SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) - January 30, 1996
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
Connecticut 0-13300 06-0384680
(State or other (Commission (IRS Employer
jurisdiction of incorporation) File Number) Identification No.)
One State Street, Hartford, Connecticut 06102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (203-722-1866)
Item 5. Other Events
On January 30, 1996, the Registrant, together with The Dow Chemical
Company, completed the formation of a new company, Radian
International LLC, to provide environmental, information technology,
and strategic chemical management services to industries and
government worldwide. Radian International LLC is headquartered in
Austin, Texas with field offices at other sites in the United States
and abroad.
In connection with the formation of Radian International LLC, the
Registrant contributed substantially all of the assets of its wholly-
owned subsidiary, Radian Corporation, to the new company. Similarly,
The Dow Chemical Company contributed the assets of its wholly-owned
subsidiary, Dow Environmental Inc. as well as access to certain of its
technologies which are in support of the businesses expected to be
conducted by the new company.
Radian International LLC currently is 40 percent owned by Radian
Corporation, which continues to be a wholly-owned subsidiary of the
Registrant, and 60 percent owned by Dow Environmental Inc. The
income of Radian International LLC will be subject to a preference
return to the Registrant for the first two years.
As is customary in joint ventures, the agreements executed in
connection with the formation of Radian International LLC specify
certain circumstances under which the business can be sold, venture
assets and liabilities can be distributed or partners' interests can
be sold subject to certain rights of first refusal.
In 1996, the Registrant's interest in Radian International LLC will be
accounted for on the consolidated financial statements under the
equity method of accounting. Had the transaction occurred at the
beginning of 1995, under the equity method of accounting, total
revenues and total expenses would have been $470.7 and $399.7,
respectively, as compared to actual 1995 revenues of $672.2 and
expenses of $585.9; and consolidated assets and liabilities at
December 31, 1995 would have been $954.1 and $613.0, respectively, as
compared to actual amounts of $971.5 and $630.4.
The foregoing description is qualified in its entirety by reference
to the Contribution Agreement and the Limited Liability Company
Agreement of Radian International LLC, copies of which are filed
as Exhibits hereto.
Item 7. Exhibits.
The following exhibits are filed with this Form 8-K:
99.1 Contribution Agreement dated as of January 30, 1996.*
99.2 Limited Liability Company Agreement of Radian International
LLC dated as of January 1, 1996.*
* Certain exhibits, schedules and/or annexes have been omitted. A copy
of any omitted exhibit, schedule or annex will be furnished
supplementally to the Commission upon request.
Pursuant to the requirements 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.
THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE COMPANY
Dated: February 14, 1996 /s/ Robert C. Walker
Robert C. Walker
Senior Vice President and General
Counsel
EXHIBIT INDEX
Exhibit No.
- ----------
99.1 Contribution Agreement dated as of January 30, 1996.*
99.2 Limited Liability Company Agreement of Radian International
LLC dated as of January 1, 1996.*
* Certain exhibits, schedules and/or annexes have been omitted. A copy
of any omitted exhibit, schedule or annex will be furnished
supplementally to the Commission upon request.
EXHIBIT 99.1
CONTRIBUTION AGREEMENT
dated as of
January 30, 1996
among
THE DOW CHEMICAL COMPANY,
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY,
DOW ENVIRONMENTAL INC.
