolized thereby, and all
common-law rights relating thereto; trade secrets and other confidential
information; (ii) registrations, applications, recordings, and licenses or other
similar agreements related to the foregoing; (iii) rights to sue at law or in
equity for any infringement or other impairment of the foregoing occurring prior
to the Closing Date, including the right to receive all damages and proceeds
therefrom; and (iv) rights to obtain reissues, re-examinations, continuations,
continuations-in-part, divisions, extensions, renewals or other legal
protections pertaining to the foregoing.
III.13 Real and Personal Property. (a) Section III.13 of the Seller's
Schedule contains a list of all real and personal property owned or leased by
the Company and the Subsidiary as of the date hereof having, in the case of
leased property, an annual lease obligation in excess of $10,000 or, in the case
of owned property, a fair market value in excess of $100,000. The Company has
good, valid and marketable title to such owned property. Each lease covering
leased real property is a legal, valid and binding agreement enforceable in
accordance with its terms and there is not under any of such leases any existing
default on the part of the Company or the Subsidiary or, to the Knowledge of
Seller, any other party thereto nor any facts that would, with the passage of
time or notice, or both, constitute such a default.
(b) All material property and assets owned or utilized by the Company and
the Subsidiary are in good standing condition and repair (except for ordinary
wear and tear), free from any material defects (except such minor defects as do
not materially interfere with the use thereof in the conduct of normal
operations), have been maintained consistent with standards generally followed
in the industry and are sufficient to carry on the business of the Company and
the Subsidiary as presently conducted. All buildings, plants and other
structures utilized by the Company and the Subsidiary are in good condition and
repair (except for ordinary wear and tear).
(c) The Company and the Subsidiary enjoy peaceful and quiet possession of
the real property owned or leased by the Company and the Subsidiary. Buyer has
been provided with a true and complete copy of each lease and all amendments
thereto pertaining to any leased real property. The rental set forth in each
lease is the actual rental being paid, and there are not separate agreements or
understandings with respect to the same. Except as listed in Section III.13(c)
of the Seller's Schedule, neither the execution of this Agreement nor the
consummation
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of the transactions contemplated hereby shall cause a default under any lease or
require prior written consent of any landlord under any lease.
III.14 Insurance. Section 111.14 of the Seller's Schedule lists all
material insurance policies in force with respect to the Company, the Subsidiary
and their respective employees and directors. Such policies are in full force
and effect and all premiums due thereon have been paid or accrued. No notice of
cancellations, terminations or reductions of coverage, and no notice of
intention to cancel, terminate or reduce coverage, has been received by the
Company or the Subsidiary.
III.15 Tax Matters.
(a) Tax Returns Filed and Taxes Paid. All Tax Returns required to be filed
by the Company have been duly filed on a timely basis and all Taxes shown to be
payable on the Tax Returns or on subsequent assessments with respect thereto
have been paid in full on a timely basis or are being disputed in good faith by
the Company. All Tax Returns filed by the Company are true and correct in all
material respects.
(b) Tax Reserves. The Company's liability for unpaid Taxes for all periods
ending before the date of this Agreement has been reserved or accrued for in the
Financial Statements (other than reserves or accruals for deferred income Taxes
established to reflect differences between book basis and Tax basis of assets
and liabilities), applicable to all periods ending on or before the Closing Date
in conformity with GAAP. The Company's liability for unpaid Taxes for all
periods ending on or before the Closing Date will be reserved for or accrued for
in the Closing Statement of Net Assets in conformity with GAAP (other than
reserves or accruals for deferred income Taxes established to reflect
differences between book basis and Tax basis of assets and liabilities).
(c) Tax Returns Furnished. For all periods ending on and after December
31, 1992, Buyer has been provided access to true and complete copies of (i)
relevant portions of income tax audit reports, statements of deficiencies,
closing or other agreements received by the Company or Seller or on behalf of
the Company or Seller relating to Taxes, and (ii) all pro-forma separate federal
and state income or franchise tax returns for the Company and Seller.
(d) Tax Deficiencies; Audits; Statutes of Limitations. No deficiencies
have been asserted with respect to Taxes of the Company. The Company is not a
party to any action or proceeding for assessment or collection of Taxes, nor has
such event been asserted or threatened against the Company or any of its assets.
No waiver or extension of any statute of limitations is in effect with respect
to Taxes or Tax Returns of the Company. Except as set forth in Section III.15 of
the Seller's Schedule, the Tax Returns of the Company have not in the past four
(4) years been audited by a government or taxing authority, nor is any such
audit in process, pending or threatened. There is no material agreement or other
document extending, or having the effect of extending, the period of assessment
or collection of any Taxes and no power of attorney with respect to any material
Taxes of the Company has been executed or filed with any Governmental Authority,
and, no power of attorney granted by or with respect to the Company relating to
any material Taxes claimed to be due from the Company is currently in force. The
Company has not executed or entered into a Closing agreement pursuant to section
7121 of the Code or any
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predecessor provisions thereof (or similar provision for purposes of state,
local or foreign income taxes).
(e) Tax Elections and Special Tax Status. The Company is not a party to
any safe harbor lease within the meaning of Section 168(f)(8) of the Code, as in
effect prior to amendment by the Tax Equity and Fiscal Responsibility Act of
1982. The Company is not a "consenting corporation" under Section 341(f) of the
Code. The Company has not entered into any compensatory agreements with respect
to the performance of services which payment thereunder would result in a
nondeductible expense to the Company pursuant to Section 280G of the Code or any
excise tax to the recipient of such payment pursuant to Section 4999 of the
Code.
(f) Tax Liens. There are no unpaid Taxes with respect to any period, or a
portion thereof, ending on or before the Closing Date which are or could become
a lien on the Acquired Assets, except for current Taxes not yet due and payable
or reserved for in the Financial Statements.
(g) Tax Sharing or Other Agreements. The Company is not a party to or
bound by (nor will it become a party to or bound by on or prior to the Closing
Date) any Tax indemnity, Tax sharing, Tax allocation or similar agreement
(whether or not written).
(h) Sales Taxes. The Company (i) has collected all material sales and use
Taxes required to be collected, and has remitted, or will remit, such Taxes as
required by all applicable statutes and regulations, and (ii) regarding all
exempt transactions for all periods open under the applicable statute of
limitations as of the Closing Date, has maintained all such records and
supporting documents, in all material respects in substantial compliance with
all applicable sales and use Tax statutes and regulations.
(i) FIRPTA. The Company is not, and for the applicable period specified in
section 897(c)(1)(A)(ii) of the Code, has not been, a United States real
property holding corporation under section 897 of the Code.
(j) Affiliated Group Liability. The Company (and any predecessor) (i) has
not been a member of an affiliated group filing a consolidated federal income
Tax Return and (ii) has no liability for the Taxes of any person under Treasury
Regulation section 1.1502-6(a) (or any analogous or similar provision of state,
local or foreign law or regulation), as a transferee or successor, by contract,
or otherwise.
III.16 Environmental Matters.
(a) For purposes of this Agreement, the following definitions shall apply:
(i) "Hazardous Materials" shall include any hazardous substance,
pollutant, contaminant, flammable explosives, radioactive materials and
hazardous, toxic or dangerous wastes and any other chemicals, materials or
substances which are identified, defined or regulated pursuant to any Hazardous
Materials Laws, or the release, discharge or exposure to which is prohibited,
limited or regulated by any federal, state or local government under Hazardous
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Materials Laws and any petroleum, waste oil and petroleum by-products, asbestos
in any form, urea formaldehyde.
(ii) "Hazardous Materials Laws" shall mean all applicable laws,
statutes, ordinances, rules, regulations, orders, judgements, or decrees
relating to the protection of the environment, to human health and safety, or to
any emission, discharge, generation, processing, storage, holding, abatement
exercise, release, threatened release, arrangement for the disposal or
transportation of Hazardous Materials, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act, as
amended (42 U.S.C. Section 9601 et seq.); the Hazardous Materials Transportation
Act (49 U.S.C. Section 1801 et seq.); Resource Conservation and Recovery Act (42
U.S.C. Section 6901 et seq.); and any so called "Superfund" law.
(iii) "Environmental Report" shall mean any report, study,
assessment, audit, or other similar document that addresses any issue of actual
or potential noncompliance with, or actual or potential liability under or cost
arising out of, any Environmental Law that may in any way affect the Company or
the Subsidiary; provided, however, that "Environmental Report" shall not include
any such document prepared by Subsidiary in the ordinary course of business for
any of its clients.
(b) Each of the Company and the Subsidiary is and, to the Knowledge of
Seller, has been in compliance in all material respects with applicable
Hazardous Materials Laws and has all environmental permits required for the
handling, use, storage and disposition of Hazardous Materials under Hazardous
Materials Laws that are applicable to its operations as presently conducted.
(c) Neither the Company nor the Subsidiary has received any notice from
any Governmental Authority that the Company or the Subsidiary is in violation
of, or may be subject to liability under, any of the terms or conditions of
Hazardous Materials Laws or the Company's or the Subsidiary's material
environmental permits for the handling, use, storage or disposition of Hazardous
Materials under Hazardous Materials Laws.
(d) Buyer has been provided with true and complete copies of all
Environmental Reports in the possession or control of Seller, the Company, or
the Subsidiary.
III.17 Contracts. Section 111.17 of the Seller's Schedule contains a
complete list of the material agreements, contracts, commitments, proposals,
orders, licenses, leases and other instruments ("Contracts") of the Company and
the Subsidiary which (i) is made with any officer, director or stockholder of
the Company or the Subsidiary, or with any affiliate or relative of any such
officer, director or stockholder, (ii) is a contract of employment, consulting,
agency or other similar agreement or arrangement relating to or for the benefit
of employees, sales representatives, distributors, dealers, agents, independent
contractors or consultants, (iii) is made with any labor union, or other labor
organization, (iv) is a loan or other credit agreement, indenture, mortgage,
letter of credit, security agreement, pledge agreement, deed of trust, bond,
note, guarantee or other agreement or instrument relating to the borrowing of
money or extension of credit in excess of $25,000, (v) requires, individually,
annual payments of more than $50,000 or aggregate payments over the life of the
contract of more than $250,000, (vi) is for a remaining
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term of more than one year and is not cancelable as to all its provisions upon
90 days or less notice without payment of any material penalty, (vii) provides
in whole or in part for the use of, or limiting the use of, Intellectual
Property, (viii) is a joint venture, partnership and other similar contract
involving a sharing of profits or expenses (including but not limited to joint
research and development and joint marketing, contracts), (ix) is an asset
purchase agreement or other acquisition or investment agreement, (x) is a
contract or arrangement with respect to the representation of the Company or the
Subsidiary in foreign countries, (xi) restricts or limits in any manner the
operation of the business of the Company or the Subsidiary, or (xii) is material
to the business of the Company or the Subsidiary and was entered into outside of
the normal course of business.
Buyer has been provided with true and complete copies of each Contract so
listed. The Company, the Subsidiary and, to the Knowledge of Seller, each of the
other parties to the Contracts set forth in Section III.17 of the Seller's
Schedule have in all respects performed all material obligations required to be
performed by them under such Contracts and, no event has occurred which, after
notice or lapse of time or both would constitute a default or an event of
default that would give any other party to any such Contract the right to
terminate or otherwise fail to perform its obligations under the Contracts. Each
Contract is the legal, valid and binding obligation of the Company, the
Subsidiary and, to the Knowledge of the Seller, the other parties thereto
enforceable in accordance with its terms against the parties thereto. No consent
of any third party is required under any Contract as a result of or in
connection with the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby.
III.18 Inventory. All inventory of the Company and the Subsidiary consists
of a quality and quantity consistent with good business practices net of any
reserves reflected in (i) the case of inventory on the date hereof, the
September Balance Sheet or (ii) the Closing Statement of Net Assets in the case
of inventory on the Closing Date and are salable in the ordinary course
consistent with past practice.
III.19 Accounts Receivable. The accounts receivable of the Company and the
Subsidiary reflected in the September Balance Sheet represent bona fide sales
actually made in the ordinary course of business, and have been properly accrued
in accordance with GAAP, net of any reserves reflected in the September Balance
Sheet. To the Knowledge of Seller there are no facts or circumstances (other
than general economic conditions) which would result in any material increase in
the uncollectibility of the accounts receivable as a class in excess of the
reserves therefor set forth in the September Balance Sheet.
III.20 Condition of Plant and Equipment. To the Knowledge of Seller there
are no material structural defects in the improvements to the real property
owned or leased by the Company or the Subsidiary. To the Knowledge of the
Seller, the equipment of the Company and the Subsidiary is in good operating
condition and repair, ordinary wear and tear excepted.
III.21 Customers and Suppliers. Section III.21 of the Seller's Schedule
lists the ten largest customers of the Company and the ten largest suppliers of
the Company for the most recent fiscal year. To the Knowledge of the Seller,
since January 1, 1997, there has been no
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material adverse change in the business relationship of the Company with any
customer or supplier named on Section III.21 of the Seller's Schedule.
III.22 Bank Accounts. Section III.22 of the Seller's Schedule sets forth
the names and locations of all banks, trust companies, brokerage firms or other
financial institutions at which the Company maintains an account and the name of
each person authorized to draw thereon or make withdrawals therefrom.
III.23 Brokers, Finders, Etc. All negotiations relating to this Agreement,
and the transactions contemplated hereby, have been carried on without the
participation of any person or entity acting on behalf of the Seller in such a
manner as to give rise to any valid claim against Buyer or the Company for any
brokerage or finder's commission, fee or similar compensation, or for any bonus
payable to any officer, director, employee, agent or sales representative of or
consultant to Seller upon consummation of the transactions contemplated hereby.
III.24 Employees. All sums payable to Employees (as defined in Section
VI.1(a)) after the Closing Date with respect to pre-Closing pending items, which
sums shall include, without limitation, salary, wages, overtime, bonuses,
accrued and unused vacation time and any other payments due pursuant to any
agreements between the Acquired Company and such Employees or as required by
applicable law, shall be accrued as a liability on the Closing Statement of Net
Assets.
III.25 Government Contracts.
(a) With respect to each and every Government Contract or bid to obtain a
Government Contract to which the Company is a party and except as set forth in
Section III.25 of the Seller's Schedule: (i) the Company has fully complied with
all material terms and conditions of such Government Contract or bid for a
Government Contract as required as of the date hereof and as of the Closing
Date; (ii) the Company has fully complied with all material requirements of
statute, rule or regulation pertaining to such Government Contract or bid for a
Government Contract; (iii) all representations and certifications executed with
respect to such Government Contract were accurate in every material respect as
of their effective date and the Company has fully complied with all such
representations and certifications in every material respect; and (iv) no
termination or default, cure notice or show cause notice has been issued or, to
the Knowledge of the executive officers of Seller and the management of the
Business, will be issued.
(b) To the Knowledge of Seller, except as set forth in Section III.25(b)
of the Sellers Schedule, (i) none of the Company's or the Subsidiary's
respective employees, consultants or agents is (or during the last three years
has been) under administrative, civil or criminal investigation, indictment or
information by any foreign, domestic, federal, territorial, state or local
governmental authority, quasi-governmental authority, instrumentality, court,
government or self-regulatory organization, commission, tribunal or organization
or any regulatory, administrative or other agency, or any political or other
subdivision, department or branch of any of the foregoing ("Governmental
Authority"), (ii) there is not any pending audit or investigation of the
Company, its officers, employees or representatives nor within the last three
years has there been any audit or investigation of the Company, officers,
employees or representatives
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resulting in a material adverse finding with respect to any alleged
irregularity, misstatement or omission arising under or relating to any
Government Contract or bid; and (iii) during the last three years, neither the
Company nor the Subsidiary has made a voluntary disclosure to the U.S.
Government or any non-U.S. government, with respect to any alleged irregularity,
misstatement or omission arising under or relating to a Government Contract or
bid. Except as set forth in Section III.25(b) Seller's Schedule, to the
Knowledge of Seller neither the Company nor the Subsidiary has had any
irregularities, misstatements or omissions arising under or relating to any
Government Contract or bid that has led or is expected to lead, either before or
after the Closing Date, to any of the consequences set forth in clause (i) or
(ii) of the immediately preceding sentence or any other material damage, penalty
assessment, recoupment of payment or disallowance of cost.
(c) Except as set forth in Section III.25(c) of the Seller's Schedule,
there are (i) no outstanding claims against the Company or the Subsidiary,
either by the U.S. Government or by any non-U.S. government or by any prime
contractor, subcontractor, vendor or other third party, arising under or
relating to any Government Contract or bid referred to in Section III.25(a) of
the Seller's Schedule and (ii) no disputes between the Company or the Subsidiary
and the U.S. Government or any non-U.S. Government under the Contract Disputes
Act or any other Federal statute or between the Company or the Subsidiary and
any prime contractor, subcontractor or vendor arising under or relating to any
such Government Contract or bid. Except as set forth in Section III.25(c) of the
Seller's Schedule, to the Knowledge of Seller, there are no facts that could
reasonably be expected to result in a claim or a dispute under clause (i) or
(ii) of the immediately preceding sentence.
(d) Except as set forth in Section III.25(d) of the Seller's Schedule,
neither the Company or the Subsidiary nor any of their respective employees,
consultants or agents is (or during the last three years has been) suspended or
debarred from doing business with the U.S. Government or any non-U.S. government
or is (or during such period was) the subject of a finding of non-responsibility
or ineligibility for U.S. Government or non-U.S. government contracting. Except
as set forth in Section III.25(d) of the Seller's Schedule, the Company and its
affiliates conducted their operations in compliance with all requirements of all
material laws pertaining to all Government Contracts and bids.
(e) Except as set forth in Section III.25(e) of the Seller's Schedule, no
statement, representation or warranty made by the Company in any Government
Contract, any exhibit thereto or in any certificate, statement, list, schedule
or other document submitted or furnished to the U.S. Government or any non-U.S.
government in connection with any Government Contract or bid (i) contained on
the date so furnished or submitted any untrue statement of a material fact, or
failed to state a material fact necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading
or (ii) contains on the date hereof any untrue statement of a material fact, or
fails to state a material fact necessary to make the statements contained
therein, in light of the circumstances in which they are made, not misleading,
except in the case of both clauses (i) and (ii) any untrue statement or failure
to state a material fact that would not result in any material liability to the
Company or the Subsidiary as a result of such untrue statement or failure to
state a material fact.
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III.26 Government Furnished Equipment. Section III.26 of the Seller's
Schedule incorporates the most recent schedule delivered to the U.S. Government
or any non-U.S. Government which identifies by description or inventory number
certain equipment and fixtures loaned, bailed or otherwise furnished to or held
by the Company or the Subsidiary by or on behalf of the United States or any
foreign country. To the Knowledge of Seller, such schedule was accurate and
complete on its date and, if dated as of the Closing Date, would contain only
those additions and omit only those deletions of equipment and fixtures that
have occurred in the ordinary course of business, except for such inaccuracies
that could not reasonably be expected to have a material adverse effect on the
operations of the Company and the Subsidiary.
III.27 Organizational Conflicts of Interest. Except as set forth in
Section III.27 of the Seller's Schedule, prior to the close of business on the
date three Business Days prior to the Closing Date, to the Knowledge of the
Seller each of the Company and the Subsidiary as part of its performance of the
"IEW Contract" has, in the past four years, not had access to non-public
information nor provided systems engineering, technical direction, consultation,
technical evaluation, source selection services of services any type, nor
prepared specifications or statements of work, nor engaged in any other conduct
that would create in any current Government procurement an Organizational
Conflict of Interest, as defined in Federal Acquisition Regulation 9.501, with
the Company or, based on the Knowledge of the Seller of the business of L-3 as
conducted on the date three Business Days prior to the Closing Date, with L-3 if
the Company or the Subsidiary were to become an affiliate or division thereof.
III.28 Affiliate Transactions. Except with respect to the Ilex Agreement
and the agreements, arrangements, undertakings and transactions contemplated
thereby, there are no agreements, arrangements, undertakings or other
transactions between the Company or the Subsidiary and the Seller or any
affiliate of the Seller.
III.29 Disclosure in the Seller's Schedule. The disclosure in any Section
of the Seller's Schedule to this Agreement of an exception to any representation
and warranty shall constitute disclosure of such exception for all applicable
representations and warranties under this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that the statements related to
Buyer contained in this Article IV are correct and complete as of the as of the
date hereof and will be correct and complete as of the Closing Date, except as
specified to the contrary in the disclosure schedule prepared by Buyer and
attached hereto as Exhibit B (the "Buyer's Schedule"). The Buyer's Schedule is
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Article IV.
IV.1 Due Incorporation; Requisite Power and Authority. Buyer is a
corporation duly organized, validly existing and in good standing as a
corporation under the laws of the State of Delaware and has all the requisite
power and authority to execute and deliver the Transaction
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Documents and to perform all transactions in the manner contemplated by the
Transaction Documents. This Agreement has been and, when delivered, the
remainder of the Transaction Documents will have been duly executed and
delivered by Buyer and duly authorized and approved by all necessary corporate
action on the part of Buyer. This Agreement constitutes and, when delivered, the
remainder of the Transaction Documents will constitute the valid and binding
obligations of Buyer, enforceable against Buyer in accordance with its or their
terms, subject to bankruptcy and similar laws and equitable principles regarding
the enforcement of contracts.
IV.2 Requisite Consents; Nonviolation. The execution, delivery and
performance of this Agreement by Buyer does not and the execution, delivery and
performance of the remainder of the Transaction Documents by Buyer will not (a)
violate or conflict with (i) the provisions of the Certificate of Incorporation
or Bylaws of Buyer, (ii) any applicable law, rule or regulation, (iii) any
resolution of the Board of Directors or the shareholders of Buyer, or (iv)
order, writ, injunction or decree by which Buyer is bound; or (b) except as set
forth in this Agreement, require the consent, license, permit, approval,
authorization or other action by or with respect to, any governmental person or
entity (except such approvals, permits or filings as may be required to comply
with applicable state securities and antitrust laws).
IV.3 Broker's Fees. Buyer has no Liability or obligation to pay any fees
or commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
ARTICLE V
CERTAIN TRANSACTIONS AND AGREEMENTS
PRIOR TO THE CLOSING DATE
V.1 Confidentiality. The Company and Seller have provided Buyer
information relating to the Company, the Subsidiary and Seller and have
permitted Buyer to make an investigation of the Company, the Subsidiary and
their business. To facilitate a smooth transition in ownership of the Company,
prior to the Closing Date, Buyer, through its officers, employees, counsel,
accountants and other authorized representatives, will continue to discuss the
Company's business with Seller and the Company's and the Subsidiary's officers,
employees, independent accountants, actuaries and other agents during the
Company's normal business hours only in a manner that does not interfere with
the Company's normal business or contravene any agreement to which the Company
is bound.
V.2 Business Organization.
(a) Seller shall use its reasonable best efforts to cause each of the
Company and the Subsidiary, through the Closing Date, (i) to operate its
business only in the usual, regular and ordinary manner, on a basis consistent
with past practice and to the extent consistent with such operation to preserve
substantially intact its business organization, (ii) to keep available the
services of the present officers and employees of the Company and the
Subsidiary, and (iii) to preserve the present relationships of the Company and
the Subsidiary with all entities or persons having significant business dealings
with either of them.
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(b) Except as may be approved in writing by Buyer, (1) from the date
hereof to and including the date four Business Days prior to the Closing Date,
Seller shall use its reasonable best efforts to cause the Company and its
affiliates not to, and (2) from the date three Business Days prior to the
Closing Date to and including the Closing Date, Seller shall not and shall cause
its affiliates not to (i) transfer, sell, encumber or otherwise convey any asset
of the business of the Company and the Subsidiary other than the sale of
inventory in the ordinary course, (ii) grant or agree to any bonuses to any
employee of the Company or the Subsidiary, any general increase in the rate of
salary or compensation of the employees of the Company or the Subsidiary, (iii)
commit the Company or the Subsidiary to provide any additional pension,
retirement or other employee benefits to any employee of the Company or the
Subsidiary, or any increase of existing benefits for such employees, (iv) enter
into any contract, agreement or commitment other than in the ordinary course of
business which involves aggregate consideration of in excess of $100,000 and
which is not cancelable without penalty within 30 days, (v) incur or increase
any indebtedness for borrowed money or guarantee the debt of any other person
(other than any incurrence or increase in the ordinary course of business and
then only if the amount of such incurrence or increase (to the extent not repaid
prior to the date three Business Days prior to the Closing Date) is reflected as
a liability on the Estimated Closing Statement of Net Assets), (vi) submit any
bid or proposal, or modify any existing bid or proposal, in excess of
$2,000,000, (vii) make any capital expenditure, or commit to make any capital
expenditure, in excess of $100,000 in the aggregate, (viii) take any act on
inconsistent with the representations and warranties of Seller hereunder or that
would cause any of the representations and warranties of Seller hereunder to
become untrue in any material respect, (ix) except for conversion of the Company
from its status as a subchapter S Corporation under the Code to a subchapter C
Corporation under the Code, make or change any material tax election or settle
or compromise any material federal, state, local or foreign income tax liability
or file any amended Tax Returns, (x) increase the compensation or fringe
benefits of any present or former director, officer or employee of the Company
or its Subsidiary (except for the payment of bonuses and increases in salary or
wages of employees (other than officers) in the ordinary course of business
consistent with past practice), (xi) grant severance or termination pay to any
present or former director, officer or employee of the Company or its
Subsidiary, in excess of $100,000 in the aggregate, (xii) loan or advance any
money or other property to any present or former director, officer or employee
of the Company or its Subsidiary (except for travel and other similar advances
in the ordinary course of business and consistent with past practice), (xiii)
establish, adopt, enter into, amend or terminate any Company Plan or any plan,
agreement, program, policy, trust, fund or other arrangement that would be a
Company Plan if it were in existence as of the date of this Agreement, (xiv)
following the fourth Business Day prior to the Closing Date, make, declare or
set a record date with respect to any distribution of assets of the Company or
the Subsidiary in respect of the capital stock of the Company (whether by
dividend, redemption, share purchase or otherwise) other than a liquidation and
dissolution of all of the assets of the Company or (xv) agree, whether or not in
writing, to do any of the foregoing.
V.3 Cooperation.
(a) General. Each of the parties will use all reasonable efforts to take
all action and to do all things reasonably necessary, proper or advisable in
order to consummate and make effective the transaction contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions).
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(b) Filings and Consents. As soon as practicable, Buyer and Seller shall
make, or cause to be made, any and all filings which are required under the
Hart-Scott-Rodino Act, or any other required filings in any jurisdiction. The
parties will furnish to each other such necessary information and assistance as
each may reasonably request in connection with their preparation of necessary
filings or submissions to any governmental agency, including, without
limitation, any filings necessary under the provisions of the Hart-Scott-Rodino
Act or any other required filings in any jurisdiction. Buyer shall pay the
filing fee(s) associated with all Hart-Scott-Rodino Act filings.
Seller shall use its reasonable efforts to obtain at the earliest
practicable date all material required third party consents, identified in
Section V.3(b) of the Seller's Schedule, of all third parties to leases,
licenses, agreements, indentures or other instruments necessary to the
consummation of the transactions contemplated hereby, and Buyer shall cooperate
with Seller in order to obtain such consents at the earliest practicable date by
performing such actions and by providing Seller with such information,
including, without limitation, publicly-available financial information relating
to Buyer, all as Seller may reasonably request. Anything contained in this
Section V.3(b) to the contrary notwithstanding this Agreement shall not
constitute an agreement to assign any claim, contract, license, lease,
commitment, sales order or purchase order if an attempted assignment of the same
without the consent of the other party thereto would constitute a breach thereof
or in any way materially and adversely affect the rights of Seller thereunder.
(c) Access. Prior to Closing, Seller will use its reasonable best efforts
to cause the Company to permit representatives of Buyer to have reasonable
access at all reasonable times, and in a manner so as not to interfere with the
normal business operations of the Company upon reasonable advance notice, to all
premises, properties, personnel, books, records (including Tax records),
contracts and documents of or pertaining to the Company.
(d) Notice of Developments. Each party will give prompt written notice to
the other of any material adverse development causing or constituting a breach
of any of its own representations and warranties.
V.4 Subsidiary Merger. Prior to the Closing, Seller shall consummate the
Subsidiary Merger.
V.5 No Seller Distributions. Until such time as the transactions pursuant
to this Agreement have been consummated in accordance with the terms hereof,
Seller shall not distribute nor transfer any of its assets now owned or
hereafter acquired.
V.6 Further Assurances. Each of the parties hereto agrees that it will,
from time to time after the date of the Agreement, execute and deliver such
other certificates, documents and instruments and take such other action as may
be reasonably requested by the other party to carry out the actions amid
transactions contemplated by this Agreement.
