<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
-----------------
FOR FISCAL YEAR ENDED OCTOBER 31, 1998 COMMISSION FILE NUMBER 0-20609
WHITTAKER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4033076
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO. )
1955 N. SURVEYOR AVENUE 93063
SIMI VALLEY, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 526-5700
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, par value $.01 per share New York Stock Exchange
Pacific Exchange, Inc.
Series E Participating Cumulative New York Stock Exchange
Preferred Stock Purchase Rights Pacific Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405 of the Securities Exchange Act of 1934) is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_]
State the aggregate market value of the voting stock held by nonaffiliates of
the Registrant: $179,980,043 as of December 31, 1998.
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date: 11,423,199 shares of Common
Stock as of December 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
WHERE
Document INCORPORATED
-------- ------------
Definitive Proxy Statement for the Annual Meeting of Stockholders Part III
to be held March 26, 1999 to be filed pursuant to Section 14(a)
of the Securities Exchange Act of 1934 (the ''Proxy Statement'')
================================================================================
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Whittaker Corporation ("Whittaker" or the "Company") was incorporated in
California in 1947 and became a Delaware corporation in 1986. Whittaker
maintains its principal executive and administrative offices at 1955 N.
Surveyor Avenue, Simi Valley, California 93063 (telephone number 805-526-5700).
In its continuing operations the Company has been active during fiscal 1998
in the Aerospace business. During the third quarter of 1998, the Company
decided to discontinue its Integration Services business and, on August 20,
1998, the Company sold the assets and business of its Integration Services unit,
Aviant Information, Inc., to Enterprise Consulting Group, Inc. During the first
quarter of 1998, the Company sold all of the common stock of its previously
discontinued Communications business unit, Whittaker Xyplex, Inc. to MRV
Communications, Inc. These actions implemented the Company's previously
announced strategy of focusing on its strengths in the aerospace industry and
concluded its involvement in the computer networking and integration services
businesses. The Company's financial statements report the operating results and
balance sheet items of these discontinued operations separately from its
continuing operations. See Note 2 to Consolidated Financial Statements in Part
II, Item 8 of this Form 10-K for financial information about discontinued
operations. The Company, in its Aerospace business develops, manufactures and
markets proprietary fluid (pneumatic, hydraulic and fuel) control valves and
control systems and fire and overheat detection products and systems for
aircraft, land-based gas turbines, and other industrial applications; radio
frequency and high temperature cable and cable systems and hydrogen and oxygen
analyzers. For the fiscal year ended October 31, 1998, the Company's total sales
from continuing operations were $131.5 million. Set forth below is a
description of the Company's continuing Aerospace business and the operations of
the discontinued businesses.
CONTINUING OPERATIONS
AEROSPACE GROUP
- ---------------
PRODUCTS
Principal applications and representative products of the Company's
continuing operations include:
Fluid and Pneumatic Controls. The Company designs and manufactures a broad
range of fluid control devices for both commercial and military aircraft. The
products are designed to control pneumatic, hydraulic and fuel flows in aircraft
systems. In commercial applications, they are used on virtually all Boeing and
AirBus commercial aircraft, and virtually all other aircraft and jet engines
manufactured in the world, with the exception of those manufactured in the
former Communist countries. In addition, commercial and industrial applications
include ground fueling devices for airports and valving systems, heat
exchangers, and fuel skids for land-based gas turbines, off-shore oil platforms,
and petrochemical complexes. In military applications, the products are used on
military transports, bombers, helicopters, fighters and landing craft. Both
commercial and military applications include aircraft turbine engines built by
General Electric, Rolls Royce and Pratt & Whitney. Sales of fluid control
products were $89.2 million in fiscal 1998, $63.5 million in fiscal 1997 and
$73.9 million in fiscal 1996.
Fire and Overheat Detectors. The Company designs and manufactures continuous
length pneumatic fire and overheat detectors, optical flame detectors, smoke
detectors and bleed-air leak detection systems. These systems are used on
commercial and military aircraft, gas turbine engines, small naval vessels,
helicopters, and railcars. This equipment is widely used on a broad spectrum of
aircraft manufactured by Boeing, AirBus, McDonnell Douglas, Northrop Grumman and
many small manufacturers. The aircraft range from large commercial transports
to small commuter aircraft, private twin engine airplanes, helicopters, military
fighters and transport aircraft. The fire and overheat detectors are used on
aircraft engines manufactured by General Electric, Pratt & Whitney and Rolls
Royce. Industrial applications of such products include complete fire
protection systems for vehicles, gas turbine powered pumping and electric power
generation applications, as well as large scale systems to protect oil platforms
and refineries. Sales of fire and overheat detectors and systems were $33.7 in
fiscal 1998, $19.5 million in fiscal 1997 and $21.8 million in fiscal 1996.
1
<PAGE>
Radio Frequency and High Temperature Cables. The Company designs and
manufactures high reliability silicon dioxide insulated coaxial and multiple
conductor cable systems which permit broad-band data transmission and control
function operation in extreme environments. Applications for these technologies
include signal transmission and control functions inside nuclear power plants
and reactors, power and control monitoring and electronic valve control at oil
refineries, extreme environmental condition cable applications near jet engines,
and critical connections in airborne electronic countermeasure systems.
Hydrogen and Oxygen Analyzers. The Company's hydrogen and oxygen analyzers
have been developed for use in the extreme environment surrounding a nuclear
reactor. The analyzers monitor and protect against the dangerous build up of
these gases, which, left unchecked, could result in a catastrophic fire or
explosion. The key features of the hydrogen and oxygen analyzers include the
rugged and stable electrochemical based sensors in combination with accurate and
dependable control and display units.
PRODUCT DEVELOPMENT
During 1998 the Company, with its liquid fuel metering systems and gas
metering technology was able to capture a significant share of the design
low emission ("DLE") market and the industrial gas turbine market. In addition,
the Company's quick disconnect product line for the sophisticated cryogenic and
missile fuel systems was expanded to missile pressurization systems
allowing the Company to enter the drone and target drone field.
During 1998, a major contract awarded to the Company in 1997 to supply air
conditioning and pressurization control valves for Boeing 757 and 767 aircraft
was expanded to include Boeing 777 aircraft. Moreover, this product line
will be used in jumbo jet electronic entertainment systems and in specialized
smoking section. The Joint Strike Fighter design contract awarded to
the Company in 1997 was completed in 1998 and the manufacturing phase was turned
over to its partner, Rolls-Royce Aero Engines.
The Company also developed, during 1998, a new valving technology
specifically targeted to its core aerospace turbine engine, wing and anti-icing
applications. This new valving technology provides lower weight and cost
features and offers a significant advantage over the Company's competition.
In its fire and overheat detector product line the Company, in 1998,
developed two new overheat sensors based on the intrinsic ruggedness of its
silicone dioxide cable technology. The first of these new products is a
continuous length sensor cable for pneumatic de-icing and environmental control
systems on aircraft is capable of identifying the location of an alarm along the
length of the cable. The second development in the overheat sensor product line
is a new family of resistance temperature detector ("RTD") based sensor probes
which, unlike fixed-alarm overheat sensors, permit continuous monitoring over a
wide temperature range.
During 1998, the Company developed, qualified and shipped the first fire
cable which is capable of meeting the latest Nuclear Regulatory Commission
standards mandated for U.S. nuclear power plants. In addition, the silicone
dioxide cable product line saw further developments for nuclear applications
during 1998 including the first installation of triax instrumentation cable in
U.S. Navy submarines and aircraft carriers.
A new solid-electrolyte based sensor was developed during 1998 which
complements the Company's existing line of hydrogen and oxygen analyzers. The
new sensor uses water instead of acid which greatly simplifies the sensor
construction. This new sensor is targeted for application in nuclear waste
storage facilities where continuous monitoring is critical.
The Company, in its continuing operations, spent $0.8 million, $0.9 million
and $1.4 million on research and development activities in fiscal 1998, 1997 and
1996, respectively.
MARKETS AND CUSTOMERS
Sales to commercial customers, including foreign customers, were the major
contributor to the Company's continuing operations' sales and profit in 1998.
Export sales to customers outside the United States represented 23% of the
Company's sales in 1998, compared to 21% in 1997 and 24% in 1996. In certain
geographic areas and for certain products, sales are often made indirectly
through independent representatives or distributors.
Sales directly or indirectly to the United States Government, primarily under
military procurement contracts, were 20% of sales in 1998 compared to 19% of
sales in 1997 and 27% in 1996. Companies engaged in supplying military
equipment to the United States Government are subject to competition, changes in
the continuing
2
<PAGE>
availability of Congressional appropriations, changes in contract timing and
scheduling, complexity of designs and the potential for obsolescence, and other
changes which may result from world events. Contracts with the United States
Government are subject to termination for the convenience of the Government if
deemed in its best interests. Contracts which are terminated for convenience
generally provide for payments to a contractor for its costs and for fees or
profits related to work accomplished through the date of termination.
BACKLOG
At October 31, 1998, the Company's continuing operations backlog totaled
$66.5 million, of which $8.0 million is not expected to be filled within fiscal
1999. This backlog consisted of control valves and systems ($26.9 million),
fire and overheat detectors ($18.0 million), spare parts ($8.9 million), cable
and analyzer products ($2.6 million) and other products ($10.1 million). At
October 31, 1997 the Company's continuing operations backlog totaled $70.5
million and consisted of control valves and systems ($30.3 million), fire and
overheat detectors ($18.3 million), spare parts ($9.3 million), cable and
analyzer products ($3.9 million) and other products ($8.7 million). The
Company's backlog does not include any unfunded amounts relating to government
contracts.
COMPETITION
The military and commercial industries in which the Company operates are
generally highly competitive, with competition centering on price, technical
innovation, product performance and product support. Competitors of the Company
in such markets may have substantially greater financial resources, research and
design capabilities, and manufacturing capacity.
DISCONTINUED OPERATIONS
ASSETS HELD FOR SALE
- --------------------
The Company owned a 996-acre parcel of land formerly used, until 1987, by the
Company's former Bermite division, a discontinued technology unit. The land is
located in the City of Santa Clarita, California, approximately 35 miles from
downtown Los Angeles. In September 1995, the city granted the entitlements
necessary to develop this property as a mixed-use, residential, commercial, and
light industrial development. In February 1996 the city approved a Development
Agreement which, among other things, extended the ten-year life of the
entitlements to over 20 years. In connection with its ongoing discussions with
potential developers, the Company, in the fourth quarter of 1997, wrote down the
carrying value of this land by $15.7 million to reflect this asset at its
estimated fair value. See Note 4 to Consolidated Financial Statements in Part
II, Item 8 of the Form 10-K for information about this land parcel and a
discussion of the factors considered by management in determining the fair value
of the land and the amount written down for impairment. In November of 1998,
the Company entered into a definitive agreement to sell this asset for $10.0
million in cash, a $5.0 million promissory note and a contingent interest in the
future development of this land and this sale was concluded in January, 1999.
DIVESTED OPERATIONS
- -------------------
On January 30, 1998, the Company sold Whittaker Xyplex, Inc. to MRV
Communications, Inc. This unit designed, developed and marketed a comprehensive
line of networking products. On August 20, 1998, the Company sold the assets and
business of its Integration Services unit, Aviant Information, Inc., to
Enterprise Consulting Group, Inc. This unit provided knowledge management and
information communication systems optimization for health care providers.
ENVIRONMENTAL
Compliance with Federal, state and local provisions that have been enacted or
adopted regulating the discharge of materials into the environment or otherwise
relating to the protection of the environment has had no material effect upon
the capital expenditures, earnings or competitive position of the Company, nor
is the Company estimating any material capital expenditures for environmental
control facilities in fiscal 1999 or 2000.
3
<PAGE>
EMPLOYEE RELATIONS
As of October 31, 1998, the Company employed approximately 450 persons in its
continuing businesses, about 8% of whom were represented by labor organizations.
The Company believes that it has generally good relations with its employees.
ITEM 2. PROPERTIES.
The Company's corporate headquarters are located in a portion of its
facilities in Simi Valley, California, which consist of approximately 276,000
square feet in three buildings leased by the Company through February, 2012 with
options to renew these leases for up to 12 years. The leases call for rent
escalations of 6% every three years beginning in March 2000. The Company, in its
continuing operations, also leases one facility in North Hollywood, California
which consists of approximately 93,000 square feet under a lease that expires in
2003. The Company has an option to renew this lease for an additional five
years. The Company also owns a 30,000 square foot production facility in
Colorado which was formerly used in its discontinued defense electronics
business.
Approximately 47% of the square footage is used for manufacturing,
engineering, and product development, while approximately 17% is used for sales,
marketing, and other general and administrative support. Of the remainder,
approximately 76,000 square feet is subleased by the Company to an unaffiliated
business.
The Company also leases and occupies several sales and technical support
offices in the United States and in the United Kingdom.
The Company believes that in general its plants and equipment are adequately
maintained, in good operating condition and adequate for the Company's present
needs. The Company regularly upgrades and modernizes its facilities and
equipment and expands it facilities as necessary to meet customer requirements.
ITEM 3. LEGAL PROCEEDINGS.
ENVIRONMENTAL MATTERS
As a result primarily of the activities of its discontinued operations, the
Company is a potentially responsible party in a number of actions filed under
the Comprehensive Environmental Response Compensation and Liability Act of 1980
("CERCLA"). CERCLA, also known as "Superfund," is the main Federal law
enacted to address public health and environmental concerns arising with respect
to past treatment and disposal of hazardous substances. The Company also is a
potentially responsible party in a number of actions brought under state laws
patterned after CERCLA.
CERCLA and such other state laws provide for the imposition of clean-up
liability on anyone who arranges for the disposal or treatment of hazardous
substances at designated sites. Accordingly, anyone who generates hazardous
substances may be a potentially responsible party if the treatment, storage, or
disposal facility that handles the substances becomes the subject of an
environmental clean-up under such laws. This is true even if the treatment,
storage, or disposal facility has the proper licenses and permits issued by
appropriate governmental authorities and treats, stores, or disposes of the
hazardous substances in accordance with the terms of such licenses and permits.
The various state environmental agencies and the U.S. Environmental Protection
Agency take the position under these environmental laws that all responsible
parties are jointly and severally liable for the costs of cleaning up sites
subject to their jurisdiction and for any environmental damages caused by the
treatment or disposal of hazardous substances at such sites.
In nearly all of the environmental matters in which the Company is involved
as a potentially responsible party, the Company contributed a very small amount
(generally much less than 1%) of the total wastes treated or disposed of at
these various treatment or disposal facilities and participates as a so-called
"de minimis" party. De minimis parties are generally allowed to settle their
potential liability for clean-up activities by agreeing with the state or
Federal environmental authorities and the other, larger responsible parties to
bear a share of the past and estimated future clean-up costs based on the volume
of the waste each de minimis party contributed, plus a "premium" or
"multiplier." These premiums or multipliers are designed to allow for the
uncertainty of estimates of future costs and the desirability of settling
liability early to avoid so-called transaction costs, i.e., the legal,
consulting, and other expenses, which tend to consume a significant amount of
the funds actually spent on the resolution of environmental matters.
4
<PAGE>
Where the Company does not qualify for such treatment, or the Company's
potential liability on a particular environmental matter could be significant,
or the Company believes that the premium or multiplier for a de minimis
settlement is unreasonable, the Company may elect to participate in the
settlement or remediation activities as, or on the same basis as, a major party,
generally paying its allocated share of remediation expenses and transaction
costs as they are incurred, often over several years.
In addition to the CERCLA and similar actions described above, the Company
also, from time to time, conducts or participates in remedial investigations and
clean-up activities at facilities formerly occupied by its operating units. In
the most significant of these sites, the Company has ''clean closed'' 13 of 14
facilities regulated under the Resource Conservation and Recovery Act at its
former Bermite division in Santa Clarita, California. Until the sale of its
former Bermite facility in January, 1999, the Company was working to close the
14th of such facilities and to complete an investigation of the entire 996-acre
property in anticipation of the development of the property for a planned mixed-
use residential and commercial development.
In 1998, the Company made cash expenditures of approximately $1.9 million on
environmental matters, excluding expenditures for clean-up activities at its
former Bermite division. This amount was charged to reserves for environmental
contingencies related to the Company's discontinued operations. In 1998, 1997
and 1996, the Company made cash expenditures for clean-up activities at its
former Bermite division of $1.4 million, $2.6 million and $4.0 million,
respectively.
OTHER LEGAL MATTERS
There are also various other claims and suits pending against the Company.
Based on an evaluation, which included consultation with counsel concerning the
legal and factual issues involved, the Company is of the opinion that such
claims and suits pending against the Company, including the environmental
matters discussed above, will not have a material adverse effect, singly or in
the aggregate, on the financial position of the Company. See Note 11 of Notes
to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
5
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the names, ages and positions of the current
executive officers of the Registrant.
<TABLE>
<CAPTION>
NAME Age Positions
---- --- ---------
<S> <C> <C>
Joseph F. Alibrandi..................... 70 President and Chief Executive Officer
Lynne M. O. Brickner.................... 46 Vice President, Secretary and General Counsel
John K. Otto............................ 44 Vice President, Chief Financial Officer and Treasurer
Roland G. Patitz........................ 62 President, Whittaker Controls, Inc.
John J. Stobie.......................... 44 President, Safety Systems Division
</TABLE>
Mr. Alibrandi joined Whittaker in July 1970 as President and Director and
served as Chief Executive Officer from November 1974 through January 1995. He
became Chairman of the Board in December 1985 and has continuously served in
such capacity since then. He was re-appointed President and Chief Executive
Officer on September 30, 1996.
Ms. Brickner joined Whittaker in September 1995 as Assistant General Counsel
and Assistant Vice President. She was named Secretary and General Counsel in
September 1996 and Vice President in October 1996. Prior to joining Whittaker,
Ms. Brickner was a practicing attorney with Kaye, Scholer, Fierman, Hays &
Handler since 1990.
Mr. Otto joined Whittaker in 1983 as Whittaker's Manager of Banking and Cash.
He was named Assistant Treasurer in 1986 and Treasurer in 1988. He was
appointed Vice President of the Company in December 1996 and Chief Financial
Officer in October 1997.
Mr. Patitz joined Whittaker in 1976 as Vice President of Operations of
Whittaker Controls, Inc. He was named President of Whittaker Controls, Inc. on
December 1, 1997.
Mr. Stobie joined Whittaker Controls in 1977 where he served as Materials
Manager, Manufacturing Manager and Manufacturing Engineering Manager prior to
his appointment in 1995 as Director of Operations of the Company's Safety
Systems Division. In 1996 he was appointed Executive Vice President of
Operations of the Company's Safety Systems Division, and on December 1, 1997, he
was named President of the Safety Systems Division.
The term of office of each executive officer (except for Mr. Patitz and Mr.
Stobie, who serve at the discretion of the Board of Directors) will expire at
the next annual meeting of the Board of Directors, which is scheduled to be held
on March 26, 1999.
6
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
PRINCIPAL MARKETS
The Common Stock is listed on the New York Stock Exchange and the Pacific
Exchange, Inc. (Symbol: WKR). Until their expiration on November 29, 1998, the
Series A Participating Cumulative Preferred Stock Purchase Rights were listed on
the New York Stock Exchange and the Pacific Exchange, Inc., and traded with the
Common Stock and were not separately transferable. Since November 30, 1998, The
Series E Participating Cumulative Preferred Stock Purchase Rights have been
listed on the New York Stock Exchange and the Pacific Exchange, Inc., and, at
the present time, trade with the Common Stock and are not separately
transferable. The Series D Participating Convertible Preferred Stock (the
''Series D Preferred Stock'') is not listed or traded on any exchange. See Note
7 of Notes to Consolidated Financial Statements in Part II, Item 8 of this Form
10-K.
COMMON STOCKHOLDERS
As of December 31, 1998 there were 4,664 registered holders of the Common
Stock.
COMMON STOCK PRICES
The following table sets forth the high and low sales prices of the Common
Stock during Whittaker's two most recent fiscal years.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------------------------------------------------
January 31 APRIL 30 JULY 31 OCTOBER 31
----------------------- --------------------------- -------------------------- ------------------------
High LOW HIGH LOW HIGH LOW HIGH LOW
--------- ----------- ----------- ------------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997.............. 14 1/4 11 5/8 11 7/8 9 1/8 11 3/4 10 1/2 15 3/16 10 7/16
1998.............. 12 3/4 7 1/8 15 13/16 12 1/2 15 7/8 12 15/16 14 15/16 12 15/16
</TABLE>
DIVIDENDS
Dividends of $0.25 were last declared on each share of Series D Preferred
Stock for the first two quarters of fiscal 1996 and no dividends have been
declared or paid since that time. At October 31, 1998 these accrued and unpaid
dividends amounted to $1,442.94. No dividends have been declared on the Common
Stock during the two most recent fiscal years.
Since April 30, 1996, the Company has been prohibited from declaring or
paying dividends on any of its outstanding shares by restrictions in its 7%
convertible subordinated notes. Thus, the Company has neither paid nor declared
dividends (including any quarterly dividend for the Series D Preferred Stock)
and has not redeemed shares since that date. However, dividends on the Series D
Preferred Stock have been accrued since that date. In the foreseeable future, in
light of the Company's strategy of using cash flow from operations to fund
internal growth and acquisitions, the Company's present intention is to refrain
from paying cash dividends on the Common Stock, even if the Company is otherwise
able to do so under its convertible subordinated notes. See Note 6 and Note 7 of
Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K
for further description of the Company's convertible subordinated notes.
SALES OF UNREGISTERED SECURITIES
During the three most recent fiscal years, the Company has issued a total of
2,082,174 unregistered shares of Common Stock. The Company issued 1,974,333
unregistered shares of Common Stock to Raytheon Company ("Raytheon") on April
10, 1996. Such shares were issued as partial consideration for the Company's
acquisition of Xyplex, Inc. These shares were issued in reliance upon Section
3(b) and 4(a) of the 1934 Act and Regulation D promulgated thereunder. A
registration statement on Form S-3 covering these shares was declared effective
by the Securities and Exchange Commission on April 9, 1998. On May 4, 1998, the
Company issued 107,841 unregistered shares of Common Stock to Hughes Electronics
Corporation ("Hughes"). Such shares were issued in satisfaction of certain
unpaid contingent payments and accrued interest thereon that were payable
pursuant to the terms of the Company's 1995 purchase of Hughes LAN Systems, Inc.
from Hughes Aircraft Company, a subsidiary of Hughes.
7
<PAGE>
A registration statement on Form S-3 covering these shares was declared
effective by the Securities and Exchange Commission on June 18, 1998.
TRANSFER AGENT AND REGISTRAR FOR COMMON STOCK
CHASE MELLON SHAREHOLDER SERVICES
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
RIGHTS AGENT FOR SERIES E PARTICIPATING CUMULATIVE PREFERRED STOCK PURCHASE
RIGHTS
MELLON BANK N.A.
Four Station Square
Pittsburgh, Pennsylvania 15219
ITEM 6. SELECTED FINANCIAL DATA.
WHITTAKER CORPORATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Summary of Operations*
Sales...................................... $ 131,477 $ 89,782 $ 98,647 $ 81,298 $ 71,276
Income (loss) from continuing operations,
before extraordinary item................. $ 40,090 $ (28,287) $ 9,817 $ 6,627 $ 6,046
Income (loss) from discontinued operations. $ (773) $ (127,095) $ (26,944) $ 1,238 $ 4,015
Gain (loss) on disposal of discontinued
operations................................ $ 9,221 $ (4,791) -- -- --
Extraordinary item......................... -- $ (3,409) -- -- --
Net income (loss).......................... $ 48,538 $ (163,582) $ (17,127) $ 7,865 $ 10,061
Basic earnings (loss) per share
Continuing operations, before
extraordinary item..................... $ 3.56 $ (2.54) $ .98 $ .78 $ .71
Discontinued operations................. $ .75 $ (11.83) $ (2.68) $ .14 $ .48
Extraordinary item...................... -- $ (.31) -- -- --
Net income (loss)....................... $ 4.31 $ (14.68) $ (1.70) $ .92 $ 1.19
Average common shares outstanding (in
thousands)................................ 11,264 11,144 10,065 8,531 8,481
OTHER DATA*
Working capital............................ $ 48.509 $ (76,366) $ (65,731) $ 72,272 $ 79,983
Total assets............................... $ 136,578 $ 162,933 $ 340,448 $ 227,137 $ 200,981
Long-term debt............................. $ 60,368 $ 222 $ 453 $ 70,694 $ 54,742
Stockholders' equity (deficit)............. $ 23,478 $ (30,723) $ 131,136 $ 102,424 $ 93,950
Current ratio.............................. 2.29:1 0.54:1 0.65:1 3.40:1 3.81:1
Capital additions.......................... $ 2,600 $ 2,200 $ 1,700 $ 2,000 $ 1,300
Stockholders of record..................... 4,700 4,900 5,200 5,500 5,700
</TABLE>
* Operating results and balance sheet items reflect the segregation of
continuing operations from discontinued operations. The 1997 loss from
continuing operations included a $15.7 million write-down of an asset held
for sale. See Notes 2 and 4 of Notes to Consolidated Financial Statements in
Part II, Item 8 of this Form 10-K.
8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
RESULTS OF OPERATIONS
During the third quarter of 1998, the Company decided to discontinue its
Integration Services segment and on August 20, 1998 sold the assets and business
of Aviant Information, Inc., its Integration Services business unit. The
Company had previously discontinued its Communications segment and sold
Whittaker Xyplex, Inc. earlier in 1998 and discontinued and sold its defense
electronics business at the end of 1997. These units are reflected in the
results of operations as discontinued operations. These actions implemented the
Company's previously announced strategy of focusing on its strengths in the
aerospace industry and concluded its involvement in the computer networking and
integration services businesses. The Company's continuing operations are now
involved in the design and manufacturing of a broad range of fluid control
devices, continuous length pneumatic fire and overheat detectors, optical flame
detectors, smoke detectors and silicon dioxide insulated coaxial and multiple
conductor cable systems.
The discontinued operations include the following: the Company's defense
electronics business which designed and manufactured a wide range of command,
control and communication systems, radar countermeasure systems and electronic
combat systems; the Integration Services business unit, Aviant Information,
Inc., which provided turnkey data networking solutions for hospitals and other
enterprises and Xyplex Networks, including the operations of Whittaker
Communications, Inc. ("WCI"). Xyplex Networks designed, developed and marketed
a comprehensive line of networking products.
COMPARISON OF 1998 TO 1997
Sales. The Company's 1998 sales from continuing operations were $131.5
million, an increase of $41.7 million (46.4%) from the sales in the prior fiscal
year. This increase reflects increased sales of fluid and pneumatic control
devices in both the commercial and military markets, increased sales of fire and
overheat detectors in the aircraft market, higher levels of repair and overhaul
business in both the commercial and military markets, increased sales of spare
parts in the commercial market and increased sales of cable products and
systems. The increase in sales of fire and overheat detectors and cable products
in 1998 reflects the successful resolution in 1998 of the production
inefficiencies associated with the 1997 move of the Company's fire and overheat
detector operations from Concord, California to Simi Valley, California.
Gross Margin. The Company's gross margin from continuing operations for 1998
as a percentage of sales was 49.9% compared with 32.6% for 1997. For 1998 the
gross margin was $65.6 million compared to a gross margin of $29.2 million in
1997. The improvement in gross margin as a percentage of sales in 1998 as
compared to 1997 was attributable to the successful resolution in 1998 of the
production inefficiencies associated with the 1997 move of the fire and overheat
detector operations from Concord, California to Simi Valley, California,
provisions for contract losses recorded in 1997, efficiencies associated with
higher sales volume and increased sales of higher margin spare parts and repair
and overhaul business in 1998.
Engineering and Development. Engineering and development expenses of the
Company's continuing operations decreased by $0.1 million in 1998, from $0.9
million in 1997 to $0.8 million in 1998.
Selling, General and Administrative. Selling, general and administrative
expenses (SG&A) for continuing operations in 1998 increased by $1.9 million from
1997. In 1998 SG&A expenses were $25.4 million compared to $23.5 million in
1997. This increase was attributable to higher management incentive costs in
1998 partially offset by a reduction in salaries in 1998 (because of lower
headcount) and lower legal fees in 1998.
Interest Expense. Interest expense for the Company's continuing operations
in 1998 decreased by $6.2 million from 1997, from $18.3 million in 1997 to $12.1
million in 1998. This reduction was primarily due to reduced levels of debt
outstanding during 1998 as compared to 1997. The average amount of debt
outstanding during 1998 was approximately $79.0 million, while in 1997, the
average amount of debt outstanding was approximately $130.9 million. Also
contributing, to a lesser extent, to the reduction in interest expense was a
reduction in the interest rates on debt outstanding during 1998 as compared to
1997.
9
<PAGE>
Interest Income. Interest income for the Company's continuing operations in
1998 was $1.9 million compared to $0.4 million in 1997. During 1998 the Company
received $1.5 million of interest payments on federal and state tax refunds for
1987 through 1994 tax years.
Other Expense. Other expense for the Company's continuing operations for
1998 was $6.7 million compared to $3.5 million for 1997. Included in the 1998
other expenses are $2.2 million of costs associated with the Company's 996-acre
land parcel located in Santa Clarita, California, a $2.2 million write-down in
the value of the warrants received in connection with the sale of Whittaker
Xyplex, Inc. to reflect the reduction in the market value of the common stock
underlying the warrants and a $2.1 million addition to reserves related to the
Company's environmental remediation efforts at various sites other than the
Santa Clarita property. Also contributing to the increase from 1997 was a gain
on the sale of an investment in 1997 of $3.7 million.
Income Taxes. The continuing operations benefit for taxes for 1998 was $17.6
million and consisted of a $10.2 million tax provision on the continuing
operations 1998 income and a $27.8 million tax benefit. During the third quarter
of 1998, the Company determined that, because of improved 1998 operating results
and the favorable outlook for future operating results, previously recorded
valuation allowances against its future tax benefits were no longer appropriate.
Consequently, the Company reversed all such valuation allowances against its
federal tax benefits.
Discontinued Operations. The loss from discontinued operations of $0.8
million for 1998 includes the after-tax losses of the Company's Integration
Services segment and the benefits from prior year tax losses of $1.1 million.
The 1997 loss from discontinued operations of $127.1 million includes the after-
tax losses of the Integration Services segment as well as the after-tax losses
of the Company's discontinued Communications segment and defense electronics
business.
The 1998 gain on disposal of discontinued operations of $9.2 million
includes tax benefits of $1.6 million and reflects a $12.5 million gain on the
sale of Whittaker Xyplex, Inc. during the first quarter of 1998 and a $1.7
million gain on the sale of the assets and business of Aviant Information, Inc.
during the fourth quarter of 1998. Also included in the 1998 gain on disposal of
discontinued operations is a $2.7 million write-off of certain assets related to
the discontinued Communications segment; a $2.0 million loss on certain
contracts related to the discontinued defense electronics business and $1.9
million of other losses arising from the disposition of its various discontinued
operations. The Company received cash during 1998 on the sale of Whittaker
Xyplex, Inc. and the assets and business of Aviant Information, Inc. of $35.0
million and $2.9 million, respectively.
The 1997 loss on disposal of discontinued operations of $4.8 million is net
of tax benefits of $0.3 million and reflects proceeds realized from the
disposition of discontinued operations of $18.9 million. Of these proceeds,
$18.4 million was used to reduce the Company's bank debt. The 1997 loss on
disposal reflects provisions for accrued liabilities for retained obligations
arising directly as a result of the decision to dispose of these operations and
the estimated future results of operations of such businesses through the date
of disposition.
COMPARISON OF 1997 AND 1996
Sales. The Company's sales from continuing operations for 1997 of $89.8
million decreased by $8.9 million (9.0%) from 1996 sales from continuing
operations. This decrease was due to reduced sales from contracts qualifying,
under the Company's policy, for revenue recognition using the percentage of
completion method. The Company's policy allows for revenue recognition using the
percentage of completion method in accordance with generally accepted accounting
principles ("GAAP") when the contract value is greater than $1.0 million and the
contract term is longer than one year. With fewer multi-year contracts being
awarded to original equipment manufacturers, including the Company, and more
customers going to "just in time" ordering, the majority of the Company's
revenue in 1997 related to short-term contracts where revenue is recorded, in
accordance with GAAP, on the completed contract basis. Also negatively impacting
1997 sales were inefficiencies in the production of fire and overheat detectors
for the industrial and aircraft markets resulting from the move of the fire and
overheat detector operations from Concord, California to Simi Valley,
California.
Gross Margin. The Company's gross margin from continuing operations for 1997
was $29.2 million (32.6% of sales) compared to $48.3 million (49.0% of sales)
for 1996. This decrease reflected primarily the production inefficiencies
associated with the move of the Concord, California operations to Simi Valley,
California, lower sales volume of fluid control devices and increases in
valuation allowances related to inventories that the Company had determined to
be excess or obsolete. Also in 1997, based on estimates of the costs to complete
certain long-term contracts and the related revenue to be derived from those
contracts, the Company determined that the completion of those contracts would
result in losses. In compliance with AICPA Statement of Position 81-1, the
Company provided for the entire amount of the estimated losses at that time.
Engineering and Development. Engineering and development expenses for the
Company's continuing operations decreased by $0.5 million, from $1.4 million in
1996 to $0.9 million in 1997.
Selling, General and Administrative. Selling, general and administrative
expenses (SG&A) for the Company's continuing operations for 1997 decreased by
$3.1 million from 1996. 1997 SG&A expenses were $23.5 million (26.2% of sales)
compared to $26.6 million (27.0% of sales) in 1996. This decrease was primarily
the result of lower management incentive costs in 1997 compared to 1996.
10
<PAGE>
Assets Held for Sale. In connection with discussions with potential
developers the Company, in 1997, wrote down the value of a 996 acre land parcel
held for sale by $15.7 million to its estimated fair value.
Interest. Interest expense increased to $18.3 million in 1997 from $10.9
million in 1996 primarily as a result of higher interest rates. Interest income
decreased in 1997 by $5.9 million from 1996 as a result of interest income
received in 1996 associated with federal income tax refunds for prior years.
Other Expense. Other expense for 1997 increased by $2.8 million over 1996.
This increase reflects increased environmental remediation costs in 1997, costs
associated with an asset held for sale which were being capitalized in 1996, and
the loss on disposal of certain non-productive assets in 1997. Partially
offsetting these costs was a $3.7 million gain on the sale of an investment in
1997.
Discontinued Operations. In addition to the losses from operations of the
Company's discontinued Integration Services business, Communications segment and
defense electronics unit, the loss from discontinued operations of $127.1
million for 1997 includes a $55.7 million write-down of the assets of the
Communications segment to their estimated net realizable value, a $30.2 million
goodwill and other intangibles impairment charge and a restructuring charge of
$5.3 million. Tax benefits of $2.6 million representing loss carry-back benefits
and the reversal of prior year overaccruals of tax liabilities are also included
in the 1997 loss from discontinued operations. The 1996 loss from discontinued
operations includes the operational results of the Communications segment and
defense electronics unit, the $11.7 million write-off of acquired in-process
research and development and restructuring costs of $2.4 million.
The 1997 loss on disposal of discontinued operations is net of income tax
benefits of $0.3 million and includes the estimated operating losses of the
Communications segment until the date of sale.
GENERAL
In fiscal 1998, 1997 and 1996, approximately 20%, 19% and 27%, respectively,
of the Company's continuing operations sales were directly or indirectly
attributable to the United States Government. Companies engaged in supplying
military equipment to the United States Government are subject to competition,
changes in the continuing availability of Congressional appropriations, changes
in contract timing and scheduling, complexity of designs and the potential for
obsolescence, and other changes which may result from world events. A loss of
Government business, although not anticipated by the Company, could have a
material adverse effect on the Company's operations. In addition, any
significant impact on the business of the Company's major customers resulting
from global economic or other conditions could have a material adverse effect on
the Company's future results.
FINANCIAL CONDITION AND LIQUIDITY
On May 28, 1998, the Company and a group of lenders entered into a new credit
agreement that consists of a $45 million revolving credit facility that expires
in May 2001 and a $40 million term loan that is repayable in quarterly
installments over five years. Interest on loans outstanding under the credit
agreement is based, at the Company's option, on a "base rate" or on a
"eurodollar rate." The annual interest rate based on the base rate may range
between the agent bank's prime rate plus 0.5% and the agent bank's prime rate
plus 1.75%. The annual interest rate based on the eurodollar rate may range
between LIBOR plus 1.75% and LIBOR plus 3.0%. The Company is obligated to pay
letter of credit fees which may range between 2.0% per annum and 3.0% per annum
on the aggregate amount of outstanding letters of credit. The Company is also
obligated to pay commitment fees which may range between 0.375% per annum and
0.50% per annum on the unused portion of the revolving credit facility. The
applicable margin over LIBOR or the prime rate, the applicable letter of credit
fee, and the applicable commitment fee are determined by reference to the
Company's leverage ratio as defined in the credit agreement. As of October 31,
1998, the weighted average interest rate on loans outstanding under the credit
agreement was 8.03%. At October 31, 1998, the Company's debt totaled $61.4
million, which consisted of $8.7 million of loans outstanding under its
revolving credit facility, $37.6 million outstanding under the term loan, $15.0
million of convertible subordinated debt and $0.1 million of other debt. In
addition there were $1.8 million of letters of credit outstanding under the
revolving credit facility. The new agreement includes financial covenants with
respect to financial leverage, earnings and fixed charge coverage. Proceeds
from the new agreement were used to repay all of the $70 million of indebtedness
previously outstanding under the Company's prior credit agreement. The new
facility provides additional availability to fund working capital requirements
and acquisitions.
11
<PAGE>
In order to reduce the risk of higher interest expense that could result from
an increase in the level of market interest rates, the Company in June 1996
purchased an interest rate cap with an initial notional amount of $42.5 million.
Under the terms of the interest rate cap, the Company will receive a payment at
the end of each quarterly period, as defined in the interest rate cap agreement,
if three-month LIBOR at the beginning of the period exceeds 7.5%. The amount of
such payment will be the interest for such period on the notional amount of the
interest rate cap at the beginning of such period calculated using an interest
rate equal to the positive difference, if any, between LIBOR at the beginning of
such period and 7.5%. The interest rate cap expires in July 1999. The cost of
this interest rate cap is being amortized over its 37-month term. At October
31, 1998, the unamortized cost was $60,500.
On January 30, 1998, the Company sold Whittaker Xyplex, Inc. On February 2,
1998, the net cash proceeds of $34.5 million from the sale were used to prepay
debt under the Company's prior credit facility.
The Company believes that cash from operations and available credit under its
new credit facility will be adequate to meet future operating, debt service, and
capital expenditure cash needs.
Debt as a percent of total capitalization (stockholders' equity plus debt)
was 72.3% at October 31, 1998, compared with 131.1% at October 31, 1997. The
current ratio at October 31, 1998 was 2.29:1, compared with 0.54:1 at October
31, 1997, while working capital was $48.5 million at October 31, 1998, compared
with ($76.4) million at October 31, 1997. As a result of the Company's non-
compliance with the financial ratio covenants contained in its prior credit
agreement, debt in the amount of $120.3 million as of October 31, 1997, which
otherwise would have been classified as noncurrent, was classified as current.
Excluding those debt reclassifications, the current ratio would have been 1.97:1
at October 31, 1997 and working capital would have been $43.9 million at October
31, 1997.
Cash flow provided by continuing operations for 1998 was $18.3 million,
compared to $5.0 million in 1997. The $13.3 million increase from 1997 to 1998
was due primarily to a net income of $40.1 million in 1998 compared to a net
loss after extraordinary item (excluding a $15.7 million writedown of an asset
held for sale), of $16.0 million in 1997. Partially offsetting this increase
was an increase in deferred taxes in 1998 of $24.4 million compared to a
decrease in deferred taxes of $2.9 million in 1997 and an increase in accounts
payable and other liabilities of $0.1 million in 1998 compared to an increase of
$11.8 million in 1997.
On May 4, 1998, the Company and Hughes Electronics Corporation ("Hughes")
entered into an agreement (the "Amendment"), to modify certain terms of the
Company's 1995 purchase of Hughes LAN Systems, Inc. (now known as Whittaker
Communications, Inc.) from Hughes. Under the Stock Purchase Agreement between
the Company and Hughes, dated April 24, 1995 (the "Prior Agreement"), the
Company issued to Hughes a 7% convertible subordinated note in the principal
amount of $15 million, due May 1, 2005 (the "Note").
The Amendment provides that Whittaker may elect to make certain payments due
to Hughes under the terms of the Prior Agreement in cash or in shares of
Whittaker common stock. In accordance with the terms of the Amendment, the
Company elected to make these payments to Hughes by issuing to Hughes 107,841
newly issued shares of Whittaker common stock. The Amendment also provides that
no such further payments shall be payable by the Company. The Company and
Hughes also agreed in the Amendment to release any and all existing claims
against each other.
The Amendment modifies the Note by (a) changing the conversion price from
$24.25 per share to $16.97 per share; and (b) if the Company redeems all or a
portion of the Note prior to May 4, 2002, obligating the Company to issue to the
holder of the Note a warrant to purchase the number of shares of Whittaker
common stock which the holder of the Note could have received upon conversion of
the principal amount so redeemed by the Company ("Warrant"). The form of
Warrant states that the exercise price of the Warrant will be based on the
conversion price of $16.97 and adjusted in accordance with customary anti-
dilutive protections similar to those affecting the conversion of the Note. The
form of Warrant also provides that the number of shares subject to the Warrant
will be adjusted based upon similar anti-dilutive principles. If the entire
principal amount of the Note, as amended, was converted as of October 31, 1998
into Whittaker common stock, the Company would be required to issue, and has
thus reserved for issuance, 883,912 shares of Whittaker common stock.
On June 12, 1998, the Company issued to Hughes fifteen 7% convertible
subordinated notes, each in the principal amount of $1 million (the "Notes"), in
exchange for the $15 million Note which was cancelled. The terms of each of the
$1 million Notes are identical, except for the principal amount, to the terms of
the $15 million Note, as amended by the Amendment. Hughes subsequently sold the
Notes to other investors.
12
<PAGE>
Under the Notes, the Company may not pay or declare cash dividends or redeem
shares of the Company if the Company's tangible net worth is less than $15
million. Since April 30, 1996, the Company's tangible net worth has been less
than $15 million and the Company has not paid or declared dividends (including
the quarterly dividend for the Series D Preferred Stock) or redeemed shares
since that date. However, dividends on the Series D Preferred Stock have been
accrued since that date. At October 31, 1998, the amount of accrued and unpaid
dividends on the Series D Preferred Stock was $1,442.94.
Capital expenditures of continuing operations during 1998 were $2.6 million,
compared to $2.2 million for 1997. At October 31, 1998, there were
approximately $0.5 million of approved capital expenditures outstanding for the
replacement and upgrade of existing plant and equipment at the Company's various
facilities. Funds for these and other capital expenditures are expected to be
provided from operations and advances under the Company's new credit agreement.
Under the terms of the Company's new credit agreement, capital expenditures may
not exceed specified annual amounts.
Cash expenditures related to the environmental remediation of a 996-acre
parcel of land located in Santa Clarita, California were $1.4 million during
1998.
As a result primarily of the activities of its discontinued operations , the
Company is a potentially responsible party in a number of actions filed under
the Comprehensive Environmental Response Compensation and Liability Act of 1980
(CERCLA). See further discussion in Item 3 of this Form 10-K.
See Note 11 of Notes to Consolidated Financial Statements in Part II, Item 8
of this form 10-K for information regarding commitments and contingencies.
IMPACT OF YEAR 2000
The Year 2000 ("Y2K") issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in normal business activities.
Since 1997, the Company has undertaken a number of initiatives to address the
anticipated impact of the Y2K on its business, including information and non-
information systems, customers and suppliers and third party service providers.
These initiatives include assessments of it systems and products, discussions
with its suppliers and customers, and the implementation of remedial action
plans where necessary. Based on these assessments, the Company determined that a
computer system (both hardware and software) used in its fire and overheat
detector business was not Y2K compliant and needed to be replaced with a system
that was fully Y2K compliant. The Company is currently in the process of
replacing this system and estimates that this will be completed by March, 1999.