and
RADIAN CORPORATION
TABLE OF CONTENTS
SECTION Page
ARTICLE I
DEFINITIONS
1.01. Definitions. . . . . . . . . . . . . . . . . . . . 1
1.02. Accounting Terms and Determinations. . . . . . . . 9
ARTICLE II
ORGANIZATION; CONTRIBUTION
2.01. Organization of Newco. . . . . . . . . . . . . . . 10
2.02. Contribution . . . . . . . . . . . . . . . . . . . 10
2.03. Excluded Assets. . . . . . . . . . . . . . . . . . 12
2.04. Assumption of Liabilities. . . . . . . . . . . . . 13
2.05. Excluded Liabilities . . . . . . . . . . . . . . . 14
2.06. INTENTIONALLY OMITTED. . . . . . . . . . . . . . . 15
2.07. Assignment of Certain Contracts and Other
Assets . . . . . . . . . . . . . . . . . . . . . . 15
2.08. Closing. . . . . . . . . . . . . . . . . . . . . . 17
2.09. Closing Balance Sheet. . . . . . . . . . . . . . . 18
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DEI AND RADIAN
3.01. Existence and Power. . . . . . . . . . . . . . . . 19
3.02. Authorization. . . . . . . . . . . . . . . . . . . 19
3.03. Governmental Authorization . . . . . . . . . . . . 20
3.04. Non-Contravention. . . . . . . . . . . . . . . . . 20
3.05. Restricted Assets. . . . . . . . . . . . . . . . . 20
3.06. Third Quarter Financial Statements . . . . . . . . 21
3.07. Absence of Certain Changes . . . . . . . . . . . . 21
3.08. Properties . . . . . . . . . . . . . . . . . . . . 23
3.09. Sufficiency of Assets. . . . . . . . . . . . . . . 24
3.10. No Undisclosed Liabilities . . . . . . . . . . . . 25
3.11. Litigation . . . . . . . . . . . . . . . . . . . . 25
3.12. Material Contracts . . . . . . . . . . . . . . . . 25
3.13. Licenses and Permits . . . . . . . . . . . . . . . 27
3.14. Insurance Coverage . . . . . . . . . . . . . . . . 27
3.15. Compliance with Laws . . . . . . . . . . . . . . . 28
3.16. Inventories. . . . . . . . . . . . . . . . . . . . 28
3.17. Receivables; Payables. . . . . . . . . . . . . . . 28
3.18. Intellectual Property. . . . . . . . . . . . . . . 29
3.19. Finders' Fees. . . . . . . . . . . . . . . . . . . 29
3.20. Environmental Matters. . . . . . . . . . . . . . . 29
3.21. Warranties . . . . . . . . . . . . . . . . . . . . 31
3.22. Customers and Suppliers. . . . . . . . . . . . . . 31
3.23. Books and Records. . . . . . . . . . . . . . . . . 31
3.24. Taxes. . . . . . . . . . . . . . . . . . . . . . . 31
3.25. No Other Agreement . . . . . . . . . . . . . . . . 32
3.26. Derivatives. . . . . . . . . . . . . . . . . . . . 32
3.27. Material Equity Investment Entities. . . . . . . . 32
3.28. Employment Plans and Benefit Arrangements. . . . . 34
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TDCC AND HSB
4.01. Existence. . . . . . . . . . . . . . . . . . . . . 35
4.02. Authorization. . . . . . . . . . . . . . . . . . . 35
4.03. Governmental Authorization . . . . . . . . . . . . 36
4.04. Non-Contravention. . . . . . . . . . . . . . . . . 36
4.05. Required Approval. . . . . . . . . . . . . . . . . 37
4.06. Finders' Fees. . . . . . . . . . . . . . . . . . . 37
ARTICLE V
COVENANTS
5.01. Conduct of the Business. . . . . . . . . . . . . . 37
5.02. Access to Information. . . . . . . . . . . . . . . 39
5.03. Notices of Certain Events. . . . . . . . . . . . . 40
5.04. Reasonable Efforts; Further Assurances . . . . . . 40
5.05. Certain Filings. . . . . . . . . . . . . . . . . . 40
5.06. Public Announcements . . . . . . . . . . . . . . . 41
5.07. Stockholder Approval . . . . . . . . . . . . . . . 41
5.08. WARN . . . . . . . . . . . . . . . . . . . . . . . 41
5.09. INTENTIONALLY OMITTED. . . . . . . . . . . . . . . 41
5.10. Impairment of Assets . . . . . . . . . . . . . . . 41
5.11. Covenant of Parent . . . . . . . . . . . . . . . . 42
5.12. Covenants Not to Compete . . . . . . . . . . . . 42
5.13. Liens on Interests in Newco. . . . . . . . . . . . 43
5.14. Covenants Not to File Involuntary Bankruptcy . . . 43
5.15. INTENTIONALLY OMITTED. . . . . . . . . . . . . . . 43
5.16. INTENTIONALLY OMITTED. . . . . . . . . . . . . . . 43