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ARTICLE VI
COVENANTS REGARDING POST CLOSING ACTIVITIES
VI.1 Employee Matters.
(a) Immediately following the Closing on the Closing Date, Buyer shall
offer employment at will in a similar position to each employee of the Business
who on the Closing Date is employed by the Acquired Company or on an approved
leave of absence (the "Employees") at a rate of base compensation and salary
equal to not less than one hundred percent (100%) of their base compensation and
salary immediately prior to the Closing Date; provided, however, that nothing
herein shall interfere with or otherwise impair any right of Buyer to terminate
the employment of any employee at any time. Buyer shall assume the
responsibility for all obligations and liabilities arising out of or in any way
connected with its employment of the Employees or the termination thereof,
including, without limitation, any and all claims for wrongful discharge,
discrimination or other violations of law or for payment under any employee
benefit plans for claims incurred after the Closing on the Closing Date. Buyer
shall also offer to Employees participation in benefit programs in accordance
with Buyer's employee benefit plans and other fringe benefits which programs
shall be, at a minimum, substantially comparable, in the aggregate, to the
Company Plans (excluding for these purposes any Company Plans providing equity
awards or equity based awards) and shall be eligible to participate in said
employee benefit plans and other fringe benefits of Buyer immediately and on the
same basis as such plans and benefits are offered to new employees of Buyer;
provided, however, that payment of any deductibles under the Company Plans by
such Employees will be credited under Buyer's plans during 1998; provided,
further, that Buyer may change, amend or terminate any such Company Plans at any
time following the Closing Date. In addition, Buyer agrees that any preexisting
condition clause in any of the Acquired Company's health or disability insurance
coverage shall not be applicable to the Employees to the extent allowable.
(b) Buyer shall assume and be responsible for all sums then due any
Employee who accepts Buyer's offer of employment, which sums shall include,
without limitation, salary, wages, overtime, bonuses, accrued and unused
vacation time and any other payments due pursuant to any agreements between the
Acquired Company and such Employee payable after the Closing Date or as required
by applicable law. All Employees who accept Buyer's offer of employment shall
receive credit for years of service with or as granted by the Acquired Company.
(c) Any former employee of the Acquired Company (or their dependents) who
becomes eligible for health continuation coverage under the Acquired Company's
major medical plan by virtue of his or her failure to accept Buyer's offer of
employment being tantamount to a qualifying event, for the entitlement to such
coverage, shall have available health continuation coverage satisfying the
requirements of Section 4870 B of the Code and Section 601 through 608 of ERISA
after the Closing through health benefit plans maintained by Buyer or its
affiliates.
(d) Buyer covenants and agrees that it will assume and be responsible for
any obligations after the Closing Date to Employees who are on workers'
compensation or a similar leave of absence from the Acquired Company on the
Closing Date to the extent such obligations
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are (i) pursuant to fully insured Company Plans, or (ii) fully accrued on the
Closing Statement of Net Assets.
VI.2 Seller's Indemnification.
(a) Seller's Indemnification. Subject to the limitation of Section
VI.2(c), Seller shall indemnify, defend and hold Buyer and its affiliates (and
their respective officers, directors, employees and agents), harmless from any
liability, damages, deficiency, loss, cost or expense (including but not limited
to reasonable attorney's fees and any expenses of investigation in connection
with any claim hereunder) actually incurred or paid by Buyer and its affiliates
(or their respective officers, directors, employees and agents), arising out of
or resulting from (i) the inaccuracy of any representation or the breach of any
warranty made in this Agreement by Seller to Buyer; (ii) any failure of Seller
to perform or comply with any of its covenants and agreements set forth in this
Agreement; (iii) any Liability of the Seller or any of its affiliates or the
Company or any of its affiliates other than Assumed Liabilities; or (iv) any
Government Bid, Government Contract or Government Disclosure; provided, however,
that Seller shall only indemnify Buyer and its affiliates for the first
$10,000,000 of claims related to any Government Bid, Government Contract or
Government Disclosure. Notwithstanding anything to the contrary contained
herein, the Buyer shall be permitted to offset any amounts which would otherwise
become payable to the Seller under Section 11.4 against amounts owing by the
Seller under this Section VI.2(iv); provided that such right of offset shall
only be exercisable with respect to Additional Consideration if notice of the
exercise of such right is delivered to the Seller by the Buyer prior to the date
on which the calculation of EBIT with respect to such Additional Consideration
shall have been finally determined and agreed to pursuant to Section II.5.
(b) Tax Indemnification. Seller shall indemnify and hold harmless the
Buyer and its affiliates (and their respective officers, directors, employees
and agents) from and against any and all Taxes for or in respect of each of the
following (excluding, in all cases, Taxes included within the definition of
Assumed Liabilities):
(i) any and all Taxes with respect to any taxable period or a
portion thereof, of the Company (or any predecessor) ending on or before
the close of business on the date three Business Day's prior to the
Closing Date;
(ii) with respect to any and all Taxes of any member of a
consolidated, combined or unitary group of which the Company (or any
predecessor) is or was a member on or prior to the close of business on
the date three Business Days prior to the Closing Date by reason of the
liability of the Company pursuant to Treasury Regulation Section
1.1502-6(a) (or any analogous or similar state, local or foreign law or
regulation), as a transferee or successor, by contract, or otherwise;
(iii) any Taxes arising out of a breach of the representations and
warranties contained in Section III.15; and
(iv) any payments required to be made after the Closing Date under
any Tax sharing, Tax indemnity, Tax allocation or similar contracts
(whether or not written), to
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which the Company or any predecessor was obligated, or was a party, on or
prior to the close of business on the date three Business Days prior to
the Closing Date.
(c) Notification; Control of Proceedings. Buyer shall promptly give to the
Seller written notice if it becomes aware of any liability, loss, damage, claim,
cost and expense with respect to which indemnity may be asserted; provided that
the failure to give prompt notice will not release the Seller from liability
hereunder, except to the extent they are actually prejudiced thereby. If any
claim is made by a third person or an action or proceeding commenced for which
Buyer shall seek indemnity from Seller, Buyer shall give to the Seller
reasonable written notice of the claim and request Seller to defend the same.
Seller shall have the right to defend against such liability at their expense,
and shall give written notice to Buyer of the commencement of such defense with
reasonable promptness after the giving of the written notice of the claim by
Buyer. Buyer shall be entitled to participate with Seller in such defense, but
shall not be entitled in any way to release, waive, settle, modify or pay such
claim without the written consent of the Seller, if Seller have assumed such
defense. In the event Seller does not assume the defense of the matter as
provided above, or does not notify Buyer of its election to defend such a matter
within 30 days, Buyer shall have the full right to defend against such liability
in such manner as it may deem appropriate. In the event Seller shall assume the
defense, Buyer shall cooperate in the defense of such action, and the records of
each shall be available to the other with respect to such defense, provided,
however, that the Seller shall not, in the defense of any such action, consent
to the entry of any judgment or enter into any settlement where such entry of
judgment or settlement does not include a provision releasing the Buyer from all
liability with respect to such action or that provides for a remedy other than
the payment of money damages, except with the written consent of Buyer, such
consent not to be unreasonably withheld or delayed.
(d) Limitation on Indemnification. Notwithstanding the provisions of
Sections VI.2(a) (except with respect to (A) clauses (ii), (iii) and (iv) of
Section VI.2(a) and (B) Taxes as provided under Section VI.2(b)), (i) Seller
shall not be liable to Buyer on account of any breach of any warranty or
representation by Seller in this Agreement until the aggregate amount of all
claims against Seller for which indemnification would have been available
hereunder but for the application of the limitation set forth in this clause (i)
for all breaches exceeds one percent (1%) of the Cash Purchase Price and then
only for the amount by which such aggregate cumulative liability is in excess of
one percent (1%) of the Cash Purchase Price; and (ii) in no event shall Seller's
obligations to Buyer under Section VI.2(a)(i) exceed, in the aggregate,
$5,000,000.
(e) Survival. The indemnification obligations of Seller under this Section
VI.2 (except with respect to indemnification pursuant to Section VI.2(a)(ii),
(iii) and (iv)) shall terminate on June 30, 1999 as to any claim not asserted
prior to such date, except that the indemnification obligations of Seller for
(x) a breach of Sections III.1, III.2, III.3, III.5 and III.15 and (y) for Taxes
under Section VI.2(b) shall not terminate until the expiration of the sixty-day
period after the expiration of the applicable statute of limitations as to any
claim not asserted prior to such date and that the indemnification obligations
of Seller for a breach of Sections III.4, III.11 and III.16 shall terminate
three (3) years after the date hereof as to any claim not asserted prior to such
date. The indemnification obligations of Seller (I) under Section VI.2(a)(ii)
shall terminate ten (10) years after the date hereof and (II) under Section
VI.2(a)(iv) shall terminate on June 30, 2000, in each case as to any claim not
asserted prior to such date.
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(f) Indemnification Provisions for Benefit of Seller.
(i) In the event Buyer breaches (or in the event any third party
alleges facts that, if true, would mean Buyer has breached) any of its
representations, warranties, and covenants contained in this Agreement or
in any of the Transaction Documents, then the Buyer agrees to indemnify
Seller and its affiliates (and their respective officers, directors,
employees and agents) from and against the entirety of any Losses (up to
but not in excess of the Cash Purchase Price) Seller or its affiliates
(and their respective officers, directors, employees and agents) may
suffer through and after the date of the claim for indemnification
(including any Losses Seller or its affiliates (and their respective
officers, directors, employees and agents) may suffer after the end of any
applicable survival period) resulting from, arising out of, or caused by
the breach (or the alleged breach).
(ii) Notwithstanding anything to the contrary herein contained, (i)
Buyer will indemnify, defend and hold harmless Seller and its affiliates
(and their respective officers, directors, employees and agents) from and
against any Losses as a result of claims based on or arising from any
Assumed Liabilities or the operation of the Business after the Closing
Date and (ii) such indemnification shall not be limited in time or amount
or subject to any deductible or cap.
(iii) Seller or its affiliates shall with reasonable promptness give
to the Buyer written notice if it becomes aware of any Losses with respect
to which indemnity may be asserted; provided that the failure to give
prompt notice will not release the Buyer from liability thereunder, except
to the extent they are actually prejudiced thereby. If any claim is made
by a third person or an action or proceeding commenced for which Seller or
other indemnified parties shall seek indemnity from Buyer, Seller or its
affiliates shall give to Buyer reasonable written notice of the claim and
request Buyer to defend the same. Buyer shall have the right to defend
against such liability at their expense, and shall give written notice to
Seller of the commencement of such defense with reasonable promptness
after the giving of the written notice of the claim by Seller or its
affiliates. Seller or other indemnified parties shall be entitled to
participate with Buyer in such defense, but shall not be entitled in any
way to release, waive, settle, modify or pay such claim without the
written consent of the Buyer, if Buyer has assumed such defense. In the
event Buyer does not assume the defense of the matter as provided above,
or does not notify Seller of their election to defend such a matter within
30 days, Seller or other indemnified parties shall have the full right to
defend against such liability in such manner as it or they may deem
appropriate. In the event Buyer shall assume the defense, Seller or other
indemnified parties shall cooperate in the defense of such action, and the
records of each shall be available to the other with respect to such
defense, provided, however, that the Buyer shall not, in the defense of
any such action, consent to the entry of any judgment or enter into any
settlement where such entry of judgment or settlement does not include a
provision releasing the Seller or other indemnified parties from all
liability with respect to such action or that provides for a remedy other
than the payment of money damages, except with the written consent of
Seller or other indemnified parties.
(iv) The indemnification obligations of Buyer under this Section
VI.2(f) shall not terminate until the expiration of the applicable statute
of limitations; provided, however,
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that the indemnification obligations of Buyer related to any failure of
Seller to perform or comply with any of its covenants and agreements set
forth in this Agreement shall terminate ten years from the date hereof as
to any claim not asserted prior to such date.
VI.3 Contracts Requiring Consent to Assignment. Notwithstanding anything
in this Agreement, neither this Agreement nor any document or instrument
delivered pursuant hereto shall constitute an assignment of any claim, contract,
agreement, license, lease, commitment, sales order or purchase order or any
claim or right or any benefit arising thereunder or resulting therefrom if an
attempted assignment thereof without the consent of any other Person would
constitute a breach thereof or in any way adversely affect the rights to be
assigned. Until such consent is obtained, or if an attempted assignment
thereunder would be ineffective or would affect the rights of Seller or any
affiliate thereunder so that the Buyer would not in fact receive all such
rights, Seller and the Buyer will cooperate with each other (and, to the extent
required, Seller shall cause its affiliates to cooperate with the Buyer) to
provide for the Buyer the benefits of, and to permit the Buyer to assume all
liabilities under, any such claim, contract, agreement, license, lease,
commitment, sales order or purchase order, including enforcement at the request
and expense of the Buyer for the benefit of the Buyer of any and all rights of
Seller or any affiliate against a third party thereto arising out of the breach
or cancellation thereof by such third party; and any transfer or assignment to
the Buyer by Seller or any affiliate of any property or property rights or any
contract or agreement which shall require the consent or approval of any third
party shall be made subject to such consent or approval being obtained. The
parties shall each use their best efforts to obtain any required consent to
assignment.
VI.4 Company Plans. From and after the Closing, Buyer agrees to assume
Seller's obligations under and become the plan sponsor of each of the Company
Plans in effect immediately prior to the Closing Date and Buyer shall be
entitled to all rights, obligations and duties of Seller under such Company
Plans and Seller shall cause any assets, set-aside or otherwise, pertaining to
the Company Plans to be transferred to Buyer; such assets shall include, but not
be limited to, qualified trusts, VEBAs, and grantor trusts and insurance
policies. Notwithstanding anything to the contrary herein contained, the
assumption of such obligations is not intended to and shall not be construed to
impair the right or ability of Buyer to unilaterally amend or terminate any such
benefit plans and other fringe benefits, or any Company Plan in effect
immediately prior to the Closing Date, at any time after the Closing Date.
VI.5 Research and Experimental Expenses. Seller will use its reasonable
best efforts to cause to be furnished to Buyer as soon as reasonably
practicable, but in no event more than 180 days after Closing, all information
reasonably requested relating to the base period research expenses and any other
information to allow Buyer to claim research and experimental credits in
accordance with the relevant sections of the Code and treasury regulations
promulgated thereunder.
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ARTICLE VII
CONDITIONS TO OBLIGATIONS OF BUYER AND SELLER
The obligations of Buyer and Seller to consummate the transactions
contemplated by this Agreement on the Closing Date shall be subject to the
fulfillment at or prior to the Closing of each of the following conditions,
except to the extent such conditions are waived in writing by Buyer and Seller:
VII.1 Government Approvals; Litigation. All requisite governmental
approvals and authorizations necessary, including, but not limited to, any such
approvals or authorizations under the Hart-Scott-Rodino Act, for the
consummation of the transactions contemplated hereby shall have been duly issued
or granted and all applicable waiting periods shall have expired or otherwise
been terminated. No action or proceeding by any governmental authority or any
third party challenging the transactions contemplated by this Agreement or any
parties' ability or right to participate therein shall be pending or threatened
against any party. No unfavorable decree or order shall exist that would prevent
or make the consummation of any of the transactions contemplated by this
Agreement unlawful or would result in the payment of damages or other
consequences materially adverse to the business or assets of Seller, Buyer or
the Company.
VII.2 Permits and Approvals. Buyer, Seller and the Company shall each have
received all consents, waivers, approvals, licenses, or other authorizations
required for the performance of this Agreement by the parties hereto.
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS
The obligation of Buyer to consummate the transactions contemplated by
this Agreement on the Closing Date shall be subject to the fulfillment at or
prior to the Closing of each of the following conditions, except to the extent
such conditions are waived by Buyer, such waiver to be evidenced by Buyer's
consummation of the transaction contemplated hereby:
VIII.1 Representations and Warranties; Performance. The representations
and warranties of the Seller set forth in this Agreement shall be true in all
material respects (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall be
true and correct in all respects) as of the Closing Date with the same effect as
though made at such time. Seller shall have performed and complied in all
material respects with all agreements, covenants and conditions required by this
Agreement to be performed or complied with by it prior to or at the Closing.
Seller shall have delivered to Buyer a certificate, dated the Closing Date, as
to the foregoing.
VIII.2 Escrow Agreement. The Escrow Agreement to be entered into pursuant
to the Stock Purchase Agreement shall have been assigned to Buyer pursuant to an
Assignment of Escrow Agreement in substantially the form of Exhibit VIII.2
hereto.
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VIII.3 Subsidiary Merger. The Subsidiary Merger shall have been
consummated.
VIII.4 Material Adverse Change. Between the date of this Agreement and the
Closing, there shall have been no material adverse change (or any event that
would reasonably be expected to result in such change) in the condition
(financial or otherwise), results of operation, business, assets or properties
of the Company.
VIII.5 Proceedings. All proceedings to he taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Buyer and its counsel,
and Buyer shall have received copies of such documents and such other evidence
as it or its counsel may reasonably request in order to establish the
consummation of such transaction and the taking of all proceedings in connection
therewith.
VIII.6 Ilex Agreement. The Closing (as defined therein) under the Ilex
Agreement shall have occurred in accordance with the terms thereof.
VIII.7 Non-Competition Agreements. The Non-Competition Agreements entered
into pursuant to the Stock Purchase Agreement shall have been assigned to Buyer
pursuant to an Assignment of Non-Competition Agreements in substantially the
form of Exhibit VIII.6 hereto.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions contemplated by
this Agreement on the Closing Date shall be subject to the fulfillment at or
prior to the Closing of each of the following conditions, except to the extent
such conditions are waived by Seller, such waiver to be evidenced by Seller's
consummation of the transaction contemplated hereby.
IX.1 Representations and Warranties; Performance. The representations and
warranties of Buyer set forth in this Agreement shall be true in all material
respects (except that where any statement in a representation or warranty
expressly includes a standard of materiality, such statement shall be true and
correct in all respects) as of the Closing Date, with the same effect as though
made at such time. Buyer shall have paid the Cash Purchase Price and otherwise
performed and complied in all material respects with all agreements, covenants
and conditions required by this Agreement to be performed or complied with by it
prior to or at the Closing.
IX.2 Proceedings. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Seller and their
counsel, and Seller shall have received copies of such documents and such other
evidence as they or their counsel may reasonably request in order to establish
the consummation of such transactions and the taking of all proceedings in
connection therewith.
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IX.3 Ilex Agreement. The Closing (as defined therein) under the Ilex
Agreement shall have occurred.
ARTICLE X
FEES AND EXPENSES
X.1 Expenses. Except as explicitly provided hereunder each party hereto
shall bear its own expenses incurred in connection with the negotiation and
consummation of the transactions contemplated by this Agreement.
X.2 Fees or Commissions of Brokers. Buyer has no obligation to pay any
fees or commissions of any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which Seller could be liable.
ARTICLE XI
TERMINATION
XI.1 Termination of Agreement. This Agreement and the transactions
contemplated hereby may be terminated at any time before the Closing Date, as
follows, and in no other manner:
(a) by mutual consent of Buyer and Seller;
(b) by either Buyer or Seller if the Closing shall not have occurred on or
before 5:00 p.m., Pacific Time, on March 31, 1998; provided that the right to
terminate this Agreement under this Section XI.1 shall not be available to any
party whose failure to fulfill any obligations under this Agreement has been the
cause of, or results in, the failure of the Closing to have occurred within such
period;
(c) by either Buyer or Seller, respectively, if there has been a material
breach of any representation, warranty, covenant or agreement contained in this
Agreement on the part of the other party and such breach of a covenant or
agreement has not been cured within ten (10) days after notice of such breach
has been given to the other party; or
(d) by either Buyer or a majority in interest of Seller if (i) there shall
be a final, non-appealable order of a federal or state court in effect
preventing consummation of the transaction, or (ii) there shall be any action
taken, or any statute, rule, regulation or order enacted, promulgated or issued
or deemed applicable to the acquisition by any governmental entity which would
make consummation of the transaction illegal.
XI.2 Effect of Termination. In the event of a termination of this
Agreement by any party pursuant to Section XI.1, this Agreement shall become
void and have no effect, and there shall be no obligations or liability on the
part of any party or its respective officers, directors or
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trustees, except as set forth in Sections V.1 and X.1 (except to the extent that
termination has occurred pursuant to subsection XI.1(c), above).
ARTICLE XII
MISCELLANEOUS
XII.1 Time of the Essence. Time is of the essence in this Agreement;
provided, however, that the parties shall have a reasonable period of time to
cure any failure to perform their obligations hereunder, which period shall not
be longer than three (3) Business Days for purposes of any obligations under
Article II.
XII.2 Entire Agreement. Except as set forth in Section V.1 above, this
Agreement and the other agreements contemplated hereby contain the entire
agreement of the parties hereto, and supersedes any prior written or oral
agreements between them concerning the subject matter contained herein. There
are no representations, agreements, arrangements or understandings, oral or
written, between the parties to this Agreement, relating to the subject matter
contained in this Agreement, which are not fully expressed herein or the
agreement identified in Section V.1 above. The Schedules and each Exhibit
attached to this Agreement or delivered pursuant to this Agreement is
incorporated herein by this reference and constitutes a part of this Agreement.
XII.3 Press Releases amid Public Announcements. Neither Seller nor Buyer
shall issue any press release or make any public announcement concerning the
matters set forth in this Agreement (other than as required by applicable
disclosure rules or regulations) without the consent of the other party, which
consent shall not be unreasonably delayed or withheld. Seller and Buyer will
cooperate to jointly prepare and issue any press release which may be issued to
announce the entering into this agreement or the closing of the transaction
contemplated by this Agreement.
XII.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
XII.5 Descriptive Headings. The Article and Section headings in this
Agreement are for convenience only and shall not affect the meanings or
construction of any provision of this Agreement.
XII.6 Notices. Any notices required or permitted to be given under this
Agreement shall be in writing and shall be deemed sufficiently given on the date
delivered personally or by telecopier (if a copy is sent by mail), or five (5)
days after posting by registered or certified mail, postage prepaid, addressed
as follows:
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If to Buyer:
L-3 Communications Corporation
600 Third Avenue
New York, NY 10016
Telecopier Number: (212) 805-5494
Attention: Christopher C. Cambria
With a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Telecopier Number: (212) 455-2502
Attention: William E. Curbow
And if to Seller:
FAP Acquisition Trust
c/o First Union National Bank
10 State House Square
Hartford, CT 06103-3698
Telecopier Number: (860) 247-1356
Attention: W. Jeffrey Kramer
With copies to:
Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, CA 94104
Telecopier Number: (415) 983-1200
Attention: Graham Taylor
and
Bingham Dana LLP
100 Pearl Street
Hartford, CT 06103
Telecopier Number: (860) 527-5188
Attention: James G. Scantling
or to such other address or addresses as a party shall have previously
designated by notice to the sender given in accordance win this Section.
XII.7 Arbitration. Any dispute under this Agreement prior to June 30, 2000
(and after such date, but in such case only if and for so long as there are
Impounded Funds (as defined in the Escrow Agreement between Seller, the Company
and the stockholders of the Company (the
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"Escrow Agreement")) with respect to such dispute) (the "Initial Arbitration
Period") which is not settled by mutual agreement among the parties hereto,
shall be finally settled by binding arbitration in New York, New York, conducted
by and in accordance with the rules then in effect of the Judicial Arbitration
and Mediation Service; provided that after the Initial Arbitration Period or the
payment or distribution of all amounts held in escrow pursuant to the Escrow
Agreement (or when a Notice of Release (as defined in the Escrow Agreement) has
been received with regard to all remaining amounts in such escrow), whichever
occurs earlier, any such dispute shall be settled by binding arbitration in San
Francisco, California, conducted by and in accordance with the rules then in
effect of the Judicial Arbitration and Mediation Service. Each party shall bear
its own costs and attorneys' and witness' fees. The prevailing party in any
arbitration, as determined by the arbitration panel, shall be entitled to an
award against the other party in the amount of the prevailing party's costs and
reasonable attorneys' fees. In making any such award, the arbitration panel
shall take into consideration the outcome of the proceeding and the
reasonableness of the conduct of each such party in connection with the dispute,
in light of the facts known to such party at the time such party engaged in such
conduct. The arbitrator shall not have authority to award punitive damages
hereunder.
XII.8 Choice of Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of New York.
XII.9 Bulk Sale and Other Tax Filings. The Buyer and Seller agree to waive
compliance with applicable state sales Tax, bulk sales notification statutes and
regulations and any applicable state tax statutes, in connection with the sale
of the Acquired Assets to the Buyer.
XII.10 Transfer Taxes; Sales Tax. The parties agree that the Buyer shall
pay the sales Tax on the transfer of personal property and each of the Seller or
the Buyer, as appropriate, shall be responsible for such other transfer Taxes
applicable to the transaction contemplated hereby as are customary in the
jurisdiction in which the Tax is payable (other than Taxes computed on the basis
of income) and each party so responsible shall indemnify, defend and hold the
other harmless with respect to such Taxes. Each Party shall file, or cooperate
with the other Party in filing, all necessary documentation and Tax Returns with
respect to such Transfer Taxes.
XII.11 Binding Effect; Benefits. This Agreement shall inure to the benefit
of and be binding upon the parties and their respective successors and permitted
assigns. Nothing in this Agreement, express or implied, is intended to confer on
any person other than the parties or their respective successors and permitted
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
XII.12 Assignability. Except as explicitly contemplated hereunder, neither
this Agreement nor any of the parties' rights hereunder shall be assignable by
any party without the prior written consent of the other party and any attempted
assignment without such consent shall be void provided, however, that this
Agreement may be assigned by Buyer to an affiliate of Buyer which shall have
been formed for the purpose of consummating the transactions contemplated
hereby.
XII.13 Waiver and Amendment. Any term or provision of this Agreement may
be waived at any time by the party which is entitled to the benefits thereof.
The waiver by any
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party of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach. The parties may, by mutual
agreement in writing, amend this Agreement in any respect.
XII.14 Attorneys' Fees. In the event of any action or proceeding to
enforce the terms and conditions of this Agreement, the prevailing party shall
be entitled to an award of reasonable attorneys' and experts' fees and costs, in
addition to such other relief as may be granted.
XII.15 Severability. If and to the extent that any court of competent
jurisdiction holds any provisions (or any part thereof) of this Agreement to be
illegal, invalid or unenforceable, such holding shall not affect the validity of
the remainder of this Agreement.
XII.16 No Recourse. It is expressly understood and agreed that this
Agreement is executed and delivered on behalf of Seller by First Union National
Bank ("First Union"), not in its individual capacity but solely as Trustee under
the trust agreement under which Seller is organized, in the exercise of the
powers and authority conferred and vested in it as the Trustee thereunder, and
each of the representations, warranties, undertakings and agreements herein made
on the part of Seller is made and intended not as a personal representations,
warranty, undertaking and agreement by First Union but is made and intended for
the purpose of binding only the trust estate created by the trust agreement
under which Seller is organized (the "Trust Estate"), and all persons having any
claim against First Union or Seller by reason of the transactions contemplated
by this Agreement shall for payment or satisfaction thereof not seek recourse
against First Union except in its capacity as trustee and then only to the
extent of the Trust Estate.
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IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first above written.
L-3 COMMUNICATIONS CORPORATION
By: /s/ [ILLEGIBLE]
---------------------------------
Name:
Title:
FAP TRUST
By: First Union National Bank, not
in its individual capacity but
solely as trustee
By:
---------------------------------
Name: W. Jeffrey Kramer
Title: Vice-President
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first above written.
L-3 COMMUNICATIONS CORPORATION
By:
---------------------------------
Name:
Title:
FAP TRUST
By: First Union National Bank, not
in its individual capacity but
solely as trustee
By: /s/ W. Jeffrey Kramer
---------------------------------
Name: W. Jeffrey Kramer
Title: Vice-President
<PAGE>
EXHIBIT VIII-2
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT dated as of March 4, 1998 is entered into by
and between L-3 COMMUNICATIONS CORPORATION, a Delaware corporation
("Assignee"), and FAP TRUST, a Connecticut trust ("Assignor").
WITNESSETH
WHEREAS, Assignor is a party to a Stock Purchase Agreement dated as of
February 9, 1998 (the "Stock Purchase Agreement") pursuant to which Seller
intends to acquire all of the outstanding capital stock of Ilex Systems, Inc.