The estimated cost of replacing this system is $2.0 million and as of October
31, 1998, the Company has spent approximately $1.5 million of this cost.
Customers and suppliers of the Company are in various stages of addressing
any potential Y2K problems. In view of the large number of alternative
suppliers, the Company believes that the failure of a supplier to become Y2K
compliant would not have a material adverse effect on the Company. The Company
has contacted or is in the process of contacting its third party service
providers to determine their ability to become Y2K compliant. To date, all of
the service providers who have been contacted have indicated that they are or
will be fully Y2K compliant.
While the Company believes that it has identified all potential Y2K issues
and has implemented a program to resolve any potential Y2K problems, all
necessary phases of this program have not yet been completed. The failure by
the Company to complete the remaining phases of this program prior to December
31, 1999 or the failure by the Company to have identified all potential Y2K
issues could materially adversely effect the Company. The amount of any
potential liability or lost revenue cannot be reasonably estimated at this time.
The Company currently has no contingency plans in place in the event it does not
complete the remaining phases of its Y2K program in a timely manner or has
failed to identify a potential issue. The Company does intend to develop a
contingency plan prior to December 31, 1999.
13
<PAGE>
SUBSEQUENT EVENT
On November 12, 1998, the Company adopted a new Stockholders Rights Plan (the
"New Plan") which is substantially similar to the prior Rights Plan which
expired by its terms on November 29, 1998. Under the New Plan, Rights were
distributed as a dividend at the rate of one Right for each share of Common
Stock held by stockholders of record at the close of business on November 30,
1998. Each Right entitles stockholders to buy, upon the occurrence of certain
events, 1/100th of a share of a new series of the Company's preferred stock
(Series E Participating Cumulative Preferred Stock) for $125. The Rights become
exercisable only if a person or group acquires beneficial ownership of 25% or
more of the Company's Common Stock, or commences a tender offer or exchange that
would result in such person or group owning 25% or more of the Company's Common
Stock. Until a person or group acquires 25% or more of the Company's Common
Stock, the Rights may be redeemed by the Board of Directors for $.01 per Right.
After a person or group acquires 25% or more of the Company's Common Stock but
before such person or group acquires 50% or more of the Company's Common Stock,
the Board of Directors may exchange all or part of the Rights (other than the
Rights owned by the person or group holding the 25% or more of the Company's
Common Stock) for shares of the Company's Common Stock at an exchange ratio of
one Right for one share of Common Stock. The Rights will expire on November 30,
2008.
On January 11, 1999, the Company sold its 996-acre land parcel located in the
City of Santa Clarita, California and certain other additional rights and assets
related to this land for $10.0 million in cash, a $5.0 million promissory note
and a contingent interest in any final profit from the development of this land.
The net cash proceeds from the sale were used to repay debt outstanding under
the Company's credit facility.
Statements made herein that are not based on historical fact are "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. The risk factors that could cause actual results to differ
from the forward looking statements include delay in developing new programs
and products, inability to qualify for new programs or to develop new products,
loss of existing business and inability to attract new business and customers,
reduced spending by commercial and defense customers, development of competing
products and the cyclical nature of the aerospace industry.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
The interest on the Company's bank debt is based on prevailing market
interest rates and interest on the Company's subordinated debt is based on a
fixed interest rate. For market rate based debt, interest rate changes generally
do not affect the market value of the debt but do impact future earnings and
cash flows, assuming other factors are held constant. Conversely for fixed rate
debt, interest rate changes affect the fair market value of the debt but do not
impact earnings or cash flows. A theoretical one percentage point change in
market rates in effect on October 31, 1998 would impact the after-tax earnings
of the Company by less than $0.5 million per year. The effect of this change on
the market value of the Company's fixed rate debt would not be material.
Statements made herein that are not based on historical fact are "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. The risk factors that could cause actual results to differ
from the forward looking statements include delay in developing new programs and
products, inability to qualify for new programs or to develop new products, loss
of existing business and inability to attract new business and customers,
reduced spending by commercial and defense customers, development of competing
products and the cyclical nature of the aerospace industry.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
14
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors of Whittaker Corporation
We have audited the accompanying consolidated balance sheets of Whittaker
Corporation as of October 31, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended October 31, 1998. 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 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Whittaker Corporation at October 31, 1998 and 1997, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended October 31, 1998, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Los Angeles, California
December 11, 1998
15
<PAGE>
WHITTAKER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 31,
-----------------------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
RESTATED -NOTE 2
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
Sales.................................................... $ 131,477 $ 89,782 $ 98,647
Costs and expenses
Cost of sales......................................... 65,915 60,549 50,355
Engineering and development........................... 757 894 1,398
Selling, general and administrative................... 25,447 23,500 26,618
Restructuring costs................................... -- -- 200
Writedown of asset held for sale...................... -- 15,677 --
------------ ------------ -----------
Operating income (loss).................................. 39,358 (10,838) 20,076
Interest expense......................................... 12,059 18,299 10,937
Interest income.......................................... (1,914) (444) (6,295)
Other expense............................................ 6,725 3,495 684
------------ ------------ -----------
Income (loss) from continuing operations before
extraordinary item and provision for taxes.............. 22,488 (32,188) 14,750
Provision (benefit) for taxes (Note 8)................... (17,602) (3,901) 4,933
------------ ------------ -----------
Income (loss) from continuing operations before
extraordinary item...................................... 40,090 (28,287) 9,817
Discontinued operations (Note 2)
Loss from discontinued operations....................... (773) (127,095) (26,944)
Gain (loss) on disposal of discontinued operations...... 9,221 (4,791) --
Extraordinary item, less income tax benefit of $224
(Note 15)............................................... -- (3,409) --
------------ ------------ -----------
Net income (loss)........................................ $ 48,538 $ (163,582) $ (17,127)
============ ============ ===========
Basic income (loss) per share
Continuing operations................................... $ 3.56 $ (2.54) $ .98
Discontinued operations
Loss from discontinued operations...................... (.07) (11.40) (2.68)
Gain (loss) on disposal of discontinued operations..... .82 (.43) --
Extraordinary item...................................... -- (.31) --
------------ ------------ -----------
Net income (loss)....................................... $ 4.31 $ (14.68) $ (1.70)
============ ============ ===========
Diluted income (loss) per share
Continuing operations................................... $ 3.30 $ (2.54) $ .94
Discontinued operations
Loss from discontinued operations...................... (.06) (11.40) (2.41)
Gain (loss) on disposal of discontinued operations..... .74 (.43) --
Extraordinary item...................................... -- (.31) --
------------ ------------ -----------
Net income (loss)....................................... $ 3.98 $ (14.68) $ (1.47)
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE>
WHITTAKER CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AT OCTOBER 31,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
RESTATED
- NOTE 2
(DOLLARS IN THOUSANDS)
CURRENT ASSETS
Cash.................................................... $ -- $ 6,366
Receivables............................................. 19,415 23,702
Inventories............................................. 42,060 37,009
Prepaids and other current assets....................... 2,578 772
Income taxes recoverable................................ 195 3,238
Deferred income taxes................................... 21,800 11,244
Net current assets of discontinued units................ -- 7,057
----------- -----------
Total Current Assets................................. 86,048 89,388
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements.............................. 72 299
Buildings and improvements.............................. 7,324 8,355
Equipment............................................... 21,421 20,858
Construction in progress................................ 1,645 384
----------- -----------
30,462 29,896
Less accumulated depreciation and amortization.......... (20,623) (20,433)
----------- -----------
9,839 9,463
----------- -----------
OTHER ASSETS
Goodwill, net of amortization........................... 13,677 14,032
Other intangible assets, net of amortization............ 922 1,106
Notes and other noncurrent receivables.................. 3,152 3,443
Other noncurrent assets................................. 7,726 7,637
Net assets held for sale................................ 15,214 15,214
Net noncurrent assets of discontinued units............. -- 22,650
----------- -----------
40,691 64,082
----------- -----------
$ 136,578 $ 162,933
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE>
WHITTAKER CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES & STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
AT OCTOBER 31,
----------------------------------
1998 1997
------------- -------------
RESTATED -
NOTE 2
(Dollars in thousands)
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt........................................... $ 1,043 $ 129,353
Accounts payable............................................................... 6,457 9,086
Accrued liabilities............................................................ 30,039 27,315
------------- -------------
Total Current Liabilities................................................... 37,539 165,754
------------- -------------
OTHER LIABILITIES
Long-term debt................................................................. 60,368 222
Other noncurrent liabilities................................................... 13,933 12,603
Deferred income taxes.......................................................... 1,260 15,077
------------- -------------
Total Other Liabilities..................................................... 75,561 27,902
------------- -------------
Commitments and contingencies (Notes 4, 10, and 11)
STOCKHOLDERS' EQUITY
Capital Stock:
Preferred Stock, par value $1 per share, authorized 5,000,000 shares--
Series D Participating Convertible Preferred Stock, outstanding 577.18 1 1
shares at October 31, 1998 and October 31, 1997..........................
Common Stock, authorized 40,000,000 shares--
Par value, $.01 per share, outstanding 11,345,199 shares at October 31, 113 112
1998 and 11,204,658 shares at October 31, 1997.............................
Additional paid-in capital..................................................... 77,703 72,041
Retained deficit............................................................... (54,339) (102,877)
------------- -------------
Total Stockholders' Equity (deficit)........................................ 23,478 (30,723)
------------- -------------
$ 136,578 $ 162,933
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE>
WHITTAKER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 31,
-------------------------------------
1998 1997 1996
---------- ---------- ---------
Operating Activities RESTATED - NOTE 2
Continuing Operations (DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net income (loss), including extraordinary item.......................................... $ 40,090 $ (31,696) $ 9,817
Adjustments to reconcile net income (loss) to net cash provided (used) by operations:
Depreciation and amortization........................................................... 2,516 2,602 2,629
Net periodic pension (income) expense................................................... 196 208 (63)
Income taxes recoverable................................................................ 3,043 2,205 (3,991)
Deferred taxes.......................................................................... (24,373) 2,930 1,108
Impairment charge....................................................................... -- 15,677 --
Extraordinary loss...................................................................... -- 3,633 --
Changes in operating assets and liabilities:
Receivables............................................................................ 3,607 3,676 (2,677)
Inventories and prepaid expenses....................................................... (6,857) (6,036) (6,881)
Accounts payable and other liabilities................................................. 95 11,831 2,973
---------- ---------- ---------
Total from continuing operations......................................................... 18,317 5,030 2,915
---------- ---------- ---------
Discontinued Operations
Net income (loss)........................................................................ (773) (131,886) (26,944)
Adjustments to reconcile net income (loss) to net cash provided (used) by operations:
Depreciation and amortization........................................................... 2,774 21,108 16,010
Intangible asset impairment charges and other write-offs................................ -- 90,376 --
Net periodic pension (income) expense................................................... -- 381 (142)
Acquired in-process research and development............................................ -- -- 11,700
Deferred taxes.......................................................................... 1,023 (4,736) (8,291)
Changes in operating assets and liabilities............................................. (261) 23,898 5,181
---------- ---------- ---------
Total from discontinued operations....................................................... 2,763 (859) (2,486)
---------- ---------- ---------
Net cash provided by operating activities................................................. 21,080 4,171 429
---------- ---------- ---------
INVESTING ACTIVITIES
Continuing Operations
Proceeds on sale of businesses........................................................... 37,931 -- --
Sale of property, plant and equipment.................................................... -- 15,029 --
Purchase of property, plant and equipment................................................ (2,555) (2,182) (1,661)
Collections of notes receivable.......................................................... 971 (415) 1,724
(Increase) decrease in assets held for sale.............................................. -- 238 (4,014)
Contingent payments on purchased business................................................ -- -- (1,839)
Other items, net......................................................................... 1,771 1,315 1,886
---------- ---------- ---------
Total from continuing operations......................................................... 38,118 13,985 (3,904)
---------- ---------- ---------
Discontinued Operations
Net proceeds (expenditures) relating to discontinued operations.......................... (2,549) 17,280 (72,474)
---------- ---------- ---------
Net cash provided (used) by investing activities.......................................... 35,569 31,265 (76,378)
---------- ---------- ---------
FINANCING ACTIVITIES
Issuance of debt.......................................................................... 75,000 -- 84,800
Net reduction of debt..................................................................... (143,164) (32,360) --
Reduction (increase) in deferred debt costs............................................... (514) 4 (3,281)
Issuance of common stock.................................................................. 1,432 -- --
Tax benefit on stock option exercises..................................................... 3,995 482 89
Dividends paid............................................................................ -- -- (1)
Purchases of common stock................................................................. -- -- (6,472)
Proceeds from shares issued under stock option plans...................................... 236 1,238 2,219
---------- ---------- ---------
Net cash provided (used) by financing activities.......................................... (63,015) (30,636) 77,354
---------- ---------- ---------
Net increase (decrease) in cash........................................................... (6,366) 4,800 1,405
Cash at beginning of year................................................................. 6,366 1,566 161
---------- ---------- ---------
Cash at end of year....................................................................... $ -- $ 6,366 $ 1,566
========== ========== =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest................................................................................. $ 10,779 $ 18,080 $ 9,792
========== ========== =========
Income taxes............................................................................. $ 443 $ 433 $ 280
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE>
WHITTAKER CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED OCTOBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES D ADDITIONAL
PREFERRED COMMON STOCK PAID-IN RETAINED
-----------------------
STOCK SHARES AMOUNT CAPITAL EARNINGS TOTAL
------------ ---------- --------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT NOVEMBER 1, 1995............. $1 8,589 $ 86 $ 19,261 $ 83,076 $102,424
Net loss................................ -- -- -- -- (17,127) (17,127)
Cash dividends--preferred stock......... -- -- -- -- (1) (1)
Conversion of preferred stock........... -- 104 1 -- (1) --
Shares issued under stock option plans.. -- 660 6 2,213 -- 2,219
Shares reacquired....................... -- (298) (3) (1,226) (5,243) (6,472)
Shares issued on acquisition of
business............................... -- 1,974 20 49,984 -- 50,004
Income tax benefits from stock options
exercised.............................. -- -- -- 89 -- --
------------ ---------- --------- ------------- -------------- --------------
BALANCE AT OCTOBER 31, 1996............. 1 11,029 110 70,321 60,704 131,136
Net loss................................ -- -- -- -- (163,582) (163,582)
Shares issued under stock option plans.. -- 176 2 1,238 -- 1,240
Income tax benefits from stock options
exercised.............................. -- -- -- 482 -- 482
Translation adjustment.................. -- -- -- -- 1 1
------------ ---------- --------- ------------- -------------- --------------
BALANCE AT OCTOBER 31, 1997............. 1 11,205 112 72,041 (102,877) (30,723)
Net income.............................. -- -- -- -- 48,538 48,538
Shares issued under stock option plans.. -- 32 -- 236 -- 236
Shares issued as payment under terms of
amended stock purchase agreement....... -- 108 1 1,431 -- 1,432
Income tax benefits from stock options
exercised.............................. -- -- -- 3,995 -- 3,995
------------ ---------- --------- ------------- -------------- --------------
BALANCE AT OCTOBER 31, 1998............. $1 11,345 $ 113 $ 77,703 $ (54,339) $ 23,478
============ ========== ========= ============= ============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles may require management to make certain estimates and
assumptions that could affect the amounts reported in the financial statements
and accompanying notes. These estimates and assumptions include, among other
things, future costs to complete long-term contracts, valuation of slow moving
or obsolete inventories, and amounts of estimated liabilities for contingent
losses and future costs of litigation. Actual costs could differ from these
estimates.
(B) Inventories: Inventories are stated at the lower of cost or market. Cost
has been determined principally on the first-in, first-out (FIFO) method.
Certain of the Company's inventories relate to long-term programs and may
require more than one year to be realized. Inventories, net of valuation
reserves of $7.8 million and $7.3 million at October 31, 1998 and 1997,
respectively, consisted of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------------
1998 1997
------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Parts and materials............................... $20,999 $19,597
Work in process................................... 18,565 15,595
Finished goods.................................... 2,496 1,817
--------- --------
$42,060 $37,009
========= ========
</TABLE>
(C) Intangibles: Goodwill is amortized using the straight-line method over 40
years. Other intangible assets principally relate to acquired intangibles and
include patents, technology, and software. Amortization is recorded on a
straight-line basis, generally over periods ranging from 5 to 15 years.
Accumulated amortization of goodwill and of other intangible assets at
October 31, 1998 amounted to $1.8 million and $3.1 million, respectively, and at
October 31, 1997 amounted to $1.5 million and $2.8 million, respectively.
During 1998, 1997 and 1996 amortization of $0.6 million, $0.6 million and $0.8
million, respectively, was charged to expense in the Company's continuing
operations.
(D) Property and Depreciation: Property, plant and equipment is recorded at
cost. Depreciation is computed principally by use of the straight-line method
based upon the estimated useful lives of such assets, ranging from four to
thirty years. Depreciation of leasehold improvements is computed on a straight-
line basis over the shorter of the estimated useful lives of the improvements or
the terms of the leases. During 1998, 1997 and 1996 depreciation of $1.9
million, $2.0 million and $1.8 million, respectively, was charged to expense by
the Company in its continuing operations. Capital expenditures by the Company's
continuing operations were $2.6 million, $2.2 million and $1.7 million in 1998,
1997 and 1996, respectively.
(E) Revenue Recognition: The Company recognizes revenues upon shipment of its
product or upon completion of the services it renders. The Company accrues
estimated warranty and installation costs at the time of shipment. On
significant long-term contracts that involve significant engineering and
development efforts, the Company would use the percentage-of-completion method
for recognition of revenues and profits.
(F) Engineering and Development Costs: Company-sponsored engineering and
development costs are expensed as incurred. Costs related to engineering and
development contracts are included in inventory and charged to cost of goods
sold upon recognition of related revenue.
21
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(G) Earnings (Loss) Per Share: Basic earnings (loss) per share have been
computed based on the weighted average number of common shares outstanding
during the periods. Diluted earnings per share for 1998 and 1996 include the
potential dilutive effect of employee stock options calculated using the
treasury stock method and the Series D Participating Convertible Preferred Stock
and the convertible subordinated notes on an if converted method. These
potentially dilutive securities have been excluded from the 1997 calculations as
antidilutive. The statements of income for prior periods have been restated to
segregate continuing and discontinued operations.
(H) Impairment of Long-Lived Assets: When indicators of impairment of long-
lived assets used in operations or long-lived assets to be disposed of, other
than long-lived assets of discontinued operations, are present and, the
undiscounted future cash flows estimated to be generated by those assets is less
than the carrying value of such assets, an impairment loss would be recorded by
the Company.
(I) New Accounting Standards: In June of 1997 the FASB issued FAS No. 130,
"Reporting Comprehensive Income," effective for the 1999 fiscal year. FAS No.
130 establishes standards for reporting and displaying comprehensive income and
its components in the financial statements. Comprehensive income is defined as
the change in the equity of a business enterprise during a period from
transactions and other events from nonowner sources. The Company does not
expect the adoption of this standard to have a material effect on its
consolidated financial statements.
In June of 1997 the FASB issued FAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," effective for the 1999 fiscal year. FAS
No. 131 requires the reporting of certain information about operating segments
of a business enterprise and replaces FAS No. 14. The Company has not completed
its review of this standard and the effect of this standard upon its
consolidated financial statements.
In February 1998, the Financial Accounting Standards Board issued FAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits,"
effective for the Company's 1999 fiscal year. FAS No. 132 supersedes the
disclosure requirements in FAS No. 87, FAS No. 88 and FAS No. 106 and attempts
to improve and standardize disclosures about pensions and other postretirement
benefits and to make the required information easier to prepare and more
understandable. The Company does not expect the adoption of this standard to
have a material effect on its consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," effective for
the Company's 2000 fiscal year. Because of the Company's minimal use of
derivatives, it does not anticipate that the adoption of this standard will have
a material impact on its consolidated financial statements.
NOTE 2. DISCONTINUED OPERATIONS
During the third quarter of 1998, the Company decided to sell its Integration
Services business, Aviant Information, Inc. On August 20, 1998, the Company
sold the assets and business of Aviant Information, Inc. to Enterprise
Consulting Group, Inc. During the first quarter of 1998 the Company completed
the sale of its previously discontinued Communications business, Whittaker
Xyplex, Inc. ("Xyplex") to MRV Communications, Inc. ("MRV"), for $35 million in
cash plus warrants to purchase 421,402 shares of common stock of MRV. The
warrants were valued at $2,200,000 based on their estimated market value at
January 31, 1998. Because of a decline in the estimated market value of the
common stock underlying these warrants the Company, in the fourth quarter of
1998, wrote down the value of this asset to zero. This $2,200,000 charge is
reflected in the Company's continuing operations other expense. The net
proceeds from the sales were used to reduce the Company's bank debt. During the
fourth quarter of 1997, the Company sold its defense electronics unit. The
Company's financial statements report the operating results and balance sheet
items of these discontinued operations separately from its continuing
operations. Previously reported financial statements have been restated to
reflect the discontinuance of these businesses.
22
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 2. DISCONTINUED OPERATIONS--(CONTINUED)
Operating results of the discontinued operations were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 31,
----------------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Sales $ 19,592 $ 105,169 $ 123,230
Costs and expenses 22,410 235,226 164,196
------------ ------------ -----------
Loss before taxes (2,818) (130,057) (40,966)
Tax benefit (2,045) (2,962) (14,022)
------------ ------------ -----------
Loss from discontinued operations $ (773) $ (127,095) $ (26,944)
============ ============ ===========
</TABLE>
Net assets of the discontinued businesses at October 31, 1998 and October 31,
1997 were as follows:
<TABLE>
<CAPTION>
October 31,
---------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Current assets $ -- $ 27,834
Current liabilities -- 20,777
------------- -------------
Net current assets -- 7,057
------------- -------------
Property, plant and equipment -- 5,505
Other noncurrent assets -- 22,448
Deferred taxes -- (5,303)
------------- -------------
Net noncurrent assets -- 22,650
------------- -------------
Net assets $ -- $ 29,707
============= =============
</TABLE>
The 1998 net loss from discontinued operations includes benefits from prior
year tax losses of $1.1 million. The 1997 discontinued operations loss before
taxes includes a fourth quarter charge of $55.7 million for the write-down of
the net assets of Xyplex, Inc. to their estimated net realizable value. Also
included in the 1997 loss is a goodwill and other intangibles impairment charge
of $30.2 million and restructuring costs of $5.3 million. The 1996 discontinued
operations loss before taxes includes the write-off of acquired in-process
research and development of $11.7 million.
The 1998 gain on disposal of discontinued operations of $9.2 million
includes tax benefits of $1.6 million and reflects a $12.5 million gain on the
sale of Whittaker Xyplex, Inc. during the first quarter of 1998 and a $1.7
million gain on the sale of the assets and business of Aviant Information, Inc.
during the fourth quarter of 1998. Also included in the 1998 gain on disposal of
discontinued operations is a $2.7 million write-off of certain assets related to
the discontinued Communications segment; a $2.0 million loss on certain
contracts related to the discontinued defense electronics business and $1.9
million of other losses arising from the disposition of its various discontinued
operations. The Company received cash during 1998 on the sale of Whittaker
Xyplex, Inc. and the assets and business of Aviant Information, Inc. of $35.0
million and $2.9 million, respectively.
The 1997 loss on disposal of discontinued operations of $4.8 million is net
of tax benefits of $0.3 million and reflects proceeds realized from the
disposition of discontinued operations of $18.9 million. Of these proceeds,
$18.4 million was used to reduce the Company's bank debt. The 1997 loss on
disposal reflects provisions for accrued liabilities for retained obligations
arising directly as a result of the decision to dispose of these operations and
the estimated future results of operations of such businesses through the date
of disposition.
23
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 3. EARNINGS PER SHARE
The following table sets forth for continuing operations the computation of
basic and diluted earnings (loss) per share in thousands except per share
amounts:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 31,
---------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Basic Earnings (Loss) Per Share
- -------------------------------
Income (loss) from continuing operations $ 40,090 $ (28,287) $ 9,817
Less preferred dividends -- -- 1
------------ ------------ ------------
Net income (loss) from continuing operations available to common
stockholders $ 40,090 $ (28,287) $ 9,816
============ ============ ============
Weighted average common shares outstanding 11,264 11,144 10,065
============ ============ ============
Basic income (loss) per share from continuing operations $ 3.56 $ (2.54) $ 0.98
============ ============ ============
Diluted Earnings (Loss) Per Share
- ---------------------------------
Net income (loss) from basic earnings per share calculation, above $ 40,090 $ (28,287) $ 9,816
Add after-tax interest on convertible debt 693 -- 693
------------ ------------ ------------
Net income (loss) from continuing operations for diluted earnings
per share calculation $ 40,783 $ (28,287) $ 10,509
------------ ------------ ------------
Weighted average common shares outstanding for basic earnings per
share calculation, above 11,264 11,144 10,065
Effect of dilutive securities:
Series D Convertible Preferred Stock 188 -- 213
Employee stock options 167 -- 294
Convertible debt 751 -- 619
------------ ------------ ------------
Denominator for diluted earnings per share calculation 12,370 11,144 11,191
============ ============ ============
Diluted earnings (loss) per share from continuing operations $ 3.30 $ (2.54) $ 0.94
============ ============ ============
</TABLE>
Options to purchase 349,334 shares of common stock at prices ranging from
$14.94 to $26.25 per share were not included in the computation of diluted
earnings per share for 1998 because their inclusion would be anti-dilutive.
Options to purchase 630,427 shares of common stock at prices ranging from $14.87
to $26.25 per share were not included in the computation of diluted earnings per
share for 1996 because their inclusion would be anti-dilutive. Loss per share
calculations for 1997 do not include the effect of the Series D Convertible
Preferred Stock, employee stock options or the convertible debt as such amounts
would be anti-dilutive.
24
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 4. NET ASSETS HELD FOR SALE
Net assets held for sale at October 31, 1998 and October 31, 1997, include
$15.0 million of land formerly used by a discontinued technology unit. The land
is located in the City of Santa Clarita, California.
During the fourth quarter of 1997, in connection with its strategy to reduce
debt, the Company decided to sell this land and thus recorded a non-cash
write-down of $15.7 million dollars to reflect this asset at $15 million which
is the amount the Company estimates it would receive upon the sale of this asset
after deducting estimated selling costs. Under Financial Accounting Standards
Board Statement No. 121 ("FAS 121"), when an impairment write-down is required,
the related assets are adjusted to their estimated fair value, net of estimated
selling costs. For purposes of FAS 121, fair value has been determined to be the
amount a willing buyer would pay a willing seller for such assets in a current
transaction that is other than a forced or liquidation sale.
The cost to perform the environmental remediation of this property necessary
to prepare the property for development is estimated to be approximately $14.0
million. However, the Company does not plan to develop the property. In
addition, no claim has been asserted or is probable, and no assessment has been
made or is probable, against the Company by a governmental agency to remediate
this property. Consequently, the Company has not recorded a liability for these
costs. These costs are not considered selling costs because they are not costs
that must be incurred before legal title can be transferred nor is there a
contractual agreement for the sale of the land that obligates the Company to
incur these costs in the future.
The estimation process involved in determining if assets have been impaired
and in the determination of fair value is inherently uncertain since it requires
estimates of current market yields as well as future events and conditions.
NOTE 5. RECEIVABLES
Receivables consisted of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
(IN THOUSANDS)
Trade accounts receivable--billed............................ $19,832 $21,392
Other receivables............................................ 1,942 2,942
Allowance for doubtful accounts.............................. (2,359) (632)
------- -------
Total receivables............................................ $19,415 $23,702
======= =======
</TABLE>
25
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Note 6. Long-Term Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------------------------------------------
1998 1997
------------------------ ------------------------
(In thousands)
INTEREST INTEREST
AMOUNT RATE AMOUNT RATE
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Borrowings under revolving credit facility..................... $ 8,750 7.625% $ 79,936 12.5%
Borrowings under term loan..................................... 37,552 8.125% 34,016 12.5%
Other note, payable semiannually to 1999, with interest at the
lesser of 10% or 65% of prime................................. 59 5.2% 259 5.5%
7% convertible subordinated notes due May 1, 2005.............. 15,000 7.0% 15,000 7.0%
Capitalized lease obligations payable in varying monthly or
quarterly installments through 1999, with interest rates
ranging to 9.67% (Note 10)................................... 50 7.3% 364 8.7%
------- --------
$61,411 $129,575
Less current maturities........................................ 1,043 129,353
------- --------
$60,368 $ 222
======= ========
</TABLE>
Maturities of long-term debt are as follows for the periods stated:
<TABLE>
<CAPTION>
YEAR ENDING (IN
OCTOBER 31 THOUSANDS)
----------- -----------
<S> <C>
1999.......................... $ 1,043
2000.......................... 955
2001.......................... 12,293
2002.......................... 13,226
2003.......................... 18,894
</TABLE>
On May 28, 1998, the Company and a group of lenders entered into a new credit
agreement that consists of a $45 million revolving credit facility that expires
in May 2001 and a $40 million term loan that is repayable in quarterly
installments over five years. Interest on loans outstanding under the credit
agreement is based, at the Company's option, on a "base rate" or on a
"eurodollar rate." The annual interest rate based on the base rate may range
between the agent bank's prime rate plus 0.5% and the agent bank's prime rate
plus 1.75%. The annual interest rate based on the eurodollar rate may range
between LIBOR plus 1.75% and LIBOR plus 3.0%. The Company is obligated to pay
letter of credit fees which may range between 2.0% per annum and 3.0% per annum
on the aggregate amount of outstanding letters of credit. The Company is also
obligated to pay commitment fees which may range between 0.375% per annum and
0.50% per annum on the unused portion of the revolving credit facility. The
applicable margin over LIBOR or the prime rate, the applicable letter of credit
fee, and the applicable commitment fee are determined by reference to the
Company's leverage ratio as defined in the credit agreement. As of October 31,
1998, the weighted average interest rate on loans outstanding under the credit
agreement was 8.03%. At October 31, 1998, the Company's debt totaled $61.4
million, which consisted of $8.7 million of loans outstanding under its
revolving credit facility, $37.6 million outstanding under the term loan, $15.0
million of convertible subordinated debt and $0.1 million of other debt. In
addition there were $1.8 million of letters of credit outstanding under the
revolving credit facility. The Company's obligations under the credit agreement
are secured by a pledge of shares of stock of the subsidiaries of the Company,
accounts receivable, inventory, equipment, intellectual property and other
assets of the Company and its subsidiaries. The new agreement includes
financial covenants with respect to financial leverage, earnings and fixed
charge coverage. Proceeds from the new agreement were used to repay all of the
$70 million of indebtedness previously outstanding under the Company's prior
credit agreement. The new facility provides additional availability to fund
working capital requirements and acquisitions.
26
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 6. LONG-TERM DEBT--(CONTINUED)
Under the Company's 7% convertible subordinated notes, the Company may not
pay or declare cash dividends or redeem shares of the Company if the Company's
tangible net worth is less than $15 million. Since April 30, 1996, the
Company's tangible net worth has been less than $15 million and the Company has
not paid or declared dividends (including the quarterly dividend for the Series
D Preferred Stock) or redeemed shares since that date. However, dividends on
the Series D Preferred Stock have been accrued since that date. At October 31,
1998, the amount of accrued and unpaid dividends on the Series D Preferred
Stock was $1,442.94.
In order to reduce the risk of higher interest expense that could result from
an increase in the level of market interest rates, the Company in June 1996
purchased an interest rate cap with an initial notional amount of $42.5 million.
Under the terms of the interest rate cap, the Company will receive a payment at
the end of each quarterly period, as defined in the interest rate cap agreement,
if three-month LIBOR at the beginning of the period exceeds 7.5%. The amount of
such payment will be the interest for such period on the notional amount of the
interest rate cap at the beginning of such period calculated using an interest
rate equal to the positive difference, if any, between LIBOR at the beginning of
such period and 7.5%. The interest rate cap expires in July 1999. The cost of
this interest rate cap is being amortized over its 37-month term. At October
31, 1998, the unamortized cost was $60,500.
On January 30, 1998, the Company sold Whittaker Xyplex, Inc. On February 2,
1998 the net cash proceeds of $34.5 million from the sale were used to prepay
debt under the Company's prior credit facility.
On May 4, 1998, the Company and Hughes Electronics Corporation ("Hughes")
entered into an agreement (the "Amendment"), to modify certain terms of the
Company's 1995 purchase of Hughes LAN Systems, Inc. (now known as Whittaker
Communications, Inc.) from Hughes. Under the Stock Purchase Agreement between
the Company and Hughes, dated April 24, 1995 (the "Prior Agreement"), the
Company issued to Hughes a 7% convertible subordinated note in the principal
amount of $15 million, due May 1, 2005 (the "Note").
The Amendment provides that Whittaker may elect to make certain payments due
to Hughes under the terms of the Prior Agreement in cash or in shares of
Whittaker common stock. In accordance with the terms of the Amendment, the
Company elected to make these payments to Hughes by issuing to Hughes 107,841
newly issued shares of Whittaker common stock. The Amendment also provides that
no such further payments shall be payable by the Company. The Company and
Hughes also agreed in the Amendment to release any and all existing claims
against each other.
The Amendment modifies the Note by (a) changing the conversion price from
$24.25 per share to $16.97 per share; and (b) if the Company redeems all or a
portion of the Note prior to May 4, 2002, obligating the Company to issue to the
holder of the Note a warrant to purchase the number of shares of Whittaker
common stock which the holder of the Note could have received upon conversion of
the principal amount so redeemed by the Company ("Warrant"). The form of
Warrant states that the exercise price of the Warrant will be based on the
conversion price of $16.97 and adjusted in accordance with customary anti-
dilutive protections similar to those affecting the conversion of the Note. The
form of Warrant also provides that the number of shares subject to the Warrant
will be adjusted based upon similar anti-dilutive principles. If the entire
principal amount of the Note, as amended, was converted as of October 31, 1998
into Whittaker common stock, the Company would be required to issue, and has
thus reserved for issuance, 883,912 shares of Whittaker common stock.
On June 12, 1998, the Company issued to Hughes fifteen 7% convertible
subordinated notes, each in the principal amount of $1 million (the "Notes"), in
exchange for the $15 million Note which was cancelled. The terms of each of the
$1 million Notes are identical, except for the principal amount, to the terms of
the $15 million Note, as amended by the Amendment. Hughes subsequently sold the
Notes to other investors.
27
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 7. CAPITAL STOCK
Each share of Series D Participating Convertible Preferred Stock is
nonvoting, cumulative and, in connection with a qualifying transfer, convertible
into 326.531 shares of Common Stock. Holders of the Series D Participating
Convertible Preferred Stock, of which there is presently only one, are entitled
to a $1.00 per share liquidation preference and to the greater of $.25 per share
per quarter or any dividends paid in respect of the number of shares of Common
Stock underlying each share of Series D Participating Convertible Preferred
Stock. The Board of Directors is authorized to issue preferred stock in series,
to fix dividend rates, conversion rights, voting rights, rights and terms of
redemption and liquidation preferences, and to increase or decrease the number
of shares of any series.
Common Stock reserved for issuance at October 31, 1998 was as follows:
<TABLE>
<CAPTION>
SHARES IN
THOUSANDS
------------
<S> <C>
For conversion of Series D Participating Convertible Preferred Stock........ 188
For stock options........................................................... 1,688
For conversion of 7% convertible subordinated note.......................... 884
-----
2,760
-----
</TABLE>
The Company had reserved 1,688,480 shares of Common Stock at October 31, 1998
for future issuances under the Whittaker Corporation Long-Term Stock Incentive
Plan (1989) and The Whittaker Corporation 1992 Stock Option Plan for Non-
Employee Directors. The Company also had reserved 883,912 shares of Common
Stock at October 31, 1998 for possible conversion of the 7% convertible
subordinated notes at the option of the holders. Options to purchase Common
Stock generally are conditioned upon continued employment, expire from five to
ten years after the grant date, and become exercisable in whole or in part
either commencing with the seventh month or upon the attainment of certain
predetermined goals, or both. The exercise price for options granted is equal
to the average market price on the date of grant. The following information for
the three years ended October 31, 1998 relates to options granted from 1991
through 1998 under the plans.
<TABLE>
<CAPTION>
OPTIONS WEIGHTED AVERAGE
OUTSTANDING PRICE RANGE EXERCISE PRICE
------------- ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, October 31, 1995.............................. 1,722 2.41 to 22.50 11.56
Options granted..................................... 1,201 13.44 to 26.25 20.20
Options canceled or expired......................... (1,150) 13.44 to 26.25 20.16
Options exercised................................... (660) 2.41 to 22.50 3.63
------
Balance, October 31, 1996.............................. 1,113 4.10 to 26.25 16.65
Options granted..................................... 361 9.44 to 14.12 12.10
Options canceled or expired......................... (640) 10.31 to 26.25 17.97
Options exercised................................... (176) 4.10 to 12.44 7.07
------
Balance, October 31, 1997.............................. 658 5.24 to 26.25 15.42
Options granted..................................... 399 7.22 to 14.94 7.66
Options canceled or expired......................... (314) 7.22 to 26.25 16.83
Options exercised................................... (33) 7.22 7.22
------
Balance, October 31, 1998.............................. 710 5.24 to 26.25 10.80
</TABLE>
28
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 7. CAPITAL STOCK--(CONTINUED)
At October 31, 1998, options outstanding and options exercisable were as
follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS RANGE OF WEIGHTED AVERAGE REMAINING
OUTSTANDING EXERCISE PRICES EXERCISE PRICE CONTRACTUAL LIFE
----------- --------------- -------------- ----------------
<S> <C> <C> <C>
9,247 $ 5.24 $ 5.24 1.81 Years
584,476 7.22 to 13.25 9.21 8.68 Years
98,587 14.94 to 21.75 17.17 6.64 Years
17,250 26.25 26.25 7.31 Years
-------
709,560
=======
NUMBER OF WEIGHTED AVERAGE
OPTIONS RANGE OF WEIGHTED AVERAGE REMAINING
EXERCISABLE EXERCISE PRICES EXERCISE PRICE CONTRACTUAL LIFE
----------- --------------- -------------- ----------------
<S> <C> <C> <C>
9,247 $ 5.24 $ 5.24 1.81 Years
457,010 7.22 to 13.25 8.33 8.76 Years
75,466 14.94 to 21.75 17.45 6.02 Years
3,584 26.25 26.25 7.31 Years
-------
545,307
-------
</TABLE>
At October 31, 1997 and October 31, 1996 options for 187,045 and 380,040
shares, respectively, were exercisable.
In the discontinued Integration Services segment, The 1997 Stock Option Plan
of Aviant Information, Inc. (the "Aviant Plan") was adopted as of October 14,
1997. The plan provided for the granting of options to purchase the common stock
of Aviant Information, Inc. ("Aviant"), a wholly owned subsidiary of the
Company. The term of each option was five or ten years and became exercisable,
with respect to an individual, in annual installments of at least 25 percent of
the total number of options granted to that individual commencing one year from
the grant date and in full upon the consummation of an initial public offering
of the common shares of Aviant or the transfer of more than fifty percent of the
common stock of Aviant to a non-affiliate of Aviant, the Company or the
shareholders of the Company. Following the sale of the assets of Aviant
Information, Inc. and the termination of its employees, the Aviant Plan was
terminated in the fourth quarter of 1998.
In the discontinued Communications segment, the 1997 Stock Option Plan of
Whittaker Xyplex, Inc. (the "WXI Plan") was adopted on January 24, 1997. The
WXI Plan provided for the granting of options to purchase the common stock of
Whittaker Xyplex, Inc. ("WXI"), a wholly owned subsidiary of the Company. The
term of each option was five or ten years and the option became exercisable,
with respect to an individual, in annual installments of at least 20 percent of
the total number of options granted to that individual commencing one year from
the grant date and upon the consummation of an initial public offering of the
common shares of WXI or the transfer of more than fifty percent of the common
stock of WXI to a non-affiliate of WXI, the Company or the shareholders of the
Company. In the first quarter of 1998, the Company sold all of the issued and
outstanding shares of Whittaker Xyplex, Inc.
29
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 7. CAPITAL STOCK--(CONTINUED)
Pro forma information regarding net income and earnings per share is required
by SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of SFAS No 123. 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 1998,
1997 and 1996, respectively: risk-free interest rates of 4.36% for all years;
dividend yields of 0.0% in all years, volatility factors of the expected market
price of the Company's common stock of .33 in all years and weighted-average
expected life of the options of 3.33 years, 4.44 years and 4.05 years,
respectively. The weighted average fair value of options granted during 1998,
1997 and 1996 is estimated to be $2.25, $4.21 and $6.67, respectively.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because employee stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
Company's pro forma information follows (in thousands except for earnings per
share information):
<TABLE>
<CAPTION>
1998 1997 1996
--------- ----------- ----------
<S> <C> <C> <C>
Pro forma income (loss) $47,937 $(164,753) $(17,871)
Pro forma basic income (loss) per share $ 4.26 $ (14.78) $ (1.78)
</TABLE>
The Company's Stockholder Rights Plan as of October 31, 1998 gave each
holder of the Company's Common Stock one right for each share of Common Stock
held. Each right entitled the holder to purchase from the Company 1/100 of a
share of a new series of the Company's preferred stock (Series A Participating
Cumulative Preferred Stock) at an exercise price of $125 per 1/100 of a share.
The rights would have become exercisable and would have detached from the Common
Stock 10 days after any person or group acquired 25% or more of the Company's
Common Stock, or 10 business days after any person or group commenced a tender
or exchange offer which, if consummated, would have resulted in that person or
group owning at least 25% of the Company's Common Stock.
If any person had acquired 25% or more of the Company's Common Stock, each
right would have entitled the holder, other than the acquiring person, to
purchase for the exercise price Common Stock of the Company with a value of
twice the exercise price. In addition, if following an acquisition by any person
or group of 25% or more of the Company's Common Stock, the Company had been
involved in a merger or other business combination transaction, or had sold more
than 50% of its assets or earning power to any person, each right would have
entitled the holder, other than the acquiring person, to purchase for the
exercise price Common Stock of the acquiring person with a value of twice the
exercise price.
The Company could have redeemed the rights at $.01 per right at any time
until the tenth day after any person or group had acquired 25% or more of its
Common Stock. The Stockholder Rights Plan could have been supplemented or
amended at the direction of the Company without the approval of the holders of
rights, except as otherwise set forth in the Stockholder Rights Plan. At October
31, 1998, 150,000 preferred shares were reserved for these rights.
30
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 8. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
1998 1997 1996
--------------- --------------- --------------
(In thousands)
<S> <C> <C> <C>
Total provision -
Continuing operations............................ $ (17,602) $ (3,901) $ 4,933
Discontinued operations and other................ (3,624) (3,501) (14,022)
--------------- --------------- --------------
$ (21,226) $ (7,402) $ (9,089)
=============== =============== ==============
Components of the provision -
Federal.......................................... $ (20,526) $ (4,902) $ (8,149)
State............................................ (700) (2,500) (940)
--------------- --------------- --------------
$ (21,226) $ (7,402) $ (9,089)
=============== =============== ==============
Classification of the provision -
Current.......................................... $ (2,427) $ (5,398) $ (5,048)
Deferred......................................... (18,799) (2,004) (4,041)
--------------- --------------- --------------
$ (21,226) $ (7,402) $ (9,089)
=============== =============== ==============
</TABLE>
Foreign income taxes were not material.