5.17. Transfers of Capital Stock of Contributing
Subsidiary . . . . . . . . . . . . . . . . . . . . 43
5.18. Technology Access. . . . . . . . . . . . . . . . . 45
5.19. Certain Radian Property. . . . . . . . . . . . . . 46
ARTICLE VI
EMPLOYEES AND EMPLOYEE BENEFITS
6.01. Leased Employees . . . . . . . . . . . . . . . . . 46
6.02. Employment by Newco. . . . . . . . . . . . . . . . 47
6.03. Newco Plans. . . . . . . . . . . . . . . . . . . . 47
6.04. Relocation . . . . . . . . . . . . . . . . . . . . 49
ARTICLE VII
CONDITIONS TO CLOSING
7.01. Conditions to the Closing. . . . . . . . . . . . . 49
ARTICLE VIII
SURVIVAL; INDEMNIFICATION
8.01. Survival . . . . . . . . . . . . . . . . . . . . . 50
8.02. Indemnification. . . . . . . . . . . . . . . . . . 50
8.03. Notice of Third Party Claims; Assumption of
Defense. . . . . . . . . . . . . . . . . . . . . . 53
8.04. Settlements or Compromises . . . . . . . . . . . . 54
8.05. Failure of Indemnifying Party to Act . . . . . . . 55
ARTICLE IX
TERMINATION
9.01. Grounds for Termination. . . . . . . . . . . . . . 55
9.02. Effect of Termination. . . . . . . . . . . . . . . 56
ARTICLE X
MISCELLANEOUS
10.01. Notices . . . . . . . . . . . . . . . . . . . . . 56
10.02. Amendments; No Waivers. . . . . . . . . . . . . . 57
10.03. Expenses. . . . . . . . . . . . . . . . . . . . . 57
10.04. Successors and Assigns. . . . . . . . . . . . . . 58
10.05. Governing Law . . . . . . . . . . . . . . . . . . 58
10.06. Counterparts. . . . . . . . . . . . . . . . . . . 58
10.07. Entire Agreement. . . . . . . . . . . . . . . . . 58
10.08. Captions. . . . . . . . . . . . . . . . . . . . . 58
10.09. Specific Performance. . . . . . . . . . . . . . . 58
10.10. Severability. . . . . . . . . . . . . . . . . . . 58
10.11. No Third Party Beneficiaries. . . . . . . . . . . 59
Annex I Third Quarter Financial Statements of DEI
Annex II Third Quarter Financial Statements of Radian
Exhibit A Technology Access
Schedule 1.01 Debt
Schedule 2.02(a) Liens on Assets
Schedule 2.02(a)(iv) Other Contracts
Schedule 2.02(a)(xi) Contributed Amounts
Schedule 2.02(b)(x) Liens on Contributed Assets
Schedule 2.02(b) Certain Contributed Assets
Schedule 2.03(x) Excluded Assets of Radian
Schedule 2.03(xi) Excluded Assets of DEI
Schedule 2.04(c) Certain Assumed Liabilities
Schedule 2.07(f) Special Foreign Assets
Schedule 3.03 Government Authorization
Schedule 3.05 Restricted Assets
Schedule 3.07 Absence of Certain Changes
Schedule 3.08(a) Real Property
Schedule 3.08(b) Personal Property
Schedule 3.08(d) Liens
Schedule 3.08(e) Violation of Law
Schedule 3.10 No Undisclosed Liabilities
Schedule 3.11 Litigation
Schedule 3.12(a) Contracts
Schedule 3.12(b) Defaults
Schedule 3.13 Licenses and Permits
Schedule 3.16 Inventories
Schedule 3.17 Aging of Receivables
Schedule 3.18 Intellectual Property
Schedule 3.20 Environmental Matters
Schedule 3.21 Warranties
Schedule 3.22 Customers and Suppliers
Schedule 3.24 Taxes
Schedule 3.25 No Other Agreements
Schedule 3.26 Derivative Financial Instruments
Schedule 3.27 Material Equity Investment Entities
Schedule 3.28 Employment Plans and Benefit Arrangements
Schedule 4.03 Government Authorization
Schedule 8.02(g) Income Tax Caps
Schedule 10.03 Expenses
CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT, dated as of January 30,
1996, is among The Dow Chemical Company, a Delaware corporation
("TDCC"), Dow Environmental Inc., a Delaware corporation and a
wholly owned subsidiary of TDCC ("DEI"), The Hartford Steam
Boiler Inspection and Insurance Company, a Connecticut
corporation ("HSB") and Radian Corporation, a Texas corporation
and a wholly owned subsidiary of HSB ("Radian"). TDCC and HSB
are sometimes individually referred to as a "Parent." DEI and
Radian are sometimes individually referred to in this Agreement
as a "Contributing Subsidiary" and are sometimes collectively
referred to in this Agreement as "Contributing Subsidiaries."