(the "Company"); and
WHEREAS, pursuant to the Stock Purchase Agreement, Assignor, the Company,
all of the stockholders of the Company (the "Sellers") and The First National
Bank of Chicago, a national banking association ("Escrow Agent"), have entered
into that certain Escrow Agreement dated as of February __, 1998 (the "Escrow
Agreement") for the purpose of establishing a fund to satisfy certain
indemnification obligations of the Sellers that may arise under the Stock
Purchase Agreement and to facilitate the payment of the cash purchase price
adjustment contemplated thereby; and
WHEREAS, Assignor and Assignee have entered into an Asset Purchase
Agreement dated as of February 10, 1998 (the "Asset Purchase Agreement")
pursuant to which Assignee will acquire substantially all of the assets and
assume substantially all of the liabilities of the Company; and
WHEREAS, in connection with the Asset Purchase Agreement and the
transactions contemplated thereby, Assignor desires to assign to Assignee its
entire right, title and interest in, under and to the Escrow Agreement, and
Assignee desires to take such assignment from Assignor, all upon the terms and
conditions set forth below:
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
1. Assignment of the Escrow Agreement. Assignor hereby assigns to
Assignee all of Assignor's right, title and interest in, under and to the
Escrow Agreement, and Assignee hereby assumes all of Assignor's duties and
obligations under the Escrow Agreement.
2. Assertion of Claims Under the Escrow Agreement. Assignor and Assignee
understand that any and all claims which Assignee may have under the Escrow
Agreement will in most instances, but not in all, be based on facts and
circumstances that constitute both breaches of certain representations,
warranties and covenants of Assignor contained in the Asset Purchase Agreement
and breaches of similar representations, warranties and
<PAGE>
covenants of the Company and the Sellers contained in the Stock Purchase
Agreement. Accordingly, Assignor and Assignee agree as follows:
(i) For purposes of this Section 2, capitalized terms used but not
otherwise defined herein shall have the respective meanings given to them
in the Escrow Agreement.
(ii) Assignor shall promptly provide written notice to Assignee
upon its becoming aware of any facts or circumstances that give rise to a
breach of representation, warranty or covenant under the Stock Purchase
Agreement. Assignee shall promptly provide written notice to Assignor
upon its becoming aware of any facts or circumstances that give rise to a
breach of representation, warranty or covenant under the Asset Purchase
Agreement.
(iii) Assignee agrees that it will promptly provide Escrow Agent
with a Notice of Claim in all instances where Assignee's claims pursuant
to the Asset Purchase Agreement may also be asserted by Assignor pursuant
to the Stock Purchase Agreement (a "Matching Claim"). The following
procedure shall be followed by Assignor and Assignee in connection with
each Matching Claim:
(a) Upon submission by Assignee to Escrow Agent of a Notice
of Claim with respect to any Matching Claim, Assignee shall direct
Escrow Agent in writing to make any disbursements required in
respect thereof directly to Assignee; and
(b) Upon the determination of the amount, if any, payable to
Assignee with respect to such Matching Claim, whether by
negotiation or litigation, and disbursement by Escrow Agent to
Assignee of such amount out of the Escrow Fund in respect of any
Matching Claim, Assignee agrees that such Matching Claim shall be
deemed fully paid and satisfied and neither Assignor nor Escrow
Agent shall have any further liability to Assignee with respect to
such Matching Claim, nor shall Assignee have any right to seek any
additional payments out of the Escrow Fund pursuant to the Asset
Purchase Agreement with respect to such Matching Claim.
(iv) In consideration of the mutual promises contained in this
Agreement, Assignee agrees that it will, if known, provide Escrow Agent
with a Notice of Claim in respect of any and all claims that may be
asserted by Assignor pursuant to the Stock Purchase Agreement but may not
be asserted by Assignee pursuant to the Asset Purchase Agreement (an
"Assignor Claim"). The following procedure shall be followed by Assignor
and Assignee in connection with each Assignor Claim:
(a) Upon submission by Assignee to Escrow Agent of a Notice
of Claim with respect to any Assignor Claim, Assignee shall direct
Escrow Agent in writing to make any disbursements required in
respect thereof directly to Assignee; and
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(b) Upon determination of the amount, if any, payable to
Assignee with respect to such Assignor Claim, whether by
negotiation or litigation, and disbursement by Escrow Agent to
Assignee of such amount out of the Escrow Fund in respect of any
Assignor Claim, Assignee shall within two business days thereafter
remit to Assignor by certified check or wire transfer to an account
designated by Assignor in writing an amount equal to the amounts
disbursed to Assignee with respect to such Assignor Claim, and
Assignor agrees that its claim shall be deemed fully paid and
satisfied upon receipt of such certified check or wire transfer and
that neither Assignee nor Escrow Agent shall have any further
liability to Assignor with respect to that claim, nor shall
Assignor have any right to seek any additional payments out of the
Escrow Fund pursuant to the Stock Purchase Agreement with respect
to that claim. Assignee shall not in any way be responsible to
Assignor with respect to any such claim except for the requirement
to deliver to Assignor amounts disbursed to Assignee with respect
to such claim from the Escrow Fund.
(v) Assignee agrees to pursue any Matching Claim only under the
claims procedures set forth in this Agreement and the Escrow Agreement.
(vi) Assignee shall promptly deliver to Assignor copies of any and
all Award Notices, Notices of Claims, Notices of Releases, Objections and
Withdrawal Notices received by it pursuant to Section 5 of the Escrow
Agreement.
(vii) Assignor and Assignee shall cooperate with each other
regarding the submission of any and all Notices of Claims to Escrow Agent
in connection with the Escrow Agreement, and each of them agree to take
any and all such reasonable actions that either of them deem necessary or
appropriate to otherwise effectuate the purpose and intent of this
Section 2.
3. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
4. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
5. Arbitration. Any dispute under this Agreement which is not settled by
mutual agreement among the parties hereto, shall be finally settled by binding
arbitration in New York, New York, conducted by and in accordance with the
rules then in effect of the Judicial Arbitration and Mediation Service. Each
party shall bear its own costs and attorneys' and witness' fees. The prevailing
party in any arbitration, as determined by the arbitration panel, shall be
entitled to an award against the other party in the amount of the prevailing
party's costs and reasonable attorneys' fees. In making any such award, the
arbitration panel shall take into consideration the outcome of the proceeding
and the reasonableness of the conduct of each such party in connection with the
dispute, in light of
-3-
<PAGE>
the facts known to such party at the time such party engaged in such conduct.
The arbitrator shall not have authority to award punitive damages hereunder.
6. Entire Agreement. This Agreement and the Asset Purchase Agreement
constitute the entire agreement between Assignor and Assignee with respect to
the subject matter hereof. This Agreement cancels and supersedes all prior
agreements, understandings and negotiations between the parties to this
Agreement with respect to the subject matter of this Agreement. This Agreement
may only be varied or modified by a written document executed by each of the
parties hereto.
7. Assignment. The rights and benefits of the parties under this
Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of such parties. Neither this Agreement nor any rights
or benefits hereunder may be assigned or transferred by any party hereto
without the prior written consent of all other parties hereto.
8. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to Assignee:
L-3 Communications Corporation
600 Third Avenue
New York, NY 10016
Telecopier Number: (212) 805-5494
Attention: Christopher C. Cambria
With a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Telecopier Number: (212) 455-2502
Attention: William E. Curbow
And if to Assignor:
FAP Trust
c/o First Union National Bank
10 State House Square
Hartford, CT 06103-3698
Telecopier Number: (860) 247-1356
Attention: W. Jeffrey Kramer
-4-
<PAGE>
With copies to:
Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, CA 94104
Telecopier Number: (415) 983-1200
Attention: Graham Taylor
and
Bingham Dana LLP
100 Pearl Street
Hartford, CT 06103
Telecopier Number: (860) 527-5188
Attention: James G. Scantling
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
party notice in the manner herein set forth.
9. Further Assurances. Each of the parties to this Agreement shall
execute such other documents and instruments and take such further actions as
may be reasonably required or desirable to carry out the provisions hereof.
10. No Recourse. It is expressly understood and agreed that this
Agreement is executed and delivered on behalf of Assignor by First Union
National Bank ("First Union"), not in its individual capacity but solely as
Trustee under the trust agreement under which Assignor is organized, in the
exercise of the powers and authority conferred and vested in it as the Trustee
thereunder, and each of the representations, warranties, undertakings and
agreements herein made on the part of Assignor is made and intended not as a
personal representation, warranty, undertaking or agreement by First Union but
is made and intended for the purpose of binding only the trust estate created
by the trust agreement under which Assignor is organized (the "Trust Estate"),
and all persons having any claim against First Union or Assignor by reason of
the transactions contemplated by this Agreement shall for payment or
satisfaction thereof not seek recourse against First Union except in its
capacity as trustee and then only to the extent of the Trust Estate.
-5-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Assignment
Agreement to be executed and delivered as of the date first above written.
ASSIGNEE
L-3 COMMUNICATIONS
CORPORATION
By: /s/ Christopher Cambria
-------------------------------
Name: Christopher Cambria
Title: Vice President
ASSIGNOR:
FAP TRUST
By: FIRST UNION NATIONAL BANK, not
in its individual capacity but
solely as trustee
By:
-------------------------------
Name: W. Jeffrey Kramer
Title: Vice-President
Consented to by:
THE FIRST NATIONAL BANK OF
CHICAGO as Escrow Agent under the
Escrow Agreement
By:
-------------------------------
Name:
Title:
6
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Assignment
Agreement to be executed and delivered as of the date first above written.
ASSIGNEE
L-3 COMMUNICATIONS
CORPORATION
By:
-------------------------------
Name:
Title:
ASSIGNOR:
FAP TRUST
By: FIRST UNION NATIONAL BANK, not
in its individual capacity but
solely as trustee
By: /s/ W. Jeffrey Kramer
-------------------------------
Name: W. Jeffrey Kramer
Title: Vice-President
Consented to by:
THE FIRST NATIONAL BANK OF
CHICAGO as Escrow Agent under the
Escrow Agreement
By:
-------------------------------
Name:
Title:
6
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Assignment
Agreement to be executed and delivered as of the date first above written.
ASSIGNEE
L-3 COMMUNICATIONS
CORPORATION
By:
-------------------------------
Name:
Title:
ASSIGNOR:
FAP TRUST
By: FIRST UNION NATIONAL BANK, not
in its individual capacity but
solely as trustee
By:
-------------------------------
Name: W. Jeffrey Kramer
Title: Vice-President
Consented to by:
THE FIRST NATIONAL BANK OF
CHICAGO as Escrow Agent under the
Escrow Agreement
By: /s/ John R. Prenolville
-------------------------------
Name: John R. Prenolville
Title: Vice President
6
<PAGE>
EXHIBIT VIII-7
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT dated as of March 4, 1998 is entered into by
and between L-3 COMMUNICATIONS CORPORATION a Delaware corporation, ("Assignee")
and FAP TRUST, a Connecticut trust ("Assignor").
WITNESSETH
WHEREAS, Assignor is a party to a Stock Purchase Agreement dated as of
February 9, 1998 (the "Stock Purchase Agreement") pursuant to which Seller
intends to acquire all of the outstanding capital stock of Ilex Systems, Inc.
(the "Company"); and
WHEREAS, pursuant to the Stock Purchase Agreement, Assignor and Joseph
Lopez ("Seller") have entered into that certain Confidentiality and
Non-Competition Agreement dated as of February __, 1998 (the "Non-Competition
Agreement"); and
WHEREAS, Assignor and Assignee have entered into an Asset Purchase
Agreement dated as of February 10, 1998 (the "Asset Purchase Agreement")
pursuant to which Assignee will acquire substantially all of the assets and
assume substantially all of the liabilities of the Company; and
WHEREAS, in connection with the Asset Purchase Agreement and the
transactions contemplated thereby, Assignor desires to assign to Assignee its
entire right, title and interest in, under and to the Non-Competition
Agreement, and Assignee desires to take such assignment from Assignor, all upon
the terms and conditions set forth below:
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
1. Assignment of the Non-Competition Agreement. Pursuant to and in
accordance with terms of Section 8 of the Non-Competition Agreement, Assignor
hereby assigns to Assignee all of Assignor's right, title and interest in,
under and to the Non-Competition Agreement, and Assignee hereby assumes all of
Assignor's duties and obligations under the Non-Competition Agreement.
2. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
3. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
<PAGE>
4. Entire Agreement. This Agreement and the Asset Purchase Agreement
constitute the entire agreement between Assignor and Assignee with respect to
the subject matter hereof. This Agreement cancels and supersedes all prior
agreements, understandings and negotiations between the parties to this
Agreement with respect to the subject matter of this Agreement. This Agreement
may only be varied or modified by a written document executed by each of the
parties hereto.
5. Assignment. The rights and benefits of the parties under this
Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of such parties. Neither this Agreement nor any rights
or benefits hereunder may be assigned or transferred by any party hereto
without the prior written consent of all other parties hereto.
6. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to Assignee:
L-3 Communications Corporation
600 Third Avenue
New York, NY 10016
Telecopier Number: (212) 805-5494
Attention: Christopher C. Cambria
With a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Telecopier Number: (212) 455-2502
Attention: William E. Curbow
And if to Assignor:
FAP Trust
c/o First Union National Bank
10 State House Square
Hartford, CT 06103-3698
Telecopier Number: (860) 247-1356
Attention: W. Jeffrey Kramer
-2-
<PAGE>
With copies to:
Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, CA 94104
Telecopier Number: (415) 983-1200
Attention: Graham Taylor
and
Bingham Dana LLP
100 Pearl Street
Hartford, CT 06103
Telecopier Number: (860) 527-5188
Attention: James G. Scantling
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
party notice in the manner herein set forth.
7. Further Assurances. Each of the parties to this Agreement shall
execute such other documents and instruments and take such further actions as
may be reasonably required or desirable to carry out the provisions hereof.
8. No Recourse. It is expressly understood and agreed that this
Agreement is executed and delivered on behalf of Assignor by First Union
National Bank ("First Union"), not in its individual capacity but solely as
Trustee under the trust agreement under which Assignor is organized, in the
exercise of the powers and authority conferred and vested in it as the Trustee
thereunder, and each of the representations, warranties, undertakings and
agreements herein made on the part of Assignor is made and intended not as a
personal representation, warranty, undertaking or agreement by First Union but
is made and intended for the purpose of binding only the trust estate created
by the trust agreement under which Assignor is organized (the "Trust Estate"),
and all persons having any claim against First Union or Assignor by reason of
the transactions contemplated by this Agreement shall for payment or
satisfaction thereof not seek recourse against First Union except in its
capacity as trustee and then only to the extent of the Trust Estate.
-3-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Assignment
Agreement to be executed and delivered as of the date first above written.
ASSIGNEE
L-3 COMMUNICATIONS
CORPORATION
By: /s/ Christopher Cambria
-------------------------------
Name: Christopher Cambria
Title: Vice President
ASSIGNOR:
FAP TRUST
By: FIRST UNION NATIONAL BANK, not
in its individual capacity but
solely as trustee
By:
-------------------------------
Name: W. Jeffrey Kramer
Title: Vice-President
4
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Assignment
Agreement to be executed and delivered as of the date first above written.
ASSIGNEE
L-3 COMMUNICATIONS
CORPORATION
By:
-------------------------------
Name: Christopher Cambria
Title: Vice President
ASSIGNOR:
FAP TRUST
By: FIRST UNION NATIONAL BANK, not
in its individual capacity but
solely as trustee
By: /s/ W. Jeffrey Kramer
-------------------------------
Name: W. Jeffrey Kramer
Title: Vice-President
5
<PAGE>
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT dated as of March 4, 1998 is entered into by
and between L-3 COMMUNICATIONS CORPORATION, a Delaware corporation,
("Assignee") and FAP TRUST, a Connecticut trust ("Assignor").
WITNESSETH
WHEREAS, Assignor is a party to a Stock Purchase Agreement dated as of
February 9, 1998 (the "Stock Purchase Agreement") pursuant to which Seller
intends to acquire all of the outstanding capital stock of Ilex Systems, Inc.
(the "Company"); and
WHEREAS, pursuant to the Stock Purchase Agreement, Assignor and Donald
Potter ("Seller") have entered into that certain Confidentiality and
Non-Competition Agreement dated as of February __, 1998 (the "Non-Competition
Agreement"); and
WHEREAS, Assignor and Assignee have entered into an Asset Purchase
Agreement dated as of February 10, 1998 (the "Asset Purchase Agreement")
pursuant to which Assignee will acquire substantially all of the assets and
assume substantially all of the liabilities of the Company; and
WHEREAS, in connection with the Asset Purchase Agreement and the
transactions contemplated thereby, Assignor desires to assign to Assignee its
entire right, title and interest in, under and to the Non-Competition
Agreement, and Assignee desires to take such assignment from Assignor, all upon
the terms and conditions set forth below:
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
1. Assignment of the Non-Competition Agreement. Pursuant to and in
accordance with terms of Section 8 of the Non-Competition Agreement, Assignor
hereby assigns to Assignee all of Assignor's right, title and interest in,
under and to the Non-Competition Agreement, and Assignee hereby assumes all of
Assignor's duties and obligations under the Non-Competition Agreement.
2. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
3. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
<PAGE>
4. Entire Agreement. This Agreement and the Asset Purchase Agreement
constitute the entire agreement between Assignor and Assignee with respect to
the subject matter hereof. This Agreement cancels and supersedes all prior
agreements, understandings and negotiations between the parties to this
Agreement with respect to the subject matter of this Agreement. This Agreement
may only be varied or modified by a written document executed by each of the
parties hereto.
5. Assignment. The rights and benefits of the parties under this
Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of such parties. Neither this Agreement nor any rights
or benefits hereunder may be assigned or transferred by any party hereto
without the prior written consent of all other parties hereto.
6. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to Assignee:
L-3 Communications Corporation
600 Third Avenue
New York, NY 10016
Telecopier Number: (212) 805-5494
Attention: Christopher C. Cambria
With a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Telecopier Number: (212) 455-2502
Attention: William E. Curbow
And if to Assignor:
FAP Trust
c/o First Union National Bank
10 State House Square
Hartford, CT 06103-3698
Telecopier Number: (860) 247-1356
Attention: W. Jeffrey Kramer
-2-
<PAGE>
With copies to:
Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, CA 94104
Telecopier Number: (415) 983-1200
Attention: Graham Taylor
and
Bingham Dana LLP
100 Pearl Street
Hartford, CT 06103
Telecopier Number: (860) 527-5188
Attention: James G. Scantling
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
party notice in the manner herein set forth.
7. Further Assurances. Each of the parties to this Agreement shall
execute such other documents and instruments and take such further actions as
may be reasonably required or desirable to carry out the provisions hereof.
8. No Recourse. It is expressly understood and agreed that this
Agreement is executed and delivered on behalf of Assignor by First Union
National Bank ("First Union"), not in its individual capacity but solely as
Trustee under the trust agreement under which Assignor is organized, in the
exercise of the powers and authority conferred and vested in it as the Trustee
thereunder, and each of the representations, warranties, undertakings and
agreements herein made on the part of Assignor is made and intended not as a
personal representation, warranty, undertaking or agreement by First Union but
is made and intended for the purpose of binding only the trust estate created
by the trust agreement under which Assignor is organized (the "Trust Estate"),
and all persons having any claim against First Union or Assignor by reason of
the transactions contemplated by this Agreement shall for payment or
satisfaction thereof not seek recourse against First Union except in its
capacity as trustee and then only to the extent of the Trust Estate.
-3-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Assignment
Agreement to be executed and delivered as of the date first above written.
ASSIGNEE
L-3 COMMUNICATIONS
CORPORATION
By: /s/ Christopher Cambria
-------------------------------
Name: Christopher Cambria
Title: Vice President
ASSIGNOR:
FAP TRUST
By: FIRST UNION NATIONAL BANK, not
in its individual capacity but
solely as trustee
By:
-------------------------------
Name: W. Jeffrey Kramer
Title: Vice-President
4
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Assignment
Agreement to be executed and delivered as of the date first above written.
ASSIGNEE
L-3 COMMUNICATIONS
CORPORATION
By:
-------------------------------
Name: Christopher Cambria
Title: Vice President
ASSIGNOR:
FAP TRUST
By: FIRST UNION NATIONAL BANK, not
in its individual capacity but
solely as trustee
By: /s/ W. Jeffrey Kramer
-------------------------------
Name: W. Jeffrey Kramer
Title: Vice-President
4
<PAGE>
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT dated as of March 4, 1998 is entered into by
and between L-3 COMMUNICATIONS CORPORATION, a Delaware corporation,
("Assignee") and FAP TRUST, a Connecticut trust ("Assignor").
WITNESSETH
WHEREAS, Assignor is a party to a Stock Purchase Agreement dated as of
February 9, 1998 (the "Stock Purchase Agreement") pursuant to which Seller
intends to acquire all of the outstanding capital stock of Ilex Systems, Inc.
(the "Company"); and
WHEREAS, pursuant to the Stock Purchase Agreement, Assignor and Erwin P.
Frech, Jr. ("Seller") have entered into that certain Confidentiality and
Non-Competition Agreement dated as of February __, 1998 (the "Non-Competition
Agreement"); and
WHEREAS, Assignor and Assignee have entered into an Asset Purchase
Agreement dated as of February 10, 1998 (the "Asset Purchase Agreement")
pursuant to which Assignee will acquire substantially all of the assets and
assume substantially all of the liabilities of the Company; and
WHEREAS, in connection with the Asset Purchase Agreement and the
transactions contemplated thereby, Assignor desires to assign to Assignee its
entire right, title and interest in, under and to the Non-Competition
Agreement, and Assignee desires to take such assignment from Assignor, all upon
the terms and conditions set forth below:
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
1. Assignment of the Non-Competition Agreement. Pursuant to and in
accordance with terms of Section 8 of the Non-Competition Agreement, Assignor
hereby assigns to Assignee all of Assignor's right, title and interest in,
under and to the Non-Competition Agreement, and Assignee hereby assumes all of
Assignor's duties and obligations under the Non-Competition Agreement.
2. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
3. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
<PAGE>
4. Entire Agreement. This Agreement and the Asset Purchase Agreement
constitute the entire agreement between Assignor and Assignee with respect to
the subject matter hereof. This Agreement cancels and supersedes all prior
agreements, understandings and negotiations between the parties to this
Agreement with respect to the subject matter of this Agreement. This Agreement
may only be varied or modified by a written document executed by each of the
parties hereto.
5. Assignment. The rights and benefits of the parties under this
Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of such parties. Neither this Agreement nor any rights
or benefits hereunder may be assigned or transferred by any party hereto
without the prior written consent of all other parties hereto.
6. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to Assignee:
L-3 Communications Corporation
600 Third Avenue
New York, NY 10016
Telecopier Number: (212) 805-5494
Attention: Christopher C. Cambria
With a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Telecopier Number: (212) 455-2502
Attention: William E. Curbow
And if to Assignor:
FAP Trust
c/o First Union National Bank
10 State House Square
Hartford, CT 06103-3698
Telecopier Number: (860) 247-1356
Attention: W. Jeffrey Kramer
-2-
<PAGE>
With copies to:
Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, CA 94104
Telecopier Number: (415) 983-1200
Attention: Graham Taylor
and
Bingham Dana LLP
100 Pearl Street
Hartford, CT 06103
Telecopier Number: (860) 527-5188
Attention: James G. Scantling
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
party notice in the manner herein set forth.
7. Further Assurances. Each of the parties to this Agreement shall
execute such other documents and instruments and take such further actions as
may be reasonably required or desirable to carry out the provisions hereof.
8. No Recourse. It is expressly understood and agreed that this
Agreement is executed and delivered on behalf of Assignor by First Union
National Bank ("First Union"), not in its individual capacity but solely as
Trustee under the trust agreement under which Assignor is organized, in the
exercise of the powers and authority conferred and vested in it as the Trustee
thereunder, and each of the representations, warranties, undertakings and
agreements herein made on the part of Assignor is made and intended not as a
personal representation, warranty, undertaking or agreement by First Union but
is made and intended for the purpose of binding only the trust estate created
by the trust agreement under which Assignor is organized (the "Trust Estate"),
and all persons having any claim against First Union or Assignor by reason of
the transactions contemplated by this Agreement shall for payment or
satisfaction thereof not seek recourse against First Union except in its
capacity as trustee and then only to the extent of the Trust Estate.
-3-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Assignment
Agreement to be executed and delivered as of the date first above written.
ASSIGNEE
L-3 COMMUNICATIONS
CORPORATION
By: /s/ Christopher Cambria
-------------------------------
Name: Christopher Cambria
Title: Vice President
ASSIGNOR:
FAP TRUST
By: FIRST UNION NATIONAL BANK, not
in its individual capacity but
solely as trustee
By:
-------------------------------
Name: W. Jeffrey Kramer
Title: Vice-President
4
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Assignment
Agreement to be executed and delivered as of the date first above written.