The tax expense (benefit) is different than the amount computed by applying
the U.S. federal income tax rate to income (loss) before income taxes. The
reasons for the differences are as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
U.S. federal statutory rate......................... 34.0% (34.0%) (34.0%)
State taxes, net of U.S. federal income tax benefit. 3.4% (0.2%) (2.4%)
Goodwill amortization............................... 0.0% 15.4% 3.5%
Valuation allowance................................. (99.1%) 16.0% 0.0%
Capital gain........................................ (16.0%) 0.0% 0.0%
Other items......................................... 0.0% (1.5%) (1.8%)
-------------- -------------- --------------
Effective tax rate.................................. (77.7%) (4.3%) (34.7%)
============== ============== ==============
</TABLE>
31
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 8. INCOME TAXES--(CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the reported amounts of assets and liabilities in the financial
statements and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities at October 31 are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------- --------------
(In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Receivables valuation................................. $ 538 $ 1,280 $ 858
Inventory valuation................................... 4,932 6,770 8,397
Self-insurance reserves............................... 1,271 1,367 1,384
Reserves for discontinued operations.................. 2,902 2,380 1,163
Benefits from net operating loss carryforward......... 11,677 13,293 --
Benefits from net capital loss carryforward........... 21,825 -- --
Other................................................. 9,167 14,905 12,553
------------ ------------- --------------
Total before valuation allowance......................... 52,312 39,995 24,355
Valuation allowance...................................... (23,367) (29,372) (390)
------------ ------------- --------------
Net deferred tax assets.................................. $ 28,945 $ 10,623 $ 23,965
============ ============= ==============
Deferred tax liabilities:
Excess of tax over book depreciation.................. $ 768 $ (884) $ 1,487
Assets held for sale or development................... 2,415 2,088 7,919
Intangible assets..................................... 1,066 7,890 15,667
Pension costs......................................... 1,593 1,671 1,904
Other................................................. 2,533 2,556 2,745
------------ ------------- --------------
$ 8,375 $ 13,321 $ 29,722
============ ============= ==============
</TABLE>
In March 1996 the Company received a net tax refund of $5.2 million under an
agreement reached with the Internal Revenue Service closing the audit of the
1987 and 1988 income tax returns.
The Company in 1997, in compliance with FASB 109, established a full
allowance against its net operating loss carryforward and net deferred tax
assets. During the third quarter of 1998, the Company determined that, because
of improved 1998 operating results and the favorable outlook for future
operating results, previously recorded valuation allowances against benefits
from prior year operating tax losses were no longer appropriate. Consequently,
the Company reversed all federal valuation allowances at the end of the third
quarter. At October 31, 1998 the Company had a $32.8 million total net operating
loss carryforward that will expire in 2012.
The valuation allowance at October 31, 1998 represents substantially the
allowance against the benefit from the net capital loss carryforward.
NOTE 9. EMPLOYEE BENEFIT PLANS
Prior to October 31, 1994, most of the Company's domestic employees were
covered by the Whittaker Corporation Employees' Pension Plan (the ''Pension
Plan''), its noncontributory defined benefit pension plan. The benefits are
based on years of service and the employee's highest compensation for five
consecutive years during the last ten years of credited service.
32
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 9. EMPLOYEE BENEFIT PLANS--(CONTINUED)
Effective October 31, 1994, the Company amended the Pension Plan to
"freeze" benefits for all participants. Adjustments for changes in credited
years of service ceased on October 31, 1994 and adjustments for changes in
remuneration ceased on December 31, 1994. Vesting service continues to accrue in
accordance with applicable Pension Plan provisions, and Pension Plan funding
will continue until such time that the Pension Plan is terminated and all
benefit obligations are satisfied. The Company funds the Pension Plan in
accordance with the Employee Retirement Income Security Act of 1974, as amended
(ERISA).
The following table sets forth the Pension Plan's funded status and amounts
recognized in the Company's consolidated balance sheet:
<TABLE>
<CAPTION>
OCTOBER 31
---------------------------------
1998 1997
-------------- --------------
(In thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of $125,341 in 1998 and
$112,811 in 1997................................................................. $(125,656) $(122,373)
============== ==============
Projected benefit obligation for service rendered through October 31, 1994........ (125,656) (122,373)
Plan assets at fair value, primarily government, government agency and fixed
income securities.................................................................... 127,086 122,635
-------------- --------------
Plan assets in excess of projected benefit obligation................................ 1,430 262
Items not yet recognized in earnings:
Prior service cost................................................................ 92 192
Unrecognized net loss............................................................. 2,507 3,770
-------------- --------------
Net prepaid pension cost recorded in the consolidated balance sheet.................. $ 4,029 $ 4,224
============== ==============
</TABLE>
The weighted average discount rates used in determining the actuarial present
value of the projected benefit obligation was 7.15% at October 31, 1998 and
1997. The expected long-term rate of return on plan assets was 7.5% for the
years ended October 31, 1998, 1997 and 1996. As a result of the amendment
described above, there are no projected increases in future compensation levels.
The Company also sponsors unfunded supplemental nonqualified executive and
director plans. At October 31, 1998, the projected benefit obligation for those
plans totaled $6.3 million, of which $1.3 million is subject to later
amortization. The remaining $5.0 million is accrued as a liability in the
consolidated balance sheet.
Effective November 1, 1994, the Company amended its defined contribution
401(k) plan and renamed it the Whittaker Corporation Partnership Plan
("Partnership Plan"). The amendment provided for new investment alternatives,
added a profit sharing component to Company contributions to the Partnership
Plan, and allowed certain rollover contributions from other qualified plans.
The Partnership Plan covers substantially all of the Company's employees and
contains a matched savings provision that permits pretax employee contributions.
Participants can contribute from 1% to 12% of compensation and receive a maximum
matching employer contribution of 50% on up to 6% of their annual compensation.
In addition to matching of employee contributions, beginning with fiscal
1995, the Company has recorded as expense profit-sharing contributions to the
Partnership Plan which may range from 0% to 7.5% of eligible employee
compensation, based on the attainment of specified financial goals by
participating divisions of the Company.
33
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 9. EMPLOYEE BENEFIT PLANS--(CONTINUED)
Total pension and retirement expense was as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-------------------------------------------------
1998 1997 1996
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cost components of funded defined benefit plan:
Service cost--benefits earned during the period....... $ 525 $ 516 $ 540
Interest cost on projected benefit obligation......... 8,393 8,603 8,500
Actual return on plan assets.......................... (15,593) (12,724) (15,892)
Net amortization and deferral......................... 6,871 4,194 6,647
------------ ------------ -------------
Net periodic pension expense (income) for funded defined 196 589 (205)
benefit plan............................................
Cost for unfunded defined benefit plans.................. 474 658 703
Cost for special termination benefit..................... -- 440 --
Cost for defined contribution plans...................... 2,845 2,293 1,589
------------ ------------ -------------
Total pension and retirement plan expense................ $ 3,515 $ 3,980 $ 2,087
============ ============ =============
</TABLE>
NOTE 10. LEASED ASSETS AND LEASE COMMITMENTS
Whittaker has various leases covering real property and equipment.
Property, Plant and Equipment includes $38,000 at October 31, 1998 and
$360,000 at October 31, 1997 for leases that have been capitalized. The
amortization of these assets is included in depreciation expense.
Future minimum payments under capital leases and under noncancellable
operating leases, net of rentals to be received from existing noncancellable
operating subleases, as of October 31, 1998, were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEARS ENDED OCTOBER 31, LEASES LEASES
----------------------- -------- ----------
(IN THOUSANDS)
<S> <C> <C>
1999.................................................... $ 41 $ 1,818
2000.................................................... 11 1,978
2001.................................................... -- 1,855
2002.................................................... -- 1,855
2003.................................................... -- 1,929
2004 and subsequent..................................... -- 17,469
---------- --------------
Total commitments.......................................... 52 $ 26,904
==============
Amounts representing interest.............................. 2
----------
Present value of net minimum lease payments................ $ 50
==========
</TABLE>
Rental expense for operating leases of the Company's continuing operations,
net of rental income from subleases, was as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31, (IN THOUSANDS)
- ----------------------- --------------
<S> <C>
1998............................................ $2,157
1997............................................ 1,371
1996............................................ 250
</TABLE>
34
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 11. COMMITMENTS AND CONTINGENCIES
In certain years, after evaluating the availability and cost of insurance,
the Company did not purchase insurance for certain risks, including workers'
compensation and product liability. The Company currently purchases workers'
compensation insurance and product liability insurance. The Company's insurance
carriers have taken the position that in certain cases the Company is uninsured
for environmental matters, a position that the Company disputes in certain
instances.
As a result primarily of the activities of its discontinued operations, the
Company is a potentially responsible party in a number of actions filed under
the Comprehensive Environmental Response Compensation and Liability Act of 1980
("CERCLA"). CERCLA, also known as "Superfund", is the main Federal law enacted
to address public health and environmental concerns arising with respect to the
past treatment and disposal of hazardous substances. The Company is also a
potentially responsible party in a number of other actions brought under state
laws patterned after CERCLA. In nearly all of these matters, the Company
contributed a small amount (generally less than 1%) of the total treated or
disposed of waste. In addition to the CERCLA and similar actions described
above, the Company also, from time to time, conducts or participates in remedial
investigations and cleanup activities at facilities currently or formerly
occupied by its operating units. There are also various other claims and suits
pending against the Company.
At October 31, 1998, the Company had provided for its aggregate liability
related to various claims, including uninsured risks and potential claims in
connection with the environmental matters noted above, excluding the
environmental remediation activities related to the property located in the City
of Santa Clarita, California. The amounts provided on the Company's books for
contingencies, including environmental matters, are recorded at gross amounts.
Because of the uncertainty with respect to the amount of probable insurance
recoveries, these potential insurance recoveries are not taken into account as a
reduction of those amounts provided unless an insurance carrier has agreed to
such coverage. The Company does not anticipate that these matters will have a
material adverse effect on the Company's financial position or on its ability to
meet its working capital and capital expenditure needs. Although the Company has
recorded estimated liabilities for contingent losses, including uninsured risks
and claims in connection with environmental matters, in accordance with
generally accepted accounting principles, the absence of or denial of various
insurance coverages and the filing of future environmental claims which are
unknown to the Company at this time represent a potential exposure for the
Company, and the net income of the Company in future periods could be adversely
affected if uninsured losses in excess of amounts recorded were to be incurred.
As prescribed by SOP 96-1, the Company has accrued for its estimated costs,
including certain employee compensation costs, for environmental remediation
where the Company is a potentially responsible party under CERCLA and similar
state laws. These accruals are adjusted periodically as further assessment and
remediation efforts progress or as technical and legal information becomes
available. As of October 31, 1998, the Company estimates that the total
remaining unpaid remediation costs for the sites associated with these federal
and state actions is $4.9 million. As of October 31, 1998, all of these
estimated costs have been accrued and are reflected in accrued liabilities and,
in the case of those costs to be incurred beyond one year, "Other Noncurrent
Liabilities" in the consolidated balance sheet of the Company. Although the
Company, at this time, does not anticipate that any additional significant costs
(beyond those already recognized) wi11 be incurred in the remediation efforts
for these sites, there can be no assurance that significant additional costs for
the remediation of these, or new sites, will not be incurred in the future.
Costs of future expenditures for environmental remediation efforts are not
discounted to their present value.
In connection with the discontinuance of various businesses, the Company
remains liable for certain retained obligations and for certain future claims,
principally environmental and product liability. The noncurrent portion of such
items is included in "Other Noncurrent Liabilities" in the consolidated balance
sheet.
35
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1998 and 1997 follow (in millions of
dollars except for per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1998
Sales....................................... $ 29.0 $ 33.0 $ 34.0 $ 35.5 $ 131.5
Cost of sales............................... 16.9 17.1 16.1 15.8 65.9
Income before taxes-continuing operations... .9 6.9 8.3 6.4 22.5
Income-continuing operations................ .9 6.8 28.6 3.8 40.1
Income (loss)-discontinued operations....... 9.5 (.9) .9 (1.1) 8.4
Net income.................................. 10.4 5.9 29.5 2.7 48.5
Basic income (loss) per share*
Continuing operations**.................... $ .08 $ .61 $ 2.53 $ .34 $ 3.56
Discontinued operations.................... .85 (.09) .08 (.10) .75
Net income................................. .93 .52 2.61 .24 4.31
Diluted income (loss) per share
Continuing operations...................... $ .08 $ .57 $ 2.29 $ .32 $ 3.30
Discontinued operations.................... .83 (.08) .07 (.09) .68
Net income................................. .91 .49 2.36 .23 3.98
1997
Sales....................................... $ 19.7 $ 21.2 $ 22.6 $ 26.3 $ 89.8
Cost of sales............................... 12.3 12.8 15.9 19.5 60.5
Income before taxes-continuing operations... (2.5) (3.6) (4.3) (21.8) (32.2)
Loss-continuing operations.................. (2.5) (3.6) (4.3) (17.9) (28.3)
Loss-discontinued operations................ (15.6) (30.9) (22.8) (62.7) (131.9)
Extraordinary item.......................... -- -- -- (3.4) (3.4)
Net loss.................................... (18.1) (34.4) (27.1) (84.0) (163.6)
Basic loss per share*
Continuing operations**.................... $ (.23) $ (.32) $ (.38) $(1.60) $ (2.54)
Discontinued operations.................... (1.40) (2.77) (2.05) (5.61) (11.83)
Extraordinary item......................... -- -- -- (.31) (.31)
Net loss................................... (1.63) (3.09) (2.43) (7.52) (14.68)
Diluted loss per share
Continuing operations...................... $ (.23) $ (.32) $ (.38) $(1.60) $ (2.54)
Discontinued operations.................... (1.40) (2.77) (2.05) (5.61) (11.83)
Extraordinary item......................... -- -- -- (.31) (.31)
Net loss................................... (1.63) (3.09) (2.43) (7.52) (14.68)
</TABLE>
* The sums of quarterly per share amounts do not equal the annual amounts
reported since per share calculations are made independently for each
quarter and the full year based upon respective average shares outstanding.
** The financial statements for prior periods have been restated to reflect
the segregation of continuing and discontinued operations.
36
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Long-term debt: The carrying amounts of the Company's borrowings approximate
their fair value. The Company's bank credit facility is a variable rate facility
that reprices frequently.
Notes receivable: The carrying amounts of the Company's notes receivable
approximate their fair value.
As part of the consideration for the sale of Whittaker Xyplex, Inc. to MRV
Communications, Inc. in the first quarter of 1998, the Company received warrants
to purchase 421,402 shares of common stock of MRV Communications, Inc. The
warrants were valued at $2.2 million based on their estimated market value at
January 31, 1998. Because of a decline in the market value of the common stock
underlying these warrants, the Company, in the fourth quarter of 1998, wrote
down the value of this asset to zero. This $2.2 million charge is reflected in
other expense.
NOTE 14. BUSINESS SEGMENTS
The Company's continuing operations are classified as a single business
segment which provides specialized products and customer solutions for aircraft,
defense and industrial markets.
Operating profit is total revenue less operating expenses. General corporate
expenses which are included in consolidated operating profit or loss were $6.9
million, $26.5 million and $10.4 million in 1998, 1997 and 1996, respectively.
Identifiable assets are those assets used in the Company's operations and for
1998, 1997 and 1996 were $85.6 million, $81.2 million and $79.7 million,
respectively. Corporate assets are principally cash, notes receivable, deferred
income taxes, assets held for sale and assets of discontinued operations, and
were $51.0 million, $81.7 million and $260.7 million for 1998, 1997 and 1996,
respectively.
In fiscal 1998, 1997 and 1996 approximately 20.2%, 18.8% and 27.0%,
respectively, of Whittaker's sales from continuing operations were directly or
indirectly to the United States Government. In fiscal 1998, 1997 and 1996
approximately 22.7%, 20.8% and 24.0% respectively, of Whittaker's sales from
continuing operations arose from exports to customers outside the United States,
primarily in Europe. Approximately 9% of the Company's accounts receivable at
October 31, 1998 were from the U.S. Government, and the balance was primarily
from commercial customers, prime defense contractors with the U.S. Government,
and foreign customers.
NOTE 15. EXTRAORDINARY ITEM
In consideration of its lending group issuing to the Company in 1997 waivers
of default for non-compliance with the financial ratio covenants under the terms
of its prior bank credit agreement, the Company agreed to a significant increase
in the interest rate at which the Company could borrow under the terms of that
agreement. That increase represented a substantial modification of that credit
agreement. Accordingly, the Company during the fourth quarter of 1997 recorded a
charge of $3.4 million (net of $0.2 million of tax benefit) representing the
write off of the unamortized portion of debt issuance costs incurred in
connection with obtaining that credit agreement. The charge was reflected in the
Company's 1997 consolidated statements of income as an extraordinary item.
37
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 16. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT AUDITORS (UNAUDITED)
On November 12, 1998, the Company adopted a new Stockholders Rights Plan (the
"New Plan") which is substantially similar to the prior Rights Plan which
expired by its terms on November 29, 1998. Under the New Plan, Rights were
distributed as a dividend at the rate of one Right for each share of Common
Stock held by stockholders of record at the close of business on November 30,
1998. Each Right entitles stockholders to buy, upon the occurrence of certain
events, 1/100th of a share of a new series of the Company's preferred stock
(Series E Participating Cumulative Preferred Stock) for $125. The Rights become
exercisable only if a person or group acquires beneficial ownership of 25% or
more of the Company's Common Stock, or commences a tender offer or exchange that
would result in such person or group owning 25% or more of the Company's Common
Stock. Until a person or group acquires 25% or more of the Company's Common
Stock, the Rights may be redeemed by the Board of Directors for $.01 per Right.
After a person or group acquires 25% or more of the Company's Common Stock but
before such person or group acquires 50% or more of the Company's Common Stock,
the Board of Directors may exchange all or part of the Rights (other than the
Rights owned by the person or group holding the 25% or more of the Company's
Common Stock) for shares of the Company's Common Stock at an exchange ratio of
one Right for one share of Common Stock. The Rights will expire on November 30,
2008.
On January 11, 1999, the Company sold its 996-acre land parcel located in the
City of Santa Clarita, California and certain other additional rights and assets
related to this land for $10.0 million in cash, a $5.0 million promissory note
and a contingent interest in any final profit from the development of this land.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
38
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information called for by Item 10 is incorporated by reference to the
information under the following captions in the Proxy Statement:
CAPTION
Election of Directors--Directors
Compliance with Section 16(a) of the Securities Exchange Act
Certain of the information called for by Item 10 with respect to executive
officers of the Registrant appears as Item 4A in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by Item 11 is incorporated by reference to the
information under the following caption in the Proxy Statement:
CAPTION
Election of Directors--Executive Compensation
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by Item 12 is incorporated by reference to the
information under the following caption in the Proxy Statement:
CAPTION
Equity Securities and Principal Holders Thereof
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by Item 13 is incorporated by reference to the
information under the following caption in the Proxy Statement:
CAPTION
Election of Directors--Directors
39
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
The following documents are filed as part of this report:
<TABLE>
<CAPTION>
Page
----
REFERENCE
---------
Form 10-K
<S> <C>
(a-1) Financial Statements:
Report of Independent Auditors................................................................ 15
Consolidated Statements of Operations for the three years ended October 31, 1998.............. 16
Consolidated Balance Sheets as of October 31, 1998 and 1997................................... 17
Consolidated Statements of Cash Flows for the three years ended October 31, 1998.............. 19
Consolidated Statements of Stockholders' Equity for the three years ended October 31, 1998.... 20
Notes to Consolidated Financial Statements.................................................... 21
</TABLE>
(A-2) FINANCIAL STATEMENT SCHEDULES:
All supplemental schedules are omitted as inapplicable or because the
required information is included in the Consolidated Financial Statements or the
Notes to Consolidated Financial Statements.
(A-3) EXHIBITS:*
3.1 Restated Certificate of Incorporation (Exhibit 3.1 to Form 10-K for
fiscal year ended October 31, 1989), as amended on March 16, 1990
(Exhibit 3.1 to Form 10-K for fiscal year ended October 31, 1995).
3.2 Restated Bylaws (Exhibit 3.2 to Form 10-K for fiscal year ended
October 31, 1989), as amended on September 30, 1994 (Exhibit 3.2 to
Form 10-K for fiscal year ended October 31, 1994), on December 16,
1996 (Exhibit 3.2 to Form 10-K for fiscal year ended October 31,
1996) and on October 2, 1998.
4.1 Reference is made to Exhibit 3.1.
4.2 Reference is made to Exhibit 3.2.
4.3 Rights Agreement dated as of November 12, 1998 between Registrant and
Mellon Bank N.A. concerning Series E Participating Cumulative
Preferred Stock Purchase Rights (Exhibit 1 to Form 8-A filed on
November 30, 1998).
4.4 Certificate of Designation of Series D Participating Convertible
Preferred Stock (Exhibit to Form S-4, Registration No. 33-29028), as
amended on March 16, 1990 (Exhibit 4.4 to Form 10-K for fiscal year
ended October 31, 1995).
4.5 Certificate of Designation of Series E Participating Cumulative
Preferred Stock (Exhibit A to Exhibit 1 to Form 8-A filed on
November 30, 1998).
4.6 Form of 7% Convertible Subordinated Note dated April 24, 1995 by the
Registrant, in the principal amount of $1,000,000 issued to various
holders (Exhibit 4.1 to Form 10-Q dated July 31, 1998).
4.7 Registration Rights Agreement dated April 24, 1995 between Registrant
and Hughes Electronics Corporation (Exhibit 10.1 to Form 8-K dated
May 8, 1995).
4.8 Term Note dated May 28, 1998 by the Registrant in favor of CIBC Inc.
(Exhibit 4.1 to Form 8-K dated June 1, 1998).
40
<PAGE>
4.9 Term Note dated May 28, 1998 by the Registrant in favor of The First
National Bank of Chicago (Exhibit 4.2 to Form 8-K dated June 1,
1998).
4.10 Term Note dated May 28, 1998 by the Registrant in favor of Van
Kampen American Capital Prime Rate Income Trust (Exhibit 4.3 to
Form 8-K dated June 1, 1998).
4.11 Term Note dated May 28, 1998 by the Registrant in favor of Banque
Paribas (Exhibit 4.4 to Form 8-K dated June 1, 1998).
4.12 Revolving Note dated May 28, 1998 by the Registrant in favor of CIBC
Inc. (Exhibit 4.5 to Form 8-K dated June 1, 1998).
4.13 Revolving Note dated May 28, 1998 by the Registrant in favor of The
First National Bank of Chicago (Exhibit 4.6 to Form 8-K dated June
1, 1998).
4.14 Revolving Note dated May 28, 1998 by the Registrant in favor of Van
Kampen American Capital Prime Rate Income Trust (Exhibit 4.7 to
Form 8-K dated June 1, 1998).
4.15 Revolving Note dated May 28, 1998 by the Registrant in favor of
Banque Paribas (Exhibit 4.8 to Form 8-K dated June 1, 1998).
4.16 Swingline Note dated May 28, 1998 by the Registrant in favor of CIBC
Inc. (Exhibit 4.9 to Form 8-K dated June 1, 1998).
(Other instruments defining the rights of holders of long-term debt
are not filed because the total amount of securities authorized
under any such instrument does not exceed 10% of the consolidated
total assets of Registrant. Registrant hereby agrees to furnish a
copy of any such instrument to the Commission upon request.)
10.1 Amended and Restated Whittaker Corporation 1992 Stock Option Plan
for Non-Employee Directors (Exhibit 10.3 to Form 10-K for fiscal
year ended October 31, 1996).**
10.2 Restated Directors' Retirement Plan effective as of August 2, 1985,
as amended on January 24, 1991 (Exhibit 10.10 to Form 10-K for
fiscal year ended October 31, 1990), and on December 16, 1996
(Exhibit 10.6 to Form 10-K for fiscal year ended October 31,
1996).**
10.3 Amended and Restated Whittaker Corporation Long-Term Stock Incentive
Plan (1989) (Exhibit 10.7 to Form 10-K for fiscal year ended
October 31, 1996).**
10.4 Whittaker Corporation Supplemental Benefit Plan dated November 23,
1988, as amended on June 12, 1990 and on July 12, 1991 (Exhibit
10.8 to Form 10-K for fiscal year ended October 31, 1996).**
10.5 Whittaker Corporation Excess Benefit Plan dated November 23, 1988,
as amended June 21, 1990 (Exhibit 10.9 to Form 10-K for fiscal
year ended October 31, 1996).**
10.6 Whittaker Corporation Supplemental Disability Benefit Plan dated
November 23, 1988 (Exhibit 10.10 to Form 10-K for fiscal year
ended October 31, 1996).**
10.7 Whittaker Corporation Supplemental Retirement and Disability Trust
Agreement dated November 23, 1988 (Exhibit 10.13 to Form 10-K for
fiscal year ended October 31, 1988).**
10.8 Whittaker Corporation Supplemental Executive Retirement Plan dated
as of January 1, 1996**
10.9 Amended and Restated Whittaker Corporation Supplemental Executive
Retirement Plan dated as of January 1, 1996, as amended January
24, 1997 (Exhibit 10.12 to Form 10-K for fiscal year ended October
31, 1996).**
10.10 Amendment and Restatement of Whittaker Corporation Employees'
Pension Plan dated December 22, 1994, as amended on December 15,
1995 (Exhibit 10.10 to Form 10-K for fiscal year ended October 31,
1995), and on October 1, 1996 (Exhibit 10.13 to Form 10-K for
fiscal year ended October 31, 1996).**
41
<PAGE>
10.11 Whittaker Corporation Partnership Plan (formerly the Whittaker
Corporation Savings and Stock Investment Plan), as amended and
restated effective November 1, 1994 (Exhibit 10.11 to Form 10-K
for fiscal year ended October 31, 1995), as amended on June 21,
1996 (Exhibit 10.2 to Form 10-Q dated September 13, 1996), on July
1, 1997 and on December 12, 1997 (Exhibit 10.10 to Form 10-K dated
January 28, 1998).**
10.12 Credit Agreement dated as of May 28, 1998 among Registrant, Canadian
Imperial Bank of Commerce, as Administrative Agent, The First
National Bank of Chicago, as Documentation Agent, and certain
commercial lending institutions, as the Lenders (Exhibit 10.1 to
Form 8-K dated June 1, 1998).
10.13 Stock Purchase Agreement dated as of March 23, 1995 between
Registrant and Hughes Aircraft Company, as amended on April 24,
1995 (Exhibit 10.1 to Form 8-K dated May 8, 1995) and on May 4,
1998 (Exhibit 10.1 to Form 8-K dated May 7, 1998).
10.14 Stock Purchase Agreement dated as of March 2, 1996, between
Registrant and Raytheon Company (Exhibit 10.1 to Form 8-K dated
April 24, 1996).
10.15 Asset Purchase Agreement dated as of September 4, 1997 among
Registrant, Whittaker Communications Limited, Whittaker Services
Corporation and Condor Systems, Inc.
10.16 Stock Purchase Agreement dated as of January 19, 1998, between
Registrant and MRV Communications, Inc. (Exhibit 10.23 to Form 10-
K dated January 28, 1998).
10.17 Asset Purchase Agreement dated August 20, 1998 among Registrant,
Aviant Information, Inc., Superior Consultant Holdings Corporation
and Enterprise Consulting Group, Inc. (Exhibit 10.1 to Form 8-K
dated August 25, 1998).
10.18 Restated and Amended Purchase Agreement dated as of November 5, 1998
between Registrant and Santa Clarita, L.L.C. (Exhibit 10.1 to Form
8-K dated January 12, 1999).
10.19 Whittaker Corporation Cafeteria Plan dated as of January 1, 1999.**
11. Calculation of earnings per share for the three years ended October
31, 1998.
21. Subsidiaries of the Registrant.
23. Consent of Independent Auditors.
27. Financial Data Schedule.
* Exhibits followed by a parenthetical reference are incorporated by
reference to the document described therein. Upon written request to the
Secretary of the Company, a copy of any exhibit referred to above will be
furnished without charge.
** Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K.
(B) REPORTS ON FORM 8-K:
During the quarter ended October 31, 1998, the Registrant filed the
following reports on Form 8-K:
1. A report on Form 8-K was filed on August 25, 1998. The form reports,
in Item 2 thereof, that the Registrant completed the sale of assets
relating to the business of its subsidiary, Aviant Information, Inc.,
to Enterprise Consulting Group, Inc.
2. A report on Form 8-K was filed on August 31, 1998. The form reports,
in Item 5 thereof, the Registrant's earnings for its third quarter of
1998.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WHITTAKER CORPORATION
Date : January 27, 1999 By: /s/ John K. Otto
_____________________________________
John K. Otto
Vice President, Chief Financial Officer
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
-
/s/ Joseph F. Alibrandi Director and Principal |
__________________________________ |
(Joseph F. Alibrandi) Executive Officer |
|
/s/ John K. Otto Principal |
__________________________________ |
(John K. Otto) Financial Officer |
|
/s/ Don Delmatoff Principal |
__________________________________ |
(Don Delmatoff) Accounting Officer |
|
/s/ George H. Benter, Jr. Director |
__________________________________ |
(George H. Benter, Jr.) |
|
/s/ George Deukmejian Director |
__________________________________ |
(George Deukmejian) |
> January 27, 1999
/s/ Jack L. Hancock Director |
__________________________________ |
(Jack L. Hancock) |
|
/s/ Edward R. Muller Director |
__________________________________ |
(Edward R. Muller) |
|
/s/ Gregory T. Parkos Director |
__________________________________ |
(Gregory T. Parkos) |
|
/s/ Malcolm T. Stamper Director |
__________________________________ |
(Malcolm T. Stamper) |
|
/s/ Ronald B. Woodard Director |
__________________________________ |
(Ronald B. Woodard) |
-
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Numbered Page
- ----------- -------------
<S> <C>
3.2 Restated Bylaws, as amended on October 2, 1998.
10.8 Whittaker Corporation Supplemental Executive Retirement Plan dated as of
January 1, 1996.
10.11 Whittaker Corporation Partnership Plan (formerly the Whittaker Corporation
Savings and Stock Investment Plan), as amended on July 1, 1997.
10.15 Asset Purchase Agreement dated as of September 4, 1997 among Registrant,
Whittaker Communications Limited, Whittaker Services Corporation and Condor
Systems, Inc.
10.19 Whittaker Corporation Cafeteria Plan dated as of January 1, 1999.
11 Calculation of earnings per share for the three years ended October 31, 1998.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
</TABLE>
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF ADOPTION
OF
RESOLUTIONS
BY
THE BOARD OF DIRECTORS
OF
WHITTAKER CORPORATION
---------------------
WHEREAS, the Board of Directors is authorized under Article III, Section
2(a) of the Bylaws of this corporation to fix the number of directors of
this corporation from time to time by resolution.
NOW, THEREFORE, BE IT RESOLVED, that effective December 1, 1998, the number
of the Board of Directors shall be eight (8).
* * * * * * * * * *
I, Lynne M. O. Brickner, do hereby certify that I am the duly elected and
acting Secretary of Whittaker Corporation; that the foregoing is a full, true
and correct copy of the resolutions adopted at a meeting of the Board of
Directors of Whittaker Corporation held on October 2, 1998, at which meeting a
quorum of said Board was at all times present and acting and that said Board
resolutions have not been modified or rescinded and are in full force and effect
as of the date of this certificate.
Dated: November 24, 1998
/s/ Lynne M. O. Brickner
---------------------------------
Lynne M. O. Brickner
Secretary
<PAGE>
EXHIBIT 10.8
WHITTAKER CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
WHITTAKER CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I - INTRODUCTION I-1
1.01 Purpose I-1
1.02 Effective Date and Term I-1
1.03 Participation I-1
1.04 Participation Agreement I-1
1.05 Applicability of ERISA I-1
ARTICLE II - DEFINITIONS II-1
2.01 Affiliated Company II-1
2.02 Average Monthly Compensation II-1
2.03 Benefit Accrual Percentage II-1
2.04 Board; Board of Directors II-1
2.05 Change in Control II-1
2.06 Code II-2
2.07 Committee II-2
2.08 Compensation II-2
2.09 Covered Employer II-2
2.10 Defined Benefit Plan II-3
2.11 Early Retirement II-3
2.12 Effective Date II-3
2.13 ERISA II-3
2.14 50% Joint and Survivor Annuity II-3
2.15 401(k) Plan II-3
2.16 Full-Time Employment II-3
2.17 Normal Benefit Date II-3
2.18 Normal Benefit Form II-3
2.19 Normal Retirement II-4
2.20 Participant II-4
2.21 Payment Commencement Date II-4
2.22 Plan II-4
2.23 Retirement; Retirement Date II-4
2.24 Service Years II-4
2.25 Single Life Annuity II-5
2.26 Specified Rate II-5
2.27 Sponsor II-5
2.28 Spouse II-5
2.29 Termination II-5
2.30 Termination Date II-5
2.31 Termination for Cause II-6
</TABLE>
i
<PAGE>
WHITTAKER CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE III - ADMINISTRATION OF THE PLAN III-1
3.01 Administration III-1
3.02 Board and Committee Authority; Rules and Regulations III-1
3.03 Appointment of Agents III-1
3.04 Leave of Absence III-2
3.05 Actuarial Assumptions III-2
ARTICLE IV - BENEFITS IV-1
4.01 Eligibility and Vesting IV-1
4.02 Form of Supplemental Benefit IV-1
4.03 Payment of Supplemental Benefit IV-2
4.04 Monthly Annuity Amount IV-2
4.05 Target Monthly Benefit IV-2
4.06 Monthly Offset Amount IV-2
4.07 Special Rules for Early Retirement IV-6
4.08 Termination of Plan Participation IV-7
4.09 Disability IV-7
4.10 Change of Control IV-8
4.11 Termination for Cause IV-8
ARTICLE V - DEATH OF A PARTICIPANT V-1
5.01 Termination by Reason of Death V-1
5.02 Form and Payment of Death Benefit V-1
5.03 Monthly Death Benefit Amount V-1
ARTICLE VI - MISCELLANEOUS PROVISIONS VI-1
6.01 Payments During Incapacity VI-1
6.02 Prohibition Against Assignment VI-1
6.03 Binding Effect VI-1
6.04 No Transfer of Interest VI-1
6.05 Amendment or Termination of the Plan VI-2
6.06 No Right to Employment VI-2
6.07 Notices VI-2
6.08 Governing Law VI-3
6.09 Titles and Headings; Gender of Terms VI-3
6.10 Severability VI-3
6.11 Tax Effect of Plan VI-3
6.12 Entire Agreement VI-4
</TABLE>
ii
<PAGE>
WHITTAKER CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
ARTICLE I
INTRODUCTION
1.01 PURPOSE. This Whittaker Corporation Supplemental Executive Retirement
-------
Plan is hereby established by the Board of Directors of the Sponsor to enable
the Sponsor and such Affiliated Companies to attract, retain and motivate
selected executives of the Sponsor and such Affiliated Companies by providing to
such executives certain additional retirement income as more fully set forth
herein.
1.02 EFFECTIVE DATE AND TERM. This plan is adopted effective as of January 1,
-----------------------
1996, and shall continue in effect until terminated by the Board of Directors.
1.03 PARTICIPATION. Participation in this Plan is open only to those
-------------
executives of the Sponsor or any Affiliated Company who are selected for
participation in the Plan by the President of the Sponsor and approved by the
Board of Directors. The participation in this Plan by any such executive, and
the payment of any benefits under this Plan to any such executive, shall be
governed by the terms of this Plan and by the terms of the Participation
Agreement entered into by such executive with respect to this Plan pursuant to
Section 1.04 hereof.
1.04 PARTICIPATION AGREEMENT. As a condition to the commencement of
-----------------------
participation in this Plan, each executive selected and approved for
participation in the Plan as provided in Section 1.03 hereof shall enter into an
agreement covering such executive's participation in the Plan (a "Participation
Agreement"), which agreement shall be executed by the Sponsor and such executive
and, if such executive is employed by an Affiliated Company, such Affiliated
Company. Each Participation Agreement shall include such terms and conditions
relating to the executive's participation in the Plan as the President of the
Sponsor may deem appropriate, subject to Board approval.
1.05 APPLICABILITY OF ERISA. This Plan is intended to be a "top-hat" plan -
----------------------
that is, an unfunded plan maintained primarily for the purpose of providing
deferred compensation to a select group of management or highly compensated
employees within the meaning of ERISA.
I-1
<PAGE>
ARTICLE II
DEFINITIONS
2.01 AFFILIATED COMPANY. "Affiliated Company" means only Whittaker
------------------
Corporation, a Delaware corporation, and such other affiliates, if any, of the
Sponsor as the Board may from time to time expressly designate as having the
status of an Affiliated Company for purposes of this Plan.
2.02 AVERAGE MONTHLY COMPENSATION. "Average Monthly Compensation" means, with
----------------------------
respect to any Participant and as of any date of reference (the "Determination
Date"), the quotient obtained by dividing (a) the highest aggregate amount of
Compensation earned by such Participant during any consecutive 36-month period
prior to (or ending on) such Determination Date, by (b) a factor of 36.
Notwithstanding the preceding sentence, in the case of a Participant who, as of
any applicable Determination Date, has not been employed by one or more Covered
Employers during at least the consecutive 36-month period ending on such
Determination Date, such participant's Average Monthly Compensation as of such
Determination Date shall be the quotient obtained by dividing (i) the total
amount of Compensation earned by such Participant prior to (and including) such
Determination Date, by (ii) a factor equal to the number of months prior to (and
including) such Determination Date during which such Participant was employed by
a Covered Employer.
2.03 BENEFIT ACCRUAL PERCENTAGE. "Benefit Accrual Percentage" means, with
--------------------------
respect to any Participant and as of any date of reference, the percentage
obtained by multiplying (a) 60%, by (b) a fraction (not to exceed 1) having a
numerator equal to such Participant's Service Years (determined as of such
reference date), and having a denominator equal to the greater of fifteen years
or the total number of Service Years such Participant would have if such
Participant continued in the employ of Sponsor uninterrupted through Normal
Retirement.
2.04 BOARD; BOARD OF DIRECTORS. "Board" and "Board of Directors" each mean
-------------------------
the board of directors of the Sponsor.
2.05 CHANGE IN CONTROL. "Change in Control" means (1) any consolidation or
-----------------
merger of the Sponsor in which the Sponsor is not the surviving corporation,
other than a merger of the Sponsor in which the holders of common stock or
assets of the Sponsor immediately prior to the
II-1
<PAGE>
merger have the same proportionate ownership of the surviving corporation
immediately after the merger; or (2) any sale, lease exchange or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Sponsor; or (3) during any period of two
consecutive years, the individuals who at the beginning of such period
constitute the Board of Directors of the Sponsor cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Sponsor's shareholders, of each new director was approved by
a vote of at least two-thirds of the directors still in office who were
directors at the beginning of that period; or (4) the acquisition after the date
hereof by any person (as such term is used in section 13(d) and 14(d) of the
Securities and Exchange Act of 1934, as amended, but excluding the Sponsor and
any Affiliated Company) that results in such person holding directly or
indirectly 20% or more of the combined voting power of the then outstanding
securities of the Sponsor as a result of a tender or exchange offer, open market
purchase(s), privately-negotiated purchase(s) or otherwise; or (5) the
acquisition by any person(s), firm(s), or corporation(s) of direct or indirect
ownership of 20% or more of the assets of the Sponsor which do not own at least
10% of the assets of the Sponsor as of January 1, 1996.
2.06 CODE. "Code" means the Internal Revenue Code of 1986, as amended.
----
2.07 COMMITTEE. "Committee" means the committee (if any) that the Board
---------
appoints to administer this Plan as set forth in Section 3.01 hereof, provided,
however, the Committee shall contain at least one non-employee.
2.08 COMPENSATION. "Compensation" means, with respect to any Participant, the
------------
base salary paid to such Participant by any Covered Employer, including any
amounts not currently includible in such Participant's gross income by reason of
any amount deferred for the period pursuant to any non-qualified deferred
compensation arrangement between the Participant and any Covered Employer or,
Code Section 402(e)(3) and/or Code Section 125. Except as provided in the
following sentence, Compensation shall also include any annual or other short
term bonus paid by any Covered Employer to a Participant other than any bonus
paid to a Participant who is a division manager. Notwithstanding the foregoing,
the Committee shall have the sole and absolute discretion to determine, at the
time of any award under a bonus plan, or the payment of any bonus, that such
bonus does not constitute Compensation for purposes of this Plan.
2.09 COVERED EMPLOYER. "Covered Employer" means and includes both (a) the
----------------
Sponsor, and (b) any Affiliated Company.
II-2
<PAGE>
2.10 DEFINED BENEFIT PLAN. "Defined Benefit Plan" means the Whittaker
--------------------
Corporation Employees' Pension Plan, which was frozen effective as of October
31, 1994.
2.11 EARLY RETIREMENT. "Early Retirement" means, with respect to any
----------------
Participant, any Retirement of such Participant other than Normal Retirement,
which occurs on or after the date Participant has attained age 55 and completed
at least 10 Service Years.
2.12 EFFECTIVE DATE. "Effective Date" means January 1, 1996.
--------------
2.13 ERISA. "ERISA" means the Employee Retirement Income Security Act of
-----
1974, as amended.
2.14 50% JOINT AND SURVIVOR ANNUITY. "50% Joint and Survivor Annuity" means
------------------------------
an annuity which (a) provides a specified level monthly benefit during the life
of the primary beneficiary, and (b) following the death of the primary
beneficiary, provides a level monthly benefit to, and during the remaining life
of, such primary beneficiary's surviving spouse (if any) equal to 50% of the
monthly benefit provided to such primary beneficiary.
2.15 401(K) PLAN. "401(k) Plan" means the Whittaker Corporation Partnership
-----------
Plan, as such Plan is in effect as of the Effective Date hereof and as it may be
amended from time to time hereafter.
2.16 FULL-TIME EMPLOYMENT. "Full-Time Employment" means, with respect to any
--------------------
Participant, any employment or independent contractor relationship with any
organization or person, whether or not the Sponsor or an Affiliated Company,
pursuant to which such Participant performs services on a regular and continuous
basis, provided, however, that any such relationship shall not constitute Full-
Time Employment unless the Participant devotes at least an average of 35 hours
per week to the performance of services pursuant to such relationship. For
purposes of determining as of any given date whether the Participant meets the
35-hour requirement set forth in the preceding sentence, no more than the three-
month period immediately preceding such given date shall be taken into account.
2.17 NORMAL BENEFIT DATE. "Normal Benefit Date" means, with respect to any
-------------------
Participant, the ninetieth (90th) day immediately following the day upon which
such Participant attains (or is expected to attain) age 65.
2.18 NORMAL BENEFIT FORM. "Normal Benefit Form" means a Single Life Annuity,
-------------------
starting at age 65.
II-3
<PAGE>
2.19 NORMAL RETIREMENT. "Normal Retirement" means, with respect to any
-----------------
Participant, any Retirement of such Participant having a Retirement Date which
falls on or after the date such Participant attains age 65.
2.20 PARTICIPANT. "Participant" means any executive of the Sponsor or any
-----------
Affiliated Company who is selected and approved for participation in this Plan
as provided in Section 1.03 hereof and who has executed a Participation
Agreement as required under Section 1.04 hereof.
2.21 PAYMENT COMMENCEMENT DATE. "Payment Commencement Date" means, with
-------------------------
respect to any Participant, the ninetieth (90th) day after the earlier of (a)
such Participant's Retirement Date, or (b) the later to occur of (i) such
Participant's Termination Date and (ii) age 65.
2.22 PLAN. "Plan" means this Whittaker Corporation Supplemental Executive
----
Retirement Plan adopted as of the Effective Date hereof and as it may be amended
from time to time.
2.23 RETIREMENT; RETIREMENT DATE. "Retirement" occurs with respect to any
---------------------------
Participant only if and when such Participant permanently ceases, for whatever
reason (whether voluntary or involuntary and including death or Disability), all
Full-Time Employment. The temporary cessation of a Participant's Full-Time
Employment shall not constitute Retirement. The cessation of a Participant's
Full-Time Employment shall be deemed to be temporary if, following such
cessation, such Participant commences (or intends to commence) actively seeking
Full-Time Employment; provided, however, that if such Participant subsequently
abandons his search (or intended search) for Full-Time Employment prior to
obtaining such Full-Time Employment, such Participant shall be deemed to incur
Retirement at the time of such abandonment. The determination as to whether
(and when) a Participant incurs Retirement shall be made solely by the Board
based on such evidence as the Board, in its discretion, deems appropriate. Such
evidence may, but is not required to include a representation of Retirement
presented to the Board by the Participant. If, following a determination by the
Board that a Participant has incurred Retirement, such participant recommences
Full-Time Employment, such Participant shall nevertheless be deemed for all
purposes of this Plan to have incurred Retirement in accordance with the Board's
original determination. A Participant's "Retirement Date" shall be the first
day, as determined by the Board, on which such Participant meets the
requirements of Retirement as set forth in this Section 2.23.