RECITALS
A. TDCC and HSB have caused the formation of Radian
International LLC, a Delaware limited liability company
("Newco"), pursuant to a Limited Liability Company Agreement,
dated as of January 1, 1996, between DEI and Radian (the "LLC
Agreement").
B. Each of TDCC and HSB, on behalf of itself and
its Affiliates, wishes to develop through Newco the Newco
Services Business (as defined below).
C. Each of TDCC, HSB, DEI and Radian wishes to
contribute or cause the contribution of, as the case may be, the
Contributed Assets (as defined below) to Newco and to cause Newco
to perform, assume and discharge the Assumed Liabilities (as
defined below).
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.01. Definitions. (a) The following terms, as used
in this Agreement, have the following meanings:
"Affiliate" means, with respect to any Person, any
Person directly or indirectly controlling, controlled by, or
under common control with such other Person; provided that Newco
shall not be an Affiliate of any party to this Agreement for
purposes of this Agreement. For the purposes of this definition,
"control," when used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or
cause the direction of the operation or management and policies
of such Person, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling"
and "controlled" have meanings correlative to the foregoing.
"Agreement" means, on any date, this Contribution
Agreement as originally in effect on the date of this Agreement
and as thereafter from time to time amended, supplemented,
amended and restated, or otherwise modified and in effect on such
date.
"Bankruptcy" has the meaning set forth in the LLC
Agreement.
"Benefit Arrangement" means any retirement or deferred
compensation plan, stock plan, unemployment compensation plan,
vacation pay, severance pay, bonus or benefit arrangement,
insurance or hospitalization program or any other fringe benefit
arrangement for any current or former employee, director,
consultant or agent (whether pursuant to contract, arrangement,
custom or informal understanding) which does not constitute an
Employee Plan, or any employment agreement (i) that is
maintained, administered or contributed to by DEI or Radian or
any of their respective ERISA Affiliates, or (ii) to which DEI or
Radian or any of their respective ERISA Affiliates is a party or
has any liability or contingent liability.
"Books and Records" means, with respect to any party,
copies of all books, records, files and papers, whether in hard
copy or computer format, related to the business of such party
(excluding minute books for its board of directors, committees or
shareholder meetings, incorporation documents, and stock transfer
records and tax or similar or related corporate records)
including without limitation engineering information, sales and
promotional literature, manuals and data, sales and purchase
correspondence, lists of present and former suppliers, lists of
present and former customers, personnel and employment records
(excluding at the Closing personnel records relating to
individual performance or evaluation records, medical histories
or other such sensitive information, which shall be contributed
at such time as the respective individual becomes an employee of
Newco), and any information relating to any Tax imposed on the
assets of such party.
"CERCLA" means the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended.