ASSIGNEE
L-3 COMMUNICATIONS
CORPORATION
By:
-------------------------------
Name: Christopher Cambria
Title: Vice President
ASSIGNOR:
FAP TRUST
By: FIRST UNION NATIONAL BANK, not
in its individual capacity but
solely as trustee
By: /s/ W. Jeffrey Kramer
-------------------------------
Name: W. Jeffrey Kramer
Title: Vice-President
4
<PAGE>
ASSET PURCHASE AGREEMENT
AMONG
ALLIEDSIGNAL INC.,
ALLIEDSIGNAL TECHNOLOGIES, INC.,
ALLIEDSIGNAL DEUTSCHLAND GMBH
AND
L-3 COMMUNICATIONS CORPORATION
DATED AS OF MARCH 30, 1998
<PAGE>
ASSET PURCHASE AGREEMENT
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1. PURCHASE AND SALE................................................................................... 1
1.1 Purchase and Sale........................................................................ 1
1.2 Non-Assignable Assets.................................................................... 3
1.3 Excluded Assets.......................................................................... 3
1.4 Transfer of the Assets................................................................... 4
1.5 Sale and Transfer of ELAC Shares......................................................... 4
1.6 License Agreement........................................................................ 5
ARTICLE 2. CLOSING; PURCHASE PRICE............................................................................. 5
2.1 Closing Date and Place................................................................... 5
2.2 Purchase Price........................................................................... 5
2.3 Income Taxes............................................................................. 5
2.4 Cash True-Up............................................................................. 5
2.5 Allocation of Purchase Price............................................................. 6
2.6 Payments................................................................................. 6
2.7 Transfer Taxes........................................................................... 6
ARTICLE 3. ASSUMPTION OF LIABILITIES AND OBLIGATIONS............................................................ 7
3.1 Assumed Liabilities...................................................................... 7
3.2 Excluded Liabilities..................................................................... 7
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF SELLERS........................................................... 8
4.1 Corporate Status......................................................................... 8
4.2 Authorization............................................................................ 8
4.3 Compliance............................................................................... 9
4.4 [Intentionally left blank]............................................................... 9
4.5 Personal Property........................................................................ 9
4.6 Intellectual Property.................................................................... 10
4.7 Contracts and Binding Commitments........................................................ 10
4.8 Title.................................................................................... 11
4.9 Litigation............................................................................... 11
4.10 Environmental Matters.................................................................... 11
4.11 Employee Benefit Plans and Policies...................................................... 12
4.12 Material Changes......................................................................... 13
4.13 [Intentionally left blank]............................................................... 15
4.14 Compliance with Law...................................................................... 15
4.15 Consents................................................................................. 15
4.16 Taxes.................................................................................... 15
4.17 Permits and Licenses..................................................................... 16
4.18 Ownership of ELAC Shares................................................................. 16
4.19 Labor Relations.......................................................................... 16
4.20 Brokerage Fees........................................................................... 17
i
<PAGE>
Page
----
4.21 Government Contracts..................................................................... 17
4.22 Government Furnished Equipment........................................................... 19
4.23 Entire Business.......................................................................... 19
4.24 Real Estate.............................................................................. 19
4.25 Insurance................................................................................ 20
4.26 Affiliate Transactions................................................................... 20
4.27 No Additional Representations............................................................ 21
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER......................................................... 21
5.1 Corporate Status......................................................................... 21
5.2 Authorization............................................................................ 21
5.3 Compliance............................................................................... 21
5.4 Due Diligence............................................................................ 22
5.5 Financing................................................................................ 22
5.6 Investment Representation................................................................ 22
5.7 Conveyances and Restrictions............................................................. 22
5.8 Brokerage Fees........................................................................... 22
ARTICLE 6. EMPLOYEES AND EMPLOYEE BENEFITS..................................................................... 22
6.1 Employment............................................................................... 22
6.2 Compensation and Benefits - U.S. Employees............................................... 23
6.3 Severance and WARN Act................................................................... 24
6.4 Health Care Continuation Liability....................................................... 24
6.5 Pension Plan............................................................................. 24
6.6 Savings Plan............................................................................. 26
6.7 Labor Agreements......................................................................... 27
ARTICLE 7. PRE-CLOSING COVENANTS............................................................................... 27
7.1 [Intentionally left blank]............................................................... 27
7.2 [Intentionally left blank]............................................................... 27
7.3 [Intentionally left blank]............................................................... 27
7.4 [Intentionally left blank]............................................................... 27
7.5 Workers' Compensation.................................................................... 27
7.6 Insurance-Primary Casualty Program....................................................... 27
7.6.1 Claims Responsibility and Procedures........................................ 27
7.7 No Inconsistent Action................................................................... 28
7.8 [Intentionally left blank]............................................................... 28
7.9 Non-Solicitation......................................................................... 28
7.10 Refunds and Remittances.................................................................. 28
7.11 Enforcement of Confidentiality Provisions................................................ 28
7.12 Novation of Government Contracts......................................................... 28
7.13 Further Actions.......................................................................... 28
7.14 Letters of Credit........................................................................ 29
7.15 1985 Capitalization of ELAC.............................................................. 29
7.16 MCDV Subcontract......................................................................... 29
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ARTICLE 8. CONDITIONS TO CLOSING............................................................................... 30
8.1 Conditions to the Obligations of Purchaser............................................... 30
8.2 Conditions to the Obligations of Sellers................................................. 31
ARTICLE 9. TERMINATION AND SURVIVAL............................................................................ 31
9.1 Termination.............................................................................. 31
9.2 Effect of Termination.................................................................... 32
ARTICLE 10. CLOSING DOCUMENTS.................................................................................. 32
10.1 Documents to be Delivered by Sellers..................................................... 32
10.2 Documents to be Delivered by Purchaser................................................... 33
ARTICLE 11. POST CLOSING OBLIGATIONS........................................................................... 34
11.1 Further Assurances....................................................................... 34
11.2 Access to Books and Records.............................................................. 34
11.3 Cooperation in Litigation................................................................ 34
11.4 Proprietary Information.................................................................. 34
11.5 Covenant Not to Compete.................................................................. 35
11.6 Change of Name........................................................................... 35
11.7 Tax Election............................................................................. 35
11.8 Research and Experimental Expenses....................................................... 35
11.9 Pooling Arrangement...................................................................... 35
ARTICLE 12. INDEMNIFICATION.................................................................................... 35
12.1 Indemnification by Sellers............................................................... 35
12.2 Tax Indemnification...................................................................... 36
12.3 Indemnification by Purchaser............................................................. 36
12.4 Indemnification Procedure................................................................ 37
12.5 Survival and Limitations................................................................. 38
12.6 Adjustment for Insurance and Taxes....................................................... 38
12.7 Environmental Liabilities................................................................ 39
12.8 Facility Sale Agreement.................................................................. 39
ARTICLE 13. MISCELLANEOUS...................................................................................... 39
13.1 Expenses................................................................................. 39
13.2 Notices.................................................................................. 39
13.3 Confidentiality.......................................................................... 40
13.4 Counterparts............................................................................. 40
13.5 Entire Agreement/Termination of December Agreement....................................... 40
13.6 Construction............................................................................. 41
13.7 Assignment............................................................................... 41
13.8 Amendment................................................................................ 41
13.9 Applicable Law........................................................................... 41
13.10 No Third Party Rights.................................................................... 41
13.11 Exhibits and Schedules................................................................... 41
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13.12 Waivers.................................................................................. 41
13.13 Severability............................................................................. 42
13.14 Bulk Sales Law........................................................................... 42
13.15 Knowledge of Sellers..................................................................... 42
13.16 Personal Liability....................................................................... 42
EXHIBIT A -- License Agreement
EXHIBIT B -- Transition Services Agreement
</TABLE>
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SCHEDULES
1 Products
1.1(a) Personal Property
1.3(j) Excluded Assets
4.6(a) Intellectual Property
4.6(c) Licensed Intellectual Property
4.6(d) Intellectual Property
4.7 Contracts
4.8 Title and Leases
4.9 Litigation
4.10 Environmental Disclosure
4.11 Benefit Plans and Policies
4.12 Material Changes
4.14 Compliance with Law
4.15 Consents
4.16 ELAC Taxes
4.17 Permits and Licenses
4.19 Labor Relations
4.19(x) Labor Relations
4.21(a) - (e) Government Contracts
4.22 Government Furnished Equipment
4.23 Entire Business
4.24 Real Estate
4.25 Insurance
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4.26 Affiliate Transactions
6.2(a) Retention Agreements
6.5(b) Actuarial Methods and Assumptions
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ASSET PURCHASE AGREEMENT
------------------------
ASSET PURCHASE AGREEMENT (the "Agreement") dated as of March 30, 1998
among AlliedSignal Inc., a Delaware corporation ("AlliedSignal"), AlliedSignal
Technologies, Inc., an Arizona corporation and a wholly owned subsidiary of
AlliedSignal ("ASTI"), AlliedSignal Deutschland GmbH, a German corporation and
a wholly owned subsidiary of AlliedSignal ("AS Deutschland" and, collectively
with ASTI and AlliedSignal, the "Sellers"), and L-3 Communications Corporation,
a Delaware corporation ("Purchaser").
WITNESSETH:
WHEREAS, AlliedSignal is engaged exclusively through AlliedSignal's
Ocean Systems business unit ("Ocean Systems") and through AlliedSignal ELAC
Nautik GmbH ("ELAC"), a wholly owned subsidiary of AS Deutschland, in the
business (the "Business") of developing, manufacturing and selling the products
and services (the "Products") listed on Schedule 1 hereto, together with
services associated with such Products; all of which Products as produced by
the Business during the last 24 months are listed in Schedule 1 hereto;
WHEREAS, certain of the intellectual property used by Ocean Systems
is owned by ASTI;
WHEREAS, AlliedSignal desires to sell and Purchaser desires to
purchase the assets of Sellers primarily related to, or used primarily in
connection with, the Business as described herein.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
representations and warranties contained herein, the parties agree as follows:
ARTICLE 1. PURCHASE AND SALE
1.1 Purchase and Sale of Assets and Stock. Subject to the terms and
conditions of this Agreement and except as otherwise provided herein, at the
Closing (as defined in Section 2.1), Sellers shall sell, convey, transfer,
assign and deliver to Purchaser, and Purchaser shall purchase and accept from
Sellers, all direct or indirect right, title and interest of Sellers in the
assets, whether tangible or intangible, real or personal, primarily related to,
or used primarily in connection with, the Business prior to the Closing, other
than Excluded Assets (as defined in Section 1.3), together with all of AS
Deutschland's right, title and interest in the ELAC capital stock described in
Section 1.1(o) below (the "Assets"), including, without limitation, the
following:
(a) all machinery and equipment, fixtures, furniture, office
equipment, vehicles, boats, ships, tools and other tangible personal property
set forth on Schedule 1.1(a) as of the date indicated thereon (collectively,
the "Personal Property");
(b) all accounts receivable and other receivables as of the
Closing Date, whether recorded or unrecorded (the "Accounts Receivable");
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(c) all inventory and other supplies on hand, in transit or
on order as of the Closing Date, wherever located, including raw materials,
work-in-process and finished goods (the "Inventory");
(d) subject to the exclusions set forth in Section 1.3(f) and
(h), all intellectual property, including without limitation all (i)
inventions, discoveries, processes, formulae, designs, methods, techniques,
procedures, concepts, developments, technology, new and useful improvements
thereof and know-how relating thereto, whether or not patented or eligible for
patent protection; copyrights and copyrightable works, including computer
applications, programs, software, databases and related items; trademarks,
service marks, trade names (including, but not limited to, the "Ocean Systems"
trade name), brand names, logos and trade dress, the goodwill of any business
symbolized thereby, and all common-law rights relating thereto; trade secrets
and other confidential information; (ii) registrations, applications,
recordings, and licenses or other similar agreements related to the foregoing;
(iii) rights to sue at law or in equity for any infringement or other
impairment of the foregoing occurring prior to the Closing Date; and (iv)
rights to obtain reissues, re-examinations, continuations,
continuations-in-part, divisions, extensions, renewals or other legal
protections pertaining to the foregoing (the "Intellectual Property");
(e) all contracts, agreements, arrangements and/or
commitments (the "Contracts");
(f) all transferable governmental and other permits,
licenses, approvals, certificates of inspection, filings, franchises and other
authorizations relating to the Assets including, but not limited to, those
listed in Schedules 4.10 and 4.17 hereto (the "Permits and Licenses");
(g) prepaid expenses, except insurance premiums, but only
if and to the extent of the benefit conferred by such prepaid expenses to the
Business after the Closing Date;
(h) all transferable rights of Sellers pursuant to any
express or implied warranties, representations or guarantees relating to any
Personal Property or made by suppliers furnishing goods or services to Sellers;
(i) all lists, files and documents, including, but not
limited to, all business records, tangible data, computer software, electronic
media and management information systems, disks, files, customer lists,
supplier lists, blueprints, specifications, designs, drawings, plans, operation
or maintenance manuals, bids, personnel records, policy manuals, invoices,
credit reports, sales literature, tax, financial and accounting records and all
other books and records (the "Books and Records").
(j) all interests in real estate, whether leased or owned,
excluding the land, building and improvements located at Sylmar, California
(the "Facility"),
(k) all security (including cash) deposited with third
parties and all security bonds;
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(l) all goodwill and going concern value (without any
representation as to any value thereof);
(m) all claims, causes of action, choses in action, rights of
recovery and rights of set-off of any kind against other parties (other than
those related to Excluded Assets or Excluded Liabilities);
(n) all insurance proceeds arising out of or related to
damage, destruction or loss of any property or asset of or used primarily in
connection with the Business to the extent of any damage or destruction that
remains unrepaired, or to the extent any property or asset remains unreplaced,
at the Closing Date; and
(o) all the issued and outstanding capital stock and rights
in respect of such capital stock of ELAC (the "ELAC Shares").
1.2 Non-Assignable Assets. Notwithstanding anything to the contrary
contained in this Agreement, to the extent the sale, assignment, transfer,
conveyance or delivery to Purchaser of any Asset, or any other item to be
delivered at Closing, such as a permit, license or consent, is prohibited by
any foreign, federal, state or local statutes, laws or regulations applicable
to the Assets or the operation of the Business (an "Applicable Law") or would
require any governmental or third party authorizations, approvals, consents or
waivers which shall not have been obtained prior to the Closing (after Sellers'
reasonable best efforts to obtain them), this Agreement shall not constitute a
sale, assignment, transfer, conveyance or delivery thereof. Following the
Closing, the parties shall use reasonable best efforts and cooperate with each
other to obtain promptly such authorizations, approvals, consents or waivers;
provided, however, that neither Sellers nor Purchaser shall be required to pay
any consideration therefor, other than filing, recordation or similar fees
payable to any governmental authority, which fees shall be paid in accordance
with Section 2.6. Pending such authorization, approval, consent or waiver, the
parties shall cooperate with each other in any commercially reasonable and
lawful arrangements designed to provide to Purchaser the benefits of use of
such Asset. Once such authorization, approval, consent or waiver is obtained,
the Sellers shall promptly assign, transfer, convey and deliver such Asset to
Purchaser for no additional consideration. To the extent that any such Asset
cannot be transferred or the full benefits of use of any such Asset cannot be
provided to Purchaser following the Closing, then Purchaser and Sellers shall
enter into such arrangements for no additional consideration from Purchaser
(including subleasing or subcontracting if permitted) to provide Purchaser the
economic (taking into account tax costs and benefits) and operational
equivalent of obtaining such authorization, approval, consent or waiver.
1.3 Excluded Assets. Notwithstanding anything to the contrary
contained in this Agreement, the following are not included in the Assets and
not intended to be sold, assigned, transferred or conveyed to Purchaser
hereunder (the "Excluded Assets"):
(a) assets primarily related to, or used primarily in
connection with, Sellers' businesses other than the Business, including, but
not limited to, the assets primarily related to, or used primarily in
connection with, Sellers' avionics repair and overhaul business conducted at
the Facility;
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(b) except as set forth in Section 2.4, cash, cash
equivalents and overdrafts;
(c) intercompany receivables and intercompany prepaid
expenses, other than (i) trade receivables of the Business for goods delivered
in the ordinary course of business and (ii) the intercompany note receivable
between Ocean Systems and ELAC with respect to cash in the AlliedSignal German
cash pool (the "Intercompany Note");
(d) Books and Records which Sellers are required by law to
retain; provided, however, that in the event of such legal requirement, Sellers
shall retain copies of such Books and Records and deliver the original Books
and Records to Purchaser unless Sellers are legally obligated to retain the
original records in which case the copies of such Books and Records shall be
provided to Purchaser;
(e) the basic books and records of account and all supporting
vouchers, invoices and other records and materials relating to any or all
income taxes of Sellers; other than all such materials relating solely to the
Business and located at the Facility or at ELAC's headquarters in Kiel, Germany
(the "ELAC Facility");
(f) except as granted pursuant to Section 1.1(d) any right to
use any name or logo of Sellers or any Affiliate or any confusingly similar
variant or derivative thereof, including but not limited to "Allied-Signal",
"AlliedSignal", "Allied", "Allied Chemical," "Signal," "Bendix," "Bendix
Oceanics" or "Bendix Oceanics, Inc.";
(g) the insurance policies of Sellers, including without
limitation those pertaining to the Business and the Facility, and the rights
of Sellers thereunder;
(h) the Intellectual Property listed in Schedule 4.6 (c)
(the "Licensed Property");
(i) assets of employee benefit plans, except as provided
in Article 6;
(j) the assets listed in Schedule 1.3(j); and
(k) the Facility.
1.4 Transfer of the Assets. Sellers shall sell, convey, transfer,
assign and deliver the Assets to Purchaser at the Closing by means of deeds,
bills of sale, assignments, endorsements, consents, certificates and such other
good and sufficient instruments of transfer in form and substance reasonably
satisfactory to Purchaser, and all in recordable form, where applicable, as
shall be necessary or appropriate to vest in Purchaser all right, title,
ownership and interest of Sellers in and to the Assets as provided in this
Agreement or in the Schedules hereto.
1.5 Sale and Transfer of ELAC Shares. Sellers shall cause to be
delivered to the Purchaser certificates representing the ELAC Shares, duly
endorsed, or accompanied by stock powers duly executed, with all necessary
stock transfer stamps attached thereto and cancelled,
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or such other assignments, deeds, share transfer forms, endorsements, notarial
deeds of transfer or other instruments or documents, duly stamped where
necessary.
1.6 License Agreement. On or prior to the Closing Date, ASTI and
Purchaser shall enter into a license agreement in the form attached hereto as
Exhibit A, with respect to the intellectual property identified in Schedule
4.6(c).
ARTICLE 2. CLOSING; PURCHASE PRICE
2.1 Closing Date and Place. On and subject to the conditions set forth
herein, the consummation of the purchase and sale contemplated hereby (the
"Closing") will take place at the offices of AlliedSignal in Morristown, NJ at
10:00 a.m., local time, on March 30, 1998, or at such other time and place as
shall be agreed upon by the parties hereto. The date upon which the Closing
occurs is referred to herein as the "Closing Date". The Closing shall be
effective as of 11:59 p.m. on the Closing Date. In addition, subsequent to the
Closing, Purchaser and Sellers shall call the notary in Europe in order to
perfect the transfer of the ELAC Shares by way of a notarial deed.
2.2 Purchase Price. (a) The purchase price to be paid by
Purchaser for the Assets including the ELAC Shares, is Sixty-Seven Million
Five Hundred Thousand Dollars ($67,500,000) (the "Purchase Price"). The
Purchase Price shall be paid by Purchaser in full at Closing in immediately
available funds.
(b) The parties acknowledge the existence of a receivable
relating to a contract dated December 19, 1997 (the "Turkey Contract") pursuant
to which Ocean Systems is to supply to the Turkish Navy four (4) AQS-18A
dipping sonar systems, plus spares, ground support equipment and performance
testing (the "Turkey Receivable"). In the event that any cash is received by
AlliedSignal in respect of the Turkey Receivable, whether before, on or after
the Closing Date (each a "Turkey Cash Receipt"), AlliedSignal shall pay to L-3
an amount in cash equal to all Turkey Cash Receipts, on April 1, 1998, or if
any Turkey Cash Receipt is received by AlliedSignal after April 1, 1998, on the
date of such receipt.
2.3 Income Taxes. As soon as reasonably practicable, the parties shall
prepare a calculation of income tax liability or tax benefit based on the
income or loss reflected on the books and records of the Business determined on
a basis consistent with prior periods (excluding any income or loss
attributable to the Turkey Contract) for the period beginning after December
31, 1997 (the "Effective Date") and ending on the close of the Closing Date
multiplied by 36.6%. The calculation of book income or loss for such period
shall be computed by means of a closing of the books and records of the
Business as of the Closing Date, and, to the extent not practical, by
apportionment on the basis of elapsed days. Buyer shall pay to Seller any such
income tax liability and Seller shall pay to Buyer any such income tax benefit
within 60 days thereof.
2.4 Cash True-Up. Within fifteen business days after the
Closing Date, AlliedSignal shall prepare and deliver to Purchaser a schedule
setting forth, on a daily basis, the cash generated by the Business from
12:01 a.m. on the first day following the Effective
5
<PAGE>
Date through and including the Closing Date. Purchaser shall have three
business days from receipt to review the schedule and AlliedSignal shall give
Purchaser reasonable access to its books and records for the purpose of
confirming the calculations of AlliedSignal pursuant to this Section 2.4. Any
dispute with respect to the schedule shall be resolved in good faith by the
parties. Within three business days after the expiration of such review period
(or the resolution of any dispute), Purchaser shall make payment to
AlliedSignal if the schedule shows a net cash usage by the Business during such
period and AlliedSignal shall make payment to Purchaser if the schedule shows
net cash generation during such period in an amount equal to such net cash
usage or net cash generation, as the case may be; provided, however, that if
AlliedSignal shall pay to Purchaser any amount pursuant to Section 2.2(b) in
respect of a Turkey Cash Receipt received on or prior to the Closing Date, and
the amount of such Turkey Cash Receipt would have been a cash generation under
this Section 2.4 but for this proviso, then the amount of any such Turkey Cash
Receipt shall be excluded in calculating net cash generation or a cash usage
under this Section 2.4. Any payment to be made pursuant to this Section 2.4
shall be made in immediately available funds by wire transfer to a bank account
designated in writing by the party entitled to receive the payment.
AlliedSignal shall be responsible for paying any checks outstanding as of the
Effective Date.
2.5 Allocation of Purchase Price. The Sellers and the Purchaser agree
to allocate the Purchase Price of the Assets including the covenant not to
compete, in accordance with the rules under Section 1060 of the Internal
Revenue Code of 1986, as amended (the "Code") and the Treasury Regulations
promulgated thereunder. Such allocation shall be mutually agreed between the
Sellers and the Purchaser. The Sellers and the Purchaser recognize that the
Purchase Price does not include Purchaser's acquisition expenses and that
Purchaser will allocate such expenses appropriately. Sellers and the Purchaser
agree to act in accordance with the computations and allocations as determined
pursuant to this Section 2.5 (including any modifications thereto reflecting
any post-Closing adjustments, such adjustments shall be allocated in accordance
with the character of each such adjustment, on a basis consistent with the
allocation under this Section 2.5) in any relevant Tax Returns or filings,
including any forms or reports required to be filed pursuant to Section 1060 of
the Code, the Treasury Regulations promulgated thereunder or any provisions of
local, state and foreign law ("1060 Forms"), and to cooperate in the
preparation of any 1060 Forms and to file such 1060 Forms in the manner
required by Applicable Law.
2.6 Payments. All payments required to be made pursuant to this
Article 2 and other provisions of this Agreement shall be made in United States
dollars in immediately available funds by wire transfer to an account
designated by the party to receive payment in writing to the party making
payment.
2.7 Transfer Taxes. Purchaser and Sellers shall each bear 50% of all
sales, transfer and similar taxes, duties or levies (other than taxes computed
on the basis of income) assessed or payable in connection with the transfer of
the Assets including the ELAC Shares to Purchaser, including notary fees
relating to the transfer of the ELAC Shares; provided that in no event shall
Sellers be required to pay more than $500,000 in respect thereof, including any
amounts paid by AlliedSignal pursuant to Section 2.4 of the real estate
purchase agreement, dated as of December 22, 1997 (the "Facility Sale
Agreement"), between AlliedSignal and Purchaser. Purchaser and Sellers agree to
cooperate with one another to try
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to minimize such taxes to the extent practicable without additional costs or
liabilities to Purchaser or Sellers. To the extent any exemptions from such
taxes are available, Purchaser and Sellers shall cooperate to obtain and
prepare all required resale or other exemption certificates with respect to the
Assets and the ELAC Shares.
ARTICLE 3. ASSUMPTION OF LIABILITIES AND OBLIGATIONS
3.1 Assumed Liabilities. Except for the Excluded Liabilities,
Purchaser shall, without any further responsibility or liability of, or
recourse to, Sellers, except as set forth herein, absolutely and irrevocably
assume and be solely liable and responsible for any and all liabilities and
obligations of any kind or nature, whether foreseen or unforeseen, known or
unknown, existing or which may arise in the future, fixed or contingent,
matured or unmatured, to the extent primarily related to the Business or the
Assets prior to, on, or following the Closing Date (the "Assumed Liabilities")
including, but not limited to:
(a) obligations to fill purchase orders of customers
of the Business to the extent such orders are unfilled on the Closing Date;
(b) obligations incurred through the Closing Date to
purchase or pay for goods and services for the Business to be received on or
after the Closing Date;
(c) obligations and liabilities under the Contracts; provided
that any Contract as to which consent to assignment is required but has not
been obtained shall not be deemed an Assumed Liability until Purchaser has
obtained the benefits of such Contract;
(d) obligations and liabilities under licenses and permits of
the Business that are transferred or assigned to Purchaser (but only to the
extent so transferred or to the extent Purchaser receives the benefits
thereunder pursuant to Section 1.2); and
(e) obligations and liabilities specifically assumed or
undertaken by Purchaser hereunder.
3.2 Excluded Liabilities. Notwithstanding anything to the
contrary contained in this Agreement, the liabilities and obligations of
Sellers which are not to be assumed or retained by Purchaser hereunder (the
"Excluded Liabilities") include, but are not limited to, the following:
(a) obligations and liabilities for all Taxes relating to
the Business for all periods prior to the Effective Date;
(b) obligations and liabilities arising out of or related to
past, present or future actions, suits, claims, disputes, investigations and
other proceedings relating to the ownership or operation of the Assets or the
Business on or prior to the Effective Date, including, but not limited to, the
items referred to in Schedule 4.9;
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(c) obligations and liabilities related to employees,
including former employees, not expressly assumed by Purchaser pursuant to
Article 6 hereof;
(d) all obligations and liabilities (whether or not the
subject of any claim by a third party), fixed or contingent, known or unknown,
under any Environmental Laws as have been, are or may in the future be in
effect arising out of or relating to (i) the operation of the Business on or
prior to the Effective Date or the use or ownership of any real property
(including, without limitation, the Facility) used in the Business on or prior
to the Effective Date, including without limitation, the disposal or
arrangement for the disposal of Materials of Environmental Concern prior to the
Effective Date and (ii) the presence of contamination by Materials of
Environmental Concern at or emanating from any real property (whether leased or
owned) used in the Business prior to the Effective Date ("Environmental
Liabilities");
(e) all obligations and liabilities for non-trade accounts
payable to Sellers and their Affiliates (other than the Intercompany Note);
(f) all obligations, liabilities, expenses or charges to
earnings or reserves taken in connection with any restructuring program of
AlliedSignal;
(g) all debts, obligations or liabilities whatsoever to the
extent not primarily related to the Business or the Assets; and
(h) all other obligations and liabilities for which Sellers
have expressly assumed responsibility pursuant to this Agreement.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers jointly and severally represent and warrant to Purchaser as
follows:
4.1 Corporate Status. AlliedSignal is a corporation duly organized,
validly existing and in good standing under the laws of Delaware, and has full
power and authority and all governmental licenses, authorizations, material
consents and approvals required to carry on the Business as now conducted and
own all of its properties and assets. ASTI is a corporation duly organized,
validly existing and in good standing under the laws of Arizona. AS Deutschland
and ELAC are corporations duly organized, validly existing and in good standing
under the laws of the Federal Republic of Germany. Each Seller has all
requisite corporate and other power and authority to enter into, execute and
deliver this Agreement and any other agreements contemplated hereby (the "Other
Agreements") and to perform its respective obligations and consummate the
transactions contemplated hereunder and thereunder in accordance with the terms
of this Agreement. Each Seller is duly qualified to do business in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the Sellers' conduct of the Business.
4.2 Authorization. All corporate and other proceedings required to be
taken by or on the part of each of the Sellers to authorize Sellers to enter
into and carry out this Agreement have been, or prior to the Closing will be,
duly and properly taken. This
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Agreement has been, and on the Closing Date each of the Other Agreements will
be, duly authorized, executed and delivered by each Seller and this Agreement
constitutes, and each Other Agreement will upon execution and delivery thereof
constitute, a legal and binding obligation of Sellers, valid and enforceable
against each Seller in accordance with their respective terms, subject to laws
of general application relating to bankruptcy, insolvency and the relief of
debtors and the rules of law governing specific performance, injunctive relief
and other equitable remedies.
4.3 Compliance. Except for (i) the expiration or termination of all
applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act") and under any similar German national
or European Union law and (ii) any novations pursuant to Section 7.12 and any
consents listed on Schedule 4.15, the execution, delivery and performance of
this Agreement and Other Agreements by Sellers and the consummation of the
transactions contemplated hereby and thereby (a) will not violate (with or
without giving of notice or the lapse of time or both), or require any consent,
approval, filing or notice under any provision of any licenses, permits,
approvals, consents, certificates of public convenience, orders, franchises and
other authorizations of any federal, state, local or foreign governmental
authority (collectively, "Licenses"), law, rule or regulation, court or
administrative order, writ, judgement or decree applicable to Sellers, the
Business or any of the Assets or the Assumed Liabilities other than the
facilities clearance requirements of the Defense Investigative Services of the
United States Department of Defense ("DIS"), as set forth in the DIS Industrial
Security Regulation and the DIS Industrial Security Manual, as each may be
amended from time to time and (b) will not (with or without the giving of
notice or the lapse of time or both) (I) violate or conflict with, or result in
the breach, suspension or termination of any provision of, or constitute a
default under, or result in the acceleration of the performance of the
obligations of Sellers under, or (II) result in the creation of any lien,
mortgage, pledge, security interest, claim, charge or encumbrance or other
material restriction of any kind or nature (collectively, "Liens") upon the
Business or the Assets pursuant to, as the case may be, the articles of
incorporation, by-laws or other organization documents of any Seller or any
material agreement, lease, mortgage, note, deed of trust, lease, bond,
indenture, license or other document or undertaking, oral or written, to which
any Seller is a party or by which any Seller is bound and by which any of the
Assets or the Business may be affected.
4.4 [Intentionally left blank]
4.5 Personal Property. In all material respects, the Personal Property
and the machinery and equipment, fixtures, furniture, office equipment,
vehicles, boats or ships, tools and other tangible personal property of ELAC
have been maintained in accordance with standard industry practices, are in
reasonable working condition (normal wear and tear excepted) and are sufficient
for the conduct of the Business as it is currently being conducted.
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4.6 Intellectual Property.
(a) Schedule 4.6(a) lists all Intellectual Property owned or
used by the Business that is issued or registered by or filed with any
governmental agency, and all licenses of Intellectual Property used by the
Business to or from third parties.
(b) The Sellers own or have the right to use all Intellectual
Property necessary to conduct the Business substantially as it is currently
conducted and consistent with past practice.
(c) Schedule 4.6(c) lists all Intellectual Property not
included in the Assets, the use of which is necessary for the Business as it is
currently conducted. AlliedSignal and ASTI will grant to Purchaser a license to
such Intellectual Property pursuant to the license agreement referred to in
Section 1.6 of this Agreement.
(d) Except as set forth on Schedule 4.6(d): (i) all material
Intellectual Property owned or used by the Business is unexpired, has not been
abandoned and, to the Knowledge of Sellers, does not infringe or otherwise
impair the intellectual property rights of any third party; (ii) no material
Intellectual Property owned or used by the Business is the subject of any
license, security interest, Lien or other agreement granting rights therein to
any third party other than licenses listed on Schedule 4.6(d); (iii) no
judgment, decree, injunction, rule or order has been rendered by any
governmental entity, no action, suit or proceeding is currently pending and
Sellers have not received written notice, and to the Knowledge of Sellers there
are no threatened suits, actions or proceedings, which would limit, cancel or
question the validity of, or Sellers' rights in and to any material
Intellectual Property; and (iv) the Company and its subsidiaries have taken
reasonable steps to protect, maintain and safeguard their material Intellectual
Property, including any Intellectual Property for which improper or
unauthorized disclosure would impair its value or validity, and have executed
appropriate nondisclosure and confidentiality agreements and made appropriate
filings and registrations in connection with the foregoing.