II-4
<PAGE>
2.24 SERVICE YEARS. "Service Years" means with respect to any Participant,
-------------
the whole number of complete years (disregarding any incomplete year) elapsing
during the single, period commencing on the date such Participant initially
commenced employment with any Covered Employer and ending on such Participant's
final Termination Date. In the case of any Participant who (a) commenced
employment with a Covered Employer, (b) terminated such employment, and (c)
prior to the Effective Date hereof, re-commenced employment with any Covered
Employer, such Participant shall be credited with Service Years for those
periods prior to the Effective Date hereof during which he was actually employed
by any Covered Employer notwithstanding the fact that such pre-Effective Date
employment with such covered Employer(s) was not continuous. Except as
otherwise provided in Section 3.04 hereof (concerning leaves of absence), it is
intended that a Participant shall cease earning Service Years upon his incurring
any Termination after the Effective Date hereof, regardless of whether such
Participant is thereafter employed by the Sponsor, an affiliate of the Sponsor
or any Affiliated Company. Notwithstanding the foregoing, in the case of a
Participant whose Termination is due to a Disability the period commencing with
such Disability and ending at the earliest of (i) attainment of age 65, (ii)
return to Full-Time Employment, or (iii) the death of the Participant shall
continue to be credited as Service Years.
2.25 SINGLE LIFE ANNUITY. "Single Life Annuity" means an annuity which
-------------------
provides a specified level monthly benefit until the death of the beneficiary.
2.26 SPECIFIED RATE. "Specified Rate" means an interest rate equal to 8% per
--------------
annum, or such other annual interest rate as the Board may from time to time
designate as the Specified Rate, with any such designation to be given effect
only on a prospective basis.
2.27 SPONSOR. "Sponsor" means Whittaker Corporation, a Delaware corporation.
-------
2.28 SPOUSE. "Spouse" means, with respect to any Participant, only that
------
person (if any) to whom such Participant is married as of such Participant's
Termination Date, provided, however, that a person who has been married to a
Participant for less than one year as of such Participant's Termination Date
shall not be deemed to be the "Spouse" of such Participant.
2.29 TERMINATION. "Termination" means the voluntary or involuntary
-----------
termination of a Participant's employment with the Sponsor and all Affiliated
Companies for any reason (including Disability or death). The determination as
to whether a Participant's Termination constitutes Retirement shall be made by
the Board in accordance with the provisions of Section 2.23 hereof.
II-5
<PAGE>
2.30 TERMINATION DATE. "Termination Date" means, with respect to any
----------------
Participant, the effective date of such Participant's Termination.
2.31 TERMINATION FOR CAUSE. "Termination for Cause" means, with respect to
---------------------
any Participant, a Termination incurred by such Participant as a result of any
one or more of the following causes:
(a) The Participant's substantial neglect of his duties and responsibilities
as an employee of the Sponsor or any Affiliated Company;
(b) The Participant's theft or other misappropriation of, or any malfeasance
with respect to, any property of the Sponsor or any Affiliated Company;
(c) A conviction of the Participant for any criminal offense, whether or not
involving property of the Sponsor or any Affiliated Company, but only if
the Board reasonably believes such conviction may adversely affect either
(i) the reputation of the Sponsor or any Affiliated Company, or (ii) the
Participant's ability to effectively perform his duties and
responsibilities as an employee of the Sponsor or any Affiliated Company;
(d) The Participant's use of illegal drugs or alcohol to an extent that such
use interferes with his ability to perform, in an acceptable manner, his
duties and responsibilities as an employee of the Sponsor or any
Affiliated Company;
(e) The Participant's solicitation of business on behalf of, or diversion of
business to, any competitor of the Sponsor or any Affiliated Company with
whom the Participant expects to become employed or otherwise associated
following such Participant's Termination.
II-6
<PAGE>
ARTICLE III
ADMINISTRATION OF THE PLAN
3.01 ADMINISTRATION. This Plan shall be administered by the Board of
--------------
Directors, provided however, that the Board may, in its discretion, delegate the
administration of this Plan to a Committee composed of at least three
individuals appointed from time to time by the Board. Any member of the Board
or the Committee may be a Participant in this Plan, provided however, that any
action to be taken by the Board or Committee solely with respect to the
particular interest in this Plan of a Board or Committee member who is also a
Participant in this Plan shall be taken by the remaining members of the Board or
Committee.
3.02 BOARD AND COMMITTEE AUTHORITY; RULES AND REGULATIONS. The Board shall
----------------------------------------------------
have discretionary authority to (a) make, amend, interpret and enforce all
appropriate rules and regulations for the administration of the Plan, and (b)
decide or resolve, in its discretion, any and all questions, including
interpretations of the Plan, as may arise in connection with the Plan. If a
Committee is appointed by the Board pursuant to Section 3.01 hereof to
administer the Plan, such Committee shall have authority to take or approve, in
its discretion, all such actions relating to the Plan (including, without
limitation, actions described in the preceding sentence) as may be taken or
approved by the Board; provided, however, that the Committee shall have no
authority (i) to approve executives for participation in the Plan, (ii) to
approve the terms of any Participation Agreement, (iii) to amend or terminate
the Plan, or (iv) to terminate a Participant's participation in the Plan
pursuant to Section 4.08 hereof. Notwithstanding the preceding sentence, the
Board may, by written notice to the Committee, withdraw all or any part of the
Committee's authority at any time, in which case such withdrawn authority shall
immediately revest in the Board. Any decision or action of the Board (and,
subject to the limitations set forth herein above, any decision or action of the
Committee, if appointed) in respect of any question arising out of or in
connection with the administration, interpretation and application of this Plan
and the rules and regulations promulgated hereunder shall be final, conclusive
and binding upon all persons having any interest in the Plan.
3.03 APPOINTMENT OF AGENTS. In the administration of this Plan, the Board
---------------------
and/or the Committee may from time to time employ agents (which may include
officers and/or employees
III-1
<PAGE>
of the Sponsor) and delegate to them such administrative duties as the Board or
the Committee (as applicable) deems appropriate.
3.04 LEAVE OF ABSENCE. In the event the Participant takes a leave of absence
----------------
from active employment with the Sponsor or any Affiliated Company, the Board
shall determine, in its discretion, (a) whether such leave of absence shall be
deemed to constitute a Termination for purposes of this Plan, and (b) if such
leave of absence is not deemed to constitute a Termination under this Plan,
whether such Participant shall continue to earn Service Years during such leave
of absence notwithstanding the provisions of Section 2.24 hereof. The Board
shall establish such standards and procedures as may be necessary so that, with
respect to any determinations made by the Board pursuant to either clause (a) or
clause (b) of the preceding sentence, Participants in substantially similar
circumstances shall be treated substantially alike.
3.05 ACTUARIAL ASSUMPTIONS. In any case in which it is necessary to make
---------------------
actuarial adjustments in order to carry out the provisions of this Plan
(including, without limitation, the provisions requiring the determination of an
actuarially equivalent benefit under Section 4.02 hereof), the following rules
shall apply:
(a) The interest/discount rate assumed in making such actuarial adjustments
shall be a fixed rate equal to the Specified Rate then in effect at the
time such actuarial adjustments are calculated; and,
(b) The mortality table used in making such actuarial adjustments shall be
the 1971 Unisex Group Annuity Table (85% of male rate and 15% of female
rate).
III-2
<PAGE>
ARTICLE IV
BENEFITS
4.01 ELIGIBILITY AND VESTING. Except as otherwise provided in Section 4.11
-----------------------
and Article V hereof, upon incurring Termination, a Participant shall receive a
supplemental benefit under this Plan (a "Supplemental Benefit"), which
Supplemental Benefit shall be paid to the extent vested, in such form and
amounts, and at such times, as provided under this Plan. Notwithstanding the
foregoing, and except as otherwise provided in Sections 4.09 and 4.10 hereof, a
Participant who incurs a Termination shall be entitled to receive a Supplemental
Benefit under this Plan only to the extent such Participant is vested in such
Benefit. A Supplemental Benefit shall vest and become nonforfeitable up to a
maximum of 100% as follows:
<TABLE>
<CAPTION>
SERVICE YEARS VESTED PERCENTAGE
------------------------------- ---------------------
<S> <C>
Less than 6 years 0%
6 years but less than 7 years 10%
7 years but less than 8 years 20%
8 years but less than 9 years 30%
9 years but less than 10 years 40%
10 years but less than 11 years 50%
11 years but less than 12 years 60%
12 years but less than 13 years 70%
13 years but less than 14 years 80%
14 years but less than 15 years 90%
15 or more years 100%
</TABLE>
A Supplemental Benefit shall also be 100% vested upon the death of a
Participant.
4.02 FORM OF SUPPLEMENTAL BENEFIT. Any Participant who is entitled to a
----------------------------
Supplemental Benefit pursuant to Section 4.01 hereof shall receive such
Supplemental Benefit in the form of an annuity, which annuity shall provide a
series of level monthly payments for a period determined in accordance with the
rules set forth hereinbelow. With respect to any Participant, the amount of the
level monthly payment provided by such annuity (the "Monthly
IV-1
<PAGE>
Annuity Amount") shall be determined in accordance with Section 4.04 hereof,
subject to such modifications as may be applicable under this Section 4.02:
(a) Except as provided in subsection (b) below, a Participant shall
receive his Supplemental Benefit in the Normal Benefit Form specified
in Section 2.18.
(b) A Participant who is entitled to receive a Supplemental Benefit may,
with the consent of the Board elect in writing, on such form
designated by the Plan Administrator and received by the Plan
Administrator at least 15 months prior to the Payment Commencement
Date, to receive his Supplemental Benefit in the form of a 50% Joint
and Survivor Annuity. Notwithstanding such election, such Participant
shall be entitled to receive his Supplemental Benefit in the form of a
50% Joint and Survivor Annuity only if such Participant has a spouse
as of such Participant's Termination Date and also has been married
continuously for at least the two years preceding such Participant's
Retirement Date. The amount of the Supplemental Benefit so designated
by the Participant shall be the Actuarial Equivalent of the amount
otherwise payable to the Participant in the Normal Benefit Form
pursuant to Section 2.18. If such election is not made or is invalid
or void, the Participant's Supplemental Benefit shall be paid in the
Normal Benefit Form specified in Section 2.18.
4.03 PAYMENT OF SUPPLEMENTAL BENEFIT. Notwithstanding any other provisions
-------------------------------
of this Plan, payment of a Participant's Supplemental Benefit (or any portion
thereof) shall commence on such Participant's Payment Commencement Date.
4.04 MONTHLY ANNUITY AMOUNT. Except to the extent modified pursuant to
----------------------
Sections 4.01 or 4.02 hereof, a Participant's "Monthly Annuity Amount" shall be
the amount of such Participant's Target Monthly Benefit (as defined in Section
4.05 hereof) reduced, but not below zero, by such Participant's Monthly Offset
Amount (as defined in Section 4.06 hereof).
4.05 TARGET MONTHLY BENEFIT. A Participant's "Target Monthly Benefit"
----------------------
shall be determined as of his Termination Date and shall be the amount
calculated by multiplying (a) the Participant's Average Monthly Compensation
determined as of his Termination Date, by (b) his Benefit Accrual Percentage
determined as of his Termination Date (or later date in the case of Disability)
by (c) his vesting percentage as of his Termination Date (or later date in the
case of Disability) under Section 4.01.
IV-2
<PAGE>
4.06 MONTHLY OFFSET AMOUNT. A Participant's "Monthly Offset Amount" shall
---------------------
be the amount equal to the sum of (1) such Participant's Social Security Offset
Amount, plus (2) such Participant's Qualified Offset Amount (both as defined
herein below).
(a) A Participant's "Social Security Offset Amount" shall be determined in
accordance with the following rules:
(i) In the case of any Participant whose Termination constitutes
Normal Retirement, such Participant's Social Security Offset
Amount shall be 50% of the amount of the monthly Primary Social
Security Benefit (as calculated by the Board under paragraph
(iii) below) to which such Participant is entitled following
such Termination.
(ii) In the case of any Participant whose Termination does not
constitute Normal Retirement (either because such Termination
does not constitute Retirement or because such Termination
constitutes Early Retirement), such Participant's Social
Security Offset Amount shall be 50% of the amount of the
monthly Primary Social Security Benefit (as calculated by the
Board under paragraph (iii) below) to which such Participant
would be entitled commencing on his Normal Benefit Date paid to
such Participant in the Normal Benefit Form if, with respect to
the period (if any) between such Participant's Termination Date
and his Normal Benefit Date, (A) such Participant had continued
to earn a constant monthly salary equal to the Participant's
Compensation for the month immediately preceding the month of
such Participant's Termination, and (B) the Social Security
wage base and other provisions of the Social Security law
relevant to the determination of benefits thereunder (including
any applicable regulations and/or other pronouncements, such as
wage base and other provisions) in effect as of such
Participant's Termination Date had remained unchanged.
(iii) Each Participant shall submit to the Board, for use in
calculating such Participant's Primary Social Security Benefit
and the corresponding Social Security Offset Amount under
paragraphs (i) or (ii) above, as applicable, either (A) a
written earnings history obtained from the Social Security
Administration, or (B) written evidence satisfactory to the
Committee showing that, such Participant has never earned wages
subject to the jurisdiction of the U.S. Social Security system
(e.g., a foreign
IV-3
<PAGE>
Participant with no U.S. wages). In the event a Participant
fails to comply with the requirements of the preceding sentence
within 90 days following such Participant's Payment
Commencement Date, the Participant's Primary Social Security
Offset Benefit (for purposes of calculating his Social Security
Offset Amount under paragraphs (i) or (ii) above, as
applicable) shall be determined by the Committee using an
estimated wage history, applying a salary scale projected
backwards from the Participant's Retirement Date, and based on
(I) for the two years prior to the Participant's Retirement
Date, an increase of six percent (6%) per annum, and (II) for
the period prior to such two year period, the actual change in
average wages from year to year as determined by the Social
Security Administration. Such estimated wage history shall be
deemed correct for all purposes of this Plan.
(b) A Participant's "Qualified Plan Offset Amount" shall be the sum of the
Defined Benefit Plan Offset Amount and the 401(k) Plan Offset Amount
determined with respect to such Participant under the following
provisions, as applicable:
(i) With respect to any Participant who was a Participant in the
Defined Benefit Plan, such Participant's "Defined Benefit Plan
Offset Amount" shall be the employer-provided portion (i.e.,
the portion attributable to employer contributions) of the
amount of the monthly annuity payment to which such Participant
would be entitled under the Defined Benefit Plan if his benefit
thereunder were paid in the Normal Benefit Form commencing on
his Normal Benefit Date. The "Defined Benefit Plan Offset
Amount" shall be zero with respect to any Participant who was
not a participant in the Defined Benefit Plan, or to any
Participant who would have become a participant in the Defined
Benefit Plan following the date such Plan's benefit accruals
were frozen.
(ii) With respect to any Participant, such Participant's "401(k)
Plan Offset Amount" shall be the amount of the monthly annuity
payment to which such Participant would be entitled if the
balance (determined as of such Participant's Payment
Commencement Date) in such Participant's 401(k) Offset Account
(as defined herein below) were paid to such Participant in the
Normal Benefit Form commencing on his Normal Benefit Date. For
purposes of this paragraph (ii), a Participant's "401(k) Offset
Account"
IV-4
<PAGE>
shall be a hypothetical account established and maintained with
respect to such Participant as follows: A Participant's 401(k)
Offset Account shall be established as of December 31, 1995,
and such 401(k) Offset Account shall have an initial balance
equal to the actual balance (if any) as of December 31, 1995,
in the account maintained under the 401(k) Plan for employer
contributions made with respect to such Participant (excluding
any employer contributions not currently includible in gross
income by reason of Code Section 402(e)(3)). Thereafter (A)
commencing with the 1996 calendar year and ending with the
calendar year in which such Participant incurs a Termination
(the "Termination Year"), the balance in such Participant's
401(k) Offset Account shall be increased as of the end of each
such calendar year (or, in the case of the Termination Year, as
of such Participant's Termination Date) by the amount of such
Participant's Hypothetical Employer Contribution (as defined in
paragraph (iii) below) for such calendar year and the actual
employer profit sharing contribution made for such calendar
year with respect to such Participant under the terms of the
401(k) Plan; and (B) commencing January 1, 1996, and ending on
such Participant's Payment Commencement Date, such
Participant's 401(k) Offset Account shall also be increased as
if the balance in such account (as increased from time to time
by the Hypothetical Employer Contributions Described in Clause
(A) above) were earning interest, compounded annually, (I) from
January 1, 1996, until such Participant's Termination Date, at
the Specified Rate applicable from time to time, and (II) from
such Participant's Termination Date until his Payment
Commencement Date, at the Specified Rate in effect as of such
Participant's Termination Date.
(iii) As used in paragraph (ii) above, "Hypothetical Employer
Contribution" means, with respect to any Participant, (A) for
any calendar year prior to such Participant's Termination Year
the maximum employer matching contribution that would have been
made for such calendar year with respect to such Participant
under the terms of the 401(k) Plan (disregarding the limits
imposed by reason of Code Section 401(m)) assuming such
Participant's before-tax deferral to the 401(k) Plan for such
calendar year is equal to his Hypothetical Participant Deferral
(as defined in paragraph (iv) below) with respect to such
calendar year; and (B) for
IV-5
<PAGE>
such Participant's Termination Year, an amount equal to the
product obtained by multiplying (i) the Hypothetical Employer
Contribution determined with respect to such Participant for
the immediately preceding calendar year, by (ii) a fraction
having a numerator equal to the number of days in such
Termination Year prior to and including such Participant's
Termination Date, and having a denominator equal to 365.
(iv) For purposes of paragraph (iii) above, the "Hypothetical
Participant Deferral" applicable to any Participant for any
calendar year shall be the amount determined under the
following provisions, whichever is applicable:
(A) If, with respect to any calendar year, the 401(k) Plan
administrative committee does not take any action, either
during or after the close of such year, to reduce the
level of Participant deferrals permitted to be made by any
401(k) Plan Participant for such year, then the
Hypothetical Participant Deferral with respect to any
Participant for such calendar year shall be the lesser of
(I) the maximum amount such Participant would be permitted
to contribute to the 401(k) Plan for such year under Code
Section 402(g), or (II) the maximum amount the Participant
would be permitted to contribute under the terms of the
401(k) Plan.
(B) If, with respect to any calendar year, the 401(k) Plan
administrative committee takes action during and/or after
such year to reduce the level of Participant deferrals
permitted to be made by any 401(k) Plan Participant for
such year, then the Hypothetical Participant Deferral with
respect to any Participant for such year shall be the
lesser of (I) the maximum amount such Participant would be
permitted to contribute to the 401(k) Plan for such year
under Code Section 402(g), or (II) the product determined
by multiplying such Participant's compensation for such
year (as determined under the 401(k) Plan for anti-
discrimination testing purposes), by the maximum "actual
deferral percentage" for any highly compensated employee
for such year (as determined under Code Section
401(k)(3)(B) after giving effect to any corrections made
following the close of such year)
IV-6
<PAGE>
applicable to "highly-compensated employees" (as defined
in Code Section 414(q)).
4.07 SPECIAL RULES FOR EARLY RETIREMENT. In the case of any Participant
----------------------------------
who incurs Early Retirement, such Participant's Monthly Annuity Amount shall be
determined as provided in Section 4.04 hereof, and then shall be reduced to
reflect the commencement of benefits on a date earlier than the Normal Benefit
Date as follows:
(a) If the Participant's Early Retirement commences on or after the first
day of the month next following his sixty-second birthday, then the
reduction shall be 0.25% for each full month by which the date of
Early Retirement precedes the first day of the month next following
his attainment of age 65.
(b) If the Participant's Early Retirement commences prior to the first day
of the month next following his sixty-second birthday, then the
reduction shall be 9.00% (representing the reduction from age 65 to
age 62 described in paragraph (a) above) plus 0.50% for each full
month by which the date of Early Retirement precedes the first day of
the month next following his sixty-second birthday.
4.08 TERMINATION OF PLAN PARTICIPATION. In the event that the Board of
---------------------------------
Directors determines that a Participant's employment performance is no longer at
a level which merits continued participation in the Plan, the Board may
terminate such Participant's participation in the Plan (without necessarily
terminating such Participant's employment) as of the date specified by the Board
(the "Participation Severance Date"). Accordingly, notwithstanding any other
provision of this Plan, the Supplemental Benefit payable to any Participant
whose Plan participation is terminated pursuant to this Section 4.08 shall be
calculated by taking into account, in determining the amount of such
Participant's Target Monthly Benefit and whether such Participant has met the
vesting requirement of Section 4.01 hereof, only the Service Years and
Compensation earned by such Participant as of his Participation Severance Date.
Such Supplemental Benefit shall be paid to the Participant pursuant to the
provisions of Section 4.03 herein.
4.09 DISABILITY. In the event that a Participant incurs a Termination as a
----------
result of such Participant's becoming Disabled, the Supplemental Benefit payable
to such Participant under this Plan shall be determined with regard to the
vesting requirement of Section 4.01 hereof assuming Service Years continue to
accrue until the earliest of (a) age 65, (b) return to Full-Time Employment, or
(c) the death of the Participant. For purposes of this Plan, a Participant
shall be
IV-7
<PAGE>
deemed to be "Disabled" if and when, as a result of injury or sickness, such
Participant is permanently impaired to such an extent that he cannot perform,
and is not reasonably expected ever to be able to perform, each of the material
duties of his position of employment with the Sponsor or any Affiliated Company.
For the purpose of determining whether a Participant is Disabled, the Board may
require the Participant to submit to an examination by a competent physician or
medical clinic selected by the Board.
4.10 CHANGE OF CONTROL. Notwithstanding any other provision of this Plan,
-----------------
upon a Change in Control, all Participants in the Plan shall be fully vested in
their Supplemental Benefits. All Participants shall be entitled to the
Supplemental Benefit they would otherwise receive pursuant to this Article IV
hereof. Upon and following a Change of Control, no Participant shall be removed
from the Plan, nor shall his benefit be terminated, modified, reduced or
eliminated without his express written consent.
4.11 TERMINATION FOR CAUSE. Notwithstanding any other provision of this
---------------------
Plan except Section 4.10, a Participant who incurs a Termination for Cause prior
to a Change of Control shall not be entitled to a Supplemental Benefit,
regardless of Service Years, under this Plan.
IV-8
<PAGE>
ARTICLE V
DEATH OF A PARTICIPANT
5.01 TERMINATION BY REASON OF DEATH. In the event that a Participant
------------------------------
incurs a Termination by reason of his death, (a) such Participant shall not be
entitled to receive a Supplemental Benefit under this Plan, and (b) if such
Participant has a Spouse at the time of his death, such Participant's Spouse
(the "Surviving Spouse") shall be entitled to receive a special benefit (a
"Death Benefit") at the times and in the amounts set forth in this Article V. No
Death Benefit shall be paid in respect of any Participant who does not have a
Spouse at the time of his death.
5.02 FORM AND PAYMENT OF DEATH BENEFIT. A Surviving Spouse who is
---------------------------------
entitled to receive a Death Benefit pursuant to Section 5.01 hereof shall
receive such Death Benefit in the form of a Single Life Annuity which provides a
level monthly payment equal to the Monthly Death Benefit Amount specified in
Section 5.03 hereof. Except as otherwise provided hereinbelow, payment of a
Surviving Spouse's Death Benefit shall commence on the ninetieth (90th) day (the
"Death Benefit Commencement Date") after the Participant's death.
5.03 MONTHLY DEATH BENEFIT AMOUNT. The "Monthly Death Benefit Amount"
----------------------------
applicable to any Surviving Spouse shall be an amount equal to the Monthly
Annuity Amount of the Supplemental Benefit that would have been payable to the
deceased Participant under Article IV hereof if such Participant had incurred a
Retirement on the day prior to his death, provided, however, that the
determination of such Monthly Annuity Amount shall take into account the
following assumptions and special rules:
(a) Such Monthly Annuity Amount shall be determined assuming the
Participant would have received his Supplemental Benefit in the Normal
Benefit Form, modified, if applicable, by the provisions of Section
4.07 hereof.
(b) Such Monthly Annuity Amount shall be determined as if the Participant
was 100% vested in the Supplemental Benefit.
(c) The Payment Commencement Date used in determining such Monthly Annuity
Amount shall be deemed to be the Surviving Spouse's Death Benefit
V-1
<PAGE>
Commencement Date (disregarding any provision in Article IV to the
contrary), and if the deceased Participant's death caused Early
Retirement, the provisions of Section 4.07 hereof shall be applied in
determining the deceased Participant's Monthly Annuity Amount after
first determining the amount of the Defined Benefit Plan Offset Amount
pursuant to subsection (c) above.
V-2
<PAGE>
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.01 PAYMENTS DURING INCAPACITY. In the event a Participant (or
--------------------------
Beneficiary) is under mental or physical incapacity at the time of any payment
to be made to such Participant (or Beneficiary) pursuant to this Plan, any such
payment may be made to the conservator or other legally appointed personal
representative having authority over and responsibility for the person or estate
of such Participant (or Beneficiary), as the case may be, and for purposes of
such payment references in this Plan to the Participant (or Beneficiary) shall
mean and refer to such conservator or other personal representative, whichever
is applicable. In the absence of any lawfully appointed conservator or other
personal representative of the person or estate of the Participant (or
Beneficiary), any such payment may be made to any person or institution that has
apparent responsibility for the person and/or estate of the Participant (or
Beneficiary) as determined by the Committee. Any payment made in accordance with
the provisions of Section 6.01 to a person or institution other than the
Participant (or Beneficiary) shall be deemed for all purposes of this Plan as
the equivalent of a payment to such Participant (or Beneficiary), and the
Sponsor shall have no further obligation or responsibility with respect to such
payment.
6.02 PROHIBITION AGAINST ASSIGNMENT. Except as otherwise expressly
------------------------------
provided in Section 6.01 hereof, the rights, interests and benefits of a
Participant under this Plan (a) may not be sold, assigned, transferred, pledged,
hypothecated, gifted, bequeathed or otherwise disposed of to any other party by
such Participant or any Beneficiary, executor, administrator, heir, distributee
or other person claiming under such Participant, and (b) shall not be subject to
execution, attachment or similar process. Any attempted sale, assignment,
transfer, pledge, hypothecation, gift, bequest or other disposition of such
rights, interests or benefits contrary to the foregoing provisions of this
Section 6.02 shall be null and void and without effect.
6.03 BINDING EFFECT. The Provisions of this Plan shall be binding upon the
--------------
Sponsor, the Participants, all Affiliated Companies employing any Participants,
and any successor-in-interest to the Sponsor.
6.04 NO TRANSFER OF INTEREST. Benefits under this Plan shall be payable
-----------------------
solely from the general assets of the Sponsor (and, with respect to any
Participant who is an employee of an Affiliated Company, also from the general
assets of such Affiliated Company), and no person
VI-1
<PAGE>
shall be entitled to look to any other source for payment of such benefits. The
Sponsor (and, if applicable, any Affiliated Company) shall have and possess all
title to, and beneficial interest in, any and all funds or reserves maintained
or held by the Sponsor (or such Affiliated Company) on account of any obligation
to pay benefits as required under this Plan, whether or not earmarked as a fund
or reserve for such purpose; any such funds, other property or reserves shall be
subject to the claims of the creditors of the Sponsor (or such Affiliated
Company), and the provisions of this Plan are not intended to create, and shall
not be interpreted as vesting, in any Participant, Beneficiary or other person,
any right to or beneficial interest in any such funds, other property or
reserves. Nothing in this Section 6.04 shall be construed or interpreted as
prohibiting or restricting the establishment of a grantor trust within the
meaning of Code Section 671 which is unfunded for purposes of Sections 201(2),
301(a)(3), and 401(a)(l) of ERISA, from which benefits under this Plan may be
payable.
6.05 AMENDMENT OR TERMINATION OF THE PLAN. The Board of Directors may
------------------------------------
amend this Plan from time to time in any respect that it deems appropriate or
desirable, and the Board may terminate this Plan at any time; provided, however,
that any such amendment or termination may not, without the written consent of a
Participant, eliminate or reduce the Supplemental Benefit that has accrued with
respect to such Participant as of the effective date of such amendment or
termination. For purposes of this Section 6.05, the Supplemental Benefit that
has accrued with respect to any Participant as of the date of any amendment of
termination of the Plan shall be deemed to be the Supplemental Benefit to which
such Participant would be entitled pursuant to Article IV hereof if such
Participant incurred Retirement immediately prior to such Plan amendment or Plan
termination.
6.06 NO RIGHT TO EMPLOYMENT. This Plan is voluntary on the part of the
----------------------
Sponsor and its Affiliated Companies, and the Plan shall not be deemed to
constitute an employment contract between any Participant and the Sponsor or any
Affiliated Company, nor shall the adoption or existence of the Plan or any
provision contained in the Plan be deemed to be a required condition of the
employment of any Participant. Nothing contained in this Plan shall be deemed
to give any Participant the right to continued employment with the Sponsor or
any Affiliated Company, and the Sponsor and its Affiliated Companies may
terminate any Participant at any time, in which case the Participant's rights
arising under this Plan shall be only those expressly provided under the terms
of this Plan.
6.07 NOTICES. All notices, requests, or other communications (hereinafter
-------
collectively referred to as "Notices") required or permitted to be given
hereunder or which are given with
VI-2
<PAGE>
respect to this Plan shall be in writing and may be personally delivered, or may
be deposited in the United States mail, postage prepaid and addressed as
follows:
To the Sponsor any Affiliated Whittaker Corporation
Company or the Committee at: Attention: Board of Directors
1955 Surveyor Avenue
Simi Valley, California 93063-3386
To Participant at: The Participant's residential
mailing address as reflected in the
Sponsor's or Affiliated Company's
employment records
A Notice which is delivered personally shall be deemed given as of the date
of personal delivery, and a Notice mailed as provided herein shall be deemed
given on the second business day following the date so mailed. Any Participant
may change his address for purposes of Notices hereunder pursuant to a Notice to
the Committee, given as provided herein, advising the Committee of such change.
The Sponsor, any Affiliated Company and/or the Committee may at any time change
its address for purposes of Notices hereunder.
6.08 GOVERNING LAW. This Plan shall be governed by, interpreted under, and
-------------
construed and enforced in accordance with the internal laws, and not the laws
pertaining to conflicts or choice of laws, of the State of California applicable
to agreements made and to be performed wholly within the State of California.
6.09 TITLES AND HEADINGS; GENDER OF TERMS. Article and Section headings
------------------------------------
herein are for reference purposes only and shall not be deemed to be part of the
substance of this Plan or in any way to enlarge or limit the meaning or
interpretation of any provision in this Plan. Use in this Plan of the
masculine, feminine or neuter gender shall be deemed to include each of the
omitted genders wherever the context so requires.
6.10 SEVERABILITY. In the event that any provision of this Plan is found
------------
to be invalid or otherwise unenforceable by a court or other tribunal of
competent jurisdiction, such invalidity or unenforceability shall not be
construed as rendering any other provision contained herein invalid or
unenforceable, and all such other provisions shall be given full force and
effect to the same extent as though the invalid and unenforceable provision was
not contained herein.
6.11 TAX EFFECT OF PLAN. Neither the Sponsor nor any Affiliated Company
------------------
warrants any tax benefit nor any financial benefit under the Plan. Without
limiting the foregoing, the Sponsor and each Affiliated Company and their
directors, officers, employees and agents shall
VI-3
<PAGE>
be held harmless by the Participant from, and shall not be subject to any
liability on account of, any Federal or State tax consequences or any
consequences under ERISA of any determination as to the amount of Plan benefits
to be paid, the method by which Plan benefits are paid, the persons to whom Plan
benefits are paid, or the commencement or termination of the payment of Plan
benefits.
6.12 ENTIRE AGREEMENT. The Plan represents the entire agreement regarding
----------------
nonqualified retirement benefits provided by Sponsor to each Participant.
Further, the Plan supersedes all Participant benefits or accruals under the
Whittaker Corporation Supplemental Benefit Plan and the Whittaker Corporation
Excess Benefit Plan.
IN WITNESS WHEREOF, the Sponsor has caused this Plan to be executed by its
duly authorized officer effective as of the Effective Date hereof.
WHITTAKER CORPORATION
By /s/ Thomas A. Brancati
-----------------------------------------
Thomas A. Brancati
Title President and Chief Executive Officer
---------------------------------------
VI-4
<PAGE>
EXHIBIT 10.11
CERTIFICATE
OF
SECRETARY
OF
WHITTAKER CORPORATION
---------------------
The undersigned, Lynne M. O. Brickner, being the duly elected,
qualified and acting Secretary of Whittaker Corporation, a Delaware corporation
(the "Corporation"), on behalf of the Corporation does hereby certify that the
following is a full, true and correct copy of the resolution adopted at a
meeting of the Board of Directors of Whittaker Corporation held on July 1, 1997,
at which meeting a quorum of said Board was at all times present and acting and
that said Board resolution has not been modified or rescinded and is in full
force and effect as of the date hereof:
RESOLVED, that the first sentence of Section 1.02 (j) of the Whittaker
Corporation Partnership Plan, amended and restated effective November
1, 1994, and as further amended on June 21, 1996, is amended in its
entirety to read as follows:
"(j) "Compensation" shall mean an Employee's wages, salaries, fees for
professional services, and other amounts received (without regard to
whether or not an amount is paid in cash) for services actually
rendered in the course of employment with the Employer to the extent
that amounts are includable in gross income (including, without
limitation, commissions paid salesman, compensation for service on the
basis of a percentage of profits, tips and bonuses, but excluding
reimbursements and expense allowances)."
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Secretary as of the date set forth below.
Dated: July 1, 1997
/s/ Lynne M. O. Brickner
-----------------------------
Lynne M. O. Brickner
Secretary
<PAGE>
EXHIBIT 10.15
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement, dated as of September 4, 1997 is by and
between Whittaker Corporation, a Delaware corporation ("Whittaker"), Whittaker
Communications Limited, a company formed under the laws of England and Wales
("WCL"), and Whittaker Services Corporation, a California corporation
("Services" and, together with Whittaker and WCL, "Seller"), and Condor Systems,
Inc., a California corporation ("Buyer").
RECITALS
--------
A. Seller owns certain assets which it uses in the conduct of the
Business (as defined below).
B. Buyer desires to purchase from Seller, and Seller desires to sell to
Buyer, such assets upon the terms and subject to the conditions of this
Agreement.
AGREEMENT
---------
NOW THEREFORE, in consideration of the respective covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Defined Terms. As used herein, the terms below shall have the
-------------
following meanings. Any of such terms, unless the context otherwise requires,
may be used in the singular or plural, depending upon the reference.
"Accounts Receivable" shall mean all accounts and notes receivable
-------------------
(whether current or noncurrent), deposits, prepayments or prepaid expenses of
Seller relating to the Business, other than accounts receivable consisting of
Excluded Assets;
"Action" shall mean any action, claim, suit, litigation, proceeding,
------
labor dispute, arbitral action, governmental audit, inquiry, criminal
prosecution, investigation or unfair labor practice charge or complaint.
"Affiliate" shall have the meaning set forth in the Securities
---------
Exchange Act of 1934, as amended, and the rules and regulations thereunder.
"Ancillary Agreements" shall mean the Agreement Not to Compete,
--------------------
1
<PAGE>
Confidentiality Agreement, and Transition Services Agreement, to be executed and
delivered at the Closing.
"Assets" shall mean all of the right, title and interest in and to the
------
business, properties, assets and rights of any kind, wherever located, whether
tangible or intangible, real, personal or mixed and constituting, or used or
useful in connection with, or related to, the Business owned by Seller or in
which Seller has any interest, including without limitation all of Seller's
right, title and interest in the following, with respect to the Business:
(a) all Accounts Receivable;
(b) all Contract Rights;
(c) all Facility Leases listed on Schedule 1.1;
(d) all Fixtures and Equipment;
(e) all Inventory;
(f) all Books and Records;
(g) all Proprietary Rights;
(h) to the extent transferable, all Permits;
(i) all computers and, to the extent transferable, computer software,
and all documentation and source codes with respect to such computer software in
place at the Facilities as of the date hereof;
(j) all available supplies, sales literature, promotional literature,
customer, supplier and distributor lists, art work, display units, and
purchasing records related to the Business which do not infringe Seller's
Proprietary Rights;
(k) all prepaid expenses listed on Schedule 1.1(a);
(1) all rights under or pursuant to all warranties, representations
and guarantees made by suppliers in connection with the Assets or services
furnished to Seller pertaining to the Business or affecting the Assets, to the
extent such warranties, representations and guarantees are assignable;
(m) all guaranties, warranties, indemnities and similar rights in
favor of Seller relating to the Assets or the Business;
(n) all capital stock of Deutschland;
2
<PAGE>
(o) all rights of Seller under any provisions of any contract,
agreement, or understanding in favor of Seller relating to the Business limiting
the ability of any party to sell any products and services, engage in any line
of business or compete with or to obtain products or services from any person
and any causes of action, lawsuits, claims and demands available to Seller in
respect of the foregoing; and
(p) all claims, causes of action, choses in action, rights of
recovery and rights of set-off of any kind, against any person or entity,
including without limitation any liens, security interests, pledges or other
rights to payment or to enforce payment in connection with products of the
Business delivered by Seller on or prior to the Closing Date and solely related
to the Assets;
but excluding therefrom the Excluded Assets.
"Balance Sheet" shall mean the unaudited balance sheet of the Business
-------------
at June 30, 1997, together with the notes thereon.
"Balance Sheet Date" shall mean June 30, 1997.
------------------
"Billable Backlog" shall mean, as to the Contracts, funded contract
----------------
value amounts, less cumulative amounts billed to date.
"Books and Records" shall mean (a) all records and lists of Seller
-----------------
pertaining to the Assets, (b) all files (including without limitation all bids,
proposals and related correspondence), books, records and lists pertaining to
the Business, customers, suppliers or personnel of Seller, (c) all product,
business and marketing plans of Seller related to the Business, (d) books of
account and accounting related to the Business, and (e) all books, ledgers,
files, reports, plans, drawings and operating records of every kind maintained
by Seller related to the Business, but excluding the originals of Seller's
minute books, stock books and tax returns.
"Business" shall mean the Seller's business of the Whittaker
--------
Electronic Systems Division, including, but not limited to, the Command and
Control Systems, Wideband Secure Voice Encryption, Shortstop Electronic
Protection System, Tactical Ballistic Missile Early Warning System, Maritime
Electronic Warfare Support Group, High Power Amplifier, Modular Threat Emitter,
Data Manager, Spares and Repairs and ILS product lines and German Air Force
support services.
"Closing Date" shall mean the fifth business day after permission to
------------
consummate the transaction contemplated hereby is granted by the Federal Trade
Commission pursuant to the HSR Act, or such other date as Buyer and Seller shall
mutually agree upon.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
----
the rules and regulations thereunder.
3
<PAGE>
"Confidentiality Agreement" shall mean that certain Confidentiality
-------------------------
Agreement dated April 18, 1997 by and between NationsBanc Capital Markets, Inc.,
as representative of Seller, and Buyer.
"Contract" shall mean any agreement, contract, note, loan, evidence of
--------
indebtedness, purchase, order, letter of credit, indenture, security or pledge
agreement, franchise agreement, undertaking, practice, covenant not to compete,
employment agreement, license, instrument, obligation or commitment to which
Seller is a party or is bound and which relates to the Business or the Assets,
whether oral or written, including without limitation any Government Contracts
or Foreign Government Contracts, but excluding all leases.
"Contract Rights" shall mean all of Seller's rights (including
---------------
Unbilled Receivables and Billable Backlog) and obligations under the Contracts
and Facility Leases.
"Copyrights" shall mean registered copyrights, copyright applications
----------
and unregistered copyrights.
"Court Order" shall mean any judgment, decision, consent decree,
-----------
injunction, ruling or order of any federal, state or local court or governmental
agency, department or authority that is binding on any person or its property
under applicable law.
"Default" shall mean (1) a breach of or default under any Contract or
-------
Facility Lease, (2) the occurrence of an event that with the passage of time or
the giving of notice or both would constitute a breach of or default under any
Contract or Facility Lease, or (3) the occurrence of an event that with or
without the passage of time or the giving of notice or both would give rise to a
right of termination, renegotiation or acceleration under any Contract or
Facility Lease.
"Deutschland" shall mean Whittaker (Deutschland) GmbH, a corporation
-----------
organized under the laws of Germany.
"Disclosure Schedule" shall mean a schedule executed and delivered by
-------------------
Seller to Buyer as of the date hereof which sets forth the exceptions to the
representations and warranties contained in Article IV hereof and certain other
information called for by this Agreement, which exceptions shall make reference
to the specific representations and warranties to which they apply. Unless
otherwise specified, each reference in this Agreement to any numbered schedule
is a reference to that numbered schedule which is included in the Disclosure
Schedule.
"Encumbrance" shall mean any claim, lien, pledge, option, charge,
-----------
easement, assessment, security interest, lease, sublease, deed of trust,
mortgage, right-of-way, encroachment, building or use restriction, adverse
claim, levy, conditional sales agreement, encumbrance or other right of third
parties (including Seller or its Affiliates), whether voluntarily incurred or
arising by operation of law, and includes, without limitation, any agreement to
give any of the foregoing in the future, and any contingent sale or other title
4
<PAGE>
retention agreement or lease in the nature thereof.
"Excluded Assets", notwithstanding any other provision of this
---------------
Agreement, shall mean the following assets of Seller which are not to be
acquired by Buyer hereunder:
(a) all cash and cash equivalents held by Seller, as set forth on
Schedule 1.1(b) hereto;
(b) all Permits, to the extent not transferable;
(c) certain accounts receivable, as set forth on Schedule 1.1(b)
hereto;
(d) certain claims related to the Contracts, as set forth on Schedule
1.1(b) hereto;
(e) all claims, causes of action, choses in action, rights of recovery
and rights of set-off of any kind, against any person or entity, including
without limitation any liens, security interests, pledges or other rights to
payment or to enforce payment in connection with products of the Business
delivered by Seller on or prior to the Closing Date but not related to the
Assets;
(f) all claims, causes of action, choses in action, rights of recovery
and rights of set-off of any kind against any person or entity to the extent
related to the Excluded Liabilities; and
(g) certain other assets, as set forth on Schedule 1.1(b) hereto.
"Facilities" shall mean all plants, offices, manufacturing facilities,
----------
stores, warehouses, improvements, administration buildings, and all real
property and related facilities which are identified or listed on Schedule
4.5(a).
"Facility Leases" shall mean all of the leases of Facilities listed on
---------------
Schedule 4.5(b).
"Fixtures and Equipment" shall mean all of the furniture, fixtures,
----------------------
furnishings, machinery, automobiles, trucks, spare parts, supplies, equipment,
tooling, molds, patterns, dies and other tangible personal property owned by
Seller and used in connection with the Business, wherever located and including
any such Fixtures and Equipment in the possession of any of Seller's suppliers,
including all warranty rights with respect thereto.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
-------
of 1976, as amended, and the rules and regulations thereunder.
"Insurance Policies" shall mean the insurance policies related to the
------------------
Assets as
5
<PAGE>
previously delivered to the Buyer.
"Inventory" shall mean all of Seller's inventory held for resale and
---------
all of Seller's raw materials, work in process, finished products, wrapping,
supply and packaging items and similar items with respect to the Business, in
each case wherever the same may be located.
"Leased Real Property" shall mean all leased property described in the
--------------------
Facility Leases.
"Leasehold Estates" shall mean all of Seller's rights and obligations
-----------------
as lessee under the Facility Leases.
"Liabilities" shall mean any direct or indirect liability,
-----------
indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or
endorsement of or by any person of any type, whether accrued, absolute,
contingent, matured, unmatured or other.