"Closing Balance Sheet" means, with respect to each
Contributing Subsidiary, an audited balance sheet of its
Contributed Business as of 11:59 p.m. on December 31, 1995,
together with the notes thereto, consistent with the accounting
principles used in the preparation of the Third Quarter Balance
Sheet, except as may be required by GAAP.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Company Interest" has the meaning set forth in the LLC
Agreement.
"Confidentiality Agreement" means that certain letter
agreement, dated August 9, 1995, between TDCC and HSB.
"Contributed Business" means, with respect to each
Contributing Subsidiary, all of its assets and liabilities that
are being contributed to or assumed by Newco, including without
limitation the assets and liabilities that (i) are Restricted
Assets or (ii) are listed on Schedules 2.02(b) and 2.04(c) which
will be contributed to or assumed by DEI from TDCC or its
Affiliates other than DEI or will be contributed to or assumed by
Radian from HSB or its Affiliates other than Radian pursuant to
this Agreement. For the avoidance of doubt, the assets and
liabilities of TDCC and Affiliates of TDCC other than DEI, and
the assets and liabilities of HSB and Affiliates of HSB other
than Radian, except for the assets and liabilities that are
listed on Schedules 2.02(b) and 2.04(c), are not included in the
definition of Contributed Business.
"Debt" means, with respect to each Contributing
Subsidiary and its Subsidiaries, taken as a whole, (i) indebted-
ness of such party for borrowed money, (ii) indebtedness of such
party for the deferred purchase price of services or property,
(iii) obligations of such party under leases which have been, or,
in accordance with GAAP, should be, recorded as capitalized
leases, (iv) indebtedness of such party consisting of unpaid
reimbursement obligations in respect of all outstanding drawings
under letters of credit issued for the account of such party, (v)
debt of others guaranteed by such party and (vi) indebtedness of
such party consisting of unpaid reimbursement obligations in
respect of amounts incurred or expended by an Affiliate on behalf
of a Contributing Subsidiary or any of its Subsidiaries for
services or property provided to such party or in satisfaction of
any obligation of such party; provided, however, that aggregate
indebtedness pursuant to this clause (vi) shall not exceed the
amounts set forth on Schedule 1.01; provided, further, however,
that amounts payable under existing written intercompany service
agreements shall not be covered under clause (vi) above. Debt
shall not include amounts excluded from the Assumed Liabilities
pursuant to Section 2.05(v) of this Agreement related to foreign,
U.S. Federal and state income taxes.
"Employee Plan" means any "employee benefit plan", as
defined in Section 3(3) of ERISA, that (i) is subject to any
provision of ERISA, and (ii) is maintained, administered or
contributed to by DEI or Radian respectively, or any of their
respective ERISA Affiliates or to which DEI or Radian or any of
their respective ERISA Affiliates is a party or has any liability
or contingent liability.
"Employee Seconding Agreements" means the agreements,
dated as of the Closing Date (i) between DEI and Newco pursuant
to which DEI will lease to Newco the services of the DEI Leased
Employees, (ii) between Radian and Newco pursuant to which Radian
will lease to Newco the services of the Radian Leased Employees
and (iii) between TDCC and Newco pursuant to which TDCC will
lease to Newco the services of the TDCC Leased Employees, each
for the amount described in such agreements.
"Environmental Investigation or Audit" means, without
limitation, any audits, studies, reports, analyses, representa-
tive samples and monitoring data relating to a Regulated Environ-
mental Activity, conducted internally (for purposes other than
day-to-day routine monitoring and data analysis) or by outside
consultants or engineers, with respect to any properties or
assets of a Contributing Subsidiary, but shall not include
publicly available studies or reports submitted to regulatory
agencies.
"Environmental Laws" means any and all federal, state,
local and foreign statutes, laws, judicial decisions, regula-
tions, ordinances, rules, judgments, orders, decrees, codes,
plans, injunctions, permits, concessions, grants, franchises,
licenses, agreements and governmental restrictions, whether now
or hereafter in effect, relating to human health, to the
environment or to emissions, discharges or releases of
pollutants, contaminants, Hazardous Substances or wastes into the
environment, including without limitation ambient air, surface
water, ground water or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants,
Hazardous Substances or wastes or the clean-up or other
remediation thereof.