4.7 Contracts and Binding Commitments. Schedule 4.7 lists the
Contracts and the contracts, agreements and/or commitments of ELAC that are
material to the operation of the Business taken as a whole (the "Agreements").
Except as set forth on Schedule 4.7, each of the Agreements is a valid and
binding agreement of the Seller which is a party thereto or ELAC and is in full
force and effect. True and complete copies of all the Agreements have been
delivered to Purchaser or otherwise made available for inspection by Purchaser.
All the Agreements are in full force and effect. Except as set forth on
Schedule 4.7, to the Knowledge of Sellers neither AlliedSignal nor ELAC, as the
case may be, is in default in any material respect under any of the Agreements
and to the Knowledge of Sellers there has been no material default under any of
the Agreements by any other party thereto. AlliedSignal is not obligated to
list in Schedule 4.7 any agreement, contract or commitment identified elsewhere
in this Agreement or any Schedule hereto, or if such agreements, individually
and together with all such other agreements which are not listed on Schedule
4.7 pursuant to this sentence, are not material to the Business taken as a
whole and (a) such agreement, contract or commitment, is related to the sale or
furnishing of products or services by AlliedSignal or ELAC and has a price of
less than $75,000 in the case of AlliedSignal or DM 100,000 in the
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case of ELAC; (b) such agreement, contract or commitment, if related to the
purchase of materials, supplies, equipment, merchandise or services, imposes a
payment obligation on AlliedSignal or ELAC of less than $75,000; or (c) the
disclosure of such agreement, contract or commitment is proscribed by the terms
of such document or by the provisions of a governmental security agreement or
regulation; provided that if such agreements, individually or in the aggregate,
are material to the Business, a summary of the material terms of such agreement
have been delivered to a properly authorized officer or employee of Purchaser
in accordance with Applicable Law.
4.8 Title. Except as set forth in Schedule 4.8, each Seller and ELAC
holds the entire legal, equitable and beneficial title in and will transfer to
Purchaser good (and, in the case of real property, marketable) title to, or a
valid and binding leasehold interest in, its property included in the Assets
free and clear of all Liens other than (i) Liens for taxes not yet due and
payable or being contested in good faith for which adequate reserves are being
maintained in accordance with United States generally accepted accounting
principles ("GAAP"), and (ii) encumbrances that do not, and are not reasonably
expected to, individually or in the aggregate, materially adversely affect the
value of the Assets subject thereto or the ability of AlliedSignal, ELAC or
Purchaser to conduct the Business as it is now being conducted (collectively,
"Permitted Liens").
4.9 Litigation. Except as disclosed in Schedule 4.9, there is not any
action, suit, proceeding, arbitration or litigation, pending or to the
Knowledge of Sellers threatened against Sellers or to the Knowledge of Sellers
any investigation pending or threatened, relating to the Business, the Assets,
the Assumed Liabilities or the transactions contemplated by this Agreement that
could reasonably be expected to result in any material judgment against,
material liability of, or have a material adverse effect on the Business taken
as a whole. Sellers are not in violation of any term of any judgment, writ,
decree, injunction or order entered by any court or governmental authority
(domestic or foreign) and outstanding against Sellers or with respect to the
Business or any of Sellers' assets (including the Assets) or properties, except
for such violations which could not, individually or in the aggregate, have a
material adverse effect on the Sellers or the Business. An action, suit,
proceeding, investigation, arbitration or litigation shall be considered
"threatened" for purposes of this Section 4.9 if any of the persons referred to
in Section 13.15 shall have received a written notice or communication
reasonably indicating to a business person that an action, suit, investigation,
or proceeding will be commenced.
4.10 Environmental Matters. (a) Except as set forth on Schedule 4.10
to the Knowledge of Sellers: (i) the Business complies and has complied in all
material respects with all applicable Environmental Laws, and possesses and
complies and has possessed and complied in all material respects with all
Environmental Permits (all of which are identified accordingly on Schedule 4.10
and are transferrable as a routine matter to Purchaser); (ii) there are and
have been no Materials of Environmental Concern, or other conditions, at any
property owned, operated, or otherwise used by the Business now or in the past,
or at any other location, that could give rise to any material liability to the
Business under any Environmental Law or result in material costs to the
Business arising out of any Environmental Law; (iii) no judicial,
administrative, or arbitral proceeding (including any notice of violation or
alleged violation) under any Environmental Law is pending or
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threatened in writing with respect to the Business, nor is the Business the
subject of any investigation or the recipient of any request for information in
connection with any such proceeding; (iv) there are no past or present
conditions, circumstances, practices, plans, or legal requirements that could
be expected to prevent the Business from, or materially increase the burden on
the Business of, complying in all material respects with applicable
Environmental Laws or obtaining, renewing, or complying in all material
respects with all Environmental Permits required under such laws.
(b) The Sellers have provided or made available to Purchaser
true and complete copies of all Environmental Reports in their possession or
control.
(c) Any costs, estimates, projections or other predictions
contained or referred to in Schedule 4.10 are not, and shall not be deemed to
be, representations or warranties of Allied Signal.
(d) For purposes of this Agreement, the following terms
shall have the following meaning:
"Environmental Laws" shall mean any and all laws, rules,
orders, regulations, statutes, ordinances, guidelines, codes, decrees,
or other legally enforceable requirement (including, without
limitation, common law) of the United States or any other national
government, or any state, local, municipal or other governmental
authority, regulating, relating to or imposing liability or standards
of conduct concerning protection of the environment or of human
health, or employee health and safety as of the Closing Date.
"Environmental Permits" shall mean any and all permits,
licenses, approvals, registrations, notifications, exemptions and any
other authorization required of the Business under any Environmental
Law.
"Environmental Report" shall mean any report, study,
assessment, audit, or other similar document that addresses any issue
of actual or potential noncompliance with, or actual or potential
liability under or cost arising out of, any Environmental Law that may
in any way materially adversely affect the Business.
"Materials of Environmental Concern" shall mean any gasoline
or petroleum (including crude oil or any fraction thereof) or
petroleum products, polychlorinated biphenyls, urea-formaldehyde
insulation, asbestos, pollutants, contaminants, radioactivity, and any
other substances or forces of any kind, whether or not any such
substance or force is defined as hazardous or toxic under any
Environmental Law, that is regulated pursuant to or could give rise to
liability under any Environmental Law.
4.11 Employee Benefit Plans and Policies. Schedule 4.11 lists all of
the employment, severance, change-of-control, stock purchase, stock option,
fringe benefits, incentive, bonus, pension, welfare, shop agreements or other
employee benefit plans and policies maintained or contributed to by Sellers or
ELAC for the Business or in which employees of the Business or managing
directors of ELAC, including employees or managing
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directors of ELAC on short-term disability, medical, sick or other leave of
absence (the "Employees"), are entitled to participate (collectively the
"Benefit Plans") and copies of all such written Benefit Plans have been made
available to Purchaser. Except as listed on Schedule 4.11, (a) such Benefit
Plans that cover U.S. Employees ("U.S. Benefit Plans") comply in all material
respects, to the extent applicable, with the requirements of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the Internal
Revenue Code of 1986, as amended (the "Code") and all other applicable laws,
rules and regulations; (b) none of the U.S. Benefit Plans subject to Part 3
Subtitle B of Title I of ERISA has incurred any "accumulated funding
deficiency" within the meaning of Section 302 of ERISA or Section 412 of the
Code; (c) no material liability, other than required premium payments, to the
Pension Benefit Guaranty Corporation has been incurred with respect to any of
the U.S. Benefit Plans subject to Title IV of ERISA; (d) AlliedSignal has not
incurred any material liability for any tax imposed under Section 4975 of the
Code or Part 4 Subtitle B of Title I of ERISA with respect to any of the U.S.
Benefit Plans; (e) none of the U.S. Benefit Plans is a multiemployer plan
within the meaning of Section 3(37)(A) of ERISA. Except as otherwise is
provided in this Agreement, all contributions to the U.S. Benefit Plans that
were required to be made under such U.S. Benefit Plans as of the date hereof
have been paid, accrued or otherwise adequately reserved or disclosed in
accordance with GAAP as of such date; and (f) each Benefit Plan covering
non-U.S. Employees complies in all material respects with all Applicable Laws,
rules and regulations.
4.12 Material Changes. Except as set forth on Schedule 4.12 or as
communicated to Steven Schorer or any individual who directly reports to Mr.
Schorer or Purchaser, since December 31, 1997, there has been no:
(a) Lien created on any Asset or ELAC Asset, except
Permitted Liens;
(b) capital expenditures or commitment to make any such
expenditures with respect to the Assets or the ELAC Assets, except with respect
to any such expenditures or commitments incurred prior to the date hereof, to
the extent such expenditures and commitments do not exceed, when combined with
any expenditures permitted under Section 4.7(d) of the Facility Sale Agreement,
$2,100,000 in the aggregate;
(c) rights of substantial value knowingly waived with
respect to the Assets or the Business; or
(d) sale or transfer of any Assets or ELAC Assets other than
dispositions of inventory and obsolete or worn out equipment in the ordinary
course of business.
(e) (i) (x) contract, agreement, proposal or other commitment
entered into for the purchase of goods or services which is not terminable by
the parties upon 30 days' notice or less without penalty or which involves
aggregate consideration in excess of $250,000 or (y) agreement, bid, proposal
or other commitment entered into for the sale of goods or services which is not
terminable by the parties upon 30 days' notice or less without penalty or which
involves aggregate consideration in excess of $5 million or which would result
in a loss in excess of $100,000 for any individual contract or $250,000 in the
aggregate, (ii) amendment, supplement, waiver or modification of any contract
or agreement included in
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the Assets or the ELAC Assets, other than in the ordinary course of business
consistent with past practice and (iii) Affiliate that has been permitted to
do, or agree, in writing or otherwise, to do, any of the foregoing;
(f) except as required by Applicable Law or to the extent
required under existing employee and director benefit plans, agreements or
arrangements as in effect on the date of this Agreement, (i) increase in the
compensation or fringe benefits of any of the President of Ocean Systems and
his direct reports or other employees (including any such increase pursuant to
any deferred compensation, severance, bonus, pension, profit-sharing or other
plan or commitment), except for increases, in the ordinary course of business
consistent with past practice, in salary or wages of employees who are not
senior managers of the Business, (ii) grant of any severance or termination
pay, (iii) hire, except in the ordinary course of business, of any new
employees or consultants or (iv) amendment or termination, or any agreement to
amend or terminate, any collective bargaining, bonus, profit sharing, thrift,
compensation, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of the President of Ocean Systems and his past or
present direct reports or any other past or present employees of the Business
(except for changes in AlliedSignal benefit plans generally);
(g) (i) transaction with or for the benefit of any other
division or business of Seller or any Affiliate of Seller except as is set
forth in Schedule 4.26 and (ii) Affiliate has been permitted to do, or agree,
in writing or otherwise, to do, any of the foregoing;
(h) (i) waiver of any material claims or rights relating to
the Business or the Assets or (ii) Affiliate has been permitted to do, or
agree, in writing or otherwise, to do, any of the foregoing;
(i) acquisition of or agreement to acquire, by merging or
consolidating with, or by purchasing a substantial portion of the stock or
assets of, or by any other manner, any business or any corporation,
partnership, joint venture, association or other business organization or
division thereof;
(j) except for performance guarantees issued in the ordinary
course of business consistent with past practice, incurrence of any
indebtedness for borrowed money, or guarantee of any such indebtedness of
another person, issuance or sale of any debt securities or warrants or other
rights to acquire any debt securities of the Sellers, guarantee of any debt
securities of another person, entrance into any "keep well" or other agreement
to maintain any financial statement condition of another person or entrance
into any arrangement having the economic effect of any of the foregoing, or
loans, advances or capital contributions to, or investments in, any other
person; or
(k) license or agreement entered into with respect to the
Intellectual Property.
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4.13 [Intentionally left blank]
4.14 Compliance with Law. Except as set forth on Schedule 4.14,
Sellers and ELAC are not in violation of any Applicable Law which, individually
or in the aggregate, would have a material adverse effect on the operation of
the Business, and Sellers and ELAC have not received any notice in writing
alleging any such defaults or violations or potential defaults or violations.
4.15 Consents. Except as set forth in Schedule 4.15, no action,
approval, consent or authorization, including but not limited to any action,
approval, consent or authorization by any third party, financial institution,
governmental or quasi-governmental agency, commission, board, bureau or
instrumentality, is necessary to make this Agreement or any of the Other
Agreements or instruments to be executed and delivered pursuant hereto a legal,
valid and binding obligation of Sellers or ELAC or to consummate the
transactions contemplated hereunder.
4.16 Taxes. All Taxes (as hereinafter defined) with respect to the
Business that are due and payable or which relate to tax periods ending on or
prior to the Closing Date have been or will be duly and properly computed,
reported, fully paid and discharged by Sellers. There are no unpaid Taxes with
respect to any period, or a portion thereof, ending on or before the Closing
Date which are or could become a Lien on the Assets or the ELAC Assets, except
for current Taxes not yet due and payable or reserved for in the Financial
Statements. Except as set forth on Schedule 4.16, there has been filed by or on
behalf of ELAC all material returns, declarations, statements, reports,
schedules, forms and information returns and any amended tax returns relating
to any Taxes (the "Tax Returns"). All such material Tax Returns are true,
complete and correct in all material respects and all Taxes shown as due on
such Tax Returns have been or will be paid in a timely fashion by Sellers prior
to Closing or have been accrued for on ELAC's financial statements. Except as
set forth on Schedule 4.16, no audit or other proceeding by any Governmental
Authority, or similar person is pending, or to the Knowledge of Sellers, is
threatened with respect to any material Taxes due from or with respect to ELAC.
No material issues relating to Taxes were raised in writing by the relevant
taxing authority during any audit or examination. Except as set forth in
Schedule 4.16, ELAC is not a party to or bound by (nor will it become a party
to or bound by prior to the Closing Date) any tax indemnity, tax sharing, or
tax allocation agreement. There is no material agreement or other document
extending, or having the effect of extending, the period of assessment or
collection of any Taxes and no power of attorney with respect to any material
Taxes of ELAC has been executed or filed with any Governmental Authority. ELAC
is not, nor has it ever been, a member of a U.S. consolidated, combined unitary
tax group. As used herein, the term "Taxes" shall include all federal, state,
local and foreign taxes, assessments or other governmental charges (including,
without limitation, net income, gross income, excise, franchise, sales and
value added taxes, taxes withheld from employees' salaries and other
withholding taxes and obligations and all deposits required to be made with
respect thereto), levies, assessments, deficiencies, import duties, licenses
and registration fees and charges of any nature whatsoever, including any
interest, penalties, additions to tax or additional amounts with respect
thereto, imposed by any government or taxing authority, provided, however, that
the term "Taxes" does not include the taxes, duties and levies referred to at
Section 2.6.
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4.17 Permits and Licenses. Schedule 4.17 attached hereto lists all
material governmental or other permits, licenses, approvals, certificates of
inspection, filings, franchises and other authorizations, other than those
relating to the environment, that are issued to, or held or used by Sellers or
ELAC, or for which Sellers or ELAC have applied, in connection with the current
operation of the Business, and any limitations thereto. Except as listed in
Schedule 4.17, Sellers and ELAC have all material governmental or other
permits, licenses, approvals, certificates of inspection, filings, franchises
and other authorizations, other than those relating to the environment, that
are necessary to own and operate the Assets and the ELAC Assets and to conduct
the Business as it is currently being conducted, and Sellers and ELAC have not
received notice alleging that any other material governmental or other permits,
licenses, approvals, certificates of inspection, filings, franchises and other
authorizations, other than those relating to the environment, are required.
"Material" for purposes of this Section 4.17 shall include but not be limited
to permits, licenses and other authorizations which are required to own or
operate the Assets or ELAC Assets owned or operated by Sellers and used for the
production of products in the Business.
4.18 Ownership of ELAC Shares. The ELAC Shares constitute all of the
issued and outstanding shares of capital stock of ELAC. The ELAC Shares have
been duly authorized and validly issued and are fully paid and nonassessable.
There are no securities convertible into or exchangeable or exercisable for
ELAC Shares or any options, warrants or other rights to acquire ELAC Shares. AS
Deutschland is the sole legal and beneficial owner of the ELAC Shares and owns
the ELAC Shares free and clear of any Liens, restrictions, options or rights in
others, encumbrances or other claims, rights of first offer or first refusal,
or voting agreements, and AS Deutschland has full legal right, power and
authority to enter into this Agreement and to transfer and deliver good and
valid title to the ELAC Shares hereunder. At the Closing, Purchaser shall
receive good and valid title to the ELAC Shares free and clear of any Liens
other than as created by Purchaser. ELAC does not constitute a material part of
the assets of AS Deutschland.
4.19 Labor Relations. Except as set forth on Schedule 4.19, (i) there
is no employment agreement, collective bargaining agreement, shop agreement or
written personnel policy applicable to Employees of the Business nor are any
such agreements or policies presently negotiated; (ii) there is no current
labor strike, slowdown or work stoppage or pending lockout, dispute or other
labor controversy in effect, or to the Knowledge of Sellers threatened against
or otherwise affecting the Business, and the Business has not experienced such
labor controversy in the past five years; (iii) there is no unfair labor
practice charge or complaint pending or, to the Knowledge of Sellers,
threatened against or otherwise affecting the Business; (iv) no representation
question exists or has been raised respecting any of the Employees of the
Business within the past five years, nor to the Knowledge of Sellers are there
any campaigns being conducted to solicit cards from Employees of the Business
to authorize representation by any labor organization; (v) no action, suit,
complaint, charge, arbitration, grievance, inquiry, proceeding or investigation
by or before any court, governmental agency, administrative agency or
commission brought by or on behalf of any Employee, prospective employee,
former employee, retiree, labor organization or other representative of the
Business's Employees is pending or, to the Knowledge of Sellers, threatened
against the Business; (vi) the Sellers and ELAC are not party to, or otherwise
bound by, any consent decree with, or citation by, any Government agency
relating to
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Employees or employment practices; (vii) the Sellers and ELAC are in compliance
in all material respects with all Applicable Laws, agreements, contracts, and
policies relating to employment, employment practices, wages, hours, and terms
and conditions of employment; (viii) other than to the extent accrued in the
financial statements of the Business in accordance with GAAP, the Sellers and
ELAC have paid in full to all Employees of the Business all wages, salaries,
commissions, bonuses, benefits and other compensation due to such employees or
otherwise arising under any policy, practice, agreement, plan, program, statute
or other law; (ix) the Sellers and ELAC are not liable for any severance pay or
other payments to any Employee, or former employee arising from the termination
of employment, nor will the Business have any liability under any benefit or
severance policy, practice, agreement, plan, or program which exists or arises,
or may be deemed to exist or arise, under any Applicable Law or otherwise, as a
result of or in connection with the transactions contemplated hereunder or as a
result of the termination by the Business of any persons employed by the
Sellers on or prior to the Closing Date except to the extent accrued on the
Closing Balance Sheet; (x) except as set forth in Schedule 4.19(x), the Sellers
and ELAC have not closed any Business plant or facility, effectuated any layoff
of Employees or implemented any early retirement, separation or window program
which within the past five years, nor have the Sellers or ELAC planned or
announced any such action or program for the future; (xi) the Sellers and ELAC
are in compliance with their obligations pursuant to the Worker Adjustment and
Retraining Notification Act of 1988, and Sellers and ELAC are in compliance
with all other notification and bargaining obligations arising under any
collective bargaining agreement, statute or otherwise.
4.20 Brokerage Fees. No person is entitled to any brokerage or
finder's fee or other commission from Sellers in respect of this Agreement
or the transactions contemplated hereby except Bear, Stearns & Co. Inc. (whose
fee shall be paid by Sellers).
4.21 Government Contracts. (a) With respect to each and every
Government Contract or bid to obtain a Government Contract to which Sellers or
ELAC are a party, and which relates to the Business, and except as set forth in
Schedule 4.21(a): (i) Sellers and ELAC have fully complied with all material
terms and conditions of such Government Contract or bid for a Government
Contract as required as of the date hereof and as of the Closing Date; (ii)
Sellers and ELAC have fully complied with all material requirements of statute,
rule or regulation pertaining to such Government Contract or bid for a
Government Contract; (iii) all representations and certifications executed with
respect to such Government Contract were to the Knowledge of Sellers accurate
in every material respect as of their effective date and Sellers and ELAC to
the Knowledge of Sellers have fully complied with all such representations and
certifications in every material respect; and (iv) no termination for default,
cure notice or show cause notice has been issued or, to the Knowledge of
Sellers will be issued, (v) neither the U.S. Government nor any non-U.S.
government nor any prime contractor, subcontractor or other entity person has
notified in writing any of the Sellers or ELAC that any of the Sellers or ELAC
has breached or violated any Applicable Law, certification, representation,
clause provision or requirement pertaining to such Government Contract or bid;
(vi) no cost incurred by the Sellers or ELAC pertaining to such Government
Contract or bid has been questioned or challenged, is the subject of any
investigation or has been disallowed by the U.S. Government or any non-U.S.
government; (vii) no money due to the Sellers or ELAC pertaining to such
Government Contract or bid has been withheld or set
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off and the Sellers or ELAC are entitled to all progress payments with respect
thereto and (viii) each Government Contract is valid and in full force and
effect. As used herein, "Government Contract" means any open contract relating
to the Business between any of Sellers or ELAC and (x) the U.S. Government or
any non-U.S. government, (y) any prime contractor of the U.S. Government or any
non-U.S. government or (z) any subcontractor at any tier with respect to any
contract described in clauses (x) and (y) above.
(b) To the Knowledge of Sellers, except as set forth in
Schedule 4.21(b), with respect to the Business; (i) none of its respective
employees, consultants or agents is (or during the last three years has been)
under administrative, civil or criminal investigation, indictment or
information by any foreign, domestic, federal, territorial, state or local
governmental authority, quasi-governmental authority, instrumentality, court,
government or self-regulatory organization, commission, tribunal or
organization or any regulatory, administrative or other agency, or any
political or other subdivision, department or branch of any of the foregoing
("Governmental Authority"), (ii) there is not any pending audit or
investigation by Sellers or ELAC nor within the last three years has there been
any audit or investigation by Sellers or ELAC resulting in a material adverse
finding with respect to any alleged irregularity, misstatement or omission
arising under or relating to any Government Contract or bid; and (iii) during
the last three years, the Sellers and ELAC have not made a voluntary disclosure
to the U.S. Government or any non-U.S. government, with respect to any alleged
irregularity, misstatement or omission arising under or relating to a
Government Contract or bid. Except as set forth in Schedule 4.21(b), to the
Knowledge of Sellers there are no irregularities, misstatements or omissions
arising under or relating to any Government Contract or bid that has led or is
expected to lead, either before or after the Closing Date, to any of the
consequences set forth in clause (i) or (ii) of the immediately preceding
sentence or any other material damage, penalty assessment, recoupment of
payment or disallowance of cost.
(c) Except as set forth in Schedule 4.21(c), with respect to
the Business, there exist (i) no outstanding claims against the Sellers or
ELAC, either by the U.S. Government or by any non-U.S. government or by any
prime contractor, subcontractor, vendor or other third party, arising under or
relating to any Government Contract or bid referred to in Section 4.21(a) and
(ii) no disputes between the Sellers or ELAC and the U.S. Government or any
non-U.S. government under the Contract Disputes Act or any other Federal
statute or between the Sellers or ELAC and any prime contractor, subcontractor
or vendor arising under or relating to any such Government Contract or bid.
Except as set forth in Schedule 4.21(c), to the Knowledge of Sellers there are
no facts that could reasonably be expected to result in a claim or a dispute
under clause (i) or (ii) of the immediately preceding sentence.
(d) Except as set forth in Schedule 4.21(d), neither the
Sellers nor ELAC nor any of their employees, consultants or agents is (or
during the last three years has been) suspended or debarred from doing
business with the U.S. Government or any non-U.S. government or is (or during
such period was) the subject of a finding of nonresponsibility or ineligibility
for U.S. Government or non-U.S. government contracting. Except as set forth
in Schedule 4.21(d), the Sellers, ELAC and their Affiliates have operated the
Business in
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compliance with all requirements of all material laws pertaining to all
Government Contracts and bids.
(e) Except as set forth in Schedule 4.21(e), no statement,
representation or warranty made by the Sellers or ELAC in any Government
Contract, any exhibit thereto or in any certificate, statement, list, schedule
or other document submitted or furnished to the U.S. Government or any non-U.S.
government in connection with any Government Contract or bid (i) contained on
the date so furnished or submitted any untrue statement of a material fact, or
failed to state a material fact necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading
or (ii) contains on the date hereof any untrue statement of a material fact, or
fails to state a material fact necessary to make the statements contained
therein, in light of the circumstances in which they are made, not misleading,
except in the case of both clauses (i) and (ii) any untrue statement or failure
to state a material fact that would not result in any material liability to the
Business as a result of such untrue statement or failure to state a material
fact.
4.22 Government Furnished Equipment. Schedule 4.22 incorporates the
most recent schedule delivered to the U.S. Government or any non-U.S.
Government which identifies by description or inventory number certain
equipment and fixtures loaned, bailed or otherwise furnished to or held by the
Business by or on behalf of the United States or any foreign country. To the
Knowledge of Sellers, such schedule was accurate and complete on its date and,
if dated as of the Closing Date, would contain only those additions and omit
only those deletions of equipment and fixtures that have occurred in the
ordinary course of business, except for such inaccuracies that could not
reasonably be expected to have a material adverse effect on the Business.
4.23 Entire Business. Except for the Excluded Assets, and except as
set forth on Schedule 4.23, the Assets, together with the License Agreement,
constitute all of the assets, properties and rights necessary to conduct the
Business in all material respects as currently conducted. Other than ELAC,
Sellers have no subsidiaries primarily engaged in the Business.
4.24 Real Estate. Schedule 4.24 accurately lists all real property
of the Business owned or leased, indirectly or directly, by the Sellers or
ELAC (other than the Facility, the "Real Property"):
(a) The Sellers and ELAC have good and marketable title to
all such owned Real Property and good and valid leasehold interest in all such
leased Real Property, in each case, free and clear of all Liens except for
Permitted Liens;
(b) There are no condemnation proceedings or eminent domain
proceedings of any kind pending or, to the Knowledge of Sellers no written
notice of any threatened action has been received against any Real Property;
(c) All of the Real Property is occupied under a valid and
current certificate of occupation or similar permit, the sale of the Assets
hereunder will not require the issuance or any new or amended certificate of
occupancy and to the Knowledge of Sellers the Real
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Property may be occupied and used by Purchaser or ELAC after the Closing Date
in the same manner as used by Sellers or ELAC on or before the Closing Date;
(d) All improvements on the Real Property constructed by or
on behalf of Sellers or any other person were at the time installed constructed
in compliance with all applicable federal, state, local or foreign statutes,
laws, ordinances, regulations, rules, codes, orders or requirements (including,
but not limited to, any building, zoning or environmental laws or codes)
affecting the Real Property;
(e) All improvements on the Real Property and the present use
and conditions thereof do not violate any applicable deed restrictions or
applicable covenants, restrictions, agreements, existing site plan approvals,
zoning or subdivision regulations or urban redevelopment plans as modified by
any duly issued variances, and no permits, licenses or certificates pertaining
to the ownership or operation of all improvements on the Real Property, other
than those that are transferable with the Real Property, are required by any
governmental agency having jurisdiction over the Real Property. Such
improvements on the Real Property are wholly within the lot limits of such Real
Property and do not encroach on any adjoining premises and there are no
encroachments on any Real Property by any improvements located on any adjoining
premises;
(f) Sellers and ELAC enjoy peaceful and quiet possession of
each parcel of Real Property, and there is not under any lease of any of the
leased Real Property (a "Lease") any default by any of Sellers or ELAC
thereunder or any condition that with notice or the passage of time or both
would constitute such a default, and Sellers and ELAC have not received notice
asserting the existence of any such default or condition. To the Knowledge of
Sellers there are no defaults under any Lease by the landlord thereunder.
Sellers have heretofore furnished the Purchaser a true and complete copy of
each Lease and all amendments thereto pertaining to any leased Real Property.