"Material adverse effect" or "material adverse change" shall mean
----------------------- -----------------------
with respect to the Business or the Assets any material adverse effect or change
in the financial condition, business, results of operations, or operations of
the Business and/or the Assets or on the ability of Seller to consummate the
transactions contemplated hereby, or any event or condition which would, with
the passage of time, constitute a "material adverse effect" or "material adverse
change."
"Ordinary course of business" or "Ordinary course" or any similar
--------------------------- ---------------
phrase shall mean the ordinary course of the Business and consistent with
Seller's past practice.
"Patents" shall mean all patents and patent applications and
-------
registered design and registered design applications.
"Permits" shall mean all licenses, permits, franchises, approvals,
-------
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state or local, or any other person,
necessary or desirable for the past, present or anticipated conduct of, or
relating to the operation of the Business.
"Proprietary Rights" shall mean all of Seller's Copyrights, Patents,
------------------
Trademarks, technology rights and licenses, computer software (including without
limitation any source or object codes therefor or documentation relating
thereto), trade secrets, franchises, know-how, inventions, designs,
specifications, plans, drawings and intellectual property rights related to the
Business and to be transferred to Buyer pursuant to this Agreement.
"Regulations" shall mean any laws, statutes, ordinances, regulations,
-----------
rules, notice requirements, court decisions, agency guidelines, principles of
law and orders of any foreign, federal, state or local government and any other
governmental department or agency, including without limitation Environmental
Laws, energy, public utility, occupational safety and health and
6
<PAGE>
laws respecting employment practices, employee documentation, terms and
conditions of employment and wages and hours.
"Representative" shall mean any officer, director, principal,
--------------
attorney, agent, employee or other representative.
"Tax" shall mean any federal, state, local, foreign or other tax,
---
levy, impost, fee, assessment or other government charge, including without
limitation income, estimated income, business, occupation, franchise, property,
payroll, personal property, sales, transfer, use, employment, commercial rent,
occupancy, franchise or withholding taxes, and any premium, including without
limitation interest, penalties and additions in connection therewith.
"Trademarks" shall mean registered trademarks, registered service
----------
marks, trademark and service mark applications and unregistered trademarks and
service marks.
"Unbilled Receivables" shall mean amounts cumulatively recognized as
--------------------
revenue in accordance with generally accepted accounting principles, less
amounts billed.
1.2 Other Defined Terms. The following terms shall have the meanings
-------------------
defined for such terms in the Sections set forth below:
Term Section
---- -------
Assumed Liabilities 2.2
Assumption Document 3.2(b)
August Statement 6.10(a)
Claim 10.4(c)
Claim Notice 10.4(c)
Closing 3.1
Closing Date Adjustment 6.10
Closing Date Estimate 6.10(a)
Closing Date Statement 6.10(b)
Consultant 6.4(b)
Damages 10.4(a)
Environmental Conditions 4.27(a)
Environmental Laws 4.27(a)
ERISA Affiliate 4.29(c)
ERISA Plans 4.29(a)
Excluded Liabilities 2.3
Financial Data 4.10
Foreign Government Contract 4.6(a)
Government Contract 4.6(a)
Hazardous Substance 4.27(a)
May Statement 6.10
7
<PAGE>
PCB 4.27(d)
Plans 4.29(a)
Projections 4.11
Proposed Acquisition Transaction 6.2(a)
Proposition 65 4.27(b)
Purchase Price 2.4
Release 4.27(a)
Rehired Employees 6.6(a)
SPD 4.29(b)
WARN Act 4.28
ARTICLE II
PURCHASE AND SALE OF ASSETS
----------------------------
2.1 Transfer of Assets. Upon the terms and subject to the conditions
------------------
contained herein, at the Closing, Seller will sell, convey, transfer, assign and
deliver to Buyer, and Buyer will acquire from Seller, the Assets, free and clear
of all Encumbrances.
2.2 Assumption of Liabilities. Upon the terms and subject to the
-------------------------
conditions contained herein, as partial consideration of the consummation of the
transactions contemplated herein, at the Closing, Buyer shall assume and agrees
to thereafter perform and discharge only the Liabilities of Seller (the "Assumed
-------
Liabilities") listed on Schedule 2.2 or accruing, arising out of, or relating to
- ------------
events or occurrences happening after the Closing Date under the Contracts and
the Facility Leases listed on Schedule 1.1.
2.3 Excluded Liabilities. Notwithstanding any other provision of this
--------------------
Agreement, except for the Assumed Liabilities expressly specified in Section
2.2; Buyer shall not assume, or otherwise be responsible for, any Liabilities of
Seller, whether liquidated or unliquidated, or known or unknown, whether arising
out of occurrences prior to, at or after the date hereof with respect to the
Business or otherwise ("Excluded Liabilities"), which Excluded Liabilities
----------------------
include, without limitation:
(a) Any Liability to or in respect of any employees or former
employees of Seller including without limitation (i) any employment agreement,
whether or not written, between Seller and any person, except as listed on
Schedule 2.2, (ii) any Liability under any Employee Plan at any time maintained,
contributed to or required to be contributed to by or with respect to Seller or
under which Seller may incur Liability, or any contributions, benefits or
Liabilities therefor, or any Liability with respect to Seller's withdrawal or
partial withdrawal from or termination of any Employee Plan and (iii) any claim
of an unfair labor practice, or any claim under any state unemployment
compensation or worker's compensation law or regulation or under any federal or
state employment discrimination law or regulation, which shall have been
asserted on or prior to the Closing Date or is based on acts or omissions which
occurred
8
<PAGE>
on or prior to the Closing Date;
(b) Any Liability of Seller in respect of any Tax;
(c) Any Liability with respect to the Business arising from any
injury to or death of any person or damage to or destruction of any property,
whether based on negligence, breach of warranty, strict liability, enterprise
liability or any other legal or equitable theory arising from products
manufactured or from services performed by or on behalf of Seller or any other
person or entity on or prior to the Closing Date;
(d) Any Liability of Seller with respect to the Business arising out
of or related to any Action against Seller or any other Action which adversely
affects the Assets or the Business and which shall have been asserted on or
prior to the Closing Date or which shall be based upon events occurring on or
prior to the Closing Date;
(e) Any Liability of Seller with respect to the Business resulting
from entering into, performing its obligations pursuant to or consummating the
transactions contemplated by, this Agreement (including without limitation any
Liability of Seller pursuant to Article X hereof);
(f) Any Liability of Seller with respect to the Business resulting
from any product warranty, guaranty or other agreement, understanding or
promise, related to service, repair or maintenance with respect to products
manufactured or services performed on or prior to the Closing Date;
(g) Any Liability accruing, arising out of, or relating to events or
occurrences happening on or prior to the Closing Date under the Contracts and
Facility Leases; and
(h) Any Liability of Seller with respect to violations of
Environmental Laws occurring prior to the Closing Date or Environmental
Conditions existing at the Closing Date.
2.4 Purchase Price. At the Closing, upon the terms and subject to the
--------------
conditions set forth herein, Buyer shall pay to Seller for the sale, transfer,
assignment, conveyance and delivery of the Assets and Seller's execution and
delivery of an Agreement Not to Compete, the aggregate amount of $20,000,000
(the "Purchase Price"), by wire transfer of immediately available funds to an
----------------
account designated by Seller and shall assume, and thereafter perform and
discharge, the Assumed Liabilities pursuant to this Agreement. The Purchase
Price shall be allocated among the Assets in the manner required by Section 1060
of the Code and regulations thereunder. Buyer and Seller agree to each prepare
and file on a timely basis with the Internal Revenue Service substantially
identical initial and supplemental Internal Revenue Service Forms 8594 "Asset
Acquisition Statements Under Section 1060" consistent with such allocation of
the Purchase Price.
2.5 Closing Costs: Transfer Taxes and Fees. Except as set forth in Section
--------------------------------------
10.6,
9
<PAGE>
Seller shall be responsible for any documentary and transfer taxes and any
sales, use or other taxes imposed by reason of the transfers of Assets provided
hereunder and any deficiency, interest or penalty asserted with respect thereto.
Buyer shall pay the fees and costs of recording or filing all applicable
conveyancing instruments described in Section 3.2(a). Buyer shall pay all costs
of applying for new Permits and obtaining the transfer of existing Permits which
may be lawfully transferred.
ARTICLE III
CLOSING
-------
3.1 Closing. The Closing of the transactions contemplated herein (the
-------
"Closing") shall be held at 8:00 a.m. local time on the Closing Date at the
offices of Latham & Watkins, 633 W. Fifth Street, Los Angeles, California,
unless the parties hereto otherwise agree.
3.2 Conveyances at Closing.
----------------------
(a) Instruments and Possession. To effect the sale and transfer
--------------------------
referred to in Section 2.1 hereof, Seller will, at the Closing, execute and
deliver to Buyer:
(i) one or more bills of sale, conveying in the aggregate all
of Seller's owned personal property included in the Assets;
(ii) subject to Section 9.2, a Sublease and Assignment of Leases
with respect to the Facility Leases;
(iii) subject to Section 9.2, Assignments of Contract Rights,
with respect to the Contract Rights;
(iv) Assignments of Patents and Trademarks and other Proprietary
Rights (including an assignment of all of Seller's rights, title and interest to
the Proprietary Rights with respect to the Business, and all variations thereof)
in recordable form to the extent necessary to assign such rights;
(v) certificates of the California Secretary of State as to the
good standing of Whittaker and Services certifying as to the corporate status of
such companies in the State of California, together with certificates of the
California Franchise Tax Board as to each such company, each dated no later than
five days prior to the Closing Date;
(vi) a certificate of the Delaware Secretary of State certifying
as to the corporate status of Whittaker in the State of Delaware, dated no later
than five days prior to the Closing Date; and
10
<PAGE>
(vii) such other instruments as shall be requested by Buyer to vest in
Buyer title in and to the Assets in accordance with the provisions hereof.
(b) Assumption Document. Upon the terms and subject to the conditions
-------------------
contained herein, at the Closing Buyer shall deliver to Seller an instrument of
assumption evidencing Buyer's assumption, pursuant to Section 2.2, of the
Assumed Liabilities (the "Assumption Document").
-------------------
(c) Form of Instruments. All Ancillary Agreements and documents
-------------------
relating to the transfer of the Assets shall be in form and substance, and shall
be executed and delivered in a manner, reasonably satisfactory to both Buyer and
Seller.
(d) Certificates: Opinions. Buyer and Seller shall deliver the
----------------------
certificates, opinions of counsel and other matters described in Articles VII
and VIII.
(e) Consents. Subject to Section 9.2, Seller shall deliver all Permits
--------
and any other third party consents required for the valid transfer of the Assets
as contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller hereby represents and warrants to Buyer as follows, except as
otherwise set forth on the Disclosure Schedule (which Disclosure Schedule will,
when qualifying a representation of warranty, refer to the Section number of the
representation or warranty so qualified), which representations and warranties
are, as of the date hereof, and will be, as of the Closing Date, true and
correct:
4.1 Organization of Seller.
----------------------
(a) Whittaker is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware with all requisite
corporate power and authority to conduct the Business as it is presently being
conducted and to own, lease and operate its properties and assets. Whittaker is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the properties owned, leased and
operated by it or the nature of its activities make such qualification
necessary. Schedule 4.1 contains a true, correct and complete list of all
jurisdictions in which Whittaker is qualified to do business as a foreign
corporation.
(b) WCL is a private company duly organized, validly existing and in
good standing under the laws of England and Wales, with all requisite corporate
power to conduct the Business as it is presently being conducted and to own,
lease and operate its properties and
11
<PAGE>
assets.
(c) Services is a corporation duly organized, validly existing and in
good standing under the laws of the State of California with all requisite
corporate power and authority to conduct the Business as it is presently being
conducted and to own, lease and operate its properties and assets. Services is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the properties owned, leased and
operated by it or the nature of its activities make such qualification
necessary. Schedule 4.1 contains a true, correct and complete list of all
jurisdictions in which Services is qualified to do business as a foreign
corporation.
(d) Deutschland is a corporation duly organized under the laws of
Germany, with the requisite power to issue its stock. Deutschland has no assets
(other than its initial capitalization) or liabilities and has not conducted any
business or commenced any operations.
Copies of the Certificate of Incorporation and Bylaws of Whittaker and
Services, the Memorandum and Articles of Association of WCL, and the
organizational documents of Deutschland, and all amendments thereto, heretofore
delivered to Buyer are accurate and complete as of the date hereof, and will be
accurate and complete as of the Closing.
4.2 Authorization. Seller has all requisite corporate power and authority,
-------------
and has taken all corporate action necessary, to execute and deliver this
Agreement and the Ancillary Agreements, to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Ancillary
Agreements by Seller and the consummation by Seller of the transactions
contemplated hereby and thereby have been duly approved by the board of
directors and shareholders of Seller. No other corporate proceedings on the part
of Seller are necessary to authorize this Agreement and the Ancillary Agreements
and the transactions contemplated hereby and thereby. This Agreement has been
duly executed and delivered by Seller and is, and, upon execution and delivery,
the Ancillary Agreements will be, legal, valid and binding obligations of each
Seller enforceable against each of them in accordance with their terms.
4.3 No Material Adverse Change. (a) Except as reflected in the Balance
--------------------------
Sheet and as set forth in Schedule 4.3, since February 2, 1997:
(i) there has been no actual or threatened adverse change in the
financial condition or results of operation of the Business or the Assets or any
event, condition or state of facts, in either case that, individually or in the
aggregate, could reasonably be expected to result in a material adverse change
in the Assets or the Business or the prospects for the Business;
(ii) there has not been any sale or other disposition of any of
the Assets, except for sales of inventory in the ordinary course of business, or
any damage to or destruction of any of the Assets, or any Encumbrance placed on
any of the Assets;
12
<PAGE>
(iii) Seller has operated the Business in the ordinary course so
as to preserve the Business intact, to keep available to the Business the
services of Seller's employees, and to preserve the Business and the goodwill of
Seller's suppliers, customers, distributors and others having business relations
with it;
(iv) Seller has not written down or written off as uncollectible
any Accounts Receivable, including without limitation any Accounts Receivable
pertaining to Government Contracts;
(v) Seller has not forgiven or cancelled any debts or claims or
waived any rights, except in the ordinary course of business and in an amount
not material, individually or in the aggregate, to the Business;
(vi) Seller has not entered into any transaction or agreement,
or incurred any liability, with respect to the Business not in the ordinary
course of business consistent with past practice; and
(vii) agreed, whether in writing or otherwise, to take any action
described in this Section 4.3.
(b) Except as previously disclosed to Buyer:
(i) Seller has not granted any increase in the compensation or
benefits of any employee, officer, director or agent of the Business, except
increases in the ordinary course of business consistent with past practice, or
incurred any further employment obligations or commitments; and
(ii) Seller has not made any change in any severance policy or
practices with respect to any employee of the Business.
4.4 Assets. Excluding the Leased Real Property, at the Closing Seller will
------
transfer good and marketable title to the Assets and upon the consummation of
the transactions contemplated hereby, Buyer will acquire good and marketable
title to all of the Assets, free and clear of any Encumbrances. The Assets
include without limitation all assets necessary for the conduct of the Business
as presently conducted. All tangible assets and properties which are part of the
Assets are in good operating condition and repair and are usable in the ordinary
course of business and conform in all material respects to all applicable
Regulations (including Environmental Laws) relating to their construction, use
and operation. Seller has previously provided to Buyer a true and correct list
of all Assets related to the Business which are to be purchased by Buyer in
accordance with the terms and conditions hereof.
4.5 Facilities.
----------
(a) Actions. There are no pending, or, to the best knowledge of the
-------
Seller,
13
<PAGE>
threatened, condemnation, eminent domain or special assessments, Actions or
similar proceedings that would affect all or any portion of the Leased Real
Property or otherwise relating to any Facility identified on Schedule 4.5(a).
(b) Leases or Other Agreements. The Facilities are the only
--------------------------
facilities used in connection with the Business as presently operated, and all
of such Facilities are leased pursuant to the Facility Leases. Except for the
Facility Leases listed on Schedule 4.5(b), there are no leases, subleases,
licenses, occupancy agreements, options, rights, concessions or other agreements
or arrangements, written or oral, granting to any person the right to purchase,
use or occupy any Facility, or any real property in connection with the Business
or any portion thereof or interest in any such Facility or real property. Each
of the Facility Leases is legal, valid and binding and in full force and effect
without any material default or breach thereof by Seller or, to the best
knowledge of the Seller, any other party thereto. True and complete copies of
the Facility Leases (including all amendments, addenda, waivers and all other
binding documents related thereto) have been delivered to Buyer.
(c) Facility Leases and Leased Real Property. Except as set forth on
----------------------------------------
Schedule 4.5(c), there are no restrictions, prohibitions or limitations on the
ability to assign, transfer, or otherwise convey or dispose of the Seller's
interest under any of the Facility Leases. With respect to each Facility Lease,
Seller has and will transfer to Buyer at the Closing an unencumbered interest in
the Leasehold Estate. Seller enjoys peaceful and undisturbed possession of all
the Leased Real Property, subject to the rights of the fee owners.
(d) Utilities. All Facilities are supplied with utilities (including
---------
without limitation water, sewage, disposal, electricity, gas and telephone) and
other services which are required for the operation of such Facilities as
currently operated, and there is no condition which would reasonably be expected
to result in the termination of the present access from any Facility to such
utility services. All installation and connection charges with respect to such
utilities have been paid in full or provided for.
(e) Improvements, Fixtures and Equipment. The improvements
------------------------------------
constructed on the Facilities, including without limitation all Leasehold
Improvements, and all Fixtures and Equipment and other tangible assets owned,
leased or used by Seller at the Facilities are (i) insured to the extent and in
a manner customary in the industry, (ii) structurally sound with no known
material defects, (iii) in good operating condition and repair, subject to
ordinary wear and tear, (iv) not in need of maintenance, repair or correction
except for ordinary routine maintenance and repair, the cost of which would not
be material, (v) sufficient for the operation of the Business as presently
conducted and (vi) in conformity in all material respects with all applicable
Regulations. Seller has previously delivered to Seller a list setting forth a
brief description of each item of Equipment, indicating in each case the
original book basis thereof, the year of original book basis, the accumulated
book depreciation and any Encumbrances to which such Equipment is subject.
(f) No Other Notices. Seller has not received any notice, that would,
----------------
if not
14
<PAGE>
corrected, result in the termination of insurance coverage or an increase in the
cost thereof, of (i) any requirements by any insurance company that has issued a
policy covering any part of any Leased Real Property or by any board of fire
underwriters or other body exercising similar functions, requiring any repairs
or work to be done on any part of any Leased Real Property or (ii) any defects
or inadequacies in, on or about any part of the Leased Real Property.
(g) Access. Each parcel of Leased Real Property is located adjacent
------
to public roads or streets with adequate ingress and egress available for all
purposes related to the operations of the Business.
4.6 Contracts and Commitments.
-------------------------
(a) Contracts. Schedule 4.6(a) sets forth a complete and accurate
---------
list of all Contracts of the following categories:
(i) Contracts not made in the ordinary course of business;
(ii) Employment contracts, retention agreements and severance
agreements with respect to the Business, including without limitation Contracts
(A) to employ or terminate executive officers or other personnel and other
contracts with present officers, directors or shareholders of Seller or (B) that
will result in the payment by, or the creation of any Liability to pay on behalf
of Buyer or Seller any severance, termination, "golden parachute," or other
similar payments to any present or former personnel following termination of
employment or otherwise as a result of the consummation of the transactions
contemplated by this Agreement;
(iii) Labor or union contracts with respect to the Business;
(iv) Distribution, franchise, license, technical assistance,
sales, commission, consulting, agency or advertising contracts related to the
Assets or the Business;
(v) Options with respect to any property related to the
Business, real or personal, whether Seller shall be the grantor or grantee
thereunder;
(vi) Contracts involving future expenditures or Liabilities,
actual or potential, in excess of $10,000 or otherwise material to the Business
or the Assets and not cancelable (without Liability) within 30 calendar days;
(vii) Promissory notes, loans, agreements, indentures, evidences
of indebtedness, letters of credit, guarantees, performance bonds, or other
instruments relating to an obligation to pay money, individually in excess of or
in the aggregate in excess of $10,000 relating to the Business, whether Seller
shall be the borrower, lender or guarantor thereunder or whereby any Assets are
pledged (excluding credit provided
15
<PAGE>
by Seller in the ordinary course of business to purchasers of its
products);
(viii) Contracts containing covenants limiting the freedom of Seller
or any officer, director or shareholder of Seller, to engage in any line of
business significantly similar to the Business or compete with any person
relating to the Business, or imposing an obligation of secrecy or
confidentiality on any such person relating to the Business, excluding
confidentiality agreements with other potential purchasers of the Business
entered into prior to the date of this Agreement;
(ix) Any Contract or subcontract of a Contract with the United
States, state or local government or any agency or department thereof
relating to the Business, including without limitation any contract
involving or requiring an industrial or governmental security clearance
(each a "Government Contract");
-------------------
(x) Any Contract or subcontract of a Contract with the a sovereign
government excluding the United States, or any agency or department thereof
relating to the Business, including without limitation any contract
involving or requiring an industrial or governmental security clearance
(each a "Foreign Government Contract");
---------------------------
(xi) Leases of real property related to the Business;
(xii) Leases of personal property related to the Business not
cancelable (without Liability) within 30 calendar days;
(xiii) all partnership, joint venture, profit-sharing or similar
contracts with any Person related to the Business;
(xiv) all contracts relating to the future disposition or acquisition
by the Business of any assets or properties or of any interest in any
business enterprise (other than the disposition or acquisition of any of
the foregoing in the ordinary course of business);
(xv) all contracts for the provision of administrative or managerial
services by or for the Business provided by or to any other person; and
(xvi) any contract or order for the sale of goods or the performance
of services to which the Seller is a party which, if performed, in
accordance with its terms, could only be performed with a gross margin of
25 % or less, or which when actually performed will result in an obligation
to pay damages or penalties.
Seller has made available to Buyer true, correct and complete copies of all
of the Contracts listed on Schedule 4.6(a), including all amendments and
supplements thereto, and accurate descriptions of all material terms of any oral
Contracts. Seller has delivered to Buyer estimates of cost to complete for
Contracts with a value of $500,000 or more or with a period
16
<PAGE>
of performance greater than one year which are true and correct in all material
respects.
(b) Absence of Defaults. All of the Contracts and Facility Leases to
-------------------
which Seller is party or by which it or any of the Assets is bound or affected
are in full force and effect and valid, binding and enforceable in accordance
with their terms. Seller has fulfilled, or taken all action necessary to enable
it to fulfill when due, all of its material obligations under each of such
Contracts and Facility Leases, and is not behind any performance time schedule
imposed on Seller by any such Contract or a Facility Lease with a value in
excess of $100,000, which has not been excused or waived without additional cost
or penalty, except as set forth on Schedule 4.6(b). All parties to such
Contracts and Facility Leases have complied in all material respects with the
provisions thereof, no party is in Default thereunder and no notice of any claim
of Default has been given to Seller. Seller has no reason to believe that the
products and services called for by any unfinished Contract cannot be supplied
in accordance with the terms of such Contract, including time specifications,
and has no reason to believe that any unfinished Contract will upon performance
by Seller result in a loss to Seller. With respect to any Facility Leases,
Seller has not received any notice of cancellation or termination under any
option or right reserved to the lessor, or any notice of Default, thereunder.
Except as set forth in Schedule 4.6(b), the enforceability and terms of any
Contract will not be affected in any manner by the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby, and
no consents are required to transfer any such Contracts to Buyer.
(c) Product Warranty. Except as set forth on Schedule 4.6(c), Seller
----------------
has committed no act, and there has been no omission, which may result in, and
there has been no occurrence which may give rise to, product liability or
Liability for breach of warranty (whether covered by insurance or not) on the
part of Seller, with respect to products designed, manufactured, assembled,
repaired, maintained, delivered or installed or services rendered prior to or on
the Closing Date.
4.7 Government Contracts and Foreign Government Contracts. (a) With
-----------------------------------------------------
respect to the Government Contracts:
(i) Except as set forth in Schedule 4.7, no Government
Contract of a value greater than $100,000 was entered into with the anticipation
that such contract would result in a negative gross margin of greater than
$100,000 upon completion or performance thereof, nor are any such Government
Contracts currently expected to result in any such negative gross margin, other
than as reflected on Schedule 1.1(c), and for all Government Contracts with a
value less than $100,000 with a negative gross margin, the aggregate of such
negative gross margins will not exceed $100,000;
(ii) Except as set forth in Schedule 4.7, the Seller has made,
in a timely and proper fashion, any and all claims to which it may be entitled
and all appeals necessary to preserve its rights in connection with all
Government Contracts;
(iii) Set forth in Schedule 4.7 is a list and description of
each
17
<PAGE>
outstanding bid and sales or service proposal relating to any Government
Contract. All such bids and proposals were extended in the normal and ordinary
course of the Seller's business, and no such bid or proposal was entered into
with the anticipation that it would result in a loss upon completion or approval
thereof;
(iv) Set forth in Schedule 4.7 is a list of any open inquiries,
investigations, disputes or controversies with respect to any Government
Contracts;
(v) There has been no collusive bidding, defective pricing,
improper time or expense charging, conflicts of interest, payment of gratuities,
or undisclosed product substitution, no notice has been received of any non-
compliance or improper treatment of unallowable costs with respect to any
Government Contract, and all statements, claims and certifications made in
connection with any Government Contract were true, and accurate and complete
when made, except as set forth on Schedule 4.7;
(vi) All certificates submitted in connection with a proposal
for, award of, or performance of any Government Contract were correct when
submitted;
(vii) There is no Lien, except for progress payment Liens, on
any of the Assets that has arisen from a Government Contract; and
(viii) The values of all Government Contracts are fully funded.
(b) With respect to Foreign Government Contracts:
(i) Except as set forth in Schedule 4.7, no Foreign Government
Contract of a value greater than $100,000 was entered into with the anticipation
that such contract would result in a negative gross margin of greater than
$100,000 upon completion or performance thereof, nor are any such Foreign
Government Contracts currently expected to result in any such negative gross
margin, other than as reflected on Schedule 1.1(c), and for all Foreign
Government Contracts of a value less than $100,000 with a negative gross margin,
the aggregate of the negative gross margins will not exceed $100,000;
(ii) Except as set forth in Schedule 4.7, the Seller has made,
in a timely and proper fashion, any and all claims to which it may be entitled
and all appeals necessary to preserve its rights in connection with all Foreign
Government Contracts;
(iii) Set forth in Schedule 4.7 is a list and description of
each outstanding bid and sales or service proposal relating to any Foreign
Government Contract. All such bids and proposals were extended in the normal and
ordinary course of the Seller's business, and no such bid or proposal was
entered into with the anticipation that it would result in a loss upon
completion or approval thereof;
(iv) Set forth in Schedule 4.7 is a list of any open inquiries,
18
<PAGE>
investigations, disputes or controversies with respect to any Foreign Government
Contracts;
(v) There has been no collusive bidding, conflicts of
interest, payment of gratuities, or undisclosed product substitution, no notice
has been received of any noncompliance with respect to any Foreign Government
Contract, and all statements, claims and certifications made in connection with
any Foreign Government Contract were true, and accurate and complete when made,
except as set forth on Schedule 4.7;
(vi) All certificates submitted in connection with a proposal
for, award of, or performance of any Foreign Government Contract were correct
when submitted;
(vii) The values of all Foreign Government Contracts are fully
funded; and
(viii) In entering into any Foreign Government Contracts, Seller
has not violated the Foreign Corrupt Practices Act.
(c) Seller has previously delivered to Buyer computer printouts
containing information regarding the Billable Backlog and Unbilled Receivables
with respect to the Business. Such information was complete and accurate as of
its date.
4.8 Permits.
-------
(a) Schedule 4.8 lists all of Seller's Permits related to the conduct
of the Business or the operation of the Assets. Seller has, and at all times has
had, all material Permits required under any Regulation (including Environmental
Laws) with respect to the operation of its Business or the ownership, use and
operation of the Assets, and owns or possesses such Permits free and clear of
all Encumbrances. Seller is not in Default, nor has it received any notice of
any claim of Default, nor is any audit, investigation or other review pending to
determine the existence of any Default, with respect to any such Permit. Except
as otherwise governed by law, all such Permits are renewable by their terms or
in the ordinary course of business without the need to comply with any special
qualification procedures or to pay any amounts other than routine filing fees
and, except as set forth on Schedule 4.8, may be assigned to Buyer and will not
be materially adversely affected by the completion of the transactions
contemplated by this Agreement. No present or former shareholder, director,
officer or employee of Seller or any affiliate thereof, or any other person,
firm, corporation or other entity, owns or has any proprietary, financial or
other interest (direct or indirect) in any Permit which Seller owns, possesses
or uses.
(b) Other than in connection with or in compliance with the
provisions of the HSR Act, and except as disclosed on Schedule 4.8 hereto, no
notice to, authorization, consent or approval of, declaration, filing or
registration with, or Permit from, any domestic or foreign governmental or
regulatory body or authority, or any other person or entity including any
private third party, is required to be made or obtained by Seller in connection
with the execution,
19
<PAGE>
delivery or performance of this Agreement, the transfer of the Assets to Buyer,
and the consummation of the transactions contemplated hereby.
4.9 No Conflict or Violation. Except as set forth on Schedule 4.9, Neither
------------------------
the execution, delivery or performance of this Agreement nor the consummation of
the transactions contemplated hereby, nor compliance by Seller with any of the
provisions hereof, will (a) violate or conflict with or result in any breach of
any provision of the charter or bylaws of Seller, (b) violate, conflict with, or
result in or constitute (with or without due notice or lapse of time or both) a
Default under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration under, or
result in the creation of any Encumbrance upon any of the Assets under, any of
the terms, conditions or provisions of any Contract, Facility Lease or Permit,
(i) to which Seller is a party or (ii) by which the Assets are bound, (c)
violate any Regulation or Court Order, (d) impose any Encumbrance on the Assets
or the Business, except in the case of each of clauses (b) and (d) above, for
such violations, Defaults, terminations, accelerations or creations of
Encumbrances which, in the aggregate would not have a material adverse effect on
the Assets, the Business or on the ability of Seller to consummate the
transactions contemplated hereby.
4.10 Balance Sheet. Seller has heretofore delivered to Buyer a complete and
-------------
accurate copy of the Balance Sheet and revenue, direct material cost and direct
labor cost data for the past three fiscal years related solely to the Business
(the "Financial Data"). The Balance Sheet and the Financial Data (a) are in
--------------
accordance with the books and records of Seller and (b) have been prepared in
accordance with generally accepted accounting principles. The Balance Sheet
fairly and accurately presents the assets, Liabilities (including all reserves)
and financial position of the Business as of the Balance Sheet Date. The
Financial Data fairly and accurately presents the revenue data, direct material
cost data and direct labor cost data for the last three fiscal years. The
Balance Sheet does not include any assets not included in the Assets and the
Financial Data does not reflect revenues or costs of businesses or products not
included in the Business.
4.11 Projections. Seller has previously delivered to Buyer summary
-----------
projected income statements for each of the product lines of the Business (the
"Projections"). No facts have come to the attention of Seller which would, in
- ------------
Seller's opinion, require Seller to revise or modify the Projections, their
underlying assumptions or other estimates or conclusions derived from such
assumptions.
4.12 Books and Records. Seller has made and kept (and given Buyer access
-----------------
to) Books and Records and accounts with respect to the Business, which, in
reasonable detail, accurately and fairly reflect the activities of Seller.
4.13 Litigation. Except as set forth on Schedule 4.13, there are no Actions
----------
pending, or to the best of Seller's knowledge, threatened or anticipated (a)
against, related to or affecting the Business or the Assets (including with
respect to Environmental Laws), (b) seeking to delay, limit or enjoin the
transactions contemplated by this Agreement, or (c) that involve the risk of
20
<PAGE>
criminal liability. Seller is not in Default with respect to or subject to any
Court Order, and there are no unsatisfied judgments against the Business or the
Assets. There is not a reasonable likelihood of an materially adverse
determination of any pending Actions. There are no Court Orders or agreements
with, or liens by, any governmental authority or quasi-governmental entity
relating to any Environmental Law which regulate, obligate, bind or in any way
affect the Business or the use or operation of the Assets. Except as set forth
on Schedule 4.13, there is no Action initiated by Seller which is currently
pending, or which Seller presently intends to initiate, which relate to the
Business or the use or the operation of the Assets.
4.14 Liabilities. Other than Excluded Liabilities and except as set forth
-----------
on Schedule 4.14, and solely with respect to the Business, Seller has no
material Liabilities due or to become due, except (a) Liabilities which are set
forth or reserved for on the Balance Sheet, which have not been paid or
discharged since the Balance Sheet Date, (b) Liabilities arising in the ordinary
course of business under Contracts, Facility Leases, Permits and other business
arrangements described in Schedule 4.14 (and under those Contracts, Facility
Leases and Permits which are not required to be disclosed on Schedule 4.14) and
(c) Liabilities incurred since the Balance Sheet Date in the ordinary course of
business and in accordance with this Agreement (none of which relates to any
Default under any Contract or Facility Lease, breach of warranty, tort,
infringement or violation of any Regulation or Court Order or arose out of any
Action) and none of which, individually or in the aggregate, has or would have a
material adverse effect on the Business or the Assets.
4.15 Compliance with Law. Seller in its conduct of the Business has not
-------------------
violated in any way that would have or result in a material adverse effect and
is in material compliance with all Regulations and Court Orders relating to the
Assets or the Business. Without limitation of the foregoing, Seller has not
violated any provision of the Export Administration Amendments of 1977, the
Truth In Negotiations Act, the Foreign Corrupt Practices Act of 1977, or the
Arms Export Control Act and the regulations promulgated under any of the
foregoing, all as amended. Seller has not received any notice to the effect
that, or otherwise been advised that, it is not in compliance with any such
Regulations or Court Orders, there is no pending investigation or other review
pending to determine the existence of any such lack of compliance, and Seller
has no reason to believe, and is not aware of, any existing circumstances which
are likely to result in material violations of any of the foregoing. Seller has
not received any notice of any change in any Court Order, and, to the best
knowledge of Seller, there is no, contemplated change in any Regulations that
would have a material adverse effect on the conduct of the Business or the
ownership, operation, use or maintenance of the Assets.
4.16 No Brokers. Neither Seller nor any of its officers, directors,
----------
employees, shareholders or affiliates has employed or made any agreement with
any broker, finder or similar agent or any person or firm which will result in
the obligation of Seller, Buyer or any of their respective affiliates to pay any
finder's fee, brokerage fees or commission or similar payment in connection with
the transactions contemplated hereby, except amounts owed to NationsBanc
Capital Markets, Inc. All claims of, or obligations to, NationsBanc Capital
Markets, Inc. shall be the responsibility of and shall be paid by Seller and
shall result in no
21
<PAGE>
liability to Buyer.
4.17 No Other Agreements to Sell the Assets. Neither Seller nor any of its
--------------------------------------
officers, directors, shareholders or affiliates has any commitment or legal
obligation, absolute or contingent, to any other person or firm other than the
Buyer to sell, assign, transfer or effect a sale of any of the Assets (other
than inventory in the ordinary course of business), to sell or effect a sale of
a majority of the capital stock of Seller, to effect any merger, consolidation,
liquidation, dissolution or other reorganization of Seller, or to enter into any
agreement or cause the entering into of an agreement with respect to any of the
foregoing.
4.18 Proprietary Rights.
------------------
(a) Proprietary Rights. Schedule 4.18(a) contains a true and complete
------------------
list all of the Proprietary Rights. Schedule 4.18(a) also sets forth: (i) for
each Patent, the number, normal expiration date and subject matter for each
country in which such Patent has been issued, or, if applicable, the application
number, date of filing and subject matter for each country, (ii) for each
Trademark, the application serial number or registration number, the class of
goods covered and the expiration date for each country in which a Trademark has
been registered and ((iii)) for each Copyright, the number and date of filing
for each country in which a Copyright has been filed. The Proprietary Rights
listed in Schedule 4.18(a) are all those used or necessary in connection with
the operation of the Business. All of the material Proprietary Rights are valid
and subsisting.
(b) Royalties and Licenses. Except as set forth on Schedule 4.18(b),
----------------------
Seller does not have any obligation to compensate any person for the use of any
of the Proprietary Rights nor has Seller granted to any person any license,
option or other rights to use in any manner any of the Proprietary Rights,
whether requiring the payment of royalties or not.
(c) Ownership and Protection of Proprietary Rights. Seller owns, or is
----------------------------------------------
licensed or otherwise has a valid right to use each of the Proprietary Rights
set forth on Schedule 4.18(a), and such Proprietary Rights will not cease to be
valid rights of Seller by reason of the execution, delivery and performance of
this Agreement, except as transferred to Buyer as contemplated herein. Seller
has not received any notice of invalidity or infringement of any rights of
others with respect to such Trademarks. Seller has taken all reasonable and
prudent steps to protect the Proprietary Rights from infringement by any other
person. No other person (i) has the right to use any of Seller's Trademarks on
the goods on which they are now being used either in identical form or in such
near resemblance thereto as to be likely, when applied to the goods of any such
person, to cause confusion with such Trademarks or to cause a mistake or to
deceive, (ii) has notified Seller that it is claiming any ownership of or right
to use such Proprietary Rights, or (iii) to the best of Seller's knowledge, is
infringing upon any such Proprietary Rights in any way. Seller's use of the
Proprietary Rights does not and will not conflict with, infringe upon or
otherwise violate the valid rights of any third party in or to such Proprietary
Rights, and no Action has been instituted against or notices received by Seller
that are presently outstanding alleging that Seller's use of the Proprietary
Rights infringes upon or
22
<PAGE>
otherwise violates any rights of a third party in or to such Proprietary Rights.
There are not, and it is reasonably expected that after the Closing there will
not be, any restrictions on Seller's, or Buyer's, as the case may be, right to
sell products manufactured by Seller or Buyer, as the case may be, in connection
with the Business.
4.19 Transactions with Certain Persons. No officer, director or employee of
---------------------------------
Seller nor any member of any such person's immediate family is presently, or
within the last three years has been, a party to any transaction with Seller
relating to the Business, including without limitation, any contract, agreement
or other arrangement (a) providing for the furnishing of services by, (b)
providing for the rental of real or personal property from, or (c) otherwise
requiring payments to (other than for services as officers, directors or
employees of Seller) any such person or to a corporation, partnership, trust or
other entity in which any such person has an interest as a stockholder, owner,
officer, director, trustee or partner.
4.20 Tax Matters.
-----------
(a) Filing of Tax Returns. Seller (and any affiliated group of which
---------------------
Seller is now or has been a member) has timely filed with the appropriate taxing
authorities all returns (including without limitation information returns and
other material information) in respect of Taxes required to be filed through the
date hereof and will timely file any such returns required to be filed on or
prior to the Closing Date. All of such returns in respect of Taxes are, or will
as of the date of filing, be true, complete and correct in all material
respects.
(b) Payment of Taxes. All Taxes, in respect of periods beginning
----------------
before the Closing Date, have been timely paid, or will be timely paid, or an
adequate reserve has been established therefor, and Seller does not have any
material Liability for Taxes in excess of the amounts so paid or reserves so
established.
(c) Lien. There are no liens for Taxes (other than for current Taxes
----
not yet due and payable) on the Assets.
(d) Safe Harbor Lease Property. None of the Assets is property that is
--------------------------
required to be treated as being owned by any other person pursuant to the so-
called safe harbor lease provisions of former Section 168(f)(8) of the Code.
(e) Security for Tax-Exempt Obligations. None of the Assets directly
-----------------------------------
or indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code.
(f) Tax-Exempt Use Property. None of the Assets is "tax-exempt use
-----------------------
property" within the meaning of Section 168(h) of the Code.
(g) Foreign Person. Seller is not a person other than a United States
--------------
person within the meaning of the Code.
23
<PAGE>
(h) No Withholding. The transaction contemplated herein is not subject
--------------
to the tax withholding provisions of Section 3406 of the Code, or of Subchapter
A of Chapter 3 of the Code or of any other provision of law.
4.21 Insurance. Seller has previously delivered to Buyer a complete and
---------
accurate list of all policies or binders of fire, property, liability, title,
worker's compensation, product liability and other forms of insurance (showing
as to each policy or binder the carrier, policy number, coverage limits and
expiration dates and a general description of the type of coverage provided)
maintained by Seller and pertaining to the Business, the Assets or its
employees. All insurance coverage applicable to Seller, the Business and the
Assets is in full force and effect, insures Seller in reasonably sufficient
amounts against all risks usually insured against by persons operating similar
businesses or properties of similar size in the localities where the Business
and the Assets are located, provides coverage as may be required by applicable
Regulation and by any and all Contracts to which Seller is a party and has been
issued by insurers of recognized responsibility. There is no Default under any
such coverage nor has there been any failure to give notice or present any claim
under any such coverage in a due and timely fashion. There are no outstanding
unpaid premiums except in the ordinary course of business and no notice of
cancellation or nonrenewal of any such coverage has been received. There are no
provisions in such insurance policies for retroactive or retrospective premium
adjustments. All products liability, general liability and workers' compensation
insurance policies described in the information provided by Seller to Buyer have
been occurrence policies and not claims made policies. There are no outstanding
performance bonds covering or issued for the benefit of the Seller with respect
to the Business. Except as set forth in Section 10.10 hereof, there are no
letters of credit required for the conduct of the Business as presently
conducted by Seller.
4.22 Accounts Receivable. Seller has previously delivered to Buyer a copy
-------------------
of a report that lists the aging and the amounts of all Accounts Receivable and
Unbilled Receivables of the Business as of June 30, 1997. The Accounts
Receivable and Unbilled Receivables set forth on such report (including without
limitation amounts due and uncollected under Government Contracts related to the
Business), and all such Accounts Receivable and Unbilled Receivables arising
since June 30, 1997, represent bona fide claims of Seller against debtors for
sales, services performed or other charges arising on or before the date hereof,
and all the goods delivered and services performed which gave rise to said
Accounts Receivable and Unbilled Receivables, were delivered or performed in the
ordinary course of business and in accordance with the terms of applicable
orders, Contracts or customer requirements. Said Accounts Receivable and
Unbilled Receivables are subject to no defenses, counterclaims or rights of
setoff and are fully collectible in the ordinary course of business in
accordance with the applicable terms without cost in collection efforts
therefor, except to the extent of the appropriate reserves for bad debts on
Accounts Receivable as set forth on such report and, in the case of Accounts
Receivable arising since June 30, 1997, to the extent of a reasonable reserve
rate for bad debts on Accounts Receivable which is not greater than the rate
reflected by the reserve for bad debts as set forth in such report.
4.23 Inventory. Seller has previously delivered to Buyer a complete and
---------
accurate list
24
<PAGE>
of all Inventory set forth on the Balance Sheet and the addresses at which the
Inventory is located. Except as set forth on such list, the Inventory as set
forth in the Balance Sheet or arising since the Balance Sheet Date was acquired
and has been maintained in accordance with the regular business practices of
Seller, consists of items of a quality and quantity usable or saleable in the
ordinary course of business, and is valued at reasonable amounts based on the
normal valuation policy of Seller at prices equal to the lower of cost or market
value on a first-in-first-out basis. None of the Inventory is slow-moving,
damaged, obsolete or unsalable in the ordinary course of business, except for
such items of Inventory which have been written down to net realizable value or
for which adequate reserves have been provided on the Balance Sheet. No items
included in the Inventory are held by Seller on consignment from others.
4.24 Purchase Commitments and Outstanding Bids. Seller has previously
-----------------------------------------
delivered to Buyer a complete and accurate list of all accepted and unfilled
orders and commitments, all of which orders and commitments were made in the
ordinary course of business. As of the date of this Agreement, there are no
claims with respect to the Business against Seller requesting or requiring the
return of merchandise by reason of alleged overshipments, defective merchandise
or otherwise, or the return of merchandise in the hands of customers under an
understanding that such merchandise would be returnable. No outstanding purchase
or outstanding lease commitment of Seller presently is in excess of the normal,
ordinary and usual requirements or capacity of the Business, or was made at any
price in excess of or materially less than the now current market price or
contains terms and conditions other than those usual and customary in the
Business. There is no outstanding bid, proposal, Contract or unfilled order
which relates to the Assets which will or would, if accepted, have a material
adverse effect, individually or in the aggregate, on the Business or the Assets
or will or would, if accepted, reasonably be expected to result in a net loss to
Seller.