"Environmental Liabilities" means all liabilities
(including without limitation liabilities relating to the offsite
disposal of materials generated in the operation of facilities
constituting Contributed Assets), whether such liabilities are
vested or unvested, contingent or fixed, actual or potential, or
known or unknown, which (i) arise under or relate to matters
covered by Environmental Laws (including without limitation any
matters disclosed or required to be disclosed on Schedule 3.20)
and (ii) relate to actions occurring or conditions existing on or
prior to the Closing Date.
"Environmental Permits" means, with respect to each
Contributing Subsidiary, all permits, licenses, authorizations,
certificates and approvals of governmental authorities relating
to, or required by, Environmental Laws and necessary for the
operation of the Contributed Business of such party in the manner
currently operated.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended, and any successor statute thereto, and
the rules and regulations promulgated thereunder.
"ERISA Affiliate" of any entity means any other entity
which, together with such entity, would be treated as a single
employer under Section 414 of the Code.
"Excluded Businesses" means (i) any businesses or
activities conducted by TDCC or any of its Affiliates other than
the businesses or activities conducted as of the date of this
Agreement by DEI and its Subsidiaries or conducted with the
assets listed on Part I of Schedule 2.02(b) and (ii) any
businesses or activities conducted by HSB or any of its
Affiliates other than the businesses or activities conducted as
of the date of this Agreement by Radian and its Subsidiaries or
conducted with the assets listed on Part II of Schedule 2.02(b).
"GAAP" means the generally accepted accounting
principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a
significant segment of the accounting profession in the United
States, in each case applied on a basis consistent with the
manner in which the financial statements for the respective
Contributed Subsidiary ended September 30, 1995 were prepared.
"Hazardous Substances" means any toxic, radioactive,
caustic or otherwise hazardous substance, including petroleum,
its derivatives, by-products and other hydrocarbons, or any
substance having any constituent elements displaying any of the
foregoing characteristics, including without limitation any
substance regulated under Environmental Laws.
"Intellectual Property Right" means, with respect to
each Contributing Subsidiary, any trademark, service mark,
service name, registration thereof or application for
registration therefor, trade name, invention, patent, patent
application, trade secret, know-how, copyright, copyright
registration, application for copyright registration, technology,
formulae, research and development data, computer software
programs, or any other similar type of proprietary intellectual
property right, in each case which is owned or licensed by such
Contributing Subsidiary or any of its respective Subsidiaries.
"Leased Employee" means any employee who provides
services to Newco pursuant to the Employee Seconding Agreements,
including "DEI Leased Employees" (those employees of DEI who
perform services for Newco pursuant to an Employee Seconding
Agreement), "Radian Leased Employees" (those employees of Radian
who perform services for Newco pursuant to an Employee Seconding
Agreement) and "TDCC Leased Employees" (those employees of TDCC
who perform services for Newco pursuant to an Employee Seconding
Agreement).
"Lien" means, with respect to any asset, any mortgage,
lien, pledge, charge, security interest, easement, right of way,
or encumbrance of any kind in respect of such asset.
"Loss" means, collectively, any and all damage, loss,
cost, liability and expense, excluding interest and tax benefits,
but net of insurance proceeds received from third party insurers
and including without limitation reasonable expenses of
investigation and reasonable attorneys' fees and expenses in
connection with any claim, action, suit, proceeding or
governmental investigation.
"Material Adverse Change" means, with respect to any
Contributing Subsidiary, a material adverse change in the
business, assets, condition (financial or otherwise), or results
of operations of its Contributed Business taken as a whole.
"Net Debt" means, with respect to Radian's Contributed
Business, (i) Debt as of the Closing Date to HSB less (ii) the
sum of the cash, cash equivalents, and investments which have
terms of less than 120 days and are publicly traded equity
interests.