Each Lease is valid and binding and in full force and effect;
(g) The rental set forth in each Lease is the actual rental
being paid, and there are not separate agreements or understandings with
respect to the same; and
(h) Neither the execution of this Agreement nor the sale of
the Assets hereunder shall cause a default under any Lease or require prior
written consent of any landlord under any Lease.
4.25 Insurance. Schedule 4.25 lists insurance maintained by Sellers
and ELAC with respect to the Assets and the ELAC Assets and with respect to the
employees and representatives of the Business and the operations of the
Business. The coverage under each such policy and binder is in full force and
effect, and no notice of cancellation or nonrenewal with respect to any such
policy or binder has been received by any of the Sellers or ELAC.
4.26 Affiliate Transactions. Except as set forth in Schedule 4.26,
there are no agreements, arrangements, undertakings or other transactions
between the Business and any other division or business of Sellers or any
person that directly, or indirectly through one or
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more intermediaries, controls or is controlled by or is under common control
with any of Sellers (including, without limitation, any owner of capital stock
of Sellers) (an "Affiliate").
4.27 No Additional Representations. NOTWITHSTANDING ANYTHING
TO THE CONTRARY CONTAINED IN THIS ARTICLE 4 OR ANY OTHER PROVISION OF THIS
AGREEMENT, IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO THAT
ALLIEDSIGNAL IS MAKING NO REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR
IMPLIED, BEYOND THOSE EXPRESSLY GIVEN IN THIS AGREEMENT, INCLUDING BUT NOT
LIMITED TO ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION,
MERCHANTABILITY OR SUITABILITY AS TO ANY OF THE PROPERTIES OR ASSETS OF THE
SELLERS. EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THIS AGREEMENT, THE
ASSETS ARE BEING SOLD ON AN "AS IS, WHERE IS" BASIS.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to AlliedSignal as follows:
5.1 Corporate Status. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has full power and all governmental licenses, authorizations, consents and
approvals required to carry on its business and to own all of its properties
and assets. Purchaser has all requisite corporate and other power and authority
to enter into, execute and deliver this Agreement and the Other Agreements and
to perform its obligations and consummate the transactions contemplated
hereunder and thereunder in accordance with the terms of this Agreement.
5.2 Authorization. All corporate and other proceedings required to be
taken by or on the part of Purchaser to authorize Purchaser to enter into and
carry out this Agreement have been, or prior to the Closing will be, duly and
properly taken. This Agreement has been, and on the Closing Date each of the
Other Agreements will be, duly executed and delivered by Purchaser and this
Agreement constitutes, and each Other Agreement will upon execution and
delivery thereof constitute, a legal and binding obligation of Purchaser, valid
and enforceable against Purchaser in accordance with their terms, subject to
laws of general application relating to bankruptcy, insolvency and the relief
of debtors and the rules of law governing specific performance, injunctive
relief and other equitable remedies.
5.3 Compliance. The execution, delivery and performance of this
Agreement and Other Agreements and the consummation of the transactions
contemplated hereby will not result in the breach of any of the terms or
conditions of, or constitute a default under, or violate, as the case may be,
the articles of incorporation, by-laws or other organization documents of
Purchaser or any material agreement, lease, mortgage, note, deed of trust,
lease, bond, indenture, license or other document or undertaking, oral or
written, to which Purchaser is a party or by which Purchaser is bound or by
which any of the Assets may be affected other than the consent required under
Purchaser's existing credit facility, which Purchaser believes will be obtained
prior to Closing.
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5.4 Due Diligence. Purchaser has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the transactions contemplated by this Agreement and the Other
Agreements. Purchaser confirms that AlliedSignal provided to Purchaser the
opportunity to ask questions of the officers and management employees of
AlliedSignal and to acquire such additional information about the business and
financial condition of the Business as Purchaser requested and all such
information has been received.
5.5 Financing. Purchaser has funds of its own, or has binding
commitments from responsible banks or other financial institutions to provide
funds, which will be sufficient and available to pay the purchase price as set
forth in Section 2.1.
5.6 Investment Representation. Purchaser is acquiring the ELAC
Shares for investment and not with a view to the public distribution thereof.
5.7 Conveyances and Restrictions. The performance by Purchaser of its
obligations hereunder, whether through the purchase of the Assets, the
obtaining of financing to fund the acquisition, and/or the obtaining of
financing for the operations of the Business after the Closing, will not
violate any provision of the Uniform Fraudulent Conveyance Act as enacted by
the United States or any state thereof, or any regulations thereunder or any
state fraudulent conveyance or similar statute in a state in which the Business
or Purchaser is doing business.
5.8 Brokerage Fees. No person is entitled to any brokerage or
finder's fee or other commission from Purchaser in respect of this Agreement
or the transactions contemplated hereby.
ARTICLE 6. EMPLOYEES AND EMPLOYEE BENEFITS
6.1 Employment.
(a) Purchaser shall offer employment effective as of the
Closing Date to all Employees (except that Employees on Long Term Disability
shall be offered employment when such Employees are medically certified to
return to work) employed as of the Closing Date. Nothing herein expressed or
implied confers upon any Employee who accepts Purchaser's offer of employment
(collectively, "Transferred Employees") any rights or remedies of any nature or
kind, including, without limitation, any rights of employment with Purchaser
for a specified period of time.
(b) Notwithstanding Section 6.1(a) above, the employment of
Employees employed by ELAC (collectively, the "German Employees") shall
continue following the Closing Date and shall remain the liability of ELAC.
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6.2 Compensation and Benefits - U.S. Employees.
(a) Generally. Purchaser shall continue or shall provide, for
a period of at least 12 months immediately subsequent to the Closing Date, for
all Transferred Employees who are employed in the United States (collectively,
"U.S. Transferred Employees") base salary or applicable rate of pay not less
than that provided by Sellers immediately prior to the Closing Date, employee
benefits and incentive compensation comparable, in the aggregate, to those in
effect as of the Closing Date, except that, with respect to those plans
providing a benefit in AlliedSignal stock, Purchaser shall have no obligation
to provide such benefits or comparable benefits or to take into account such
benefits for purposes of this Section. Purchaser shall assume liability for all
deferred compensation, supplemental and excess pension and savings benefits,
all bonus amounts, normal and enhanced severance benefits, and relocation
benefits (whether or not all such employee benefits are vested on the Closing
Date) in respect of all U.S. Transferred Employees incurred or earned, but not
paid, on or before the Closing Date, or as incurred in connection with the sale
of the Business and not paid as of the Closing Date, to the extent accrued on
the Closing Balance Sheet. Purchaser shall assume the retention agreements
listed on Schedule 6.2(a).
(b) Union Employees. Purchaser shall offer employment on or
prior to the Closing Date to each U.S. Employee covered by the Collective
Bargaining Agreements between AlliedSignal and the United Auto Workers ("UAW")
or UAW Local 179, including the Local Agreement between AlliedSignal and UAW
Local 179, the Master Agreement between AlliedSignal and the UAW, and all
associated agreements that are part of such Master Agreement, including the
letters of understanding and agreements covering pensions, insurance and
savings plans (collectively, the "Bargaining Agreements") as described in
Schedule 4.7 (such covered Employees being referred to, collectively, as "Union
Employees"), provided that such Union Employee is actively at work on the
Closing Date. Purchaser shall provide each Union Employee with compensation
(base rate of pay and incentive compensation, if any) no less than that
required by the applicable Bargaining Agreements and any applicable side
letters and schedules immediately prior to the Closing Date. A Union Employee
who is absent on the Closing Date due to illness, vacation, paid leave, holiday
or union office leave or who is otherwise subject to recall with seniority
rights shall to the extent required by the applicable Bargaining Agreement and
any applicable side letters and schedules be considered actively at work on the
Closing Date. The Union Employees who are actively at work on the Closing Date
shall hereafter be called "Union Transferred Employees". Sellers shall retain
the obligation to provide any Union Employee who does not become a Union
Transferred Employee on the Closing Date with benefits under Sellers' Pension
Plans for Union Employees, as defined herein, and all other benefits required
to be provided by the Bargaining Agreements.
(c) Purchaser agrees to credit each U.S. Transferred Employee
service credited with Sellers under the Benefit Plans for participation,
retirement eligibility and vesting under such employee benefit plans or
policies Purchaser maintains or will maintain for or on behalf of the U.S.
Transferred Employees. In addition, such service shall be credited for benefit
purposes under welfare plans (including severance plans), vacation plans and
qualified retirement plans in respect of which assets and liabilities are
transferred to
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Purchaser's Plans. Sellers shall not in any manner be responsible for any
liability, claim or obligation due under any such plan maintained by Purchaser.
6.3 Severance and WARN Act. (a) Sellers shall pay and be responsible
for all liability, cost or expense for severance, termination indemnity
payments, salary continuation, special bonuses and like costs under Sellers'
severance pay plans, policies or arrangements, with respect to any of the
Employees that arise from or relate to the transactions described in or
contemplated by this Agreement, or of any U.S. Transferred Employees that arise
under Sellers' severance plans from the subsequent termination of employment by
Purchaser after the Closing Date. Purchaser agrees to pay and be responsible
for all liability, cost, expense and sanctions resulting from the Purchaser's
failure to comply after the Closing Date with the Worker Adjustment and
Retraining Notification Act of 1988 ("WARN Act"), and the regulations
thereunder or for any action by Purchaser which causes WARN to apply.
(b) The Sellers shall not, at any time within the 60-day
period prior to the Closing Date, effectuate a "plant closing" or "mass
layoff", as those terms are defined in the WARN Act or any State law, affecting
in whole or in part any Ocean Systems site of employment, facility, operating
unit or employee.
(c) The Sellers shall indemnify, defend and hold Purchaser
harmless from and against any and all claims, actions, suits, demands,
proceedings, losses, expenses, damages, obligations and liabilities (including
costs of collection, attorney's fees and other costs of defense) ("Damages")
arising out of or otherwise in respect of (i) termination by the Sellers of any
employee of the Business on or prior to the Closing Date; (ii) any claim made
by any employee of the Business for severance pay arising prior to, or upon the
Closing Date; or (iii) any suit or claim of violation brought against the
Purchaser under the WARN Act or any State law for any actions taken by the
Sellers in connection with, on or prior to the Closing Date with regard to any
site of employment, facility, operating unit or employee affected by this
Agreement which action by itself causes WARN to apply.
6.4 Health Care Continuation Liability. With respect to Sellers'
plans, Seller agrees to pay and be responsible for all liability, cost,
expense, taxes and sanctions under Section 4980B of the Internal Revenue Code
(the "Code"), interest and penalties imposed upon, incurred by, or assessed
against Purchaser or Sellers that arise by reason of or relate to any failure
to comply with the health care continuation coverage requirements of Section
4980B of the Code and Sections 601 through 608 of ERISA, as amended, which
failure occurs as a result of the transactions described in or contemplated by
this Agreement or which failure occurs on or after the Closing Date with
respect to any Employee or any qualified beneficiary (as defined in Section
4980B(g)(1)) of such Employee.
6.5 Pension Plan.
(a) AlliedSignal shall amend the Salaried Employees Pension
Program for AlliedSignal Inc., the AlliedSignal Inc. Pension Plan for Hourly
Employees (provisions relating to UAW Local 179) and the AlliedSignal Inc.
Retirement Program (collectively, the "Pension Plans") to fully vest all
Employees employed by the Business as of the Closing Date participating in the
Pension Plan in their accrued benefit as of the Closing Date. Purchaser
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shall assume the liabilities and obligations as of the Closing Date of Sellers
for the accrued benefits of all U.S. Transferred Employees under the Pension
Plans. Purchaser shall have established as of the Closing Date, or shall
establish as soon as practicable after the Closing Date, a tax-qualified
defined benefit pension plan or plans which shall discharge the pension
obligations of Purchaser set forth in this Section ("Purchaser's Plan"). As
soon as practicable after the Closing Date, AlliedSignal shall cause a transfer
of the pension liabilities and obligations being assumed by Purchaser and of
the assets, as calculated below, to Purchaser's Plan.
(b) The assets to be transferred from the Pension Plans to
Purchaser's Plan shall be an amount equal to the "projected benefit
obligation," within the meaning of Financial Accounting Standard No. 87, as of
the Closing Date attributable to the U.S. Transferred Employees under Sellers'
Pension Plans ("PBO") with adjustments described below. Sellers' actuary shall
calculate the transfer amount (the "Transfer Amount") by applying the
assumptions, methods and methodologies listed on Schedule 6.5(b) and other
actuarial assumptions and methodologies used in the ordinary course in the
preparation of the actuarial valuation not inconsistent with those listed in
Schedule 6.5(b). Notwithstanding any provision herein to the contrary, the
transfer amount shall be subject to the applicable requirements of Sections
414(l) and 401(a)(12) of the Code. The amount as so determined shall be
adjusted for investment earnings at the short term investment fund rate earned
by Sellers' Pension Plans (the "Earnings") for the period between the Closing
Date and the actual dates of transfer (see below) and reduced by the amount of
any benefit payments to U.S. Transferred Employees and a proportional share of
investment and administrative expenses relative to asset values for such
period. The amount of assets caused to be transferred pursuant to this Section
shall be calculated by Sellers' actuary, and the actuarial calculations shall
be subject to review and approval by Purchaser's actuary. In the event that
Purchaser's actuary does not agree with the calculation determined by Sellers'
actuary, the determination of the amount to be transferred pursuant to this
Section shall be made by a third, nationally recognized actuarial firm selected
by Sellers' and Purchaser's actuaries (the cost of which shall be borne equally
between Sellers and Purchaser), and the determination of such third actuary as
to the amount to be transferred shall be binding and conclusive upon all
parties hereto. The transfer of assets from Sellers' Pension Plan to
Purchaser's Plan shall be made in cash pursuant to Section 6.5(c). The parties
shall file any necessary IRS Forms 5310-A with respect to such transfer.
(c) All transfers from the Pension Plans to the Purchaser's
Plan shall be made in accordance with the provisions of this Section 6.5(c). As
soon as is administratively practical, but in no event later than 30 days
following the Closing Date, and conditioned upon AlliedSignal having been
provided evidence reasonably satisfactory to it that Purchaser has established
a trust (or trusts) to hold the assets of the Purchaser's Plan and that
Purchaser's Plan is qualified under Section 401(a) of the Code and the trusts
holding assets of the Purchaser's Plan are tax exempt under Section 501(a) of
the Code ("Initial Transfer Date"), AlliedSignal shall cause its trusts to make
an initial transfer of assets in cash equal to 85% of the amount reasonably
estimated by AlliedSignal in good faith to be equal to the Transfer Amount (the
"Initial Transfer Amount"). In addition, prior to the Initial Transfer Date
AlliedSignal shall provide Purchaser with evidence reasonably satisfactory to
Purchaser that the Pension Plans remain qualified under Section 401(a) of the
Code. As soon as practicable
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after the final determination of the amounts to be transferred ("True-Up
Date"), AlliedSignal shall cause a second transfer to be made in cash of the
"True-Up Amount." The True-Up Amount shall be equal to the following amount:
(Transfer Amount minus Initial Transfer Amount), minus benefit
payments made to U.S. Transferred Employees since the Closing Date
from the Pension Plans, adjusted for Earnings on the excess of the
Transfer Amount over the Initial Transfer Amount from the Initial
Transfer Date to the True-Up Date,
If the Initial Transfer Amount exceeds the Transfer Amount, as soon as
practicable following such determination Purchaser shall cause a transfer to be
made to the respective Pension Plan equal to the excess of the Initial Transfer
Amount over the Transfer Amount, adjusted to reflect earnings at the short term
investment fund rate earned by Purchaser's Plan from the Initial Transfer Date
until the date of transfer.
6.6 Savings Plan. AlliedSignal shall provide that those Employees
participating in the AlliedSignal Savings Plan and AlliedSignal Thrift Plan
("Savings Plans") immediately prior to the Closing Date shall fully vest on the
Closing Date in their respective Savings Plans accounts (the "Accounts"). As
promptly as practicable following the Closing Date, Sellers and Purchaser shall
arrange for the transfer of the Accounts and the corresponding liabilities with
respect to the U.S. Transferred Employees, from the Savings Plans to one or
more tax-qualified plans established or to be established by Purchaser which
provides benefits substantially equivalent to the benefits available under the
applicable Savings Plans. With respect to the plan or plans receiving assets
from the Savings Plans, to the extent permitted by Applicable Law, such plan or
plans shall also (a) provide for tax-deferred contributions and (b) meet all
requirements for a qualified cash or deferred arrangement under Section 401(k)
of the Code. The transfer of assets from the Savings Plans shall be made in
cash, marketable securities, promissory notes presenting participant loans, or
a combination thereof, as determined by AlliedSignal and consented to by
Purchaser. Without limiting the generality of the foregoing, if AlliedSignal
should determine to transfer assets held in Accounts which, immediately prior
to the Closing Date, provide for holding AlliedSignal common stock in such
form, Purchaser agrees to accept transfer of such Accounts in AlliedSignal's
common stock, and, to the extent permitted by law for such reasonable period of
time as Purchaser may determine, to provide U.S. Transferred Employees with an
election to retain AlliedSignal's common stock in their respective plan
accounts or to dispose of such stock and have the proceeds reinvested in other
investment alternatives offered under each such plan. Prior to the transfer
date, Purchaser shall, to the reasonable satisfaction of AlliedSignal's
counsel, present AlliedSignal with such evidence and information (which may
include or be provided by an opinion of Purchaser's counsel satisfactory to
AlliedSignal) as is reasonably necessary to establish that the tax-qualified
plan or plans established or to be established by Purchaser to which the
transfer or transfers described in this Section are to be made are in full
force and effect and meet all the requirements for qualification under Sections
401 and 411(d)(6) of the Code and Sellers shall, to the reasonable satisfaction
of Purchaser's counsel, present Purchaser with such evidence and information as
is reasonably necessary to establish that the Savings Plan meets the
requirements of Section 401(a) of the Code.
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6.7 Labor Agreements. Purchaser shall assume Sellers' obligations
under the Bargaining Agreements and any applicable side letters and schedules
according to their terms as in effect of and as of the Closing Date, and shall
honor such Bargaining Agreements for the remainder of the effective term
thereof following the Closing Date.
ARTICLE 7. PRE-CLOSING COVENANTS
7.1 [Intentionally left blank].
7.2 [Intentionally left blank].
7.3 [Intentionally left blank].
7.4 [Intentionally left blank].
7.5 Workers' Compensation. The Seller shall retain responsibility for
all workers' compensation events which relate to incidents occurring on or
before the Closing Date. The Purchaser shall have responsibility for all
workers' compensation events which relate to incidents occurring after the
Closing Date.
7.6 Insurance-Primary Casualty Program. Sellers maintain at present a
series of insurance programs pursuant to which various insurance carriers have
provided and are providing insurance coverage in respect of the Business
relating to automobile liability, general liability, employers liability and
non-aircraft products liability (the "Primary Casualty Program") and Sellers
and Purchaser understand and agree that Sellers are not transferring to
Purchaser pursuant hereto any rights or interests in such Primary Casualty
Program, nor, except as otherwise set forth herein, shall Sellers be required
to maintain any of such coverages or limit in any manner Sellers' right to
change deductible levels or other terms or conditions thereof. As between
Purchaser and Sellers, however, it is agreed that the following shall apply to
claims with a date of occurrence prior to the Closing Date that are covered by
the Primary Casualty Program:
7.6.1 Claims Responsibility and Procedures. Purchaser shall
promptly notify in writing Sellers of any claims against the Business,
Purchaser, Sellers or any of their Affiliates arising from occurrences which
took place prior to the Closing Date relating to the Business or its prior
assets, business or operations. To the extent coverage is available under the
Primary Casualty Program, Purchaser shall handle such claims through the
applicable insurance carrier and to the limited extent required therefor is
hereby appointed as Sellers' agent in dealing with any such applicable
insurance carriers, such agency, however, being subject to revocation at any
time if Purchaser fails to comply with the provisions of this Section 7.6.
Purchaser through the applicable insurance carrier may settle any such claim on
a basis which in its judgment is reasonable provided, however, that Purchaser
agrees not to settle any such claims for an amount in excess of $50,000 without
prior consultation with AlliedSignal. Sellers and Purchasers shall cooperate
with each other in the defense of any such claims and will keep each other
informed of significant developments with respect
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thereto. Neither Purchaser nor Sellers will knowingly take any action that
prejudices the other party in the collection of any applicable insurance
proceeds.
7.7 No Inconsistent Action. Subject to Sections 9.1 and 9.2, the
parties hereto shall not take any action inconsistent with their obligations
under this Agreement or which could materially hinder or delay the consummation
of the transactions contemplated by this Agreement. None of the parties hereto
shall take or omit to take any action that could result in any of their
respective representations and warranties not being true in all material
respects on the Closing Date.
7.8 [Intentionally left blank].
7.9 Non-Solicitation. Sellers agree that until December 22, 1999, they
shall not, and they shall cause each of their respective Affiliates not to,
without the prior consent of Purchaser, employ or solicit for employment any
person currently employed by the Business (other than a person solicited or
hired as a result of a general solicitation (such as an advertisement) not
specifically directed to employees of the Business).
7.10 Refunds and Remittances. In the event that Sellers or their
Affiliates receive any amount that is properly due and owing to Purchaser in
accordance with the terms of this Agreement, Sellers shall cause same to be
promptly remitted to Purchaser at the address specified in Section 13.2.
7.11 Enforcement of Confidentiality Provisions. Sellers agree to use
reasonable best efforts to enforce, at the written request of Purchaser, (i)
the confidentiality provisions of any agreements related to the sale of the
Business (excluding any employee solicitation provisions) and (ii) all
confidentiality agreements, if any, entered into between Sellers or any of
their Affiliates and any of their employees, in each case to the extent such
provisions pertain to the Business as of the Closing Date.
7.12 Novation of Government Contracts. As soon as reasonably
practicable following the Closing, AlliedSignal shall, in accordance with
Federal Acquisition Regulations Part 42, Section 42.12, submit in writing to
each responsible Contracting Officer (as such term is defined in Federal
Acquisition Regulations Part 42, Section 42.102(a)), a request for the U.S.
Government to (i) recognize Purchaser in accordance with this Agreement and
(ii) enter into a novation agreement (the "Novation Agreement") substantially
in the form contemplated by such regulations. AlliedSignal shall thereby
reasonably assist Purchaser in obtaining all consents, approvals and waivers
required for the purpose of processing, entering into and completing the
Novation Agreement with regard to any of the Government Contracts, including
responding to any reasonable requests for information by the U.S. Government
with regard to such Novation Agreement.
7.13 Further Actions. Subject to the terms and conditions hereof,
Sellers and Purchaser agree to use their reasonable best efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement, including without limitation,
taking all necessary or advisable action (i) in respect of the works council of
ELAC and (ii)
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to terminate the profit/loss pooling arrangement (the "Pooling Arrangement")
between AS Deutschland and ELAC not later than December 31, 1998.
7.14 Letters of Credit. Schedule 7.14 identifies letters of credit and
other similar obligations in respect of which AlliedSignal will remain as
account party ("Retained L/Cs") and other letters of credit and similar
obligations ("Assumed L/Cs") in respect of which Purchaser shall, not later
than May 31, 1998, either (a) become account party or (b) issue replacement
letters of credit, with Purchaser as account party, and obtain the cancellation
of the Assumed L/Cs and release Sellers from any obligations under any related
credit agreements. In the event that, after using its reasonable best efforts,
Purchaser cannot perform its obligations under Section 7.14(a) or (b) with
respect to the Assumed L/Cs, Purchaser shall provide back-up letters of credit
with respect to such Assumed L/Cs. Any Assumed L/C in respect of which
Purchaser has not issued a replacement or back-up letter of credit as aforesaid
by May 31, 1998 may be cancelled by AlliedSignal and Purchaser shall reimburse
AlliedSignal forthwith for all amounts drawn by the beneficiary under any such
cancelled letter of credit; provided, however, that prior to May 31, 1998,
AlliedSignal shall not waive any requirements of or agree to amend any such
Retained L/C without the prior written consent of Purchaser. The parties
acknowledge that the identity of the account party under any Retained L/C and
any Assumed L/C and other similar obligations does not alter the terms of this
Agreement, meaning, specifically and without limitation, that the provisions of
Section 3.1 (Assumed Liabilities), 3.2 (Excluded Liabilities) and Article 12
(Indemnification) are unaffected by the identity of the account party, and if a
demand for payment is made under a Retained L/C or an Assumed L/C, the
financial responsibility for the circumstances underlying such demand shall be
determined by this Agreement and not by the identity of the account party under
the letter of credit in question.
7.15 1985 Capitalization of ELAC. AlliedSignal shall ensure that the
1985 capitalization of ELAC is confirmed by German counsel to have been lawful
and proper. The parties shall cooperate in any steps that may be necessary to
correct the capitalization, at AlliedSignal's expense.
7.16 MCDV Subcontract. Following the Closing, AlliedSignal and
Purchaser shall use their reasonable best efforts to prepare a subcontract (the
"MCDV Subcontract") to be entered into between AlliedSignal Canada Inc. ("ASC")
and Purchaser relating to the contract between ASC and MacDonald, Dettwiler and
Associates Ltd. for the maritime coastal defense vessel, as amended (the "MCDV
Contract"). The MCDV Subcontract shall be reasonably acceptable to AlliedSignal
and Purchaser and shall transfer to Purchaser in U.S. dollars the full economic
benefit of the MCDV Contract (based on the exchange rate for U.S. and Canadian
dollars as reported in the Wall Street Journal on the date of any payment).
Purchaser shall, and AlliedSignal shall cause ASC to, enter into the MCDV
Subcontract promptly following the finalization thereof to the reasonable
satisfaction of AlliedSignal and Purchaser. In the event that (i) ASC shall be
prohibited from making any payment to Purchaser under the MCDV Subcontract,
(ii) any Canadian withholding tax would be applicable to any payment to
Purchaser by ASC under the MCDV Subcontract or (iii) ASC would lose Canadian
content credit as a result of any payment to Purchaser by ASC under the MCDV
Subcontract, AlliedSignal shall, on the date any such payment is due and in
lieu of such payment from ASC under the MCDV Subcontract, make a payment to
Purchaser in an
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amount equal to the amount of the payment due under the MCDV Subcontract,
without regard to any Canadian withholding tax. Purchaser shall not have any
liability under the MCDV Subcontract for any obligation or liability relating
to the ownership or operation of the Assets or the Business on or prior to the
Closing Date relating to (a) the provision of Canadian content, (b) any penalty
or excise tax for failure to meet Canadian content obligations or (c) any
obligation for liquidated damages for failure to timely deliver.
ARTICLE 8. CONDITIONS TO CLOSING
8.1 Conditions to the Obligations of Purchaser. The obligations of
Purchaser to consummate the transactions contemplated by this Agreement are
subject to the fulfillment prior to or at the Closing of each of the following
conditions, any one or more of which may be waived by Purchaser in its sole
discretion:
(a) On the Closing Date, there shall be no injunction,
restraining order or decree of any nature of any court or governmental agency
or body of competent jurisdiction that is in effect that restrains or prohibits
the consummation of the transactions contemplated by this Agreement or any such
injunction, restraining order or decree or any pending lawsuit, claim or legal
action relating to the transactions contemplated by this Agreement which would
materially adversely affect such transactions or Purchaser's ownership, use or
enjoyment of the Business or any part thereof.
(b)(i) All of the representations and warranties of Sellers,
including those set forth in Section 8.1(b)(ii) and (iii) below, contained in
this Agreement or in any certificate, instrument or other document delivered to
Purchaser pursuant hereto shall be complete, true and correct in all respects
on and as of the Effective Date, with the same force and effect as though such
representations and warranties had been made on and as of the Effective Date,
except to the extent that any such representation and warranty is made as of a
specified date, in which case, such representation and warranty shall have been
true and correct as of such date;
(ii) The representations and warranties of Sellers contained
in Sections 4.1, 4.2, 4.3, 4.8, 4.10, 4.11, 4.12, 4.15, 4.16, 4.17, 4.18, 4.20,
4.21, 4.22, 4.23, 4.25, 4.26 and 4.27 of this Agreement or in any certificate,
instrument or other document delivered to Purchaser pursuant hereto shall be
complete, true and correct in all respects on the Closing Date, with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date, except to the extent that any such representation
and warranty is made as of a specified date, in which case, such representation
and warranty shall have been true and correct as of such date; and
(iii) To the Knowledge of Sellers, the representations and
warranties contained in Section 4.9 of this Agreement or in any certificate,
instrument or other document delivered to Purchaser pursuant hereto shall be
complete, true and correct in all respects on the Closing Date, with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date, except to the extent that any such
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representation and warranty is made as of a specified date, in which case, such
representation and warranty shall have been true and correct as of such date.