4.25 Payments. Seller has not, directly or indirectly, paid or delivered
--------
any fee, commission or other sum of money or item or property, however
characterized, to any finder, agent, client, customer, supplier, government
official or other party, in the United States or any other country, which is in
any manner related to the Business, Assets or operations of Seller, which is, or
may be with the passage of time or discovery, illegal under any current federal,
state or local laws of the United States (including without limitation the U.S.
Foreign Corrupt Practices Act) or any other country having jurisdiction; and
Seller has not participated, directly or indirectly, in any boycotts or other
similar practices affecting any of its actual or potential customers and has at
all times done business in an open and ethical manner.
4.26 Customers, Distributors and Suppliers. Seller has previously delivered
-------------------------------------
to Buyer, with respect to the Business, a complete and accurate list of the
names and addresses of Seller's: (i) ten largest customers, distributors and
other agents and representatives in terms of gross sales during the previous
fiscal year, showing the approximate total sales in dollars by Seller to each
such customer; and (ii) thirty largest suppliers in terms of gross purchases
during the previous fiscal year, showing the approximate total purchases in
dollars by Seller from each such supplier. Since the date of such list, there
has been no material adverse change in the business relationship of Seller with
any customer, distributor or supplier named on the list. Seller has
25
<PAGE>
not received any communication from any customer, distributor or supplier named
on such list of any intention to terminate or materially reduce purchases from
or supplies to Seller.
4.27 Compliance With Environmental Laws.
----------------------------------
(a) Definitions. The following terms shall have the following
-----------
meanings. Any of these terms may, unless the context otherwise requires, used in
the singular or the plural depending on the reference.
(i) "Seller" For purposes of this Section 4.27, the term
------
"Seller" shall include (i) all affiliates of Seller, (ii) all partnerships,
joint ventures and other entities or organizations in which Seller was at any
time or is a partner, joint venturer, member or participant and (iii) all
predecessor or former corporations, partnerships, joint ventures, organizations,
businesses or other entities, whether in existence as of the date hereof or at
any time prior to the date hereof, the assets or obligations of which have been
acquired or assumed by Seller or to which Seller has succeeded.
(ii) "Release" shall mean and include any spilling, leaking,
-------
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing into the environment or the workplace of any
Hazardous Substance, and otherwise as defined in any Environmental Law.
(iii) "Hazardous Substance" shall mean any pollutant,
-------------------
contaminant, chemical, waste and any toxic, infectious, carcinogenic, reactive,
corrosive, ignitible or flammable chemical or chemical compound or hazardous
substance, material or waste, whether solid, liquid or gas, including, without
limitation, any quantity of asbestos in any form, urea formaldehyde, PCB's,
radon gas, crude oil or any fraction thereof, all forms of natural gas,
petroleum products or by-products or derivatives, radioactive substance or
material, pesticide waste waters, sludges, slag and any other substance,
material or waste that is subject to regulation, control or remediation under
any Environmental Laws.
(iv) "Environmental Laws" shall mean all Regulations which
------------------
regulate or relate to the protection or clean-up of the environment, the use,
treatment, storage, transportation, generation, manufacture, processing,
distribution, handling or disposal of, or emission, discharge or other release
or threatened release of, Hazardous Substances or otherwise dangerous
substances, wastes, pollution or materials (whether, gas, liquid or solid), the
preservation or protection of waterways, groundwater, drinking water, air,
wildlife, plants or other natural resources, or the health and safety of persons
or property, existing as of the date hereof, including without limitation
protection of the health and safety of employees. Environmental Laws shall
include, without limitation, the Federal Insecticide, Fungicide, Rodenticide
Act, Resource Conservation & Recovery Act, Clean Water Act, Safe Drinking Water
Act, Atomic Energy Act, Occupational Safety and Health Act, Toxic Substances
Control Act, Clean Air Act, Comprehensive Environmental Response, Compensation
and Liability Act, Emergency Planning and Community Right-to-Know Act, Hazardous
Materials Transportation
26
<PAGE>
Act and all analogous or related federal, state or local law, each as amended.
(v) "Environmental Conditions" means the introduction into the
------------------------
environment of any pollution, including, without limitation, any contaminant,
irritant or pollutant or other Hazardous Substance (whether or not upon any
Facility or other property and whether or not such pollution constituted at the
time thereof a violation of any Environmental Law as a result of any Release of
any kind whatsoever of any Hazardous Substance) as a result of which Seller has
or may become liable to any person or by reason of which any Facility or any of
the Assets may suffer or be subjected to any lien.
(b) Facilities. The Facilities are, and at all times have been, owned,
----------
leased and operated in compliance with all Environmental Laws and in a manner
that will not give rise to any Liability under any Environmental Laws. Without
limiting the foregoing, (i) there is not and has not been any Hazardous
Substance used, generated, treated, stored, transported, disposed of, handled or
otherwise existing on, under, about or emanating from any Facility, except for
quantities of any such Hazardous Substances stored or otherwise held on, under
or about any such Facility in full compliance with all Environmental Laws and
necessary for the operation of the Business, (ii) Seller has at all times used,
generated, treated, stored, transported, disposed of or otherwise handled its
Hazardous Substances in compliance with all Environmental Laws and in a manner
that will not result in Liability of Seller under any Environmental Law, (iii)
there is not now and has not been at any time in the past any underground or
above-ground storage tank or pipeline at any Facility where the installation,
use, maintenance, repair, testing, closure or removal of such tank or pipeline
was not in compliance with all Environmental Laws and there has been no Release
from or rupture of any such tank or pipeline, including without limitation any
Release from or in connection with the filling or emptying of such tank, and
(iv) Seller does not manufacture or distribute any product in the State of
California which requires the warning mandated by the California Safe Drinking
Water and Toxic Enforcement Act of 1986 ("Proposition 65").
--------------
(c) Notice of Violation. With respect to the Business or the Assets,
-------------------
Seller has not received any notice or communication from a Governmental
Authority or written notice from any other person of any alleged, actual or
potential responsibility for, or any inquiry or investigation regarding, (i) any
Release or threatened Release of any Hazardous Substance at any location,
whether or not at the Facilities, or (ii) an alleged violation of or non-
compliance with the conditions of any Permit required under any Environmental
Law. Seller has received no notice of any other claim, demand or Action by any
individual or entity alleging any actual or threatened injury or damage to any
person, property, natural resource or the environment arising from or relating
to any Release or threatened Release of any Hazardous Substances at, on, under,
in, to or from any Facilities or in connection with any operations of the
Business.
(d) Environmental Conditions. There are no present or past
------------------------
Environmental Conditions in any way relating to the Business. There is no
asbestos contained in or forming a part of any building, building component or
structure at the Facility located at 1785 Voyager Avenue, Simi Valley,
California. There are no polychlorinated biphenyls ("PCB") or PCB
---
27
<PAGE>
containing items used or stored at any of the Facilities. Schedule 4.27(d) sets
forth a list of (i) all on-site and off-site locations where Seller has stored,
disposed, or arranged for disposal of Hazardous Substances and (ii) any
underground storage tanks, and the capacity and content of such tanks, located
on the property occupied by the Facilities.
(e) Environmental Audits or Assessments. True, complete and correct
-----------------------------------
copies of the written reports, and all parts thereof, including any drafts of
such reports if such drafts are in the possession or control of Seller, of all
environmental audits or assessments which have been conducted at any Facility
within the past five years, either by Seller or any attorney, environmental
consultant or engineer engaged for such purpose, have been delivered to Buyer
and a list of all such reports, audits and assessments and any other similar
report, audit or assessment of which Seller has knowledge is included on the
Disclosure Schedule.
(f) Indemnification Agreements. Seller is not a party, whether as a
--------------------------
direct signatory or as successor, assign or third party beneficiary, or
otherwise bound, to any Facility Lease or other Contract (excluding insurance
policies disclosed on the Disclosure Schedule) under which, with respect to the
Business, Seller is obligated by or entitled to the benefits of, directly or
indirectly, any representation, warranty, indemnification, covenant, restriction
or other undertaking concerning environmental conditions.
(g) Releases or Waivers. With respect to the Business, Seller has not
-------------------
released any other person from any claim under any Environmental Law or waived
any rights concerning any Environmental Condition.
(h) Notices Warnings and Records. With respect to the Business, Seller
----------------------------
has given all notices and warnings, made all reports, and has kept and
maintained all records required by and in compliance with all Environmental
Laws.
4.28 Labor and Employment Matters. Except as disclosed in Schedule 4.28,
----------------------------
since the enactment of the Worker Adjustment and Retraining Notification Act of
1988 ("WARN Act"), Seller has not effectuated a "plant closing" (as defined in
---------
the WARN Act) at the Facilities or affecting operating units related to the
Business, or a "mass layoff' (as defined in the WARN Act) affecting any site of
employment or facility related to the Business; nor has the Seller been affected
by any transaction or engaged in layoffs or employment terminations sufficient
in number to trigger application of any similar state or local law pertaining to
the Business. Except as disclosed in Schedule 4.28, none of the employees of the
Business has suffered an "employment loss" (as defined in the WARN Act) since
December 31, 1996. Seller has previously provided to Buyer a true and complete
schedule of its employees engaged in the Business and the compensation and
benefits of such employees as of July 31, 1997. Seller has previously delivered
to Buyer true and complete information with respect to its severance policy and
practices with respect to employees of the Business.
4.29 Employee Benefit Plans: ERISA.
-----------------------------
28
<PAGE>
(a) Schedule 4.29 contains a true and complete list of each salary,
fee, bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance or termination pay, employment, consultant, hospitalization or
other medical, life or other insurance, supplemental unemployment benefits,
profit-sharing, pension, or retirement plan, program, agreement, arrangement or
policy, and each other employee benefit plan, program, agreement, arrangement or
policy, entered into, sponsored, maintained or contributed to or required to be
contributed to by the Seller for the benefit of any employee, former employee,
director or former director of the Business (the "Plans"). Schedule 4.29
identifies each of the Plans that is an "employee welfare benefit plan," or
"employee pension benefit plan" as such terms are defined in sections 3(1) and
3(2) of ERISA (such plans being hereinafter referred to collectively as the
"ERISA Plans").
-----------
(b) With respect to each of the Plans, other than any "multiemployer
plan," as that term is defined in Section 3(37) or 4001(a)(3) of ERISA, the
Seller has heretofore delivered to the Buyer true and complete copies of each of
the following documents:
(i) a copy of the Plan (including all amendments thereto);
(ii) a copy of the annual report, if required under ERISA, with
respect to each such Plan for the most recent year;
(iii) a copy of the actuarial report, if required under ERISA,
with respect to each such Plan for the most recent year;
(iv) a copy of the most recent Summary Plan Description ("SPD"),
---
together with all Summaries of Material Modification issued with respect to
such SPD, required under ERISA with respect to such Plan, and all other
material employee communications relating to such Plan; and
(v) the most recent determination letter received from the
Internal Revenue Service with respect to each Plan that is intended to be
qualified under section 401 of the Code.
(c) None of the ERISA Plans is a "multiemployer plan" within the
meaning of Section 3(37) and 4001(a)(3) of ERISA. Neither Seller nor any trade
or business, whether or not incorporated, that together with Seller would be
deemed a single employer under Section 4001(b)(1) of ERISA (an "ERISA
-----
Affiliate") has any liability, jointly or otherwise, for any withdrawal
- ---------
liability demanded or yet to be demanded under Title IV of ERISA by any
multiemployer plan for a complete or partial withdrawal from such plan, and
there is no basis to anticipate that any such demand will be made. Seller and
all ERISA Affiliate have made all contributions due to any multiemployer fund.
(d) Each employee welfare benefit plan listed on Schedule 4.29 and any
employee welfare benefit plan maintained by an ERISA Affiliate which is a group
health plan (within the
29
<PAGE>
meaning of Section 607(1) of ERISA and Section 5000(b)(1) of the Code), has
complied at all times and continue to comply through the Closing Date with the
health care continuation coverage requirements of Section 4980B of the Code and
Part 6 of Title 1 of ERISA.
4.30 Disclosure. Schedule 4.30 contains a true and complete list of all
----------
information previously provided by Seller to Buyer pursuant to the terms of this
Agreement. No representation and warranty made by Seller in this Agreement, and
no statement made by Seller in any document, schedule or certificate furnished
or to be furnished by Seller to Buyer and listed on Schedule 4.30, contains as
of the date hereof or will contain as of the Closing Date any untrue statement
of material fact or omits or will omit to state any material fact necessary in
order to make the statements herein or therein, in light of the circumstances
under which they were made not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to Seller as follows, which
representations and warranties are, as of the date hereof, and will be, as of
the Closing Date, true and correct, to Seller as follows:
5.1 Organization of Buyer. Buyer is a corporation organized, validly
---------------------
existing and in good standing under the laws of the State of California.
5.2 Authorization. Buyer has all requisite corporate power and authority,
-------------
and has taken all corporate action necessary, to execute and deliver this
Agreement and the Ancillary Agreements, to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Ancillary
Agreements by Buyer and the consummation by Buyer of the transactions
contemplated hereby and thereby have been duly approved by the board of
directors and any required approval by stockholders of Buyer. No other corporate
proceedings on the part of Buyer are necessary to authorize this Agreement and
the Ancillary Agreements and the transactions contemplated hereby and thereby.
This Agreement has been duly executed and delivered by Buyer and is, and upon
execution and delivery the Ancillary Agreements will be, legal, valid and
binding obligations of Buyer, enforceable against Buyer in accordance with their
terms.
5.3 No Conflict or Violation. Neither the execution, delivery or
------------------------
performance of this Agreement nor the consummation of the transactions
contemplated hereby, nor compliance by Buyer with any of the provisions hereof,
will (a) violate or conflict with any provision of the Articles of Incorporation
or Bylaws of Buyer, (b) violate, conflict with, or result in or constitute a
Default under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration under, or
result in the creation of any Encumbrance upon any of Buyer's assets under, any
of the terms, conditions or provisions of
30
<PAGE>
any contract, indebtedness, note, bond, indenture, security or pledge agreement,
commitment, license, lease, franchise, permit, agreement, authorization,
concession, or other instrument or obligation to which Buyer is a party, (c)
violate any Regulation or Court Order, except, in the case of each of clauses
(b) and (c) above, for such violations, Defaults, terminations, accelerations or
creations of Encumbrances which, in the aggregate, would not have a material
adverse effect on the business of Buyer or its ability to consummate the
transactions contemplated hereby.
5.4 Consents and Approvals. Except as set forth on Schedule 5.4 hereto and
----------------------
other than in connection with or in compliance with the provisions of the HSR
Act, no notice to, declaration, filing or registration with, or authorization,
consent or approval of, or permit from, any domestic or foreign governmental or
regulatory body or authority, or any other person or entity, is required to be
made or obtained by Buyer in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby.
5.5 No Brokers. Neither Buyer nor any of its officers, directors,
----------
employees, shareholders or affiliates has employed or made any agreement with
any broker, finder or similar agent or any person or firm which will result in
the obligation of Seller or any of its affiliates to pay any finder's fee,
brokerage fees or commission or similar payment in connection with the
transactions contemplated hereby.
ARTICLE VI
COVENANTS OF SELLER AND BUYER
-----------------------------
Seller and Buyer each covenant with the other as follows:
6.1 Further Assurances. Upon the terms and subject to the conditions
------------------
contained herein, the parties agree, both before and after the Closing, (i) to
use all reasonable efforts to take, or cause to be taken, all actions 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, (ii) to execute
any documents, instruments or conveyances of any kind which may be reasonably
necessary or advisable to carry out any of the transactions contemplated
hereunder, and (iii) to cooperate with each other in connection with the
foregoing. Without limiting the foregoing, the parties agree to use their
respective reasonable best efforts (A) to obtain all necessary waivers, consents
and approvals from other parties to the Contracts and Facility Leases to be
assumed by Buyer; provided, however, that Buyer shall not be required to make
any payments, commence litigation or agree to modifications of the terms thereof
in order to obtain any such waivers, consents or approvals, (B) to obtain all
necessary Permits as are required to be obtained under any Regulations, (C) to
defend all Actions challenging this Agreement or the consummation of the
transactions contemplated hereby, (D) to lift or rescind any injunction or
restraining order or other Court Order adversely affecting the ability of the
31
<PAGE>
parties to consummate the transactions contemplated hereby, (E) to give all
notices to, and make all registrations and filings with third parties, including
without limitation submissions of information requested by governmental
authorities, and (F) to fulfill all conditions to this Agreement which are the
responsibility of such party. Buyer and Seller have made and shall make all
filings required under the HSR Act. In addition, Seller and Buyer will commence
all actions required under this Section 6.1 by a date which is early enough to
allow the transactions contemplated hereunder to be consummated by the Closing
Date.
6.2 No Solicitation.
---------------
(a) No Solicitation. From the date hereof through the Closing or the
---------------
earlier termination of this Agreement, Seller shall not, and shall cause each of
its affiliates or Representatives (including without limitation investment
bankers, attorneys and accountants), not to, directly or indirectly, enter into,
solicit, initiate or continue any discussions or negotiations with, or encourage
or respond to any inquiries or proposals by, or participate in any negotiations
with, or provide any information to, or otherwise cooperate in any other way
with, any corporation, partnership, person or other entity or group, other than
Buyer and its Representatives, concerning any sale of all or a portion of the
Assets or the Business, or any merger, consolidation, liquidation, dissolution
or similar transaction involving the Business and the Assets (each such
transaction being referred to herein as a "Proposed Acquisition Transaction").
----------------------------------
Seller and its subsidiaries shall not, directly or indirectly, through any
officer, director, employee, representative, agent or otherwise, solicit,
initiate or encourage the submission of any proposal or offer from any person
(including, without limitation, a "person" as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended) or entity relating to any
Proposed Acquisition Transaction or participate in any negotiations regarding,
or furnish to any other person any information with respect to Seller or any of
its subsidiaries for the purposes of, or otherwise cooperate in any way with, or
assist or participate in, facilitate or encourage, any effort or attempt by any
other person to seek or effect a Proposed Acquisition Transaction.
Notwithstanding the foregoing sentence, (a) following receipt of a bona fide
written offer to consummate a transaction described in the foregoing sentence,
Seller may take and disclose to Seller's stockholders a position contemplated by
Rule 14e-2 under the Securities Exchange Act of 1934, as amended, or otherwise
make appropriate disclosures to its stockholders, (b) Seller may furnish or
cause to be furnished information concerning its businesses, properties or
assets to a third party, and (c) Seller may engage in discussions or
negotiations with a third party, but in each case referred to in the foregoing
clauses (a) through (c), only to the extent that the Board of Directors of
Seller concludes in good faith after consultation with its outside legal counsel
that such action is necessary for the Board of Directors of Seller to comply
with its fiduciary obligations under applicable law. Seller hereby represents
that it is not now engaged in discussions or negotiations with any party other
than Buyer with respect to any of the foregoing. Seller shall notify Buyer
promptly (orally and in writing) if any such written offer, or any inquiry or
contact with any person with respect thereto, is made and shall provide Buyer
with a copy of such offer and shall keep Buyer informed on the status of any
negotiations regarding such offer. Seller agrees not to release any third party
from, or waive any provision of, any confidentiality or standstill agreement to
which Seller is a party.
32
<PAGE>
In the event that (i) Seller breaches its obligations under this Section 6.2(a),
(ii) Board of Directors of Seller accepts a third party offer to enter into a
Proposed Acquisition Transaction with another party within six months of the
date of this Agreement, or (iii) if the sale of the Business and the Assets
contemplated by this Agreement shall not have occurred on or before October 31,
1997, other than as a result of (A) a material breach of any representation,
warranty or covenant in this Agreement by Buyer or failure by Buyer to satisfy
the closing conditions set forth in Article VII hereof, (B) failure to obtain
the necessary permission to close the transaction under the HSR Act or similar
laws or (C) the entry of a Court Order by a court of competent jurisdiction to
enjoin or prohibit any of the transactions contemplated hereby, Seller shall pay
to Buyer a break-up fee in the amount of $1,000,000, plus the amount of Buyer's
out-of-pocket expenses (including without limitation the fees and expenses of
Buyer's accountants, attorneys and consultants).
(b) Notification. Seller will immediately notify Buyer if any Proposed
------------
Acquisition Transaction discussions or negotiations are sought to be initiated,
any inquiry or proposal is made, or any information is requested with respect to
any Proposed Acquisition Transaction and notify Buyer of the terms of any
proposal which it may receive in respect of any such Proposed Acquisition
Transaction, including without limitation the identity of the prospective
purchaser or soliciting party.
6.3 Notification of Certain Matters. From the date hereof through the
-------------------------------
Closing, Seller shall give prompt notice to Buyer of (a) the occurrence, or
failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty contained in this Agreement or in any
exhibit or schedule hereto to be untrue or inaccurate in any material respect
and (b) any material failure of Seller or any of its affiliates or
Representatives, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it under this Agreement or any exhibit or
schedule hereto; provided, however, that such disclosure shall not be deemed to
cure any breach of a representation, warranty, covenant or agreement or to
satisfy any condition. Seller shall promptly notify Buyer of any Default, the
threat or commencement of any Action, or any development that occurs before the
Closing that could in any way materially affect the Assets or the Business. In
addition to the foregoing, as soon as such information becomes available, and in
any event not later than twenty days after the end of each fiscal month, the
Seller shall provide to Buyer an unaudited balance sheet as of the end of such
month and the related statements of operations and statements of cash flows with
respect to the Business for such period, together with a list of aging and
amounts of all Accounts Receivable which remain uncollected as of the end of
such month and Unbilled Receivables as of the end of such month.
33
<PAGE>
6.4 Investigation by Buyer.
----------------------
Subject to the Confidentiality Agreement, from the date hereof through
the Closing Date Seller shall, and shall cause its officers, directors,
employees and agents to, afford the Representatives of Buyer and its affiliates
complete access at all reasonable times to the Assets for the purpose of
inspecting the same, and to the officers, employees, agents, attorneys,
accountants, properties, Books and Records and Contracts of Seller, and shall
furnish Buyer and its Representatives all financial, operating and other data
and information as Buyer or its affiliates, through their respective
Representatives, may reasonably request.
6.5 Conduct of Business. From the date hereof through the Closing, Seller
-------------------
shall, except as contemplated by this Agreement, or as consented to by Buyer in
writing, operate the Business in the ordinary course of business and
substantially in accordance with past practice and will not take any action
inconsistent with this Agreement or with the consummation of the Closing.
Without limiting the generality of the foregoing, Seller shall not, except as
specifically contemplated by this Agreement or as consented to by Buyer in
writing:
(a) enter into, extend, materially modify, terminate or renew any
Contract or Facility Lease, except in the ordinary course of business or waive
any rights under any material Contract or Facility Lease;
(b) sell, assign, transfer, convey, lease, mortgage, pledge or
otherwise dispose of or encumber any of the Assets, or any interests therein,
except in the ordinary course of business and, without limiting the generality
of the foregoing, Seller will produce, maintain and sell Inventory consistent
with its past practices;
(c) with respect to the Business, incur any Liability for long-term
interest bearing indebtedness, guarantee the obligations of others, indemnify
others or, except in the ordinary course of business, incur any other Liability;
(d) (i) fail to pay its accounts payable and any debts owed or
obligations due to it, or pay or discharge when due any Liabilities, in the
ordinary course of the Business; or
(ii) fail to collect its accounts receivable in the ordinary
course of the Business;
(e) enter into, renew, modify or revise any agreement or transaction
with any of its affiliates with respect to the Business, other than for the
transfer of cash in accordance with Seller's ordinary course cash management
practices;
(f) fail to maintain the Assets in substantially their current state
of repair, excepting normal wear and tear or fail to replace consistent with
Seller's past practice inoperable, worn-out or obsolete or destroyed Assets;
34
<PAGE>
(g) with respect to the Business, make any loans or advances to any
partnership, firm or corporation, or, except for expenses incurred in the
ordinary course of business, any individual;
(h) with respect to the Business, make any income tax election or
settlement or compromise with tax authorities;
(i) fail to comply in any material respect with all Regulations
applicable to it, the Assets and the Business;
(j) intentionally do any other act which would cause any
representation or warranty of Seller in this Agreement to be or become untrue in
any material respect;
(k) with respect to the Business, fail to use its best efforts to (i)
retain the Seller's employees and maintain the Business so that such employees
will remain available to Seller on and after the Closing Date, (ii) maintain
existing relationships with suppliers, customers and others having business
dealings with Seller and (iii) otherwise to preserve the goodwill of the
Business so that such relationships and goodwill will be preserved on and after
the Closing Date; or
(m) enter into any agreement, or otherwise become obligated, to do
any action prohibited hereunder.
6.6 Employee Matters.
----------------
(a) Buyer shall extend offers of employment to those of Seller's
employees whom it desires to hire (such employees are hereinafter referred to as
the "Rehired Employees"), which offers shall be on terms and conditions which
-----------------
Buyer shall determine in its sole discretion. Seller shall cooperate with and
use its best efforts to assist Buyer in its efforts to secure satisfactory
employment arrangements with those employees of Seller to whom Buyer makes
offers of employment. Seller shall terminate the employment of all Rehired
Employees immediately prior to the Closing whether or not such Rehired Employees
have accepted offers of employment from Buyer. As to employees who are not
Rehired Employees, Seller shall be free to offer or make available to any such
employee positions with Seller in any of its other divisions or businesses.
(b) Seller shall be solely responsible for all of the ERISA Plans and
all obligations and liabilities thereunder. Buyer shall not assume any of the
ERISA Plans or any obligation or liability thereunder.
(c) Nothing contained in this Agreement shall confer upon any Rehired
Employee any right with respect to continuance of employment by Buyer, nor shall
anything herein interfere with the right of Buyer to terminate the employment of
any of the Rehired Employees at any time, with or without cause, or restrict
Buyer in the exercise of its
35
<PAGE>
independent business judgment in modifying any of the terms and conditions of
the employment of the Rehired Employees.
(d) No provision of this Agreement shall create any third party
beneficiary rights in any Rehired Employee, any beneficiary or dependents
thereof, or any collective bargaining representative thereof, with respect to
the compensation, terms and conditions of employment and benefits that may be
provided to any Rehired Employee by Buyer or under any benefit plan which Buyer
may maintain.
(e) Seller shall not, directly or indirectly, hire or offer employment
to any employee of Seller whose employment is continued by Buyer after the
Closing Date or any employee of Buyer or any successor or affiliate of Buyer
which is engaged in the Business, unless Buyer first terminates the employment
of such employee or gives its written consent to such employment or offer of
employment.
(f) Seller agrees that Buyer has no COBRA obligation with respect to
any employees of Seller not hired by Buyer.
6.7 Assignments. Any provision of this Agreement to the contrary
-----------
notwithstanding, this Agreement shall not constitute an agreement to assign any
claim, contract, lease, agreement, license, commitment, sales order, purchase
order or any claim or right or any benefit arising thereunder or resulting
therefrom if an attempted assignment thereof, without the consent of a third
party thereto, would constitute a breach thereof or in any way affect the rights
of Buyer or Seller thereunder. If such consent is not obtained, or if an
attempted assignment thereof would be ineffective or would affect the rights of
Seller thereunder so that Buyer would not in fact receive all such rights,
Seller will cooperate with Buyer in any lawful arrangement designed to provide
Buyer the benefits under such claims, contracts, leases, agreements, licenses,
commitments, sales orders or purchase orders, including the enforcement for the
benefit of Buyer of any and all rights of Seller against a third party thereto
arising out of the breach or cancellation by such third party or otherwise; and
any transfer or assignment to Buyer by Seller of any contract, lease or
agreement which shall require the consent or approval of any third party, shall
be made subject to such consent or approval being made.
6.8 Government Contracts and Foreign Government Contracts. In addition to
-----------------------------------------------------
any actions taken in accordance with Section 6.7 hereof, Seller shall assist
Buyer in novating or obtaining consents to the assignment of the Government
Contracts and Foreign Government Contracts in favor of Buyer. In the event that
novations can not be obtained in a timely fashion and Buyer elects, in its sole
discretion, to close the transactions contemplated by this Agreement without
obtaining novations or obtaining consents to assignment with respect to all of
the Government Contracts and Foreign Government Contracts, then Seller shall
cooperate with Buyer to make alternative arrangements (satisfactory to Buyer in
its absolute discretion) with respect to the performance of such Government
Contracts after the Closing and until such novations are obtained in accordance
with the Transition Services Agreement. Seller also shall enter into such
agreements as may be reasonably requested by Buyer with respect to any such
36
<PAGE>
post-Closing performance arrangements.
6.9 Billable Backlog and Unbilled Receivables. Prior to the Closing Date,
-----------------------------------------
Seller will deliver to Buyer computer printouts containing information regarding
the Billable Backlog and Unbilled Receivables with respect to the Business as of
five business days prior to the Closing Date.
6.10 Closing Date Adjustment. The Purchase Price shall be decreased (the
-----------------------
"Closing Date Adjustment") by (i) the amount, if any, that the current assets
- -----------------------
included in the Business and Assets on the Closing Date are more than $500,000
less than current assets (excluding the Excluded Assets) shown on the balance
sheet of the Business dated as of June 8, 1997, previously delivered to Buyer
(the "May Statement"), and (ii) by the unearned revenue and advance payments of
-------------
the Business on the Closing Date. As used in this Section 6.10, "current assets"
shall mean the current assets of the Business transferred as part of the Assets
to Buyer on the Closing Date. The Closing Date Adjustment shall be made in
accordance with the following procedures:
(a) As soon as available and in any event not less than three business
days before the Closing, Seller shall deliver to Buyer a balance sheet,
statement of current assets and supporting schedules of the Business and the
Assets (excluding the Excluded Assets) as of the fiscal month end corresponding
to August, 1997 (the "August Statement"), certified by a financial officer of
----------------
Seller as having been prepared in the ordinary course of business, consistent
with the preparation of the May Statement and in accordance with GAAP. The
Purchase Price shall be decreased at the Closing by (i) in the event the current
assets set forth in the August Statement are less than the current assets in the
May Statement and such difference exceeds $500,000, the amount of such decrease
in excess of $500,000, and (ii) the amount of unearned revenue and advance
payments on the August Statement (the "Closing Date Estimate").
---------------------
(b) Within 45 days after the Closing, Buyer shall prepare and deliver
to Seller a statement of current assets, unearned revenues and advance payments
and supporting schedules of the Business and the Assets (excluding the Excluded
Assets) as of the Closing Date, certified by a financial officer of Buyer as
having been prepared in the ordinary course of business, consistent with the
preparation of the August Statement and in accordance with GAAP (the "Closing
-------
Date Statement") and a computation of the final Closing Date Adjustment. In the
- -------------
event the final Closing Date Adjustment is greater or lesser than the Closing
Date Estimate, the party owing a final adjusting payment to the other will make
such payment within 30 days after delivery of the Closing Date Statement,
subject to subsection (c) below.
(c) Within the 30 day period following the delivery of the Closing
Date Statement, Seller shall have the right to notify Buyer in writing that it
disputes the Closing Date Statement. If Seller does not so notify Buyer within
such 30 day period, the Closing Date Statement shall be final and binding upon
the parties and the payment required by subsection (b) hereof, if any, shall be
made. In the event Seller does deliver a notice of dispute within the 30 day
period, Seller and Buyer shall use their best efforts to resolve such dispute.
If such a
37
<PAGE>
settlement is not reached within 30 days after delivery by Seller of written
notice of the dispute, Buyer and Seller will submit the unresolved portion of
such dispute to the determination of a "Big Six" accounting firm not currently
engaged by Buyer, Seller or any of their affiliates. The decision of such
accounting firm shall be final and binding on the parties, and Buyer and Seller
shall equally bear the costs of such accounting firm. Payments of any amounts
owed by one party to the other shall be made within 15 days after the resolution
of a dispute.
ARTICLE VII
CONDITIONS TO SELLER'S OBLIGATIONS
----------------------------------
The obligations of Seller to consummate the transactions provided for
hereby are subject, in the discretion of Seller, to the satisfaction, on or
prior to the Closing Date, of each of the following conditions, any of which may
be waived by Seller:
7.1 Representations Warranties and Covenants. All representations and
----------------------------------------
warranties of Buyer contained in this Agreement shall be true and correct at and
as of the date of this Agreement and at and as of the Closing Date, except as
and to the extent that the facts and conditions upon which such representations
and warranties are based are expressly required or permitted to be changed by
the terms hereof, and Buyer shall have performed and satisfied all agreements
and covenants required hereby to be performed by it prior to or on the Closing
Date.
7.2 Consents: Regulatory Compliance and Approval. All consents set forth
--------------------------------------------
in Schedule 5.4, including the consent of Seller's lenders, and all approvals
required under any Regulations to carry out the transactions contemplated by
this Agreement, except for those consents described in Schedule 4.8, shall have
been obtained and that the parties shall have complied with all Regulations
applicable to the Acquisition. The applicable waiting period, including any
extension thereof, under the HSR Act shall have expired.
7.3 No Actions or Court Orders. No Action by any governmental authority or
--------------------------
other person shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby. There shall not be
any Regulation or Court Order that makes the purchase and sale of the Business
or the Assets contemplated hereby illegal or otherwise prohibited.
7.4 Opinion of Counsel. Buyer shall have delivered to Seller an opinion of
------------------
Seyfarth, Shaw, Fairweather & Geraldson, counsel to Buyer, dated as of the
Closing Date, in form and substance reasonably satisfactory to Seller, to the
effect that:
(a) Incorporation. Buyer is a corporation incorporated, validly
-------------
existing and in good standing under the laws of the State of California;
(b) Corporate Power and Authority. Buyer has the necessary corporate
-----------------------------
power
38
<PAGE>
and authority to enter into this Agreement and the Ancillary Agreements and to
consummate the transactions contemplated hereby and thereby;
(c) Corporate Action and Enforceability. The execution, delivery and
-----------------------------------
performance of this Agreement and the Ancillary Agreements by Buyer have been
duly authorized by all necessary corporate action of Buyer, and this Agreement
and the Ancillary Agreements have been duly executed and delivered by Buyer, and
constitute legally valid and binding obligations of Buyer, enforceable against
Buyer in accordance with their terms, except as limited by (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights generally or by equitable principles (whether considered in an
action at law or in equity), (ii) limitations imposed by federal or state law or
equitable principles upon the availability of specific performance, injunctive
relief or other equitable remedies, or (iii) other customary limitations
reasonably satisfactory to Seller's counsel;
(d) No Breach of Contracts. Neither the execution and delivery of this
----------------------
Agreement or the Ancillary Agreements by Buyer nor the consummation of the
transactions contemplated hereby or thereby will (i) violate the Articles of
Incorporation or Bylaws of Buyer, (ii) to the knowledge of such counsel, cause a
Default under any term or provision of any material contract to which Buyer is a
party, or (iii) to the knowledge of such counsel, violate any Court Order
applicable to Buyer; and
(e) No Violation of Law. Neither the execution and performance of this
-------------------
Agreement or the Ancillary Agreements by Buyer nor the consummation of the
transactions contemplated hereby or thereby will violate or result in a failure
to comply with any Regulation or Court Order, applicable to Buyer.
In rendering such opinions, such counsel may rely as they deem
advisable (a) as to matters governed by the laws of jurisdictions other than
states in which they maintain offices, upon opinions of local counsel
satisfactory to such counsel, and (b) as to factual matters, upon certificates
and assurances of public officials and officers of Buyer. In addition, such
opinions may be subject to such additional qualifications and exceptions as are
reasonably acceptable to counsel to Seller.
7.5 Certificates. Buyer shall furnish Seller with such certificates of its
------------
officers and others to evidence compliance with the conditions set forth in this
Article VII as may be reasonably requested by Seller.
7.6 Corporate Documents. Seller shall have received from Buyer resolutions
-------------------
adopted by the board of directors of Buyer approving this Agreement, the
Ancillary Agreements and the transactions contemplated hereby or thereby,
certified by Buyer's corporate secretary.
7.7 Ancillary Agreements. Buyer shall have executed and delivered the
--------------------
Ancillary Agreements to which Buyer is a party.
39
<PAGE>
7.8 Allocation of Purchase Price. Buyer and Seller shall have agreed on
----------------------------
the Purchase Price allocable to the various Assets. Buyer and Seller have
prepared substantially identical initial and supplemental Internal Revenue
Service Forms 8594 "Asset Acquisition Statements Under Section 1060."
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS
---------------------------------
The obligations, of Buyer to consummate the transactions provided for
hereby are subject, in the discretion of Buyer, to the satisfaction, on or prior
to the Closing Date, of each of the following conditions, any of which may be
waived by Buyer:
8.1 Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of Seller contained in this Agreement shall be true and correct at
and as of the date of this Agreement and at and as of the Closing Date and
Seller shall have performed and satisfied all agreements and covenants required
hereby to be performed by it prior to or on the Closing Date.
8.2 Consents: Regulatory Compliance and Approval. All consents set forth
--------------------------------------------
in Schedule 5.4, including the consent of Buyer's lenders, and all approvals
required under any Regulations to carry out the transactions contemplated by
this Agreement, except for those consents described in Schedule 4.8, shall have
been obtained and that the parties shall have complied with all Regulations
applicable to the Acquisition. The applicable waiting period, including any
extension thereof, under the HSR Act shall have expired.
8.3 No Actions or Court Orders. No Action by any governmental authority or
--------------------------
other person shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby and which could
reasonably be expected to damage Buyer, the Assets or the Business materially if
the transactions contemplated hereby are consummated, including without
limitation any material adverse effect on the right or ability of Buyer to own,
operate, possess or transfer the Assets after the Closing. There shall not be
any Regulation or Court Order that makes the purchase and sale of the Business
or the Assets contemplated hereby illegal or otherwise prohibited.
8.4 Opinion of Counsel. Seller shall have delivered to Buyer an opinion of
------------------
Latham & Watkins, counsel to Seller, dated as of the Closing Date, in form and
substance reasonably satisfactory to Buyer, to the effect that:
(a) Incorporation. Each of Whittaker and Services is a corporation
-------------
duly incorporated, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation; each of Whittaker and Services is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the ownership or leasing of its property or nature of
the Business requires such qualification, except where the failure to be so
40
<PAGE>
qualified would not have a material adverse effect on the Business or the
Assets;
(b) Corporate Power and Authority. Whittaker and Services have the
-----------------------------
necessary corporate power and authority to enter into this Agreement and the
Ancillary Agreements and to consummate the transactions contemplated hereby and
thereby;
(c) Corporate Action and Enforceability. The execution, delivery and
-----------------------------------
performance of this Agreement and the Ancillary Agreements by Whittaker and
Services have been duly authorized by all necessary corporate action of
Whittaker and Services, and this Agreement and the Ancillary Agreements have
been duly executed and delivered by Whittaker and Services, and this Agreement
and each Ancillary Agreement constitute legally valid and binding obligations of
Whittaker and Services, enforceable against each of them in accordance with
their terms, except as limited by (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights generally or by
equitable principles (whether considered in an action at law or in equity), (ii)
limitations imposed by federal or state law or equitable principles upon the
availability of specific performance, injunctive relief or other equitable
remedies, or (iii) other customary limitations reasonably satisfactory to
Buyer's counsel;
(d) No Breach of Contracts. Neither the execution and delivery of this
----------------------
Agreement or the Ancillary Agreements by Whittaker or Services nor the
consummation of the transactions contemplated hereby or thereby will (i) violate
the Articles of Incorporation or Bylaws of Whittaker or Services, (ii) to the
knowledge of such counsel, cause a Default under any term or provision of any
material contract related to the Business to which Whittaker or Services is a
party, or (iii) to the best knowledge of such counsel, violate any Court Order
applicable to Whittaker or Services; and
(e) No Violation of Law. Neither the execution and performance of this
-------------------
Agreement or the Ancillary Agreements by Whittaker or Services nor the
consummation of the transactions contemplated hereby or thereby will violate or
result in a failure to comply with any Regulation or Court Order known to such
counsel.
In rendering such opinions, such counsel may rely as they deem advisable
(a) as to matters governed by the laws of jurisdictions other than states in
which they maintain offices, upon opinions of local counsel satisfactory to such
counsel, and (b) as to factual matters, upon certificates and assurances of
public officials and officers of Whittaker and Services. In addition, such
opinions may be subject to such additional qualifications and exceptions as are
reasonably acceptable to counsel to Buyer.
8.5 Certificates. Seller shall furnish Buyer with such certificates of its
------------
officers and others to evidence compliance with the conditions set forth in this
Article VIII as may be reasonably requested by Buyer, including a certificate of
Seller setting forth information regarding the Billable Backlog and Unbilled
Receivables with respect to the Business as of the Closing Date.
41
<PAGE>
8.6 Material Changes. Since the Balance Sheet Date, there shall not have
----------------
been any material adverse change with respect to the Business or the Assets.
8.7 Corporate Documents. Buyer shall have received from Seller resolutions
-------------------
adopted by the board of directors of each Seller approving this Agreement and
the Ancillary Agreements and the transactions contemplated hereby and thereby,
certified by each Seller's corporate secretary.
8.8 Conveyancing Documents: Release of Encumbrances. Seller shall have
-----------------------------------------------
executed and delivered each of the documents described in Section 3.2 hereof so
as to effect the transfer and assignment to Buyer of all right, title and
interest in and to the Assets and Seller shall have filed (where necessary) and
delivered to Buyer all documents necessary to release the Assets from all
Encumbrances, which documents shall be in a form reasonably satisfactory to
Buyer's counsel.
8.9 Classified Information. Seller shall have provided Buyer's qualified
----------------------
representatives access to Seller's classified information relating to the
Government Contracts.
8.10 Ancillary Agreements. Seller shall have executed and delivered the
--------------------
Ancillary Agreements to which Seller is a party.
8.11 Allocation of Purchase Price. Buyer and Seller shall have agreed on
----------------------------
the Purchase Price allocable to the various Assets. Buyer and Seller have
prepared substantially identical initial and supplemental Internal Revenue
Service Forms 8594 "Asset Acquisition Statements Under Section 1060."
ARTICLE IX
RISK OF LOSS: CONSENTS TO ASSIGNMENT
------------------------------------
9.1 Risk of Loss. From the date hereof through the Closing Date, all risk
------------
of loss or damage to the property included in the Assets shall be borne by
Seller, and thereafter shall be borne by Buyer. If any portion of the Assets is
destroyed or damaged by fire or any other cause on or prior to the Closing Date,
other than use, wear or loss in the ordinary course of business, Seller shall
give written notice to Buyer as soon as practicable after, but in any event
within five calendar days of, discovery of such damage or destruction, the
amount of insurance, if any, covering such Assets and the amount, if any, which
Seller is otherwise entitled to receive as a consequence. Prior to the Closing,
Buyer shall have the option, which shall be exercised by written notice to
Seller within ten calendar days after receipt of Seller's notice or if there are
not ten calendar days prior to the Closing Date, as soon as practicable prior to
the Closing Date, of (a) accepting such Assets in their destroyed or damaged
condition in which event Buyer shall be entitled to the proceeds of any
insurance or other proceeds payable with respect to such loss and to
indemnification for any uninsured portion of such loss pursuant to Section 10.4,
and the
42
<PAGE>
full Purchase Price shall be paid for such Assets, (b) excluding such Assets
from this Agreement, in which event the Purchase Price shall be reduced by the
amount allocated to such Assets, as mutually agreed between the parties or (c)
terminating this Agreement in accordance with Section 11.1. If Buyer accepts
such Assets, then after the Closing, any insurance or other proceeds shall
belong, and shall be assigned to, Buyer without any reduction in the Purchase
Price; otherwise, such insurance proceeds shall belong to Seller.