"Newco Protected Business" means solely (i) the
businesses conducted by DEI and Radian, and their respective
Subsidiaries, as of the date of this Agreement and (ii) the
businesses conducted as of the date of this Agreement with the
assets listed on Schedule 2.02(b).
"Newco Services Business" means (i) the Newco Protected
Business and, to the extent not covered by the Newco Protected
Business, (ii) the following businesses: (a) remediation,
including without limitation soil remediation, groundwater
remediation, thermal treatment, bioremediation and containment,
(b) consulting and engineering, including without limitation
hazardous waste practice, (c) strategic chemical management,
including without limitation environmental management, process
optimization, pollution prevention, environmental health and
safety programs, life cycle analysis, materials management and
outsourcing, and (d) systems, including without limitation water
systems, air systems, process systems and operations.
"Permitted Lien" means, with respect to the Contributed
Assets, any or all of the following: (i) Liens for property
taxes and assessments not yet delinquent or being contested in
good faith by appropriate proceedings and against which adequate
reserves or accruals have been established in such party's
Closing Balance Sheet, (ii) the rights of lessors and lessees
under leases executed in the ordinary course of business, (iii)
the rights of licensors and licensees under licenses executed in
the ordinary course of business, (iv) Liens, and rights to Liens,
of mechanics, warehousemen, carriers, repairmen and others
arising by operation of law and incurred in the ordinary course
of business, securing obligations not yet delinquent or being
contested in good faith by appropriate proceedings and against
which adequate reserves or accruals have been established in such
party's Closing Balance Sheet, (v) other Liens (other than Liens
securing Debt) which do not, individually or in the aggregate,
materially detract from the value of, or materially interfere
with the current or currently intended use of, the Contributed
Assets of such party subject thereto, or materially impair the
conduct of the business currently conducted, or currently
intended to be conducted, with such Contributed Assets, and (vi)
Liens disclosed on Schedule 3.08(d).
"Person" means an individual, a corporation, a
partnership, a limited liability company, an association, a trust
or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"Pre-Contribution Tax Period" means any Tax period
ending on or before 12:01 a.m. on January 1, 1996 or, in the case
of any Tax period which includes, but does not end on, January 1,
1996, the portion of such period up to but not including January
1, 1996.
"Regulated Environmental Activity" means any
generation, treatment, storage, recycling, transportation or
disposal of any Hazardous Substance.
"Release" means any discharge, emission or release,
including a Release as defined in CERCLA at 42 U.S.C. Sec. 9601(22).
The term "Released" has a corresponding meaning.
"Subsidiary" or "Subsidiaries" of any Person means any
corporation, partnership, limited liability company, association,
trust, joint venture or other entity or organization of which
such Person, either alone or through or together with any other
Subsidiary, owns, directly or indirectly, more than 50% of the
stock or other equity interests, the holder of which is generally
entitled to vote for the election of the board of directors or
other governing body of such corporation, partnership, limited
liability company, association, trust, joint venture or other
entity or organization.
"Tax" and "Taxes" mean any and all foreign, federal,
state, local or other tax assessments or other governmental
charges, including without limitation any income, franchise,
sales, use, withholding, employment, payroll, social security,
property, VAT, transfer, trade, net worth, business, occupation
taxes and any customs duties, other duties or governmental
charges, including without limitation any installment payment for
any of the foregoing, that are from time to time, imposed by, or
required to be paid to any governmental authority (including
penalties, additions, and interest on or with respect to any of
the foregoing).
"Third Quarter Balance Sheet" means, with respect to
each Contributing Subsidiary, the balance sheet of its
Contributed Business as of September 30, 1995.
"Third Quarter Financial Statements" means, with
respect to each Contributing Subsidiary, its Third Quarter
Balance Sheet and the unaudited statement of income for its
Contributed Business for the nine-month period then ended, in the
case of DEI, attached as Annex I and, in the case of Radian,
attached as Annex II.
"Transaction Documents" means collectively, this
Agreement, the LLC Agreement, the Confidentiality Agreement, and
any other documents, instruments and agreements related to or
contemplated under such agreements or to be executed at the
Closing.