(c) Sellers shall have performed in all material respects all
obligations and agreements and complied in all material respects with all
covenants contained in this Agreement to be performed and complied with by them
prior to or on the Closing Date.
(d) Purchaser shall have received a certificate, dated the
Closing Date, from an authorized officer of each of the Sellers to the effect
that the conditions specified in (b) and (c) above have been fulfilled.
(e) The Transition Services Agreement, attached as Exhibit B
hereto, shall have been executed and delivered by the parties thereto.
8.2 Conditions to the Obligations of Sellers. The obligations of
Sellers under this Agreement are subject to the fulfillment, prior to or at the
Closing, of each of the following conditions, any one or more of which may be
waived by Sellers in their sole discretion:
(a) On the Closing Date, there shall be no injunction,
restraining order or decree of any nature of any court or governmental agency
or body of competent jurisdiction that is in effect that restrains or prohibits
the consummation of the transactions contemplated by this Agreement.
(b) The representations and warranties of Purchaser contained
in this Agreement or in any certificates, instruments or other documents
delivered to AlliedSignal pursuant hereto shall be complete, true and correct
on the Closing Date, with the same force and effect as though such
representations and warranties, as updated, had been made on and as of the
Closing Date, except to the extent that any such representation and warranty is
made as of a specified date, in which case, such representation and warranty
shall have been true and correct as of such date.
(c) Purchaser shall have performed in all material respects
all obligations and agreements and complied in all material respects with all
covenants contained in this Agreement to be performed and complied with by the
Closing Date.
(d) AlliedSignal shall have received a certificate, dated the
Closing Date, from an authorized officer of the Purchaser to the effect that
the conditions specified in (b) and (c) above have been fulfilled.
ARTICLE 9. TERMINATION AND SURVIVAL
9.1 Termination. Notwithstanding anything to the contrary set forth
herein, this Agreement may be terminated and the transactions contemplated
hereby abandoned at any time prior to the Closing:
(a) by mutual written consent of Purchaser and Sellers; or
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(b) by Purchaser, on the one hand, or Sellers, on the other
hand, upon written notice to the other, if such other party or its Affiliate
has breached any representation, warranty or covenant contained in this
Agreement in any respect, if the non-breaching party has notified the breaching
party of the breach in writing and the breach has continued without cure for a
period of thirty (30) days after notice of the breach; or
(c) by the Purchaser, on the one hand, or Sellers, on the
other hand, if there shall be in effect any law or regulation that prohibits
the consummation of the Closing or if the consummation of the Closing would
violate any non-appealable final order, decree or judgment of any court or
governmental body having jurisdiction over the transactions contemplated
hereby; or
(d) by either party if the Closing shall not have occurred by
April 1, 1998; provided that the terminating party is not in material breach of
its obligations under this Agreement.
9.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 9.1, this Agreement shall become void and of no further force and
effect, and none of the parties hereto (nor their respective Affiliates,
directors, shareholders, officers, employees, agents, consultants,
attorneys-in-fact or other representatives) shall have any liability in respect
of such termination except that the obligations contained in Sections 9.2,
13.1, 13.3 and 13.9 shall survive; provided, however, that if such termination
is effected pursuant to Section 9.1(b) or (d) and the failure to consummate the
transactions contemplated hereby was the result of any of the conditions to
Closing having not been fulfilled by reason of the breach by either Purchaser,
on the one hand, or Sellers, on the other hand, of their respective covenants,
representations and/or warranties set forth in this Agreement or in any
agreement, document or instrument ancillary hereto, the party having so
breached shall remain liable to the other party for such breach.
ARTICLE 10. CLOSING DOCUMENTS
10.1 Documents to be Delivered by Sellers. At the Closing, Sellers
shall deliver to Purchaser the following documents:
(i) Copies of resolutions of each of the Sellers
certified by a Secretary, Assistant Secretary or other appropriate
officer of such entity, authorizing the execution, delivery and
performance of this Agreement and the transactions contemplated
hereby;
(ii) Executed deeds, bills of sale or other appropriate
instruments of transfer with respect to all of the Real Property,
Personal Property, Inventory, Accounts Receivable and any other Assets
not transferred or assigned by any other documents or instruments
described in this Section;
(iii) Executed and acknowledged Assignments by ASTI
sufficient to transfer title to the Intellectual Property;
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(iv) Executed assignment and assumption agreements
with respect to the Contracts;
(v) Executed documents of assignment or transfer with
respect to each of the permits, licenses and authorizations listed in Schedule
4.17;
(vi) One executed assumption of liability agreement by
which Purchaser will assume the Assumed Liabilities pursuant to Section 3.1
(the "Assumption of Liability Agreement");
(vii) One executed copy of the License Agreement;
(viii) A certificate of an appropriate officer of
AlliedSignal relating to the representations, warranties and covenants of
AlliedSignal made herein as provided in Section 8.1(b) and (c);
(ix) A share transfer agreement in customary form and
a certificate in the name of Purchaser representing the ELAC Shares;
(x) Any other document reasonably necessary to
effectuate the transactions contemplated hereby;
(xi) Sellers shall have delivered to Purchaser
certificate(s) in form and substance reasonably satisfactory to Purchaser, duly
executed and acknowledged, certifying any facts that would exempt the
transactions contemplated hereby from withholding pursuant to the provisions of
the Foreign Investment Real Property Tax Act (e.g., a certificate of
non-foreign status as provided in Treasury Regulation section
1.1445-2(b)(2)(iii)(B)); and
(xii) One executed Transition Services Agreement.
10.2 Documents to be Delivered by Purchaser. At the Closing, Purchaser
shall pay the Purchase Price to AlliedSignal and shall execute where applicable
and deliver to AlliedSignal the following documents:
(i) Copies of resolutions of the Purchaser, certified
by the Secretary or Assistant Secretary of Purchaser, authorizing the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby;
(ii) Executed assignment and assumption agreement with
respect to the Contracts;
(iii) One executed Assumption of Liability Agreement;
(iv) A certificate of an appropriate officer of
Purchaser relating to the representations, warranties and covenants
made herein by Purchaser, as provided in Sections 8.2(b) and (c);
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(v) One executed copy of the License Agreement;
(vi) Any other document reasonably necessary to
effectuate the transactions contemplated hereby;
(vii) One resale certificate regarding inventory; and
(viii) One executed copy of the Transition Services
Agreement.
ARTICLE 11. POST CLOSING OBLIGATIONS
11.1 Further Assurances. From time to time after the Closing, without
further consideration, the parties shall cooperate with each other and shall
execute and deliver instruments of transfer or assignment, or such other
documents to the other party as such other party reasonably may request to
evidence or perfect Purchaser's right, title and interest to the Assets, and
otherwise carry out the transactions contemplated by this Agreement, including
providing that Purchaser will be able to utilize the AlliedSignal sales office
in Canada previously used by the Business. Any cash received by the Sellers
after the Closing in respect of any Asset shall be immediately remitted by
Sellers to Purchaser.
11.2 Access to Books and Records. After the Closing, Purchaser shall
permit AlliedSignal to have reasonable access to and the right to make copies
of such of Sellers' books, records and files as constitute part of the Assets
or the ELAC Assets for any reasonable purpose at any time during regular
business hours, such as for use in litigation or financial reporting, tax
return preparation, or tax compliance matters.
11.3 Cooperation in Litigation. The parties shall reasonably cooperate
with each other at the requesting party's expense in the prosecution or defense
of any dispute or litigation or other proceeding arising from their respective
operation of the Business, including but not limited to affording reasonable
access to and providing information regarding amounts in dispute, information
regarding former employees of the Business and documentation created in the
running of the Business relating to such dispute or litigation. Purchaser and
Sellers shall cooperate fully, as and to the extent reasonably requested by the
other party, and at their own cost and expense, in connection with the filing
of Tax Returns, the retention of records and the forwarding of any relevant
notices or other information received from any Taxing authority and any audit,
litigation or other proceeding with respect to Taxes, and shall fully and
accurately submit any tax data packages reasonably requested by Sellers within
the time periods established by the Sellers Tax department consistent with past
practices.
11.4 Proprietary Information. Prior to the Closing Date, the Business
was routinely supplied copies of proprietary and confidential information
relating to strategic, technical, and/or marketing plans of AlliedSignal and
its Affiliates and their various operations unrelated to the Business. Although
AlliedSignal has attempted to recover such information from the Business, some
may still be present within the Business. Purchaser therefore agrees that it
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will not use such information for any purpose whatsoever, and shall destroy
any remaining copies.
11.5 Covenant Not to Compete. AlliedSignal and each of its Affiliates
agrees that for a period of five years after the Closing Date, neither it nor
any of its Affiliates will, directly or indirectly, own, manage, operate, join,
control or participate in the ownership, management, operation or control of,
any business whether in corporate, proprietorship or partnership form or
otherwise competitive with the Business as currently conducted, except for (i)
any business, service or product line acquired by AlliedSignal, directly or
indirectly, after the Closing Date to the extent the revenues attributable to
the competing business do not account for in excess of 20% of the revenues of
the business acquired or (ii) any investment by the Savings Plans or the
Pension Plans of AlliedSignal.
11.6 Change of Name. To the extent AS Deutschland has not done so
prior to Closing, Purchaser covenants that promptly after Closing it will
change the legal name of ELAC and its wholly owned pension fund subsidiary in
accordance with German law to eliminate the reference therein to
"AlliedSignal."
11.7 Tax Election. The Purchaser may at its option make a section 338
election with respect to the ELAC Shares or in the alternative, the Purchaser
may purchase the ELAC Shares through a German acquisition vehicle; provided
that, in either case, the Seller consents to the making of such election or
purchase which such consent shall not be unreasonably withheld.
11.8 Research and Experimental Expenses. Sellers will furnish to the
Purchaser as soon as reasonably practicable, but in no event more than 180 days
after Closing, at Seller's cost and expense, all information reasonably
requested relating to the base period research expenses and any other
information to allow Purchaser to claim research and experimental credits in
accordance with the relevant sections of the Code and Treasury Regulations
promulgated thereunder.
11.9 Pooling Arrangement. As described in Section 7.13, the Pooling
Arrangement is to be terminated not later than December 31, 1998.
Notwithstanding the existence of the Pooling Arrangement, any net earnings of
ELAC during the period from the Effective Date until the date the Pooling
Arrangement is terminated (the "Pooling Period") shall be treated as an Asset,
and all losses and the consequences thereof shall be treated as an Assumed
Liability, for purposes of this Agreement.
ARTICLE 12. INDEMNIFICATION
12.1 Indemnification by Sellers. Sellers shall defend, indemnify and
hold harmless Purchaser and Purchaser's directors, shareholders, officers,
employees, agents, Affiliates, successors and each of the heirs, executors and
successors and assigns of any of the foregoing (collectively, the "Purchaser
Indemnified Parties") from and against any and all claims, liabilities,
obligations, losses, costs, expenses (including, without limitation, reasonable
legal,
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accounting and similar fees and expenses), fines, damages (individually a
"Loss" and collectively "Losses"), arising out of:
(a) any breach or violation of any of the covenants or
agreements made by Sellers in this Agreement or the Other Agreements;
(b) any breach of, or any inaccuracy or misrepresentation in,
any of the representation or warranties made by Sellers in this Agreement or in
any Schedule, agreement, instrument, certificate or similar document required
to be delivered pursuant to the terms hereof; or
(c) any of the Excluded Liabilities or Excluded Assets.
12.2 Tax Indemnification. The Sellers shall, jointly and severally, be
responsible for, shall pay or cause to be paid, and shall indemnify and hold
harmless the Purchaser Indemnified Parties from and against any and all Taxes
for or in respect of each of the following:
(a) any and all Taxes with respect to any taxable period or a
portion thereof, of ELAC (or any predecessor) ending on or before the Closing
Date;
(b) with respect to any and all Taxes of any member of a
consolidated, combined or unitary group of which ELAC (or any predecessor) is
or was a member on or prior to the Closing Date by reason of the liability of
ELAC pursuant to Treasury Regulation Section 1.1502-6(a) (or any analogous or
similar state, local or foreign law or regulation), as a transferee or
successor, by contract, or otherwise;
(c) any Taxes arising out of a breach of the representations
and warranties contained in Section 4.16; and
(d) any payments required to be made after the Closing Date
under any Tax sharing, Tax indemnity, Tax allocation or similar contracts
(whether or not written), including but not limited to the profit/loss pooling
arrangement with AS Deutschland set forth on Schedule 4.16, to which ELAC was
obligated, or was a party, on or prior to the Closing Date.
12.3 Indemnification by Purchaser. Purchaser shall indemnify and hold
harmless AlliedSignal and AlliedSignal's directors, shareholders, officers,
employees, agents, consultants, representatives, Affiliates, successors and
assigns (the "AlliedSignal Indemnified Parties") from and against any and all
Losses arising out of:
(a) any breach or violation by Purchaser of any of the
covenants or agreements made by Purchaser in this Agreement or the Other
Agreements;
(b) any breach of, or any inaccuracy in any of the
representations or warranties made by Purchaser in this Agreement, or in any
Schedule, agreement, certificate, instrument or similar documents required to
be delivered pursuant to the terms hereof; or
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(c) any Assumed Liability.
12.4 Indemnification Procedure. (a) Any party seeking indemnification
hereunder (the "Indemnitee") shall notify the party liable for such
indemnification (the "Indemnitor") in writing of any event, omission or
occurrence which the Indemnitee believes has given or could give rise to Losses
which are indemnifiable hereunder (such written notice being hereinafter
referred to as a "Notice of Claim"). Any Notice of Claim shall be given
promptly after the Indemnitee becomes aware of such event, omission or
occurrence; provided, that the failure of any Indemnitee to give notice as
provided in this Section 12.4 shall not relieve the Indemnitor of its
obligations under this Section 12.4, except to the extent that the Indemnitor
is actually prejudiced by such failure to give notice. A Notice of Claim shall
specify in reasonable detail the nature and the particulars of the event,
omission or occurrence giving rise to a right of indemnification to the extent
known by or available to Indemnitee. The Indemnitor shall satisfy its
obligations hereunder within thirty (30) days of its receipt of a Notice of
Claim.
(b) All costs and expenses incurred by the Indemnitor in
defending any claim or demand shall be a liability of, and shall be paid by,
the Indemnitor. Except as hereinafter provided, in the event that the
Indemnitor notifies the Indemnitee within the 30 day period that it desires to
defend the Indemnitee against such claim or demand, the Indemnitor shall be
deemed to waive its right to contest such Indemnitee's right to indemnification
hereunder and shall have the right to defend the Indemnitee by appropriate
proceedings and shall have the sole power to direct and control such defense.
If any Indemnitee desires to participate in any such defense, it may do so at
its sole cost and expense; provided, that such Indemnitee shall have the right
to employ separate counsel to represent such Indemnitee in such defense, at the
Indemnitor's expense, if (i) in such Indemnitee's reasonable judgement and on
the advice of counsel, a conflict of interest between such Indemnitor and such
Indemnitee exists with respect to such claim or demand or (ii) the Indemnitor
agrees to the retention of such counsel. So long as the Indemnitor is
reasonably contesting any such claim or demand in good faith, the Indemnitee
shall not pay or settle a claim or demand without the consent of the Indemnitor
(unless the Indemnitee waives in writing any right to indemnity therefor). The
Indemnitor may settle any claim or demand without the consent of the Indemnitee
provided that such settlement includes a full, unconditional and complete
release of the Indemnitee, and provided also that no such settlement will,
without the prior written consent of the Indemnitee, impose any obligation or
restriction on the Indemnitee or any of its assets or businesses. So long as
the Indemnitor is defending in good faith any such third party claim, demand,
suit, action or proceeding, the Indemnitee shall at all times cooperate in all
reasonable ways with, make its relevant files and records available for
inspection and copying by, and make its employees available or otherwise render
reasonable assistance to, the Indemnitor and shall be reimbursed for its
reasonable out-of-pocket expenses related thereto. In the event that the
Indemnitor fails to timely defend, contest or otherwise protect against any
such third party claim, demand, suit, action or proceeding, the Indemnitee at
the Indemnitor's expense shall have the right, but not the obligation, to
defend, contest, assert crossclaims or counterclaims, or otherwise protect
against, the same and may make any compromise or settlement thereof and be
entitled to all amounts paid as a result of such third party claim, demand,
suit or action or any compromise or settlement thereof.
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(c) The Indemnitor, following receipt of any notice from any
Indemnitee requesting reimbursement for a Loss (which notice documents in
reasonable detail the Loss or portion thereof by the Indemnitee) shall promptly
and in any case within thirty days of receipt provide such reimbursement,
unless and only to the extent that the Indemnitor disputes in good faith its
indemnity obligation with respect to such Loss.
(d) Each Indemnitee shall reasonably cooperate in complying
with any applicable foreign, federal, state or local laws, rules or regulations
or any discovery or testimony necessary to effectively carry out the
Indemnitor's obligations hereunder. Such Indemnitee shall be reimbursed for any
reasonable out-of-pocket expenses incurred in connection with such compliance.
12.5 Survival and Limitations. Except as otherwise provided herein,
the warranties and representations of the parties contained in this Agreement
or in any instrument delivered pursuant hereto, as deemed to have been given as
of the Effective Date or the Closing Date, as the case may be, pursuant to
Section 8.1(b), will survive the Closing Date and will remain in full force and
effect thereafter for a period of two years from the Closing Date; provided
that the representations and warranties contained in (i) Sections 4.8 and 4.18
shall survive the Closing Date indefinitely and (ii) Sections 4.3, 4.10, 4.11,
4.16 and 4.21 which shall survive the Closing Date until 90 days following the
expiration of any statute of limitations (or extensions thereof) applicable to
the matters described therein; and provided further that in the event notice of
any claim for indemnification is given within the applicable survival period,
the representations and warranties that are the subject of such indemnification
claim shall survive until such time as such claim is finally resolved. Anything
to the contrary contained herein notwithstanding, (a) neither party shall
assert any claim against the other for indemnification (not including
indemnification for Taxes) hereunder with respect to any inaccuracy or breach
of such warranties or representations unless and until the amount of such claim
or claims, including any claims deemed made pursuant to Section 12.8, shall
exceed $750,000 calculated on a cumulative basis and not a per item basis, and
then only in respect to the excess over said $750,000; and (b) neither party
shall be entitled to recover from the other more than 50% of the sum of (I) the
Purchase Price hereunder and (II) the Purchase Price under the Facility Sale
Agreement with respect to all claims for indemnity with respect to any
inaccuracy or breach of such warranties or representations.
12.6 Adjustment for Insurance and Taxes. The amount (an "Indemnity
Payment") which an Indemnitor is required to pay on behalf of any Indemnitee
pursuant to this Article 12 shall be reduced by the amount of any insurance
proceeds theretofore or thereafter actually received by or on behalf of the
Indemnitee in reduction of the related indemnifiable loss. An Indemnitee which
shall have received or on behalf of which there shall be paid an Indemnity
Payment and which shall subsequently receive, directly or indirectly, insurance
proceeds in respect of the related indemnifiable loss, shall pay to the
Indemnitor the amount of such insurance proceeds or, if lesser, the amount of
the Indemnity Payment. Where any tax benefit is available to the Indemnitee
with respect to an indemnifiable event, the indemnity payment shall be reduced
dollar for dollar by the amount of such tax benefit and where any net Tax cost
is incurred by the Indemnitee arising from the receipt of indemnity payments
hereunder, the indemnity payment shall be increased dollar for dollar by the
amount of such Tax cost (grossed up for such increase), provided that such Tax
benefit or Tax cost shall be computed
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at the highest federal, state, local and foreign corporate income tax rate of
the jurisdiction in which such Tax benefit or Tax cost so relates.
12.7 Environmental Liabilities. (a) To the fullest extent permitted
under (i) the Stock Purchase Agreement pursuant to which AlliedSignal acquired
ELAC from Honeywell and (ii) Applicable Law, AlliedSignal agrees to assign its
indemnification rights if any in respect of the ELAC facility to Purchaser and
to the extent not assignable to enforce such provisions for the benefit of
Purchaser and to provide any amounts it receives in connection therewith to
Purchaser.
(b) Notwithstanding Section 3.2(d), (i) Purchaser shall
indemnify the AlliedSignal Indemnified Parties from and against the first $3
million of Losses, in aggregate, in respect of the combined Environmental
Liabilities hereunder and under the Facility Sale Agreement and 50% of the next
$2 million of such Losses and (ii) AlliedSignal shall indemnify the Purchaser
Indemnified Parties from and against any other Losses relating to Environmental
Liabilities.
12.8 Facility Sale Agreement. Purchaser agrees to indemnify the Allied
Signal Indemnified Parties from and against amounts up to $750,000, calculated
on a cumulative basis and not a per item basis, paid by Sellers under Article
11 of the Facility Sale Agreement for claims under the Facility Sale Agreement
for indemnification (not including indemnification for Taxes) thereunder with
respect to any inaccuracy or breach of the warranties or representations
thereunder. If AlliedSignal shall be liable to any party pursuant to the
Facility Sale Agreement (a "Facility Sale Liability"), Purchaser shall
indemnify AlliedSignal to the extent the amount of such Facility Sale Liability
exceeds the amount for which Sellers would have been liable under this
Agreement had the Real Estate Assets (as defined in the Facility Sale
Agreement) been included in the Assets. Any payments made pursuant to this
Section 12.8 shall be deemed "claims" for purposes of the $750,000 threshold
set forth in Section 12.5. Sellers shall not be required to pay more than once
in respect of any Loss.
ARTICLE 13. MISCELLANEOUS
13.1 Expenses. Except as specifically set forth elsewhere herein and
except that a party not in breach of this Agreement shall be entitled to
recover from a breaching party all expenses and costs incurred by the
non-breaching party by reason of such breach (including, without limitation all
legal expenses and costs), each of the parties hereto shall pay its own
expenses and costs incurred or to be incurred by it in negotiating, closing and
carrying out this Agreement, and, in no event, shall any such fees and expenses
of the Sellers constitute "Assumed Liabilities" under this Agreement.
13.2 Notices. Any notice or communication given pursuant to this
Agreement by a party hereto to the other party shall be in writing and hand
delivered, or mailed by registered or certified mail, postage prepaid, return
receipt requested (notices so mailed shall be deemed given when mailed), or
sent via facsimile, with an original mailed as follows:
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If to AlliedSignal or Sellers:
AlliedSignal Inc.
101 Columbia Road
Morristown, New Jersey 07962
Attention: Vice President and Chief Financial Officer
Telecopier: 973-455-6039
If to Purchaser:
L-3 Communications Corporation
600 Third Avenue
New York, New York 10016
Attention: Christopher C. Cambria, Esq.
Telecopier: 212-805-5494
with a required copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: David B. Chapnick, Esq.
Telecopier: 212-455-2502
13.3 Confidentiality. AlliedSignal and Purchaser have entered into a
Confidentiality Agreement dated September 23, 1997 which notwithstanding any
provision herein to the contrary shall survive the execution and delivery of
this Agreement and the Closing hereunder.
13.4 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
13.5 Entire Agreement/Termination of December Agreement. Except for
the Confidentiality Agreement referred to in Section 13.3, this Agreement and
the Other Agreements are the entire agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior communications,
representations, agreements and understandings between the parties hereto,
whether oral or written, including any prior version of this Agreement executed
and delivered by the parties hereto. On December 22, 1997, the parties hereto
entered into that certain Purchase Agreement (the "December Agreement")
regarding the purchase and sale of the Assets. Since the date of the December
Agreement, Purchaser has conducted an audit and other examinations of the
Business and has asserted certain claims with respect to the December
Agreement, relating, inter alia, to the financial position and business
prospects of the Business. The parties have resolved all such claims and, for
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, have restated their agreement with respect to the purchase and
sale of the Business, as set forth in this Agreement. The December Agreement is
hereby terminated, is
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of no further force or effect, and no party shall have any right or obligation,
whether as a matter of the law of contract or otherwise, under, arising out of
or relating to, the December Agreement or any matter appearing in the December
Agreement that does not appear in this Agreement (including, without
limitation, the representations and warranties of Sellers that do not appear in
this Agreement). The agreement between the parties as to the purchase and sale
of the Business is expressed in its entirety in this Agreement.
13.6 Construction. When the context so requires, references herein to
the singular number include the plural and vice versa and pronouns in the
masculine or neuter gender include the feminine. The headings contained in this
Agreement and the tables of contents, exhibits and schedules are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
13.7 Assignment. This Agreement may not be assigned, in whole or in
part, by any party hereto without the prior written consent of the other
parties hereto, which consent shall not unreasonably be withheld; provided that
Purchaser may, without the consent of Sellers, assign its rights and
obligations, in whole or in part, to any wholly-owned subsidiary of Purchaser
so long as Purchaser remains bound by all the terms of this Agreement.
13.8 Amendment. This Agreement may be amended, supplemented or
otherwise modified only by written agreement duly executed by the parties
hereto.
13.9 Applicable Law. This Agreement shall be construed in accordance
with the laws of the State of New York, disregarding its conflicts of laws
principles which may require the application of the laws of another
jurisdiction.
13.10 No Third Party Rights. This Agreement is not intended and shall
not be construed to create any rights in any parties other than Sellers and
Purchaser and no other person shall assert any rights as a third party
beneficiary hereunder.
13.11 Exhibits and Schedules. The Exhibits and Schedules attached
hereto are incorporated into this Agreement and shall be deemed a part hereof
as if set forth herein in full. References herein to "this Agreement" and the
words "herein," "hereof" and words of similar import refer to this Agreement
(including Exhibits and Schedules) as an entirety. In the event of any conflict
between the provisions of this Agreement and any such Exhibit or Schedule, the
provisions of this Agreement shall control.
13.12 Waivers. Any waiver of rights hereunder must be set forth in
writing. Except as provided in the preceding sentence, no action taken pursuant
to this Agreement, including, without limitation, any investigation by or on
behalf of any party, shall be deemed to constitute a waiver by the party taking
such action of compliance with any representations, warranties, covenants or
agreements contained herein, or in any documents delivered or to be delivered
pursuant to this Agreement or in connection with the Closing hereunder. A
waiver of any breach or failure to enforce any of the terms or conditions of
this Agreement shall not
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in any way affect, limit or waive any party's rights at any time to enforce
strict compliance thereafter with every term or condition of this Agreement.
13.13 Severability. If and to the extent that any court of competent
jurisdiction holds any provisions (or any part thereof) of this Agreement to be
illegal, invalid or unenforceable, such holding shall in no way affect the
validity of the remainder of this Agreement.
13.14 Bulk Sales Law. The parties hereto agree to waive compliance
with the provisions of the bulk sales law of any jurisdiction. The Sellers
agree to indemnify and hold harmless Purchaser from and against any and all
liabilities which may be asserted by third parties against Purchaser as a
result of such noncompliance.
13.15 Knowledge of Sellers. For purposes of this Agreement, Knowledge
of Sellers or any similar expression shall mean the knowledge, after due
inquiry, of (i) the executive officers of Sellers; (ii) Robert Johnson; or
(iii) Steven Schorer and all individuals who directly report to Mr. Schorer.
13.16 Personal Liability. The directors, officers, stockholders,
employees, agents, consultants, representatives and affiliates of each of the
parties hereto acting in such capacity shall not in such capacity have any
personal liability or obligation arising under this Agreement (including any
claims that the other parties may assert).
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IN WITNESS WHEREOF, Sellers and Purchaser have duly executed
and delivered this Agreement as of the day and year first above written.
AlliedSignal Inc.
By: /s/ Terrance Carlson
__________________________
AlliedSignal Technologies, Inc.
By: __________________________
AlliedSignal Deutschland GmbH
By: __________________________
L-3 Communications Corporation
By: /s/ Christopher C. Cambria
__________________________
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Exhibit 10.9
L-3 COMMUNICATIONS HOLDING INC.
1997 OPTION PLAN FOR KEY EMPLOYEES
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, effective as of the 1st day of July, 1997
(the Grant Date"), between L-3 Communications Holdings, Inc., a Delaware
corporation (the "Company"), and (the "Optionee").
WHEREAS, the Company has adopted the 1997 Option Plan for
Key Employees of L-3 Communications Holdings, Inc. (the "Plan") in order to
provide additional incentive to selected officers and employees of the Company
and its subsidiaries; and
WHEREAS, the Committee responsible for administration of the
Plan has determined to grant an option to the Optionee as provided herein and
the Company and the Optionee hereby wish to memorialize the terms and
conditions applicable to the Option (as defined below);
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option.
1.1 Effective as of the Grant Date, for good
and valuable consideration, the Company hereby irrevocably grants to the
Optionee the right and option (the "Option") to purchase all or any part of an
aggregate of shares (the "Shares") of the Company's Class A Common
Stock, par value $0.01 per share, subject to, and in accordance with, the
terms and conditions set forth in this Option Agreement.