9.2 Consents to Assignment. Anything in this Agreement to the contrary
----------------------
notwithstanding, this Agreement shall not constitute an agreement to assign any
Contract, Facility Lease, Permit or any claim or right or any benefit arising
thereunder or resulting therefrom if an attempted assignment thereof, without
the consent of a third party thereto, would constitute a Default thereof or in
any way adversely affect the rights of Buyer thereunder. If such consent is not
obtained, or if an attempted assignment thereof would be ineffective or would
affect the rights thereunder so that Buyer would not receive all such rights,
Seller will cooperate with Buyer, in all reasonable respects, to provide to
Buyer the benefits under any such Contract, Facility Lease, Permit or any claim
or right, including without limitation enforcement for the benefit of Buyer of
any and all rights of Seller against a third party thereto arising out of the
Default or cancellation by such third party or otherwise. Nothing in this
Section 9.2 shall affect Buyer's right to terminate this Agreement under
Sections 8.2 and 11.1 in the event that any consent or approval to the transfer
of any Asset is not obtained.
ARTICLE X
ACTIONS BY SELLER AND BUYER AFTER THE CLOSING
---------------------------------------------
10.1 Collection of Accounts Receivable and Letters of Credit. At the
-------------------------------------------------------
Closing, Buyer will acquire hereunder, and thereafter Buyer or its designee
shall have the right and authority to collect for Buyer's or its designee's
account, all receivables, letters of credit and other items which constitute a
part of the Assets, and Seller shall within 48 hours after receipt of any
payment in respect of any of the foregoing, properly endorse and deliver to
Buyer any letters of credit, documents, cash or checks received on account of or
otherwise relating to any such receivables, letters of credit or other items.
Seller shall promptly transfer or deliver to Buyer or its designee any cash or
other property that Seller may receive in respect of any deposit, prepaid
expense, claim, contract, license, lease, commitment, sales order, purchase
order, letter of credit or receivable of any character, or any other item,
constituting a part of the Assets.
10.2 Books and Records: Tax Matters.
------------------------------
(a) Books and Records. Each party agrees that it will cooperate with
-----------------
and make available to the other party, during normal business hours, all Books
and Records, information and employees (without substantial disruption of
employment) retained and remaining in existence after the Closing which are
necessary or useful in connection with any tax inquiry, audit, investigation or
dispute, any litigation or investigation or any other matter
43
<PAGE>
requiring any such Books and Records, information or employees for any
reasonable business purpose. The party requesting any such Books and Records,
information or employees shall bear all of the out-of-pocket costs and expenses
(including without limitation attorneys' fees, but excluding reimbursement for
salaries and employee benefits) reasonably incurred in connection with providing
such Books and Records, information or employees. All information received
pursuant to this Section 10.2(a) shall be subject to the terms of the
Confidentiality Agreement.
(b) Cooperation and Records Retention. Seller and Buyer shall (i) each
---------------------------------
provide the other with such assistance as may reasonably be requested by any of
them in connection with the preparation of any return, audit, or other
examination by any taxing authority or judicial or administrative proceedings
relating to Liability for Taxes, (ii) each retain and provide the other with any
records or other information that may be relevant to such return, audit or
examination, proceeding or determination, and (iii) each provide the other with
any final determination of any such audit or examination, proceeding, or
determination that affects any amount required to be shown on any tax return of
the other for any period. Without limiting the generality of the foregoing,
Buyer and Seller shall each retain, until the applicable statutes of limitations
(including any extensions) have expired, copies of all tax returns, supporting
work schedules, and other records or information that may be relevant to such
returns for all tax periods or portions thereof ending on or before the Closing
Date and shall not destroy or otherwise dispose of any such records without
first providing the other party with a reasonable opportunity to review and copy
the same.
(c) Payment of Liabilities. Following the Closing Date, Seller shall
----------------------
pay promptly when due all of the debts and Liabilities of Seller, including any
Liability for Taxes, other than Assumed Liabilities; provided, however, this
covenant shall not apply to that portion (or all) of any debt that Seller is
contesting in good faith.
10.3 Survival of Representations. Etc. All of the representations and
----------- --------------------
warranties made by each party in this Agreement or in any attachment, the
Disclosure Schedule, certificate, document or list delivered by any such party
pursuant hereto shall survive the Closing for a period of (and claims based upon
or arising out of such representations, warranties, covenants and agreements may
be asserted at any time before the date which shall be) two years following the
Closing; provided, however, that (i) the representations and warranties set
forth in Sections 4.15, 4.20, 4.27, shall survive until the expiration of the
applicable statute of limitations (with extensions), with respect to the matters
addressed in such sections, and (ii) the representation of good and marketable
title to the Assets, set forth in Section 4.4, will survive for four years
following the Closing. Each party hereto shall be entitled to rely upon the
representations and warranties of the other party set forth in this Agreement.
The termination of the representations and warranties provided herein shall not
affect the rights of a party in respect of any Claim made by such party in a
writing received by the other party prior to the expiration of the applicable
survival period provided herein.
10.4 Indemnifications.
----------------
44
<PAGE>
(a) By Seller. Seller shall indemnify, save and hold harmless Buyer,
---------
its affiliates and subsidiaries, and its and their respective Representatives,
from and against any and all costs, losses (including without limitation
diminution in value), Taxes, Liabilities, obligations, damages, lawsuits,
deficiencies, claims, demands, and expenses (whether or not arising out of
third-party claims), including without limitation interest, penalties, costs of
mitigation, losses in connection with any Environmental Law (including without
limitation any clean-up or remedial action), lost profits and other losses
resulting from any shutdown or curtailment of operations, damages to the
environment, attorneys' fees and all amounts paid in investigation, defense or
settlement of any of the foregoing (herein, "Damages"), incurred in connection
-------
with, arising out of, resulting from or incident to (i) any breach of any
representation or warranty or the inaccuracy of any representation, made by
Seller in or pursuant to this Agreement; (ii) any breach of any covenant or
agreement made by Seller in or pursuant to this Agreement; (iii) any Excluded
Liability; or (iv) any Liability imposed upon Buyer by reason of Buyer's status
as transferee of the Business or the Assets, other than the Assumed Liabilities.
The term "Damages" as used in this Section 10.4 is not limited to
matters asserted by third parties against Seller or Buyer, but includes Damages
incurred or sustained by Seller or Buyer in the absence of third party claims.
Payments by Buyer of amounts for which Buyer is indemnified hereunder, and
payments by Seller of amounts for which Seller is indemnified, shall not be a
condition precedent to recovery. Seller's obligation to indemnify Buyer, and
Buyer's obligation to indemnify Seller, shall not limit any other rights,
including without limitation rights of contribution which either party may have
under statute or common law.
(b) By Buyer. Buyer shall indemnify and save and hold harmless Seller,
--------
its affiliates, subsidiaries and Representatives from and against any and all
Damages incurred in connection with, arising out of, resulting from or incident
to (i) any breach of any representation or warranty or the inaccuracy of any
representation, made by Buyer in or pursuant to this Agreement; (ii) any breach
of any covenant or agreement made by Buyer in or pursuant to this Agreement; or
(iii) from and after the Closing, any Assumed Liability.
(c) Defense of Claims. If a claim for Damages (a "Claim") is to be
----------------- -----
made by a party entitled to indemnification hereunder against the indemnifying
party, the party claiming such indemnification shall, subject to Section 10.3,
give written notice (a "Claim Notice") to the indemnifying party as soon as
------------
practicable after the party entitled to indemnification becomes aware of any
fact, condition or event which may give rise to Damages for which
indemnification may be sought under this Section 10.4. If any lawsuit or
enforcement action is filed against any party entitled to the benefit of
indemnity hereunder, written notice thereof shall be given to the indemnifying
party as promptly as practicable (and in any event within 15 calendar days after
the service of the citation or summons). The failure of any indemnified party to
give timely notice hereunder shall not affect rights to indemnification
hereunder, except to the extent that the indemnifying party demonstrates actual
damage caused by such failure. After such notice, if the indemnifying party
shall acknowledge in writing to the indemnified party that the indemnifying
party shall be obligated under the terms of its indemnity hereunder in
connection with such lawsuit or action, then the indemnifying party shall be
entitled, if it so elects at its
45
<PAGE>
own cost, risk and expense, (i) to take control of the defense and investigation
of such lawsuit or action, (ii) to employ and engage attorneys of its own choice
to handle and defend the same unless the named parties to such action or
proceeding include both the indemnifying party and the indemnified party and the
indemnified party has been advised in writing by counsel that there may be one
or more legal defenses available to such indemnified party that are different
from or additional to those available to the indemnifying party, in which event
the indemnified party shall be entitled, at the indemnifying party's cost, risk
and expense, to separate counsel of its own choosing, and (iii) to compromise or
settle such claim, which compromise or settlement shall be made only with the
written consent of the indemnified party, such consent not to be unreasonably
withheld. If the indemnifying party fails to assume the defense of such claim
within 15 calendar days after receipt of the Claim Notice, the indemnified party
against which such claim has been asserted will (upon delivering notice to such
effect to the indemnifying party) have the right to undertake, at the
indemnifying party's cost and expense, the defense, compromise or settlement of
such claim on behalf of and for the account and risk of the indemnifying party;
provided, however, that such Claim shall not be compromised or settled without
the written consent of the indemnifying party, which consent shall not be
unreasonably withheld. In the event the indemnified party assumes the defense of
the claim, the indemnified party will keep the indemnifying party reasonably
informed of the progress of any such defense, compromise or settlement. The
indemnifying party shall be liable for any settlement of any action effected
pursuant to and in accordance with this Section 10.4 and for any final judgment
(subject to any right of appeal), and the indemnifying party agrees to indemnify
and hold harmless an indemnified party from and against any Damages by reason of
such settlement or judgment.
(d) Cooperation. The indemnified party shall cooperate in all
-----------
reasonable respects with the indemnifying party and its attorneys in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the indemnified party may, at its own
cost, participate in the investigation, trial and defense of such lawsuit or
action and any appeal arising therefrom. The parties shall cooperate with each
other in any notifications to insurers.
(e) Brokers and Finders. Pursuant to the provisions of this Section
-------------------
10.4, each of Buyer and Seller shall indemnify, hold harmless and defend the
other party from the payment of any and all broker's and finder's expenses,
commissions, fees or other forms of compensation which may be due or payable
from or by the indemnifying party, or may have been earned by any third party
acting on behalf of the indemnifying party in connection with the negotiation
and execution hereof and the consummation of the transactions contemplated
hereby.
(f) Limitations.
-----------
(i) Neither Buyer nor Seller shall be liable to the other under
this Section 10.4 for any Damages arising solely from breaches of Buyer's
or Seller's (as applicable) representations and warranties until the
aggregate amount otherwise due the party being indemnified exceeds an
accumulated total of $100,000; provided that once
46
<PAGE>
the amount of a party's Damages exceeds $100,000, the indemnifying party
shall be liable to the indemnified party for the total amount of such
Damages, including without limitation the first $100,000 of such Damages.
(ii) With regard to this Section 10.4, Buyer acknowledges that
it has read and is familiar with, and hereby waives the benefit of, the
provisions of California Civil Code Section 1542, which is set forth below:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WiTH THE DEBTOR."
(iii) Seller shall not be liable to Buyer with respect to
breaches of Seller's representations and warranties in excess of the
Purchase Price.
(g) Representatives. No individual Representative of any party shall
---------------
be personally liable for any Damages under the provisions contained in this
Section 10.4. Nothing herein shall relieve either party of any Liability to make
any payment expressly required to be made by such party pursuant to this
Agreement.
10.5 Bulk Sales. It may not be practicable to comply or attempt to comply
----------
with the procedures of the "Bulk Sales Act" or similar law of any or all of the
states in which the Assets are situated or of any other state which may be
asserted to be applicable to the transactions contemplated hereby. Accordingly,
to induce Buyer to waive any requirements for compliance with any or all of such
laws, Seller hereby agrees that the indemnity provisions of Section 10.4 hereof
shall apply to any Damages of Buyer arising out of or resulting from the failure
of Seller or Buyer to comply with any such laws; provided, however, that the
amount of such Damages shall not be limited by the limitations contained in
Section 10.4(g)(i).
10.6 Taxes. Seller shall pay, or cause to be paid, when due, California
-----
sales tax on the first $1,000,000 of Assets subject to California sales tax sold
to Buyer pursuant hereto. Buyer shall pay, or cause to be paid, when due,
California sales tax on any Assets subject to California sales tax in excess of
$1,000,000 sold to Buyer pursuant hereto.
10.7 Escrow. If at any time in the two years following the Closing Date,
------
the net worth of Whittaker, as reported in its Form 10-K or 10-Q filed with the
Securities and Exchange Commission, is less than $20.0 million, Whittaker shall
provide a letter of credit in the amount of $2,000,000 to fund potential future
indemnification claims of Buyer. In the event that Whittaker (i) consolidates
with or merges into any other person and is not the continuing or surviving
corporation or entity of such consolidation or merger, (ii) transfers all or
substantially all of its assets to any entity, (iii) assigns, sells or transfers
substantially all of the capital stock or assets of Whittaker Controls, Inc. to
any person, then in each such case, Whittaker shall cause the continuing or
surviving corporation or entity, or transferee, as applicable, to assume the
obligations of Whittaker hereunder.
47
<PAGE>
10.8 Use of Names. For two years following the Closing Date, Seller shall
------------
permit Buyer to use the names "Whittaker Electronic Systems" and "Whittaker
Services" solely in connection Buyer's conduct of the Business; provided that
Seller shall not use such names without also using the name "Condor" or Buyer's
then-current name in connection therewith. Notwithstanding the foregoing, Buyer
has no right to or interest in, and may not use the name "Whittaker" or Seller's
corporate logo in connection with the Business or any other business of Buyer.
10.9 Deutschland Name. Seller will, before 45 days after the Closing Date,
----------------
change the name of Deutschland to a name which does not include the word
"Whittaker."
10.10 Standby Letters of Credit. (a) From the Closing Date until the
-------------------------
earlier of the delivery to NATO Maintenance and Supply Agency ("NAMSA") pursuant
-----
to the Contract between Seller and NAMSA or January 31, 1998, Seller shall keep
in place its Standby Letter of Credit No. LC-916930 issued by NationsBank of
Texas, N.A. in favor of NAMSA in the amount of $796,162.95.
(b) If, prior to the Closing Date, Seller receives any funds in
payment of approximately $605,000 owed to Seller by the Royal Saudi Air Force
("RSAF"), Seller shall maintain its Standby Letter of Credit No. LASB 226641 to
----
the RSAF issued by the Bank of America, N.A. in favor of the RSAF in the amount
of SAR 113,437.50 until such date as the RSAF cancels and returns such letter of
credit. If, at the Closing Date, Seller has not received any payments from the
RSAF, Buyer shall cause the issuance of and shall maintain a standby letter of
credit in favor of Seller with similar terms for the purpose of funding and
reimbursing Seller in the event that the RSAF draws on Standby Letter of Credit
No. LASB 226641.
(c) Seller shall maintain Standby Letters of Credit Nos. LC-920536
and LC920537 issued by NationsBank of Texas, N.A, in the amounts of $114,180 and
$17,300, respectively, in favor of Chung Shan Institute of Science and
Technology ("CSIST") until the earlier of the current applicable expiration date
-----
of such letters of credit and the date on which CSIST cancels and returns such
letters of credit to Seller.
(d) Except as expressly provided in Section 10.10 (a), (b) and (c)
above, after the Closing Date, neither Seller nor Buyer shall be obligated to
maintain any letters of credit which relate to the Business.
(e) In the event that any funds are drawn under the letters of credit
identified in Section 10.10 (a), (b) and (c) which have been established or
maintained by Seller, Buyer shall reimburse Seller in full for any such amount
drawn, no more than three days following such draw, by wire transfer to Seller's
account at the Bank of America, except to the extent amounts drawn are in
connection with, arising out of, resulting from or incident to any breach of any
covenant or agreement made by Seller in or pursuant to this Agreement, or any
excluded liability.
48
<PAGE>
ARTICLE XI
MISCELLANEOUS
-------------
11.1 Termination.
-----------
(a) Termination. This Agreement may be terminated at any time prior to
-----------
Closing:
(i) By mutual written consent of Buyer and Seller;
(ii) By Buyer or Seller if the Closing shall not have occurred on
or before October 31, 1997; provided, however, that this provision shall
not be available to Buyer if Seller has the right to terminate this
Agreement under clause (iv) of this Section 11.1, and this provision shall
not be available to Seller if Buyer has the right to terminate this
Agreement under clause (iii) of this Section 11.1;
(iii) By Buyer if there is a material breach of any representation
or warranty set forth in Article IV hereof or any covenant or agreement to
be complied with or performed by Seller pursuant to the terms of this
Agreement or the failure of a condition set forth in Article VIII to be
satisfied (and such condition is not waived in writing by Buyer) on or
prior to the Closing Date, or the occurrence of any event which results or
would result in the failure of a condition set forth in Article VIII to be
satisfied on or prior to the Closing Date; or
(iv) By Seller if there is a material breach of any
representation or warranty set forth in Article V hereof or of any covenant
or agreement to be complied with or performed by Buyer pursuant to the
terms of this Agreement or the failure of a condition set forth in Article
VII to be satisfied (and such condition is not waived in writing by Seller)
on or prior to the Closing Date, or the occurrence of any event which
results or would result in the failure of a condition set forth in Article
VII to be satisfied on or prior to the Closing Date.
(b) In the Event of Termination, In the event of termination of this
---------------------------
Agreement:
(i) Each party will redeliver all documents, work papers and
other material of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the
party furnishing the same;
(ii) The provisions of the Confidentiality Agreement shall
continue in full force and effect; and
(iii) No party hereto shall have any Liability to any other party
to this
49
<PAGE>
Agreement, except as stated in subsections (i), (ii) and (iii) of this Section
11.1(b), except for any willful breach of this Agreement occurring prior to the
proper termination of this Agreement. The foregoing provisions shall not limit
or restrict the availability of specific performance or other injunctive relief
to the extent that specific performance or such other relief would otherwise be
available to a party hereunder.
11.2 Assignment. Neither this Agreement nor any of the rights or
----------
obligations hereunder may be assigned by any party without the prior written
consent of the other parties; except that Buyer may, without such consent,
assign all such rights to any lender as collateral security and assign all such
rights and obligations to a wholly-owned subsidiary (or a partnership controlled
by Buyer) or subsidiaries of Buyer or to a successor in interest to Buyer which
shall assume all obligations and Liabilities of Buyer under this Agreement.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns, and no other person shall have any right, benefit or obligation under
this Agreement as a third party beneficiary or otherwise.
11.3 Notices: Transfer of Funds. All notices, requests, demands and other
--------------------------
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when received if
personally delivered; when transmitted if transmitted by telecopy, electronic or
digital transmission method; the day after it is sent, if sent for next day
delivery to a domestic address by recognized overnight delivery service (e.g.,
----
Federal Express); and five days after deposit in the mail, if sent by certified
or registered mail, return receipt requested. In each case notice shall be sent
to the appropriate parties at the following addresses:
If to Seller, addressed to:
Whittaker Corporation
1955 N. Surveyor Avenue
Simi Valley, California 93063
Telecopy: (805) 584-4182
Attention: Lynne M.O. Brickner, General Counsel
50
<PAGE>
With a copy to:
Latham & Watkins
633 W. Fifth Street, Suite 4000
Los Angeles, California 90071
Telecopy: (213) 891-8763
Attention: John R. Light, Esq.
If to Buyer, addressed to:
Condor Systems, Inc.
2133 Samaritan Drive
San Jose, California 95124
Telecopy: (408) 371-5874
Attention: Robert E. Young II, President
With a copy to:
Seyfarth, Shaw, Fairweather & Geraldson
55 East Monroe Street, Suite 4200
Chicago, Illinois 60603
Telecopy: (312) 269-8869
Attention: Theodore E. Cornell III, Esq.
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
Payments to be made to Seller hereunder shall be made by wire transferred
funds to be delivered to Seller's account at Bank of America, N.A. or to such
other account or place as Seller may designate by written notice as provided
herein.
11.4 Choice of Law. This Agreement shall be construed, interpreted and
-------------
the rights of the parties determined in accordance with the laws of the State of
California (without reference to the conflicts of law principles thereof),
except with respect to matters of law concerning the internal corporate affairs
of any corporate entity which is a party to or the subject of this Agreement,
and as to those matters the law of the jurisdiction under which the respective
entity derives its powers shall govern.
11.5 Entire Agreement: Amendments and Waivers. This Agreement, the
----------------------------------------
Ancillary Agreements, together with all exhibits and schedules hereto and
thereto (including the Disclosure Schedule), and the Confidentiality Agreement,
constitute the entire agreement among the parties pertaining to the subject
matter hereof and supersede all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties. This Agreement may not
be amended, supplemented or modified except by an instrument in writing signed
on behalf of
51
<PAGE>
each of the parties hereto. No waiver of any term or provision of this Agreement
shall be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
11.6 Multiple Counterparts. This Agreement may be executed in one or
---------------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.7 Expenses. Except as otherwise specified in this Agreement, each
--------
party hereto shall pay its own legal, accounting, out-of-pocket and other
expenses incident to this Agreement and to any action taken by such party in
preparation for carrying this Agreement into effect.
11.8 Invalidity. In the event that any one or more of the provisions
----------
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
11.9 Titles; Gender. The titles, captions or headings of the Articles
--------------
and Sections herein, and the use of a particular gender, are for convenience of
reference only and are not intended to be a part of or to affect or restrict the
meaning or interpretation of this Agreement.
11.10 Public Statements and Press Releases. The parties hereto covenant
------------------------------------
and agree that, except as provided for hereinbelow, each will not from and after
the date hereof make, issue or release any public announcement, press release,
statement or acknowledgment of the existence of, or reveal publicly the terms,
conditions and status of, the transactions provided for herein, without the
prior written consent of the other party as to the content and time of release
of and the media in which such statement or announcement is to be made;
provided, however, that in the case of announcements, statements,
acknowledgments or revelations which either party is required by law to make,
issue or release, the making, issuing or releasing of any such announcement,
statement, acknowledgment or revelation by the party so required to do so by law
shall not constitute a breach of this Agreement if such party shall have given,
to the extent reasonably possible, not less than two calendar days prior notice
to the other party, and shall have attempted, to the extent reasonably possible,
to clear such announcement, statement, acknowledgment or revelation with the
other party. Each party hereto agrees that it will not unreasonably withhold any
such consent or clearance.
11.11 Cumulative Remedies. All rights and remedies of either party hereto
-------------------
are cumulative of each other and of every other right or remedy such party may
otherwise have at law or in equity, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise of
other rights or remedies.
52
<PAGE>
11.12 Service of Process. Consent to Jurisdiction.
-------------------------------------------
(a) Service of Process. Subject to Section 11.13, each party hereto
------------------
irrevocably consents to the service of any process, pleading, notices or other
papers by the mailing of copies thereof by registered, certified or first class
mail, postage prepaid, to such party at such party's address set forth herein,
or by any other method provided or permitted under California law.
(b) Consent and Jurisdiction. Subject to Section 11.13 of this
------------------------
Agreement, each party hereto irrevocably and unconditionally (i) agrees that any
suit, action or other legal proceeding arising out of this Agreement may be
brought in the United States District Court for the Central District of
California or, if such court does not have jurisdiction or will not accept
jurisdiction, in any court of general jurisdiction in the County of Los Angeles,
California; (ii) consents to the jurisdiction or any such court in any such
suit, action or proceeding; and (iii) waives any objection which such
Shareholder may have to the laying of venue of any such suit, action or
proceeding in any such court.
11.13 Arbitration.
-----------
(a) The parties agree to negotiate to resolve any dispute between them
regarding this Agreement. If such negotiations do not resolve the dispute to the
satisfaction of both parties, then the President of Buyer shall meet with the
President of Seller and such representatives as either of them may elect to
resolve the dispute. This meeting shall be a required prerequisite before either
party may seek arbitration for resolution of the dispute.
(b) In the event that the parties are unable to resolve such dispute
within 30 days after the meeting between the President of Buyer and the
President of Seller, then the matter shall be referred to the Los Angeles office
of J.A.M.S/ENDDISPUTE for mediation, that is, an informal, non-binding
conference or conferences between the parties in which a neutral mediator will
seek to guide the parties to a resolution of the dispute. The parties shall
agree to the selection of a single mediator from J.A.M.S/ENDDISPUTE, or if they
are unable to agree, at the request of the parties, J.A.M.S/ENDDISPUTE will
assign a mediator with respect to the dispute. Unless otherwise agreed by the
parties, the mediation process will continue for no longer than thirty days, and
will terminate if the mediator determines that there is no possibility of
resolution of the dispute through mediation.
(c) If any disputes remain between the parties following the completion
of the two step process set forth above, then all remaining controversies or
claims of any nature whatsoever arising out of or connected with the disputes
shall be resolved by submission to final and binding arbitration administered by
J.A.M.S/ENDDISPUTE, in accordance with the J.A.M.S/ENDDISPUTE Rules of Practice
and Procedure. Arbitration may be initiated by a party to this Agreement by
serving the other parties with notice of the nature of any remaining
controversies or claims and a demand for arbitration. Simultaneously, the party
making the claim shall file a copy of such notice and demand for arbitration at
the Los Angeles, California J.A.M.S/ENDDISPUTE office together with the
appropriate filing fee. The arbitrator shall be selected by the joint agreement
of the parties to such dispute, but if they do not so agree within 20 days after
the date of the notice referred to above, the parties may request that the
Contract Arbitration Administrator at J.A.M.S/ENDDISPUTE furnish a list of three
potential arbitrators. Each party shall then be given 10 days to elect to strike
one name from the list. If only one person remains, then such person shall be
the arbitrator. If both parties strike the same name from the list, the Contract
Arbitration Administrator will appoint one person from the list as the
arbitrator of the dispute. Any award rendered by the arbitrator shall be
specifically enforceable by the parties in a court of law and the decision of
the arbitrator shall be final and binding and there shall be no right of appeal
therefrom, except as otherwise provided by applicable law. To the extent that
arbitration may not be legally permitted with respect to a dispute hereunder,
and the parties to such dispute do not mutually agree to submit such dispute to
arbitration, any party may commence a civil action in a court of appropriate
jurisdiction to resolve disputes hereunder. Notwithstanding the foregoing
arbitration provisions, nothing shall prevent the parties from settling any
dispute by mutual agreement at any time. The fees and expenses of such
arbitration (including reasonable attorneys' fees) or any action to enforce an
arbitration award shall be paid by the party that does not prevail in such
arbitration.
53
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their respective behalf, by their respective officers thereunto
duly authorized, all as of the day and year first above written.
CONDOR SYSTEMS, INC.
/s/ R. E. Young
---------------
Name: R. E. Young II
Title: Chief Executive Officer and President
WHITTAKER CORPORATION
/s/ J. F. Alibrandi
-------------------
Name: J. F. Alibrandi
Title: Chief Executive Officer and President
WHITTAKER COMMUNICATIONS LIMITED
/s/ J. F. Alibrandi
-------------------
Name: J. F. Alibrandi
Title: Authorized Signatory
WHITTAKER SERVICES CORPORATION
/s/ J. F. Alibrandi
-------------------
Name: J. F. Alibrandi
Title: President
54
<PAGE>
Exhibit 10.19
WHITTAKER CORPORATION
CAFETERIA PLAN
Whittaker Corporation, a corporation organized under the laws of the State
of Delaware, herein referred to as the "Employer," does hereby restate the
Whittaker Corporation Cafeteria Plan (the "Plan") for the benefit of eligible
Employees and Dependents on the terms and conditions described hereinafter.
WHEREAS, the Employer maintains medical, dental and vision benefit plans
the contributions for which are currently shared by the Employee and the
Employer; and
WHEREAS, the Employer desires to expand the benefits available to Employees
and their Dependents to provide additional benefits in the form of medical
reimbursement benefits and Dependent care expense reimbursement benefits and to
continue to allow reduction of Compensation to pay for medical, dental and
vision coverage, and
WHEREAS, the Employer desires to restate the Plan effective January 1,
1999.
NOW, THEREFORE, the Plan is hereby restated to read as follows:
<PAGE>
ARTICLE I
EFFECTIVE DATE AND PURPOSE
Section 1.1. Effective Date. The effective date of the Plan as restated
----------- --------------
herein is January 1, 1999.
Section 1.2. Purpose of Plan. The purpose of the Plan is to provide
----------- ---------------
certain taxable and nontaxable benefits to eligible Employees of the Employer.
The Plan is intended to constitute a cafeteria plan, within the meaning of
Section 125 of the Code. In addition, it is intended that the Plan provide
certain Medical Reimbursement Benefits in accordance with the terms of Sections
105 and 106 of the Code, Dependent Care Benefits in accordance with the
provisions of Section 129 of the Code, and reduction of Compensation for medical
coverage in accordance with the terms of Sections 104 and 105 of the Code. The
Plan is to be maintained for the exclusive benefit of Employees (and their
eligible Dependents).
<PAGE>
ARTICLE II
DEFINITIONS
Section 2.1. Adjustment Date shall mean the date chosen by the Plan
----------- ---------------
Administrator on which the Participant's Health Care Spending Account, and/or
Dependent Care Spending Account is increased by the Participant's reduction of
Compensation and reduced by payments made from such account(s).
Section 2.2. Affiliate shall mean any employer which must be treated as a
----------- ---------
single employer under Code Section 414(b), (c) or (m). The term "Participating
Affiliate" shall mean any Affiliate which adopts this Plan and makes
contributions as required by the Employer.
Section 2.3. Benefit Administration Manager shall mean the person
----------- ------------------------------
providing consulting services to the Employer in connection with operation of
the Plan and performing such other functions, including the processing and
payment of claims, as may be delegated from time to time.
Section 2.4. Board shall mean the Board of Directors of the Employer.
----------- -----
Section 2.5. Change in Family Status shall mean, with respect to an
----------- -----------------------
Employee, any of the following:
(a) marriage.
(b) divorce, legal separation or annulment.
(c) death of the Employee's spouse or Dependent.
(d) birth, adoption, or placement for adoption of a child.
(e) termination of the employment of the Employee, Employee's spouse or
Dependent.
(f) commencement of the employment of the Employee, Employee's spouse or
Dependent.
(g) change from part-time to full-time or from full-time to part-time
employment status by the Employee, the Employee's spouse or Dependent.
(h) commencement of or return from an unpaid leave of absence from
employment by the Employee, the Employee's spouse or Dependent.
(i) significant change in the health coverage of the Employee or the
Employee's spouse attributable to the employment of the Employee's
spouse.
(j) transfer of the Employee by the Employer to a new residence or
worksite which results in a significant change in the Employee's
coverage.
(k) spouse or Dependent child of the Employee becoming eligible or
ineligible for coverage as a spouse or Dependent child.
(l) such other events that the Plan Administrator may determine will
permit a change or revocation of an election in accordance with the
rulings and regulations under Code Section 125.
<PAGE>
(m) entitlement to Medicare or Medicaid of the Employee, the Employee's
spouse or dependent child.
(n) the issuance of a judgment, decree or order that requires accident or
health coverage for the Employee's Dependent child.
Section 2.6. Code shall mean the Internal Revenue Code of 1986, as
----------- ----
amended, or as it may be amended from time to time.
Section 2.7. Committee shall mean the Board, or individuals designated by
----------- ---------
the Board to administer the Plan pursuant to Article X.
Section 2.8. Compensation shall mean an Employee's base pay prior to any
----------- ------------
reductions made under this Plan or any other plan allowing for reduction in
Compensation.
Section 2.9. Credits shall mean the Company contributions with which
------------ -------
participants may purchase benefit coverages, as specified in Section 4.2.
Section 2.10. Date of Employment shall mean the first date on which an
------------ ------------------
Employee enters into the legal relationship of employer and employee with the
Employer.
Section 2.11. Date of Re-employment shall mean the first date on which an
------------ ---------------------
Employee enters into the legal relationship of employer and employee with the
Employer following a termination of employment.
Section 2.12. Dental Plan shall mean the Whittaker Corporation Dental
------------- -----------
Benefit Plan as incorporated herein.
Section 2.13. Dependent shall mean, with respect to Medical Reimbursement
------------ ---------
Benefits, the spouse of the Participant who is not divorced or legally separated
from the Participant and any Dependent as defined in Code Section 152 for whom
the Employee may claim an exemption under Code Section 151.
Section 2.14. Dependent Care Benefits shall mean those expenses eligible
------------ -----------------------
for reimbursement as provided by Article VII and which meet the criteria of a
Dependent care assistance program in accordance with Section 129 of the Code.
Section 2.15. Dependent Care Spending Account shall mean the balance
------------ -------------------------------
posted to the account of each Participant, or Former Participant consisting of
Employer contributions and any elective reductions of Compensation for payment
of Dependent Care Benefits less any payment therefrom.
Section 2.16. Eligibility Date shall mean the date on which an Employee
------------ ----------------
becomes eligible to participate in the Plan pursuant to Section 3.1.
Section 2.17. Employee shall mean any individual who is regularly in the
------------ --------
active employment of the Employer on a full-time basis. An individual shall be
considered regularly in the active employment of the Employer on a fulltime
basis with respect to any Plan Year if the relationship during such year between
the him/her and the Employer is the legal relationship of employer and employee,
and, if his/her customary employment for such year is for at least 30 hours per
week. Persons employed on a temporary basis or whose customary employment is
for less than 30 hours per week shall not be Employees for purposes of this
Section 2.17.
Section 2.18. Employer shall mean Whittaker Corporation and any
------------ --------
Participating Affiliates.
<PAGE>
Section 2.19. Entry Date shall mean the first day of the month coinciding
------------ ----------
with or next following the Employee's Date of Employment.
Section 2.20. FMLA Leave shall mean an Employee's leave of absence granted
------------ ----------
under the Family and Medical Leave Act of 1993 (or any state law that provides
more generous family or medical leave).
Section 2.21. ERISA shall mean the Employee Retirement Income Security Act
------------- -----
of 1974, as from time to time amended.
Section 2.22. Forfeitures shall mean the divested portion of a
------------ -----------
Participant's Health Care Spending Account, or Dependent Care Spending Account,
determined in accordance with the provisions of Section 4.4.
Section 2.23. Former Participant shall mean any person who ceases to be a
------------ ------------------
Participant, but whose interest in the Plan has not been wholly distributed or
forfeited.
Section 2.24. Health Care Spending Account shall mean the balance posted
------------ ----------------------------
to the record of each Participant, or Former Participant consisting of Employer
contributions and any elective reductions of Compensation for payment of Medical
Reimbursement Benefits less any payment therefrom.
Section 2.25. Highly Compensated Employee shall mean an individual as
------------ ---------------------------
described in Code Section 414(q).
Section 2.26. Highly Compensated Individual or Participant shall mean an
------------ --------------------------------------------
individual as described in Code Section 125(e). With respect to the Health Care
Spending Account, Highly Compensated Individual shall mean an individual as
described in Code Section 105(h).
Section 2.27. Key Employee shall mean an individual as described in Code
------------ ------------
Section 416(i)(1).
Section 2.28. Medical Plan shall mean the group medical benefit programs
------------ ------------
sponsored by Whittaker Corporation as incorporated herein.
Section 2.29. Medical Reimbursement Benefits shall mean health-related
------------ ------------------------------
expenditures which meet the definition of medical care under Section 213 of the
Code as set forth in Article VI.
Section 2.30. Option shall mean a level of coverage with respect to the
------------ ------
Medical, Dental or Vision Plan.
Section 2.31. Participant shall mean every Employee who meets the
------------ -----------
requirements for participation set forth in Article III.
Section 2.32. Plan shall mean the Whittaker Corporation Cafeteria Plan as
------------- -----
herein set forth and as it may be duly amended.
Section 2.33. Plan Administrator shall be the Committee which shall be
------------ ------------------
responsible for the functions and management of the Plan.
Section 2.34. Plan Benefits shall mean Medical Reimbursement Benefits,
------------ -------------
Dependent Care Benefits or premium payments, as may be elected by a Participant
pursuant to Section 4.1.
Section 2.35. Plan Year shall mean the twelve-month period ending on
------------ ---------
December 31 of each year. The Plan Year shall be the period of coverage for
each benefit hereunder.
<PAGE>
Section 2.36. Qualifying Dependent, with respect to Dependent Care
------------ --------------------
Benefits, shall mean any of the following individuals for whom the Participant
is entitled to reimbursement for the expenses described in Section 7.4:
(a) A Dependent of the Participant who is under the age of 13 and with
respect to whom the Participant is entitled to an exemption under Code
Section 151;
(b) A Dependent of the Participant who is physically or mentally incapable
of caring for himself; or
(c) The spouse of the Participant who is physically or mentally incapable
of caring for himself/herself.
For purposes of (a) and (b), the child of divorced parents shall be treated
as a Qualifying Dependent of the custodial parent (as defined in Code Section
152(e)(1)), notwithstanding Code Sections 152(e)(2) and 152(e)(4).
Section 2.37. Gender and Number. The masculine gender shall be deemed to
------------ -----------------
include the feminine and the singular shall include the plural unless otherwise
clearly required by the context.
Section 2.38 Vision Plan. Shall mean the Whittaker Corporation Vision
------------ ------------
Care Plan as incorporated herein.
Section 3.1. Participation. During the period designated by the Committee
----------- -------------
but no later than December 31, every Employee who was has satisfied the Medical,
Dental or Vision Plan eligibility requirements shall be eligible to participate
in the Plan as of the next succeeding January 1, provided he/she enrolls and
makes the election required by Section 4.1 on or before his or her Entry Date.
Every other Employee shall be eligible to participate as of his Entry Date,
provided he enrolls and makes the elections required by Section 4.1 on or before
his Entry Date.
An Employee who fails to take the necessary steps to participate in the
Plan as of his Eligibility Date shall be able to participate in a future Plan
Year provided he enrolls and makes the election required by Section 4.1 prior to
the beginning of such future Plan Year.
Section 3.2. Termination of Participation.
----------- ----------------------------
(a) Participation in the Plan shall terminate as to all Participants on
the date the Plan is terminated, as hereinafter provided, and, as to
an individual Participant, on the last day of the calendar month in
which occurs the earliest of the following dates:
(1) The date the Plan is amended to terminate the coverage of a class
of Employees of which such Participant is a member.
(2) The date such Participant ceases to be a member of a class or
classes of Employees eligible for coverage.
(3) The date such Participant's active employment with the Employer
is terminated.
(4) The date such Participant ceases to be regularly scheduled to
work at least 30 hours per week.
<PAGE>
(b)(1) Dependent Care Spending Account. Following termination of
--------------------------------
participation, a Participant shall, for the sole purpose of receiving
Dependent Care Spending Account reimbursements, continue to be treated
as a Participant until the end of the Plan Year in which such
termination occurred. Claims for Dependent Care Benefit expenses
incurred during the Plan Year but following the Participant's date of
termination may be submitted within the time period set forth in
Section 6.6. Such reimbursement following termination shall not
exceed the actual account balance of the Dependent Care Spending
Account.
(b)(2) Health Care Spending Account. If participation in the Health Care
----------------------------
Spending Account ceases due to a termination of active employment
(other than by reason of such Employee's gross misconduct) or by
reason of a reduction in the Employee's regularly scheduled hours,
such participation may be continued as set forth herein.
Following appropriate notice, an Employee may elect to continue
coverage under the Plan for himself and/or his Dependents or a
Dependent may elect to continue coverage, all conditioned upon a
timely election and timely payment of the required contributions to
the Health Care Spending Account. An election to continue coverage
shall be considered timely if such election is made within the 60 day
period prescribed by Code Section 4980B. Required contributions shall
be equal to 102% of the applicable premium, or cost to the Plan, for
coverage of similarly situated Employees and/or Dependents who have
not qualified for continuation coverage. Such continued coverage
shall terminate upon the first to occur of the following:
(A) the date the Employer ceases to provide any group health plan to
any Employee.
(B) the end of the period for which a contribution is made, if the
next required contribution is not timely made. A contribution
will not be timely made unless it is made within 30 days after
the due date, which is the first day of the period (such as a
calendar month) for which it is made. However, an Employee's or
Dependent's first contribution under this Section shall be
considered timely made if made by the day which is forty-five
days after the day on which the Employee or Dependent made the
initial election for continuation coverage under this Section.
(C) the date on which he becomes covered under any other group health
care plan (as an employee or otherwise), provided the other group
health plan does not exclude or limit the available coverage
because of any pre-existing condition of such Employee or
Dependent.
(D) the date on which he becomes entitled to Medicare benefits under
Title XVIII of the Social Security Act after the date of the
election.
(E) twenty-nine months from the date of termination of active
employment or reduction in hours for an Employee or Dependent who
at the time of such event is determined to be disabled for
purposes of Title II or Title XVI of the Social Security Act at
any time during the first 60 days of continuation coverage;
provided, the Employee or Dependent notifies the Plan
Administrator of such determination before the end of the
eighteenth month of continuation coverage. Provided further, if
the individual entitled to the 29 months of continuation coverage
has non-disabled family members, those non-disabled family
members may be added to the disabled individual's continuation
coverage. The Employee or Dependent shall also notify the Plan
Administrator:
<PAGE>
(1) within sixty days of the determination of such Employee's or
Dependent's disability for purposes of Title II or Title XVI
of the Social Security Act, and
(2) within sixty days of the date of final determination that
the Employee or Dependent is no longer disabled. In such a
case, the Employee's or Dependent's coverage under the Plan
shall cease on the first day of the month coincident with or
next following thirty days after the date of the final
determination that the Employee or Dependent is no longer
disabled.
For purposes of this subsection (E), the Plan Administrator shall
charge the Employee or Dependent 150% of the applicable premium
after the eighteenth month of continuation of coverage under the
Plan.
(F) eighteen months from the date of termination of active employment
or reduction of hours; however, if another qualifying event
occurs within eighteen months of the date of termination of
active employment or reduction of hours (or within twenty-nine
months of the initial qualifying event for an individual
described in paragraph (E) above, is determined to be disabled
for purposes of Title II or Title XVI of the Social Security
Act), thirty-six months from the date of the initial qualifying
event.
A covered former Employee receiving continuation coverage may add
his newborn or adopted Dependent child(ren) to continuation
coverage, provided the former Employee adds such child(ren) to
continuation coverage within 31 days of the birth or adoption and
pays the additional premium. These child(ren) who are added to
continuation coverage shall be considered qualified beneficiaries
for purpose of Code Section 4980B.
This section shall be administered in accordance with the
requirements of Code Section 4980B and any amendments thereto and
any regulations thereunder.
(G) The Committee in its discretion, may adopt additional rules to
ensure that the Plan meets the applicable requirements of Code
Section 4980B for extending the option to continue coverage under
the Health Care Spending Account to Participants and their
covered Dependents.
Section 3.3. Special Rules for FMLA Leaves. Prior to commencement of a
----------- -----------------------------
FMLA Leave, an Employee may choose to maintain or drop coverage under the
Medical, Dental or Vision Plans and Health Care Spending Account for the
duration of the FMLA Leave. If a Participant ceases coverage under the Health
Care Spending Account, claims incurred after coverage ceases shall not be
eligible for reimbursement. The Employee's entitlement to any other benefit
shall be determined by the Committee's established policy for providing such
benefit to Employees on other leaves of absence.
If the FMLA Leave is paid, payment shall continue to be made under the Plan
by the method previously selected by the Participant. If the FMLA Leave is
unpaid, the Committee shall provide the Employee with written notice of the
terms of the payment of premiums for coverage during FMLA Leave. The
Committee's obligation to maintain coverage shall stop if the Participant's
payment is more than 30 days late; provided, that the Committee has provided
written notice that coverage will stop at least 15 days before coverage stops;
and provided further, that if the Committee has an established policy for other
forms of unpaid leave of absence under which coverage stops retroactively to the
date the unpaid premium payment was due, the Committee may stop coverage
retroactively to such date in accordance with that policy if the 15-day notice
was given.
<PAGE>
If the Employee drops coverage or fails to make the required premium
payment during FMLA Leave, the Employee may restore equivalent coverage upon
return from FMLA Leave without any waiting period or preexisting condition
limitation. The Committee reserves the right to recover the Employee's share of
premium payments missed during FMLA Leave, which the Committee paid in order to
maintain coverage, when the Participant returns to work or if the Employee fails
to return, unless the failure is due to circumstances beyond the Employee's
control.
Section 3.4. Special Rules for Veterans. Prior to commencement of an
----------- --------------------------
absence from active work for service in the uniformed services, an Employee may
choose to maintain or drop coverage under the Medical, Dental or Vision Plans
and Health Care Spending Account for the lesser of (a) the 18-month period
beginning on the first date of absence, or (b) the period ending on the day
after the date on which the Employee fails to apply for or return to employment,
as determined under 38 U.S.C. Section 4312(e).
An Employee who elects to continue coverage may not be charged more than
102 percent of the full premium for the applicable coverage. Provided that an
employee whose service in the uniformed services is for less than 31 days may
not be charged more than the Employee share, if any, for such coverage.
If an Employee's coverage is dropped because of service in the uniformed
services, the Employee's coverage must be restored upon re-employment without
any waiting period or preexisting condition limitation, except for coverage of
any illness or injury incurred in or aggravated during performance of service in
the uniformed services.
<PAGE>
ARTICLE IV
CAFETERIA BENEFITS PLAN OPERATION
Section 4.1. Employee Elections.
----------- ------------------
(a) Employee Compensation Reduction.
-------------------------------
(1) In accordance with Article V, Medical, Dental, and Vision Plan
Premiums a Participant may elect to reduce his Compensation by an
amount up to the amount equal to medical, dental, and vision plan
premiums eligible to be paid pursuant to the Plan during the Plan
Year for which the election is made. Such reduction shall be
consistent with the Participant's coverage elections under
Section 4.1(b) and Section 5.2.
(2) In accordance with Article VI, Medical Reimbursement Benefits, a
Participant may elect to reduce his Compensation by a dollar
amount up to $2,500 during the Plan Year for which the election
is made. Such amount shall be in addition to the amounts, if
any, elected pursuant to Sections 4.1(a)(1) and 4.1(a)(3).
Reductions of Compensation pursuant to this Section 4.1(a)(2)
shall be credited to the Participant's Health Care Spending
Account.
(3) In accordance with Article VII, Dependent Care Benefits, a
Participant may elect to reduce his Compensation by a dollar
amount up to $5,000 during the Plan Year for which the election
is made. Such amounts shall be in addition to the amounts, if
any, elected pursuant to Sections 4.1(a)(1) and 4.1(a)(2).
Reductions of Compensation pursuant to this Section 4.1(a)(3)
shall be credited to the Participant's Dependent Care Spending
Account.
(4) Annual elections to reduce Compensation or to change existing
elections shall be made during the period specified by the
Committee, but by no later than December 31 of each year to be
effective as of January 1 of the following Plan Year.
(5) An Employee may not modify or revoke his Compensation reduction
election at any time during the Plan Year except as follows:
(A) An Employee may revoke an election and may make a new
election for the remaining portion of the Plan Year if the
revocation and new election are both on account of a Change
in Family Status and consistent with such Change in Family
Status. With respect to the Medical, Dental and Vision Plan
an election change is consistent with a Change in Family
Status if and only if the Change in Family Status results in
the Employee or the Employee's Dependent gaining or losing
eligibility for medical, dental or vision coverage under
either the Plan or Plan of the Dependent's employer and the
election change corresponds with that gain or loss of
coverage. An Employee gains or loses eligibility for
coverage if he or she becomes eligible or ineligible for a
particular benefit package option under the Plan.
The Participant must notify the Plan Administrator in
writing within 31 days of a Change in Family Status and
describe the reason that the change
<PAGE>
in election is consistent with the Change in Family Status.
Based on the facts and circumstances presented by the
Participant, the Plan Administrator will determine whether
to approve the election change as consistent with the Change
in Family Status. Each benefit election change shall be
reviewed separately to determine whether it is consistent
with the Change in Family Status.
The Plan shall permit an Employee to revoke an election of
medical, dental or vision coverage and make a new election
that corresponds with the special enrollment rights provided
in Code Section 9801(f), whether or not the change in
election is permitted under this section.
Notwithstanding any other provision in this section, if the
Employee or Employee's Dependent becomes eligible for
continuation coverage under the Medical, Dental or Vision
Plan as provided in Code Section 4980B, the Employee may
elect to increase payments under the Plan in order to pay
for the continuation coverage.
(B) An election is revoked if an Employee separates from the
service of the Employer. However, if the individual is
rehired by the Employer during the same Plan Year, he must
make the same elections which were previously in effect
during the same Plan Year, unless he has had a Change in
Family Status while separated from service with the
Employer.
(C) An election is revoked if the Participant fails to make a
required premium payment. If this occurs, however, the
Participant is prohibited from making a new election for the
remainder of the Plan Year.
(6) The Committee shall terminate the elections of Highly Compensated
Employees, and Highly Compensated Individuals at such time the
applicable discrimination tests indicate that such elections must
be terminated in order to comply with the requirements of Code
Section 125 and 129; provided however, the Committee shall not
modify the elections of any individual in such a way that it will
violate the requirement that elective contributions must be
forfeited for the applicable Plan Year.
(7) If an Employee fails to take the necessary steps to make any
available election on a timely basis pursuant to this Section
4.1(a), he shall be treated as having made an election that is
necessary for and consistent with the coverage provided in
accordance with Section 4.1(b).
(b) Election of Plan Benefits.
-------------------------
(1) A Participant may elect not to be covered by the Medical, Dental
or Vision Plan.
(2) Each Participant may elect prior to the beginning of the next
succeeding Plan Year to use amounts which will be allocated to
his Health Care Spending Account to pay Medical Reimbursement
Benefits as provided in Article VI.
(3) Each Participant may elect prior to the beginning of the next
succeeding Plan Year to use amounts that will be allocated to his
Dependent Care Spending Account to pay Dependent Care Benefits as
provided in Article VII.
<PAGE>
(4) Each Participant shall elect his coverage under the Medical,
Dental or Vision Plans. Such election shall specify an Option
for the level of Dependent coverage, if any, for these benefits.
(5) An Employee who fails to take the necessary steps to participate
in the Plan as of the employee Eligibility Date shall be able to
participate in a future Plan Year provided such employee enrolls
and makes the election required by Section 4.2 prior to the
beginning of such future Plan Year. If an Employee makes a
timely election but is awaiting underwriter approval of coverage,
such employee will retain coverage in effect at that time, if
any, and will participate in this Plan in a manner consistent
with such coverage.
(6) If an Employee (other than one making the initial election) fails
to take the necessary steps to make any available election on a
timely basis or is awaiting underwriter approval of coverage, the
employee will retain coverage in effect at that time; provided
however, the employee shall not participate in the Health Care
Spending Account or Dependent Care Spending Account.
(7) Elections pursuant to this Section 4.1(b) shall be made on or
before December 31 each year to be effective as of January 1 of
the following Plan Year. An Employee may not modify or revoke
such election at any time during the Plan Year except as
described in Section 4.1(a)(5).
Section 4.2. Employer Contributions.
----------- ----------------------
(a) The Company shall contribute to the Plan for each Plan Year, such
amount which shall equal the total of each Participant's reduction of
Compensation as elected pursuant to Section 4.1(a)(1) and such amount
which shall equal the total of each Participant's reduction of
Compensation as elected pursuant to Sections 4.1(a)(2) and 4.1(a)(3).
The total contribution for the Plan Year, pursuant to this Section
4.2(a), shall not exceed the amount equal to those premiums eligible
to be paid pursuant to the Plan during the Plan Year for which
Participant elections are made plus Participants reduction of
Compensation amounts pursuant to Sections 4.1(a)(2) and 4.1(a)(3).
(b) Participants who waive coverage under the Medical, Dental or Vision
Plan pursuant to Section 4.1(b)(1) shall be entitled to Credits as
shown on Schedule A for each month during the Plan Year that he is a
Participant.
The amount contributed by the Company on behalf of each Participant
entitled to the Credits described above shall be an amount for each
month during the Plan Year that the Employee is a Participant as shown
on Schedule A, incorporated by reference. The Credits described in
Schedule A may be changed as premium costs change but such changes
shall only be effective as of January 1 of each Plan Year.
Participants shall be notified of any change in Schedule A prior to
the beginning of each Plan Year. Such Credits may be allocated to the
Medical Reimbursement Spending Account or the Dependent Care Spending
Account, or a Participant may elect to receive these amounts in cash.
(c) Except as provided in Section 4.4, all contributions made by the
Company shall be used for the exclusive benefit of Participants under
the Plan.
<PAGE>
Amounts in the Health Care Spending Account shall be available for Medical
Reimbursement Benefits pursuant to Article VI. Amounts in the Dependent Care
Spending Account shall be available for Dependent Care Benefits pursuant to
Article VII.
Section 4.3. Account Adjustments. Each Adjustment Date, the accounts of
----------- -------------------
each Participant or Former Participant shall be adjusted to reflect reductions
of Compensation by the Participant, Employer contributions and the payment of
Plan Benefits as elected by the Participant.
Section 4.4. Forfeitures. Except as otherwise provided in Sections 6.6
----------- -----------
and 7.6, any amount which may remain in the Health Care Spending Account or
Dependent Care Spending Account as of the last day of the Plan Year shall be
forfeited. Any such forfeiture shall be used to reduce the administrative
expenses of the Plan for the next succeeding Plan Year.
<PAGE>
ARTICLE V
MEDICAL, DENTAL AND VISION PLAN PREMIUMS
Section 5.1. Type of Plan. This Article shall incorporate the Medical
----------- ------------
Plan, the Dental Plan and the Vision Plan as part of the Whittaker Corporation
Cafeteria Plan. This Article shall provide for payment of the cost of medical
care coverage, dental coverage and vision coverage through reduction of
Compensation by Participants. The benefits under the Medical, Dental and Vision
Plan shall be paid under the terms of such plans as in effect from time to time.
Section 5.2. Election of Plan Benefits. During the period designated by
----------- -------------------------
the Committee but no later than December 31 of each Plan Year, each Participant
may elect to reduce his Compensation to purchase coverage under the Medical
Plan, the Dental Plan or the Vision Plan for the next Plan Year. Such election
shall be irrevocable except as described in Section 4.1(a)(5). Any decision
regarding the modification or revocation of an election pursuant to Section
4.1(a)(5) shall be made by the Committee on a nondiscriminatory basis and in
accordance with applicable law and regulation.
Section 5.3. Adjustments. The premium amounts shall be paid by the
----------- -----------
Committee and shall be transferred to the requisite insurance carrier or claims
administrator for the Plan as elected by the Participant in accordance with the
fiduciary standards of ERISA. Solely for purposes of 29 CFR Section 2510.3-102,
an Employee's (or Dependent's) after-tax contributions made for a benefit
coverage available under the Plan shall be considered to have been made pursuant
to the terms of a cafeteria plan under Code Section 125.
<PAGE>
ARTICLE VI
MEDICAL REIMBURSEMENT BENEFITS
Section 6.1. Type of Plan. This Article shall establish the Health Care
----------- ------------
Spending Account as a part of the Whittaker Corporation Cafeteria Plan.
Section 6.2. Participant Elections. During the period designated by the
----------- ---------------------
Committee but no later than December 31 of each Plan Year, each Participant may
elect that amounts allocated to his Health Care Spending Account for the next
Plan Year be used to pay Medical Reimbursement Benefits as provided below. On
or after January 1 of each Plan Year, a Participant may not elect to change the
dollar amount allocated to his Health Care Spending Account for Medical
Reimbursement Benefits except as described in Section 4.1(a)(5). The maximum
amount available to be contributed to the Health Care Spending Account for any
pay period shall be ratably calculated based on the number of pay periods in the
Plan Year. Any decision regarding the modification or revocation of an election
pursuant to Section 4.1(a)(5) shall be made by the Committee on a
nondiscriminatory basis and in accordance with applicable law and regulation.
Section 6.3. Medical Reimbursement Benefits. A Participant or his
----------- ------------------------------
Dependent who incurs expenses as a result of illness or injury shall be eligible
for the Medical Reimbursement Benefits provided for below. It is intended that
the provisions of this Article VI not be exclusive as to reimbursable expenses
and that any health related expenditures which meet the definition of medical
care under Code Section 213 shall be considered as a reimbursable expense. The
maximum dollar amount available to each Participant for reimbursement for each
Plan Year pursuant to this Article VI shall be $2,500 and shall be administered
in accordance with the requirements of Code Section 105(h) and Code Section 125.
Section 6.4. Medical Expenses. A Participant may elect a Health Care
----------- ----------------
Spending Account distribution to reimburse such Participant for the following
expenses incurred by the Participant or a covered Dependent during a Plan Year
after the Participant's Entry Date which are not reimbursed by insurance or by
another Code Section 125 arrangement:
(a) All deductible amounts paid by the Participant in accordance with the
terms of the Medical, Dental or Vision Plan.
(b) All co-payment amounts paid by the Participant as required on account
of Medical, Dental or Vision Plan benefits being paid on a co-payment
basis.
(c) All amounts paid by the Participant as required after a maximum
benefit has been paid by the Medical, Dental or Vision Plan.
(d) All amounts paid by the Participant for charges excluded by the terms
of the Medical, Dental or Vision Plan.
(e) Any other expenses which qualify as medical care under Code Section
213, except premiums or other payments made for medical, dental or
vision coverage or qualified long-term care expenses (as defined in
Code Section 7702B).
Section 6.5. Documentation of Expenses. A Participant who applies for
----------- -------------------------
reimbursement of Medical Reimbursement Benefits shall submit the following
information to the Benefits Administration Manager:
(a) a statement from the provider that the medical expenses have been
incurred and the amount and date of the medical expenses;
<PAGE>
(b) the name of the person, organization or entity to which the medical
expenses were paid;
(c) the name of the person for whom the medical expenses were incurred;
and
(d) a statement from the Participant that the medical expenses have not
been reimbursed or are not reimbursable under any other health plan
coverage.
Section 6.6. Submission of Claims. All claims for expenses pursuant to
----------- --------------------
this Article VI must be submitted during the Plan Year the expense is incurred,
or on or before March 31 following the close of such Plan Year.
Section 6.7. Assignability. Amounts payable by the Plan may not be used
----------- -------------
to make direct payments to physicians, hospitals or other providers of services
covered by the Plan.
Section 6.8. Coordination of Benefits. Benefits provided by this Plan may
----------- ------------------------
not be coordinated with any other medical, dental or vision care benefits
provided by any other plan. For purposes of coordination of benefits, this Plan
is not a group health plan.
Section 6.9. Separate Written Plan. For purposes of Sections 105(b) and
----------- ---------------------
106 of the Code, this Article VI shall constitute a separate medical
reimbursement plan. To the extent necessary, other provisions of the Plan shall
be incorporated by reference in this Article VI.
<PAGE>
ARTICLE VII
DEPENDENT CARE BENEFITS
Section 7.1. Type of Plan. This Article shall establish the Dependent
----------- ------------
Care Spending Account as a part of the Whittaker Corporation Cafeteria Plan.
Section 7.2. Participant Elections. During the period designated by the
----------- ---------------------
Committee but no later than December 31 of each Plan Year, each Participant may
elect that amounts allocated to his Dependent Care Spending Account shall be
used to pay Dependent Care Benefits. On or after January 1 of each Plan Year a
Participant may not elect to change the dollar amount allocated to his Dependent
Care Spending Account for Dependent Care Benefits except as described in Section
4.1(a)(5). The maximum amount available to be contributed to the Dependent Care
Spending Account for any pay period shall be ratably calculated based on the
number of pay periods in the Plan Year. Any decision regarding the modification
or revocation of an election pursuant to Section 4.1(a)(5) shall be made by the
Committee on a non-discriminatory basis and in accordance with applicable law
and regulation.
Section 7.3. Dependent Care Benefits. A Participant who incurs expenses
----------- -----------------------
for Dependent care shall be eligible for the Dependent Care Benefits provided
for below. It is intended that the provisions of this Article VII constitute a
Dependent care assistance program in accordance with Section 129 of the Code.
The maximum dollar amount available to each Participant for reimbursement for
each Plan Year pursuant to this Article VII shall be $5,000 or $2,500 if married
filing separately, and shall be administered in accordance with the requirements
of Code Section 129. If a Participant's spouse also participates in a Dependent
care assistance plan, as defined in Code Section 129(d)(l), the $5,000
limitation in this Plan shall be reduced dollar-for-dollar by the amount
contributed to the spouse's Dependent care assistance plan. In addition, the
amount available to each Participant for reimbursement is subject to the limits
set forth in Section 7.8.
Section 7.4. Dependent Care Expenses. A Participant may elect a Dependent
----------- -----------------------
Care Spending Account distribution to reimburse such Participant for expenses
paid for household services and Dependent care services which are incurred after
the Participant's Entry Date to enable the Participant (or if married, the
Participant and his spouse) to be employed for any period for which there are
one or more Qualifying Dependents, with respect to the Participant. Such
expenses shall not include amounts paid for services outside the Participant's
household at a camp where a Qualifying Dependent stays overnight. Household and
Dependent care services may be provided inside or outside the home of the
Participant, but may not be provided by:
(a) an individual who would qualify as a Dependent for purposes of Code
Section 151,
(b) the Participant's spouse, or
(c) a child of the Participant who has not attained age 19 at the close of
the Participant's tax year.
Additionally, if such services are provided outside the Participant's
household, they must be incurred for care of an individual described in Section
7.4(a) or an individual described in Section 7.4(b) or (c) who regularly spends
at least eight hours each day in the Participant's household.
Section 7.5. Documentation of Expenses. A Participant who applies for
----------- -------------------------
reimbursement of Dependent Care Benefits shall submit the following information
to the Plan Administrator or its designee:
<PAGE>
(a) a statement from the Dependent care provider that the child care
expenses have been incurred and the amount and date of the expense;
(b) the name, address and taxpayer identification number of the Dependent
care provider; and
(c) the name of each Qualifying Dependent for whom the expenses are
incurred.
Section 7.6. Submission of Claims. All claims for expenses pursuant to
----------- --------------------
this Article VII must be submitted during the Plan Year the expense is incurred,
or on or before March 31 following the close of such Plan Year.
Section 7.7. Statement to Participants. On or before January 31 of each
----------- -------------------------
Plan Year, a written statement shall be provided to a Participant who has
elected a Dependent Care Spending Account distribution under this Article during
the preceding calendar year. Such statement shall show the amounts reimbursed
to such Participant from the Plan.
Section 7.8. Maximum Benefit. The maximum benefit allowable for Dependent
----------- ---------------
Care Benefits for each Plan Year shall be the lesser of the Participant's earned
income or the Participant's spouse's earned income as determined by Code Section
129. For purposes of this Section 7.8, the spouse of any Participant who is a
student or a disabled individual as described in Code Section 21(d)(2), shall be
deemed for each month during which such spouse is a student or disabled
individual to be gainfully employed and have earned income for such month of:
(a) $200, if there is one Qualifying Dependent with respect to the
Participant for such month; or
(b) $400, if there is more than one Qualifying Dependent with respect to
the Participant for such month.
Section 7.9. Assignability. Amounts payable by the Plan may not be used
----------- -------------
to make direct payments to providers of Dependent care services.
Section 7.10. Separate Written Plan. For purposes of Section 129 of the
------------ ---------------------
Code, this Article VII shall constitute a separate Dependent care assistance
plan. To the extent necessary, other provisions of the Plan shall be
incorporated by reference in this Article VII.
<PAGE>
ARTICLE VIII
CASH
Section 8.1. Effective January 1, 1999, each Participant may elect prior
------------
to the beginning of each Plan Year to receive all or part of the Employer
contribution which is made pursuant to Section 4.2(b) for such Plan Year in cash
in lieu of purchasing other benefits. Any cash elected pursuant to this Article
VIII shall be distributed, in accordance with the company's regular payroll
practices.
<PAGE>
ARTICLE IX
ACCOUNTS
Section 9.1. Committee Responsibility. The Committee shall determine the
----------- ------------------------
Participants, Former Participants, and beneficiaries who are entitled to one or
more of the allocations hereinafter described, and it shall prepare a statement
showing the information necessary to make the proper allocations. This
information shall include the full names of affected Participants, Former
Participants, and beneficiaries, the amounts elected by each Participant
pursuant to Section 4.1, and the names of the Former Participants who terminated
employment with the Employer.
The Committee shall maintain for each applicable Participant a separate
Health Care Spending Account, and Dependent Care Spending Account to record the
amount attributable to reductions of Compensation pursuant to Section 4.1. Each
such account shall consist of a record of the contributions and adjustments.
Section 9.2. Health Care Spending Account Adjustments. As of each
----------- ------------------------------------------
Adjustment Date, the Health Care Spending Account of each Participant, Former
Participant, and beneficiary shall be adjusted by the following additions and
subtractions:
(a) Compensation Reductions: There shall be added to the Health Care
-----------------------
Spending Account of each Participant those amounts of Compensation
reduced pursuant to Section 4.1(a)(2).
(b) Payments: There shall be subtracted the total amount of any payments
--------
made from the Health Care Spending Account to the Participant or for
his benefit. Provided however, the total amount that is to be
contributed to the Health Care Spending Account during the Plan Year
will be available for reimbursement to the Participant at all times
during the Plan Year, reduced as of any particular time for prior
reimbursements for the same Plan Year. Provided further that if a
Participant, due to termination of employment, ceases to make
contributions to the Health Care Spending Account during a Plan Year,
the amount available for reimbursement of claims incurred prior to the
date of such event shall be the Participant's annual election reduced
by prior reimbursements for the same Plan Year.
(c) Forfeitures. Any amounts remaining in the Health Care Spending Account
-----------
as of December 31 of each Plan Year, shall be forfeited; provided,
however, that any claims pursuant to Article VI which are incurred but
unpaid as of December 31 shall be processed before any amounts are
forfeited. Such claims must be submitted on or before March 31 of the
next succeeding Plan Year.
Section 9.3. Dependent Care Spending Account Adjustments. As of each
----------- -------------------------------------------
Adjustment Date, the Dependent Care Spending Account of each Participant, Former
Participant, and beneficiary shall be adjusted by the following additions and
subtractions:
(a) Compensation Reductions: There shall be added to the Dependent Care
-----------------------
Spending Account of each Participant those amounts of Compensation
reduced pursuant to Section 4.1(a)(3).
(b) Payments: There shall be subtracted the total amount of any payments
--------
up to the account balance made from the Dependent Care Spending
Account to the Participant or for his benefit.
<PAGE>
(c) Forfeitures. Any amounts remaining in the Dependent Care Spending
-----------
Account as of December 31 of each Plan Year shall be forfeited;
provided, however, that any claims pursuant to Article VII which are
incurred but unpaid as of December 31 shall be processed before any
amounts are forfeited. Such claims must be submitted on or before
March 31 of the next succeeding Plan Year.
<PAGE>
ARTICLE X
ALLOCATION OF FIDUCIARY RESPONSIBILITIES AND ADMINISTRATION
Section 10.1. Allocation of Fiduciary Responsibilities. The
------------ ----------------------------------------
responsibilities allocated to the named fiduciaries are as follows:
(a) The Board shall have the sole authority:
(1) to amend the Plan,
(2) to appoint and remove members of the Committee, and
(3) to terminate the Plan.
(b) The Committee shall have the sole authority:
(1) to interpret the provisions of the Plan and to determine the
rights of Participants or Former Participants and beneficiaries
under the Plan, including, but not limited to, the determination
or eligibility for benefits,
(2) to administer the Plan in accordance with its terms, as construed
by the Committee,
(3) to file such reports as may be required to the United States
Department of Labor, the Internal Revenue Service and any other
government agencies for which reports may be required to be
submitted from time to time, and
(4) to comply with requirements of law for disclosure of Plan
provisions and other information relating to the Plan, to
Participants and other interested parties,
(5) to determine the appropriate portion of the Plan's administrative
expenses which shall be borne by Participants,
(6) to determine the amount of Employee contributions for Plan
Benefits.
(c) Fiduciary Discretion. Plan fiduciaries are empowered to exercise
exclusive and absolute discretion with respect to matters for which
they are responsible, including the interpretation of the terms of the
Plan. Such discretionary determinations, including those regarding
Plan terms and eligibility, shall be final and conclusive and shall
bind all Employees and beneficiaries and the Employer.
Section 10.2. The Committee. The Committee shall consist of not less than
------------ -------------
three persons as from time to time appointed by the Board. Any Committee member
may resign, and the Board may remove any Committee member, with or without
cause, at any time.
The Committee shall have all authority and responsibility for the
administration and interpretation of the Plan and, for purposes of ERISA, the
Committee shall be its "named fiduciary" with respect to matters for which it is
responsible, provided that the Board shall have the sole authority to amend or
-------------------------------------------------------------------
terminate the Plan, except as otherwise provided in Section 10.1 hereof.
- ------------------
<PAGE>
The Committee may appoint an administrator and may from time to time
allocate or delegate to any subcommittee or member of the Committee, the
administrator, or the Benefit Administration Manager, such duties relative to
the administration and interpretation of the Plan as it deems necessary or
appropriate, including matters involving the exercise of discretion. Such
designated representatives shall act on behalf of the Committee, and the
Committee shall have the right to overrule any decision made by such designated
representative.
To the maximum extent permitted by ERISA, every action and determination of
the Committee in accordance with this Article shall be final and binding upon
each Participant, and every other person entitled to or claiming participation
in the Plan or benefits from the Plan. No member of the Committee shall be
entitled to act on or decide any matter relating solely to himself or any of his
rights or benefits under the Plan.
Section 10.3. Specific Responsibilities and Authority of the Committee.
------------ --------------------------------------------------------
In furtherance of, and not by way of limitation on, the responsibilities and
authority conferred on the Committee in Section 10.1 and 10.2 hereof, the
Committee shall administer the Plan in accordance with its terms and provisions
and shall have the following specific responsibilities and authorities:
(a) subject to any required approval of the Board, to appoint, remove or
substitute the Benefit Administration Manager,
(b) to construe and interpret the Plan to pay claims and to determine all
questions arising in the operation of the Plan, provided that the
Committee may request the Benefit Administration Manager to determine,
in accordance with the Plan and generally accepted claims procedures
and practices, the initial qualification of a claim submitted for
benefits hereunder,
(c) to recommend to the Board such amendments in the Plan as it deems
necessary or appropriate in order to enable the Plan to comply with
ERISA and any other applicable legal requirements,
(d) to receive reports from any designated representative on the discharge
of his duties and authority with respect to the Plan, including, any
documents necessary or appropriate for compliance with the reporting,
disclosure and recordkeeping requirements contained in ERISA, as well
as such other records or data as may be necessary or appropriate for
the proper administration of the Plan,
(e) to request such information from the Benefit Administration Manager as
is necessary to satisfy reporting and disclosure provisions of ERISA
or to otherwise perform its respective duties hereunder and to fully
and faithfully perform all other duties assigned to it under the Plan,
(f) to employ such independent consulting actuary, certified public
accountants, legal counsel and other persons as may be required by
ERISA or as it shall otherwise deem necessary or appropriate in
connection with the administration and operation of the Plan,
(g) to adopt such rules and procedures as the Committee deems necessary or
appropriate in order to fulfill its responsibilities with respect to
the Plan, provided that such rules and procedures are uniformly and
consistently applied to persons in similar circumstances,
(h) to hold regular meetings designed to ensure the discharge of its
responsibilities hereunder and to maintain an accurate written record
of all such meetings,
<PAGE>
(i) to furnish the Board with reports, including subjects reported upon to
it by the administrator and the Benefit Administration Manager, and
(j) to take all actions not expressly enumerated herein necessary for
effective administration of the Plan.
Section 10.4. Rules of Procedure. Subject to the bylaws of the Employer
------------ ------------------
and the resolutions of the Board, the Committee shall establish its own rules of
procedure and the time and place of its meetings. A majority of the members of
the Committee shall constitute a quorum for the transaction of business, and the
act of a majority of the Committee members at a meeting at which a quorum is
present shall be the act of the Committee. Any action which may be taken at a
meeting of the Committee may be taken without a meeting if a consent, in
writing, setting forth the action so taken, shall be signed by all of the
members of the Committee.
Section 10.5. Claims Procedure.
------------ ----------------
(a) Application for Claims. Any claim by a Participant for benefits shall
----------------------
be submitted to the Benefit Administration Manager.
(b) Limitations. Notwithstanding anything in the Plan to the contrary, no
-----------
benefits shall be payable with respect to any Plan Year in respect of
any claims for benefits first submitted after March 31 following the
close of the Plan Year.
Each Participant or other interested person shall file with the Benefit
Administration Manager such pertinent information concerning himself as the
Benefit Administration Manager may specify, and in such manner and form as the
Benefit Administration Manager may specify or provide, and such person shall not
have any rights or be entitled to any benefits hereunder, as the case may be,
unless such information is filed by him or on his behalf. Each Participant
claiming benefits under the Plan shall supply at such times and in such manner
as the Benefit Administration Manager may require, written proof that expenses
were incurred or that the benefit is covered under the Plan.
If the Benefit Administration Manager shall determine that a Participant
has not incurred a covered expense or that the benefit is not covered under the
Plan, or if the Participant shall fail to furnish such proof as is requested, no
benefits hereunder shall be payable to such Participant.
(c) Notification of Decision. Notice of a decision by the Benefits
------------------------
Administration Manager with respect to a claim shall be furnished to
the Participant within 90 days following the receipt of the claim by
the Benefits Administration Manager unless special circumstances
require an extension of time for processing the claim. If there is a
need for such an extension, the Benefits Administration manager shall
furnish written notice of the extension to the Participant prior to
the expiration of the initial 90-day period. In no event shall such
extension exceed a period of 90 days from the end of the initial 90-
day period. The notice of extension shall indicate the special
circumstances requiring the extension and the date by which the notice
of decision with respect to the claim shall be furnished.
Commencement of benefit payments shall constitute notice of approval
of a claim to the extent of the amount of the approved benefit. If
such claim shall be wholly or partially denied, such notice shall be
in writing and worded in a manner calculated to be understood by the
Participant and shall set forth: (a) the specific reason or reasons
for the denial; (b) specific reference to pertinent provisions of the
Plan on which the denial is based; (c) a description of any additional
material or information necessary for the Participant to perfect the
claim and an explanation of why such material or information is
necessary; and (d) an explanation of the Plan's claims review
procedure. If the Benefit Administration
<PAGE>
Manager fails to notify the Participant of the decision regarding his
claim in accordance with this Section 10.5(c), the claim shall be
deemed denied and the Participant shall then be permitted to proceed
with the claims review procedure provided in Section 10.5(d).
(d) Claims Review Procedure. Within 60 days following receipt by the
-----------------------
Participant of notice of the claim denial, or within 60 days following
the close of the 90-day period referred to in Section 10.5(c) if the
Benefit Administration Manager fails to notify the Participant of the
decision during such time period the Participant may appeal denial of
the claim. The Participant shall be given an opportunity to review
pertinent documents and to submit issues and comments in writing. A
request for review by the Benefit Administration Manager shall be in
writing and shall contain all additional information which the
Participant wishes the Benefit Administration Manager to consider.
Following such request for review, the Benefit Administration Manager
shall fully and fairly review the decision denying the claim. The
Benefit Administration Manager may hold a hearing or conduct an
independent investigation regarding the merits of the denied claim.
Within 60 days following receipt of the Participant's request for
review or within 120 days after such receipt where there are special
circumstances requiring an extension of time for reviewing such denied
claim, the Benefit Administration Manager shall deliver the decision
to the Participant in writing. If the decision on review is not
furnished within the prescribed time, the claim shall be deemed denied
on review.
For all purposes under the Plan, such decision on claims where no review is
requested and decisions on claims where review is requested shall be final,
binding and conclusive on all interested parties as to participation and/or
benefits relating to the Plan.
Section 10.6. Expenses. Except as otherwise provided in the Plan, all
------------ --------
expenses and charges incurred in the administration and operation of the Plan,
including fees and expenses which the Committee agrees to pay the Benefit
Administration Manager or other agents or professionals employed or retained
pursuant hereto, shall be paid out of the assets of the Employer. No
compensation shall be paid by the Plan to any member of the Committee or the
administrator if employed by the Employer but said persons may be reimbursed for
their reasonable expenses incurred in carrying out their duties,
responsibilities and authority hereunder, and the compensation, or the properly
allocable portion thereof, paid to other Employees who are involved in the
administration and operation of the Plan and all other properly allowable
expenses shall, to the extent not paid by the Employer, be treated as
administrative expenses. No bond shall be required of the members of the
Committee or the administrator, except as otherwise required by law.
Section 10.7. Notices. Any notice, application, instruction, designation
------------ -------
or other form of communication required to be given or submitted by any
Participant shall be in such form as is prescribed from time to time by the
Committee, or its designee, sent by inter-office mail, first class mail or
delivered in person to the Committee of the Plan. Any notice, statement,
report or other communication from the Employer, the Committee, the Benefit
Administration Manager, or the administrator to any Participant, other Employee
or beneficiary required or permitted by the Plan shall be deemed to have been
duly delivered when given to such person or mailed by first class mail to such
person at his address last appearing on the records of the Employer. Each
person entitled to receive benefits under the Plan shall file in accordance
herewith his complete mailing address and each change therein.
Section 10.8. Agent for Service of Legal Process. The agent for the
------------ ----------------------------------
service of legal process under the Plan shall be the Committee or its designated
representative.
<PAGE>
Section 10.9. Alienation of Benefits. No amount payable at any time
------------ ----------------------
hereunder shall be subject in any manner to alienation by anticipation, sale,
transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of
any kind, and any attempt to alienate, sell, transfer, assign, pledge, attach,
charge or otherwise encumber any such amount, whether presently or hereafter
payable, shall be void. The Plan shall not be liable for or subject to the
debts or liabilities of any person entitled to any amount payable under the
Plan, or any part thereof, or if by reason of his bankruptcy or other event
happening at any such time such amount would not be enjoyed by him, then the
Committee, in its sole discretion, may terminate his interest in any such amount
and shall hold or apply it to or for the benefit of such person, his spouse,
children or other Dependents, or any of them, in such manner as the Committee
may deem proper.
<PAGE>
ARTICLE XI
AMENDMENT AND TERMINATION
Section 11.1. Right to Amend or Terminate. The Board shall have the right
------------ ---------------------------
at any time to amend or modify the Plan, retroactively or otherwise, or to
terminate or partially terminate the Plan, provided that no such amendment or
termination shall in any manner impair the right of a Participant to receive
benefit payments the Participant was entitled to receive before such amendment
or termination.
Section 11.2. Effect of Termination. Upon complete or partial termination
------------ ---------------------
of the Plan, the Committee shall provide for the payment of benefits to each
Participant with respect to which benefits are payable on the date of
termination and for the payment of all expenses and charges properly payable
hereunder, and of any payments due to the Benefit Administration Manager.
<PAGE>
ARTICLE XII
MISCELLANEOUS
Section 12.1. In General. Any and all rights or benefits accruing to any
------------ ----------
person under the Plan shall be subject to all terms and conditions of the Plan.
The adoption and maintenance of the Plan shall not constitute a contract between
the Employer and any Employee or be a consideration for, or an inducement or
condition of, employment of any Employee. Neither participation nor anything
contained in the Plan shall give any Employee the right to be retained in the
employ of the Employer, nor shall it interfere with the right of the Employer to
discharge any Employee at any time.
Section 12.2. Filing of Information. Each eligible Employee or other
------------ ---------------------
interested person shall file with the Committee such pertinent information
concerning himself as the Committee may specify, including proof or continued
proof of dependency or eligibility, and in such manner and form as the Committee
may specify or provide, and such person shall not have rights or be entitled to
any benefits or further benefits hereunder unless such information is filed by
him or on his behalf.
Section 12.3. Payment to Others than Participants. If the Committee shall
------------ -----------------------------------
find that any person to whom any benefits are payable under the Plan is unable
to care for his affairs, then any payment due to him or his estate (unless a
prior claim therefore has been made by a duly appointed legal representative)
may be paid to the spouse, a child, a relative, an institution maintaining or
having custody of such person, or any other person deemed by the Committee to be
a proper recipient on behalf of such person otherwise entitled to payment, or
the Committee may in its discretion hold such payment until a legal
representative is appointed. Any such payment shall be a complete discharge of
the liabilities of the Plan.
Section 12.4. No Waiver or Estoppel. No term, condition or provision of
------------ ---------------------
the Plan shall be deemed to have been waived, and there shall be no estoppel
against the enforcement of any provision of the Plan, except by written
instrument of the party charged with such waiver or estoppel. No such written
waiver shall be deemed a continuing waiver unless specifically stated therein,
and each such waiver shall operate only as to the specific term or condition
waived and shall not constitute a waiver of such term or condition for the
future or as to any act other than that specifically waived.
Section 12.5. Reclassification. This section applies to any individual
------------ ----------------
who is classified by the Employer as a leased employee, independent contractor
or as coming within another non-Employee or ineligible designation. If any such
individual is thereafter required by the Internal Revenue Service, Department of
Labor or other government agency, or by any court or other tribunal, to be
classified as an Employee, such individual shall not be eligible to participate
in this Plan unless and until the time his is designated by the Plan
Administrator as an eligible Employee. Such designation shall only provide for
eligibility prospectively from the time it is made.
Section 12.6. Limitations on Actions. No action at law or in equity shall
------------ -----------------------
be instituted to recover under the Plan prior to the expiration of 90 days after
a claim for benefits has been filed in accordance with the requirements of the
Plan; nor shall any such action be instituted at any time unless instituted
within three years after the date the expenses which are the subject of or
otherwise involved in such action are incurred or are alleged to have been
incurred; provided that by any limitation on actions regarding benefits shall be
as provided in the Plan.
Section 12.7. Compliance with Applicable Law. Notwithstanding any other
------------ ------------------------------
provision of the Plan to the contrary, in all instances the Plan shall be
operated in accordance with the requirements of the Family and Medical Leave Act
of 1993 (Public Law 103-3), Section 609 of ERISA and Section 1908 of the Social
Security Act.
<PAGE>
Section 12.8. Construction. The Plan shall be construed according to the
------------ ------------
laws of the State of California and all provisions hereof shall be administered
according to the laws of said state except as such may be preempted by ERISA.
Section 12.9. Headings. All article and section headings herein have been
------------ --------
inserted for convenience only and shall not affect the meaning of the language
contained herein.
IN WITNESS WHEREOF, the Whittaker Corporation Cafeteria Plan is by the
authority of the Board of Directors of the Employer, executed on behalf of the
Employer, the 22nd day of January, 1999.
By /s/ Joseph F. Alibrandi
-----------------------------
Attest: /s/ Lynne M.O. Brickner Joseph F. Alibrandi
-------------------------- President and Chief
Lynne M.O. Brickner Executive Officer
Secretary
<PAGE>
WHITTAKER CORPORATION
CAFETERIA BENEFITS PLAN
SCHEDULE A
Credits for waiving Medical/Vision Coverage:
--------------------------------------------
Single - $25.00 per paycheck
Family - $50.00 per paycheck
Credits for waiving Dental Coverage:
------------------------------------
Single - $6.00 per paycheck
Family - $6.00 per paycheck
<PAGE>
EXHIBIT 11
WHITTAKER CORPORATION
CALCULATION OF EARNINGS (LOSS) PER SHARE
(Dollar Amounts in Thousands, Except for Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------------
1998 1997 1996
------- --------- ----------
<S> <C> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE
Net Income (Loss).......................................... $48,538 ($163,582) ($17,127)
Deduct:
Dividends on Series D Participating
Convertible Preferred Stock........................... - - (1)
------- --------- --------
Net income (loss) avaliable to common stockholders......... $48,538 ($163,582) ($17,128)
======= ========= ========
Weighted average common shares outstanding................. 11,264 11,144 10,065
======= ========= ========
Basic net income (loss) per share.......................... $ 4.31 ($ 14.68) ($ 1.70)
======= ========= ========
DILUTED EARNINGS (LOSS) PER SHARE
Net income (loss) per share from basic earnings per
share calculation, above................................ $48,538 ($163,582) ($17,128)
Add after-tax interest on convertible debt................. 693 - 693
------- --------- --------
Net income (loss) for diluted earnings (loss) per share.... $49,231 ($163,582) ($16,435)
======= ========= ========
Weighted average common shares for basic earnings
(loss) per share, above................................. 11,264 11,144 10,065
Effect of dilutive securities:
Series D Convertible Preferred Stock.................... 188 - 213
Employee stock options.................................. 167 - 294
Convertible debt........................................ 751 - 619
------- --------- --------
Denominator for diluted earnings (loss) per share.......... 12,370 11,144 11,191
======= ========= ========
Diluted net income (loss) per share........................ $3.98 ($ 14.68) ($ 1.47)
======= ========= ========
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF
WHITTAKER CORPORATION
A DELAWARE CORPORATION
as of January 1, 1999
PLACE OF
--------
NAME OF COMPANY INCORPORATION
- --------------- -------------
U.S. SUBSIDIARIES
- -----------------
Aviant Information, Inc. California
Metropolitan Financial Services Corporation Colorado
Park Chemical Company Michigan
Whittaker Communications, Inc. California
Whittaker Controls, Inc. California
Whittaker Corp. Maine
Whittaker Development Co. Delaware
Whittaker Ordnance, Inc. Delaware
Whittaker Technical Products, Inc. Colorado
FOREIGN SUBSIDIARIES
- --------------------
Whittaker Communications Limited England
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective Amendment
Number 2 to Registration Statement Number 2-74481 on Form S-8 dated January 28,
1983, as amended and supplemented to date, Post-Effective Amendment Number 3 to
Registration Statement Number 2-74481 on Form S-8 dated October 10, 1983, Post-
Effective Amendment Number 1 to Registration Statement Number 2-97149 on Form S-
8 dated September 30, 1985, Post-Effective Amendment Number 3 to Registration
Statement Number 2-76480 on Form S-8 dated April 22, 1985, Post-Effective
Amendment Number 2 to Registration Statement Number 2-70806 on Form S-8 dated
May 20, 1981, Post-Effective Amendment Numbers 2, 1-A and 1-B to Registration
Statement Number 33-04320 on Form S-4 dated March 26, 1986, as supplemented and
amended to date, Post-Effective Amendment Numbers 2-A and 2-B to Registration
Statement Number 33-04320 on Form S-8 to Form S-4 dated June 1, 1987,
Registration Statement Numbers 33-35762 and 33-35763 on Form S-8 dated July 6,
1990, Registration Statement Number 33-52295 on Form S-8 dated February 16,
1994, Registration Statement Number 33-58323 on Form S-8 dated March 31, 1995,
Registration Statement Number 333-03753 on Form S-3 dated May 15, 1996, as
amended to date, and Registration Statement Number 333-55859 on Form S-3 dated
June 3, 1998, as amended to date, of our report dated December 11, 1998 included
in the Annual Report on Form 10-K of Whittaker Corporation for the year ended
October 31, 1998. We also consent to the reference to our firm under the
caption "Experts" in the aforementioned Registration Statements insofar as that
reference relates to our report for the year ended October 31, 1998.
ERNST & YOUNG LLP
Los Angeles, California
January 27, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 21,774
<ALLOWANCES> 2,359
<INVENTORY> 42,060
<CURRENT-ASSETS> 86,048
<PP&E> 30,462
<DEPRECIATION> 20,623
<TOTAL-ASSETS> 136,578
<CURRENT-LIABILITIES> 37,539
<BONDS> 60,368
0
1
<COMMON> 113
<OTHER-SE> 23,364
<TOTAL-LIABILITY-AND-EQUITY> 136,578
<SALES> 131,477
<TOTAL-REVENUES> 131,477
<CGS> 65,915
<TOTAL-COSTS> 65,915
<OTHER-EXPENSES> 6,725
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,059
<INCOME-PRETAX> 22,488
<INCOME-TAX> (17,602)
<INCOME-CONTINUING> 40,090
<DISCONTINUED> 8,448
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,538
<EPS-PRIMARY> 4.31
<EPS-DILUTED> 3.98
</TABLE>