1.2 The Option is not intended to qualify as
an Incentive Stock Option within the meaning of Section 422 of the Code.
1.3 This Option Agreement shall be construed
in accordance and consistent with, and subject to, the terms of the Plan (the
provisions of which are incorporated hereby by reference); and, except as
otherwise expressly set forth herein, the capitalized terms used in this
Option Agreement shall have the same definitions as set forth in the Plan.
2. Exercise Price.
The price at which the Optionee shall be entitled to
purchase the Shares upon the exercise of the Option shall be $6.47 per Share
subject to adjustment as provided in Section 9, without commission or other
charge.
3. Duration of Option.
The Option shall be exercisable to the extent and in the
manner provided herein for a period of ten (10) years from the Grant Date (the
"Exercise Term"); provided, however, that the Option may be earlier terminated
as provided in Section 6 hereof.
<PAGE>
4. Exercisability of Option.
Unless otherwise provided in this Option Agreement or the
Plan, the Option shall entitle the Optionee to purchase, in whole at any time
or in part from time to time, 20% of the total number of shares covered by the
Option on the business day following the first anniversary of the Grant Date,
an additional 50% of the total number of Shares covered by the Option on the
second anniversary of the Grant Date and the final 30% of the total number of
Shares covered by the Option after the expiration of the third anniversary of
the Grant Date; provided that, if the initial public offering (the "IPO") of
the Company's stock pursuant to an effective registration statement (other
than a registration statement on S-8 or any similar or successor form) filed
under the Securities Act of 1933 (the "Securities Act") shall be completed
prior to the second anniversary of the Grant Date, 15% of the total number of
shares covered by the Option (which would otherwise become excercisable on the
second anniversary of the Grant Date) will become excercisable on the later of
(i) the date of completion of the IPO and (ii) the business day following the
first anniversary of the Grant Date, and the shares that become excercisable
on the second anniversary of the Grant Date shall be reduced to 35% of the
total number of shares covered by the Option. Each such right of purchase
shall be cumulative and shall continue, unless sooner exercised or terminated
as herein provided, during the remaining period of the Exercise Term. Any
fractional number of shares resulting from the application of the foregoing
percentages shall be rounded to the next higher whole number of Shares (not to
exceed the total number of Shares granted as provided in Section 1.1).
5. Manner of Exercise and Payment.
5.1 Subject to the terms and conditions of this Option
Agreement and the Plan, the Option may be exercised by delivery of written
notice to the Secretary of the Company, at its principal executive office.
Such notice shall state that the Optionee or other authorized person is
electing to exercise the Option and the number of Shares in respect of which
the Option is being exercised and shall be signed by the person or persons
exercising the Option. Any exercisable portion of the Option or the entire
Option, if then wholly exercisable, may be exercised in whole or in part,
provided that partial exercise shall be for whole shares of Class A Common
Stock only. If requested by the Committee, such person or persons shall (i)
deliver this Agreement to the Secretary of the Company who shall endorse
thereon a notation of such exercise and (ii) provide satisfactory proof as to
the right of such person or persons to exercise the Option.
5.2 The notice of exercise described in Section 5.1 shall be
accompanied by (x) either (i) payment of the full purchase price for the
Shares in respect of which the Option is being exercised, in cash, by check or
a combination thereof or (ii) subject to the consent of the Committee,
instructions from the Optionee to the Company directing the Company to deliver
a specified number of Shares directly to a designated broker or dealer
pursuant to a cashless exercise election which is made in accordance with such
requirements and procedures as are acceptable to the Committee in its sole
discretion and (y) full payment of all applicable Withholding Taxes (as
defined in Section 11) pursuant to Section 11 hereof.
5.3 Upon receipt of the notice of exercise and any payment
or other documentation as may be necessary pursuant to Section 5.2 relating to
the Shares in respect of which the Option is being exercised, the Company
shall, subject to the Plan and this Option Agreement, take such action as may
be necessary to effect the transfer to the Optionee of the number of Shares as
to which such exercise was effective.
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5.4 The Optionee shall not be deemed to be the holder of, or
to have any of the rights and privileges of a stockholder of the Company in
respect of, Shares purchased upon exercise of the Option until (i) the Option
shall have been exercised pursuant to the terms of this Option Agreement and
the Optionee shall have paid the full purchase price for the number of Shares
in respect of which the Option was exercised and any applicable Withholding
Taxes and (ii) the Company shall have issued certificates representing such
Shares to the Optionee.
6. Termination of Employment.
6.1 If, prior to the date of the initial vesting of the
Option pursuant to Section 4 hereof (the "Initial Vesting Date"), the
Optionee's employment with the Company shall be terminated for any reason, the
Optionee's right to exercise the Option shall terminate as of the effective
date of termination (the "Termination Date") and all rights hereunder shall
cease.
6.2 If, on or after the Initial Vesting Date, the Optionee's
employment with the Company shall be terminated for any reason other than
death, permanent disability or for Cause, the Optionee shall have the right
within three months after the Termination Date to exercise the Option to the
extent that installments thereof shall have accrued at the Termination Date
and shall not have been exercised, subject to any other limitation contained
herein on the exercise of the Option in effect at the date of exercise. If the
Optionee's employment is terminated for Cause, the Option shall terminate as
of the Termination Date, whether or not exercisable. For purposes hereof,
"Cause" means the Optionee's (i) intentional failure to perform reasonably
assigned duties, (ii) dishonesty or willful misconduct in the performance of
duties, (iii) engaging in a transaction in connection with the performance of
duties to the Company which transaction is adverse to the interests of the
Company and is engaged in for personal profit or (iv) willful violation of any
law, rule or regulation in connection with the performance of duties (other
than traffic violations or similar offenses).
6.3 If the Optionee shall die within the three-month period
referred to in 6.2 above, or shall die or become permanently disabled while in
the employ of the Company on or after the Initial Vesting Date, the Optionee
or the executor or administrator of the estate of the Optionee or the person
or persons to whom the Option shall have been validly transferred by the
executor or administrator pursuant to will or the laws of descent and
distribution shall have the right, within one year from the date of the
Optionee's death or permanent disability, to exercise the Option to the extent
that the Option was exercisable at the date of death, subject to any other
limitation contained herein on the exercise of the Option in effect at the
date of exercise.
6.4 Whether employment has been terminated and the
determination of the Termination Date for the purposes of this Agreement shall
be determined by the Committee whose good faith determination shall be final,
binding and conclusive. If the IPO is not completed before the Initial Vesting
Date, the Company reserves the right, prior to the completion of the IPO, to
modify the provisions governing the rights of the Optionee upon termination of
employment to provide the Company with an option to repurchase any Shares
purchased pursuant to this Option Agreement and to terminate any vested
portion of the Option for a cash payment equal to the fair market value of
such Shares or the Shares represented by the vested portion of the Option
(less, for the Shares represented by the vested portion of Option, the
aggregate exercise price for such Shares) and such modification shall be
binding on the Optionee.
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7. Nontransferability.
The Option shall not be transferable other than by will or
by the laws of descent and distribution or by such other means explicitly
permitted pursuant to Rule 16b-3 under the Exchange Act. During the lifetime
of the Optionee, the Option shall be exercisable only by the Optionee. After
the death of the Optionee, any exercisable portion of the Option may, prior to
the time when the Option becomes unexercisable under Section 6.3, be exercised
by the Optionee's personal representative or by any person empowered to do so
under the Optionee's will or under the then applicable laws of descent and
distribution.
8. No Right to Continued Employment.
Nothing in this Option Agreement or the Plan shall be
interpreted or construed to confer upon the Optionee any right to continue
employment by the Company or any of its subsidiaries, nor shall this Agreement
or the Plan interfere in any way with the right of the Company or any of its
subsidiaries to terminate the Optionee's employment at any time for any reason
whatsoever, whether or not with Cause.
9. Adjustments.
In the event that the outstanding shares of the Class A
Common Stock are, from time to time, changed into or exchanged for a different
number or kind of shares of the capital stock of the Company or other
securities of the Company by reason of a merger, consolidation,
recapitalization, reclassification, stock split, stock dividend, combination
of capital stock, or other similar increase or decrease in the number of
shares outstanding without receiving compensation therefor, the Committee
shall make an appropriate and equitable adjustment in the number and kind of
Shares or other consideration as to which such Option, or portions thereof
then unexercised, shall be exercisable and the exercise price therefor. Any
such adjustment made by the Committee shall be final, binding and conclusive
upon the Optionee, the Company and all other interested persons. Any such
adjustment may provide for the elimination of any fractional share which might
otherwise become subject to the Option.
10. Effect of a Change in Control.
10.1 Notwithstanding anything contained in the Plan or this
Agreement to the contrary, in the event of a Change in Control, (a) the Option
becomes immediately fully exercisable as to 100% of the Shares subject to the
Option, and (b) upon termination of an Optionee's employment with the Company,
following a Change in Control, the Option shall remain exercisable until one
year after termination, but in no event beyond the Exercise Term. In the case
of a Change in Control which is intended to be treated as a "pooling of
interests" under generally accepted accounting principals (a "Pooling
Transaction"), the Board of Directors may take such actions which it
determines after consultation with its advisors that are reasonably necessary
in order to assure that the Pooling Transaction will qualify as such. The
Company reserves the right to change or modify in any way the definition of
Change of Control set forth in this Option Agreement and any such change or
modification shall be binding on the Optionee.
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10.2 For the purposes of this Option Agreement, "Change
in Control shall mean the first to occur of the following:
a. The acquisition by any person or group (including a
group within the meaning of Section 13(d)(3) or 14(d)(2)
of the Exchange Act), other than the Company or any of
its subsidiaries, of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange
Act) of 51% or more of the combined voting power of the
Company's then outstanding voting securities, other than
(i) pursuant to a transfer by Lehman Brothers Capital
Partners III, L.P. to any of its affiliates or (ii) by
any employee benefit plan maintained by the Company;
b. The sale of all or substantially all the assets of the
Company or its subsidiaries; or
c. The election, including the filling of vacancies, during
any period of 24 months or less, of 50% or more, of the
members of the Board of Directors, without the approval
of Continuing Directors, as constituted at the beginning
of such period. "Continuing Directors" shall mean any
director of the Company who either (i) is a member of
the Board of Directors on July 1, 1997, or (ii) is
nominated for election to the Board of Directors by a
majority of the Board which is comprised of directors
who were, at the time of such nomination, Continuing
Directors.
11. Withholding of Taxes.
The Company shall have the right to deduct from any
distribution of cash to the Optionee an amount equal to the federal, state and
local income taxes and other amounts as may be required by law to be withheld
(the "Withholding Taxes") with respect to the Option. The Optionee shall pay
the Withholding Taxes to the Company in cash prior to the issuance of the
Shares. In satisfaction of the Withholding Taxes, the Optionee may make a
written election (the "Tax Election"), which may be accepted or rejected in
the discretion of the Committee, to have withheld a portion of the Shares
issuable to him or her upon exercise of the Option. For withholding tax
purposes, the Shares should be valued on the date the withholding obligation
is incurred, provided that to the extent applicable, such election is made in
accordance with Rule 16b-3(e) of the Act.
12. Optionee bound by the Plan.
The Optionee hereby acknowledges receipt of a copy of the
Plan and agrees to be bound by all the terms and provisions thereof.
13. Modification of Agreement.
This Agreement may be modified, amended, suspended or
terminated, and any terms or conditions may be waived, but, subject to
paragraphs 6.4 and 10.1, only by a written instrument executed by the parties
hereto.
14. Severability.
Should any provision of this Agreement be held by a court of
competent jurisdiction to be unenforceable or invalid for any reason, the
remaining provisions of this Agreement shall not be affected by such holding
and shall continue in full force in accordance with their terms.
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15. Governing Law.
The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of New York
without giving effect to the conflicts of laws principles thereof.
16. Successors in Interest.
This Agreement shall inure to the benefit of and be binding
upon any such successor to the Company. This Agreement shall inure to the
benefit of the Optionee or the Optionee's legal representatives. All
obligations imposed upon the Optionee and all rights granted to the Company
under this Agreement shall be final, binding and conclusive upon the
Optionee's heirs, executors, administrators and successors.
17. Administration.
The Committee shall have the power to interpret the Plan and
this Option Agreement and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith and to
interpret or revoke any such rules. All actions taken and all interpretations
and determinations made by the Committee shall be final and binding upon the
Optionee, the Company and all other interested persons. No member of the
Committee shall be personally liable for any action determination or
interpretation made in good faith with respect to the Plan or the Options. In
its absolute discretion, the Board of Directors may at any time and from time
to time exercise any and all rights and duties of the Committee under the Plan
and this Option Agreement.
18. Resolution of Disputes.
Any dispute or disagreement which may arise under, or as a
result of, or in any way related to, the interpretation, construction or
application of this Agreement shall be determined by the Committee. Any
determination made hereunder shall be final, binding and conclusive on the
Optionee and Company for all purposes.
19. Optionee Representations.
In connection with any exercise of the Option and
corresponding purchase of the Shares occurring prior to the completion of the
IPO, the Optionee represents and warrants to the Company as of the time of
exercise of the Option, as follows:
(a) The Optionee is aware of the Company's business affairs
and financial condition and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the Shares
for the investment for the Optionee's own account only and not with a view to,
or for resale in connection with, any `distribution" thereof within the
meaning of the Securities Act.
(b) The Optionee acknowledges and understands that the
Shares issued upon exercise of the Option constitute "restricted securities"
under the Securities Act and must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. The Optionee further acknowledges and understands
that the Company is under no obligation to register the Shares. The Optionee
understands that (x) the transfer of the Shares will be restricted pursuant to
the terms of paragraph 20 of this Option Agreement and (y) the certificate
evidencing the Shares will be imprinted with a legend which prohibits the
transfer of the Shares without complying with the transfer restrictions in
this Option Agreement and unless the Shares are registered or such
registration is not required in the opinion of counsel satisfactory to the
Company.
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20. RESTRICTION ON SALE OF SHARES.
PRIOR TO COMPLETION OF THE IPO, THE OPTIONEE, BY ACCEPTING
THE OPTION, AGREES NOT TO OFFER, PLEDGE, SELL OR CONTRACT TO SELL ANY SHARES
PURCHASED PURSUANT TO THIS OPTION AGREEMENT WITHOUT FIRST OFFERING SUCH SHARES
TO THE COMPANY, WHICH SHALL BE ENTITLED TO PURCHASE SUCH SHARES AT THEIR THEN
FAIR MARKET VALUE AS DETERMINED IN GOOD FAITH BY THE COMMITTEE OR THE BOARD OF
DIRECTORS. DURING THE PERIOD OF 180 DAYS COMMENCING ON THE DATE OF THE
COMPLETION OF THE IPO, THE OPTIONEE, BY ACCEPTING THE OPTION, AGREES NOT TO
OFFER, PLEDGE, SELL OR CONTRACT TO SELL ANY SHARES PURCHASED PURSUANT TO THE
OPTION AGREEMENT WITHOUT THE PRIOR APPROVAL OF THE LEAD REPRESENTATIVE OF THE
UNITED STATES UNDERWRITERS OF THE IPO.
By: /s/ Christopher C. Cambria
--------------------------------
Christopher C. Cambria
Vice President, Secretary &
General Counsel
Attests: /s/ Robert Mehmel
--------------------------------
Assistant Secretary
---------------------------------
Employee Signature
------------------------------------
Employee Social Security Number
CURRENT EMPLOYEE ADDRESS
------------------------
------------------------
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<PAGE>
Exhibit 10.91
1997 OPTION PLAN
FOR KEY EMPLOYEES OF
L-3 COMMUNICATIONS HOLDINGS, INC.
1. Purpose of Plan
The 1997 Option Plan for Key Employees of L-3 Communications
Holdings, Inc. and Subsidiaries (the "Plan") is designed:
(a) to promote the long term financial interests and growth of L-3
Communications Holdings, Inc. (the "Corporation") and its subsidiaries by
attracting and retaining management personnel with the training, experience
and ability to enable them to make a substantial contribution to the success
of the Corporation's business;
(b) to motivate management personnel by means of growth-related
incentives to achieve long range goals; and
(c) to further the alignment of interests of participants with those
of the stockholders of the Corporation through opportunities for increased
stock, or stock-based, ownership in the Corporation.
2. Definitions
As used in the Plan, the following words shall have the following
meanings:
(a) "Board of Directors" means the Board of Directors of the
Corporation.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means the Compensation Committee of the Board of
Directors.
(d) "Common Stock" or "Share" means Class A Common Stock of the
Corporation which may be authorized but unissued, or issued and reacquired.
(e) "Employee" means a person, including an officer, in the regular
full-time employment of the Corporation or one of its Subsidiaries who, in
the opinion of the Committee, is, or is expected to be, primarily
responsible for the management, growth or protection of some part or all of
the business of the Corporation.
(f) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(g) "Fair Market Value" means, unless otherwise defined in an Option
Agreement, such value of a Share as reported for stock exchange transactions
and/or determined in accordance with any applicable resolutions or
regulations of the Committee in effect at the relevant time.
(h) "Option Agreement" means an agreement between the Corporation and
a Participant that sets forth the terms, conditions and limitations
applicable to a grant of Options pursuant to the Plan.
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(i) "Option" means an option to purchase shares of the Common
Stock which will not be an "incentive stock option" (within the meaning of
Section 422 of the Code).
(j) "Participant" means an Employee, or other person having a
relationship with the Corporation or one of its Subsidiaries, to whom one or
more grant of Options have been made and such grants have not all been
forfeited or terminated under the Plan; provided, however, that a non-employee
director of the Corporation or one of its Subsidiaries may not be a
Participant.
(k) "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Corporation if each of the corporations, or
group of commonly controlled corporations, other than the last corporation in
the unbroken chain then owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
3. Administration of Plan
(a) The Plan shall be administered by the Committee. None of the
members of the Committee shall be eligible to be selected for Option grants
under the Plan, or have been so eligible for selection within one year prior
thereto; provided, however, that the members of the Committee shall qualify to
administer the Plan for purposes of Rule 16b-3 (and any other applicable rule)
promulgated under Section 16(b) of the Exchange Act to the extent that the
Corporation is subject to such rule. The Committee may adopt its own rules of
procedure, and action of a majority of the members of the Committee taken at a
meeting, or action taken without a meeting by unanimous written consent, shall
constitute action by the Committee. The Committee shall have the power and
authority to administer, construe and interpret the Plan, to make rules for
carrying it out and to make changes in such rules. Any such interpretations,
rules and administration shall be consistent with the basic purposes of the
Plan.
(b) The Committee may delegate to the Chief Executive Officer and to
other senior officers of the Corporation its duties under the Plan subject to
such conditions and limitations as the Committee shall prescribe except that
only the Committee may designate and make Option grants to Participants who
are subject to Section 16 of the Exchange Act.
(c) The Committee may employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Corporation, and the
officers and directors of the Corporation shall be entitled to reply upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall
be final and binding upon all Participants, the Corporation and all other
interested persons. No member of the Committee shall be personally liable for
any action, determination or interpretation made in good faith with respect to
the Plan or Option grants, and all members of the Committee shall be fully
protected by the Corporation with respect to any such action, determination or
interpretation.
4. Eligibility
The Committee may from time to time make Option grants under the Plan
to such Employees, or other persons having a relationship with the Corporation
or any of its Subsidiaries, and in such form and having such terms, conditions
and limitations as the Committee may determine. No Option grants may be made
under this Plan to non-employee directors of the Corporation or any of its
Subsidiaries. Options may be granted singly, in combination or in tandem. The
terms, conditions and limitations of each Option grant under the Plan shall be
set forth in an Option Agreement, in a form approved by the Committee,
consistent, however, with the terms of the Plan; provided, however, that such
Option Agreement shall contain provisions dealing with the treatment of Option
grants in the event of the termination, death or disability of a Participant,
and may also include provisions concerning the treatment of Option grants in
the event of a change of control of the Corporation.
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5. Grants
From time to time, the Committee, in its sole discretion, will
determine the forms and amounts of Options to be granted to Participants. At
the time of the grant the Committee shall determine, and shall include in the
Option Agreement or other Plan rules, the option exercise period, the option
price and such other conditions or restrictions on the grant or exercise of
the Option as the Committee deems appropriate. In addition to other
restrictions contained in the Plan, an Option granted under this Paragraph 5,
may not be exercised more than 10 years after the date it is granted. Payment
of the option price shall be made in cash or in shares of Common Stock, or a
combination thereof, in accordance with the terms of the Plan, the Option
Agreement and of any applicable guidelines of the Committee in effect at the
time.
Options may be granted prior to the effective date of the Plan (as
determined pursuant to Paragraph 13 herein); provided, however, that no Option
shall be exercisable prior to the date of the approval of the Plan by the
stockholders of the Corporation.
6. Limitations and Conditions
(a) The number of Shares available under this Plan shall be 3,255,815
shares of the authorized Common Stock as of the effective date of the Plan.
Unless restricted by applicable law, Shares related to Options that are
forfeited, terminated, cancelled or expire unexercised, shall immediately
become available to be subject to Option grants.
(b) No Options shall be granted under the Plan beyond ten years after
the effective date of the Plan, but the terms of Options granted on or before
the expiration of the Plan may extend beyond such expiration. At the time an
Option is granted or amended or the terms or conditions of an Option are
changed, the Committee may provide for limitations or conditions on such
Grant.
(c) Nothing contained herein shall affect the right of the
Corporation to terminate any participant's employment at any time or for any
reason.
(d) Other than as specifically provided with regard to the death of a
Participant, no benefit under the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or
charge, and any attempt to do so shall be void. No such benefit shall, prior
to receipt thereof by the Participant, be in any manner liable for or subject
to the debts, contracts, liabilities, engagements, or torts of the
Participant.
(e) Participants shall not be, and shall not have any of the rights
or privileges of, stockholders of the Corporation in respect of any Shares
purchasable in connection with any Option grant unless and until certificates
representing any such Shares have been issued by the Corporation to such
Participants.
(f) No election as to benefits or exercise of Options may be made
during a Participant's lifetime by anyone other than the Participant except by
legal representative appointed for or by the Participant.
(g) Absent express provisions to the contrary, any grant of Options
under this Plan shall not be deemed compensation for purposes of computing
benefits or contributions under any retirement plan of the Corporation or its
Subsidiaries and shall not affect any benefits under any other benefit plan of
any kind now or subsequently in effect under which the availability or amount
of benefits is related to level of compensation. This Plan is not a
"Retirement Plan" or "Welfare Plan" under the Employee Retirement Income
Security Act of 1974, as amended.
(h) Unless the Committee determines otherwise, no benefit or promise
under the Plan shall be secured by any specific assets of the Corporation or
any of its Subsidiaries, nor shall any assets of the
3
<PAGE>
Corporation or any of its Subsidiaries be designated as attributable or
allocated to the satisfaction of the Corporation's obligations under the Plan.
7. Transfers and Leaves of Absence
For purposes of the Plan, unless the Committee determines otherwise:
(a) a transfer of a Participant's employment without an intervening period of
separation among the Corporation and any Subsidiary shall not be deemed a
termination of employment, and (b) a Participant who is granted in writing a
leave of absence shall be deemed to have remained in the employ of the
Corporation during such leave of absence.
8. Adjustments
In the event of any change in the outstanding Common Stock by reason
of a stock split, spin-off, stock dividend, stock combination or
reclassification, recapitalization or merger, change of control, or similar
event, the Committee shall adjust appropriately and equitably the number of
Shares subject to the Plan and available for or covered by Option grants and
exercise prices related to outstanding Option grants and make such other
revisions to outstanding Option grants as it deems are equitably required.
9. Merger, Consolidation, Exchange, Acquisition, Liquidation or
Dissolution
In its absolute discretion, and on such terms and conditions as it
deems appropriate, coincident with or after the grant of any Option, the
Committee may provide that such Option cannot be exercised after the merger or
consolidation of the Corporation into another corporation, the exchange of all
or substantially all of the assets of the Corporation for the securities of
another corporation, the acquisition by another corporation of 80% or more of
the Corporation's then outstanding shares of voting stock or the
recapitalization, reclassification, liquidation or dissolution of the
Corporation, and if the Committee so provides, it shall also provide, either
by the terms of such Option or by a resolution adopted prior to the occurrence
of such merger, consolidation, exchange, acquisition, recapitalization,
reclassification, liquidation or dissolution, that, for a period of at least
thirty (30) days prior to such event, such Option shall be exercisable as to
all shares subject thereto, notwithstanding anything to the contrary herein
(but subject to the provisions of Paragraph 6(b) and that, upon the occurrence
of such event, such Option shall terminate and be of no further force or
effect; provided, however, that the Committee may also provide, in its
absolute discretion, that even if the Option shall remain exercisable after
any such event, from and after such event, any such Option shall be
exercisable only for the kind and amount of securities and/or other property,
or the cash equivalent thereof, receivable as a result of such event by the
holder of a number of shares of stock for which such Option could have been
exercised immediately prior to such event.
10. Amendment and Termination
The Committee shall have the authority to make such amendments to any
terms and conditions applicable to outstanding Option grants as are
consistent with this Plan provided that, except for adjustments under
Paragraph 8 or 9 hereof, no such action shall modify such Option grant in a
manner adverse to the Participant without the Participant's consent.
The Board of Directors may amend, suspend or terminate the Plan
except that no such action, other than an action under Paragraph 8 or 9
hereof, may be taken which would, without shareholder approval, increase the
aggregate number of Shares subject to Options under the Plan, decrease the
exercise price of outstanding Options, change the requirements relating to the
Committee or extend the term of the Plan, but only to the extent such
shareholder approval would be required by Rule 16b-3 at a time when the
Company is subject to Section 16(b) of the Exchange Act.
4
<PAGE>
11. Foreign Options and Rights
The Committee may grant Options to Employees who are subject to the
laws of nations other than the United States, which Option grants may have
terms and conditions that differ from the terms thereof as provided elsewhere
in the Plan for the purpose of complying with foreign laws.
12. Withholding Taxes
The Corporation shall have the right to deduct from any cash payment
made under the Plan any federal, state or local income or other taxes required
by law to be withheld with respect to such payment. It shall be a condition to
the obligation of the Corporation to deliver shares upon the exercise of an
Option that the Participant pay to the Corporation such amount as may be
requested by the Corporation for the purpose of satisfying any liability for
such withholding taxes. Any Option Agreement may provide that the Participant
may elect, in accordance with any conditions set forth in such Option
Agreement, to pay a portion or all of such withholding taxes in shares of
Common Stock.
13. Effective Date and Termination Dates
The Plan shall be effective on and as of the date of its approval by
the stockholders of the Corporation and shall terminate ten years later,
subject to earlier termination by the Board of Directors pursuant to Paragraph
10.
<PAGE>
L-3 COMMUNICATIONS CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT FOR RATIO DATA)
<TABLE>
<CAPTION>
PRO FORMA COMPANY PREDECESSOR COMPANY
------- -------------------
YEAR FOR THE NINE FOR THE THREE YEARS ENDED DECEMBER 31, FOR THE NINE FOR THE THREE
ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31,
1997 1997 1997 1996 1995 1994 1993 1993
------------ ------------- ------------- --------- ------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income before
income taxes $14,400 $27,402 ($505) $19,494 $174 $2,929 $8,300 $5,100
Add:
Interest expense 43,800 29,884 8,441 24,197 4,475 5,450 4,100 -
Interest
component of
rent expense 5,133 3,445 851 2,832 1,591 1,866 1,400 467
------------ ------------- ------------- --------- ------- ------- ------------- ------------
Earnings $63,333 $60,731 $8,787 $46,523 $6,240 $10,245 $13,800 $5,567
============ ============= ============= ========= ======= ======= ============= ============
Fixed Charges:
Interest expense $43,800 $29,884 $8,441 $24,197 $4,475 $5,450 $4,100 -
Interest
component of
rent expense 5,133 3,445 851 2,832 1,591 1,866 1,400 467
------------ ------------- ------------- --------- ------- ------- ------------- ------------
Fixed Charges $48,933 $33,329 $9,292 $27,029 $6,066 $7,316 $5,500 $467
============ ============= ============= ========= ======= ======= ============= ============
Ratio of earnings
to fixed charges 1.3x 1.8x N/A (a) 1.7x 1.0x 1.4x 2.5x N/A (b)
============ ============= ============= ========= ======= ======= ============= ============
</TABLE>
(a) For the three months ended March 31, 1997, earnings were insufficient to
cover fixed charges by $0.5 million.
(b) For the three months ended March 31, 1993, no interest expense was
incurred.