(b) Each of the following terms is defined in the
Section set forth opposite such term:
Term Section
Acquiror 5.17(b)
Acquiror Proposal 5.17(b)
Anti-Competitive Contract 3.27(c)
Assumed Contracts 2.02(a)
Assumed Liabilities 2.04
BSL 5.12
Claims 8.02(h)
Closing 2.08(a)
Closing Date 2.08(a)
Contracts 2.02(a)
Contributed Amounts 2.02(a)
Contributed Assets 2.02(a)
Contributing Subsidiary Preamble
Conveyance Documents 2.08(b)
DEI Preamble
DEI Plans 3.28
DEI 401(k) Plan 6.03
Derivative Financial Instrument 3.26
Ecobilan Consent 2.07(e)
Employment Transfer Date 6.01
Excluded Assets 2.03
Excluded Liabilities 2.05
HSB Preamble
HSB ESOP 3.28
HSB Stock 6.03
Impaired Asset 5.10
Indemnified Party 8.02
Indemnified Parties 8.02
Indemnifying Party 8.02
IRS 3.28
LLC Agreement Recitals
Material Equity Investment Entity 3.27(a)
Material Lease 3.12
Newco Recitals
Newco Plans 6.03
Newco 401(k) Plan 6.03
Offeror 5.17(b)
Offeree 5.17(b)
Parent Preamble
Permit 3.13
Personal Property 2.02(a)
Radian Preamble
Radian Plans 3.28
Real Property 3.08
Required Consent 3.04
Restricted Assets 2.07(a)
Shares 5.17(b)
Special Foreign Assets 2.07(f)
Subsidiary Contracts 3.12(b)
TDCC Preamble
TDCC 401(k) Plan 6.03
1.02. Accounting Terms and Determinations. Unless
otherwise specified, all accounting terms used in this Agreement
shall be interpreted, all accounting determinations shall be
made, and all financial statements required to be delivered by
any Person under this Agreement shall be prepared in accordance
with GAAP applied on a basis consistent (except for changes
concurred in by such Person's independent public accountants)
with the Third Quarter Balance Sheet of such Person.
ARTICLE II
ORGANIZATION; CONTRIBUTION
2.01. Organization of Newco. Upon the terms and
subject to the conditions of this Agreement, prior to the
Closing, DEI and Radian shall enter into and execute the LLC
Agreement and shall cause Newco to be formed under the laws of
the State of Delaware (or shall not undo these actions if they
have already occurred). The LLC Agreement shall terminate if
this Agreement terminates and the Closing has not occurred.
Newco shall conduct no business, other than preparations for the
Closing, prior to the Closing.
2.02. Contribution. (a) Upon the terms and subject to
the conditions of this Agreement, each of Radian and DEI agrees
and each of HSB and TDCC agrees to cause Radian and DEI,
respectively, to transfer, assign and deliver, or cause to be
transferred, assigned and delivered to Newco at Closing or, in
the case of Restricted Assets, at such time or times as permitted
pursuant to Section 2.07 of this Agreement, as a contribution,
free and clear of all Liens, other than Permitted Liens or Liens
set forth on Schedule 2.02(a), all of its right, title and
interest in, to and under the assets, properties and business
(other than Excluded Assets) of Radian and DEI, respectively, of
every kind and description, wherever located, real, personal or
mixed, tangible or intangible, of such party as the same shall
exist on the Closing Date or, in the case of Restricted Assets,
at such time or times as permitted pursuant to Section 2.07 of
this Agreement, including all assets (other than Excluded Assets)
shown on its Third Quarter Balance Sheet and not disposed of in
the ordinary course of business, and all assets (other than
Excluded Assets) thereafter acquired until the Closing Date by
such party and not disposed of in the ordinary course of business
(collectively, with respect to each such party, the "Contributed
Assets"). Without in any way limiting the generality of the
foregoing, the Contributed Assets shall include (other than
Excluded Assets) all right, title and interest of such party in,
to and under:
(i) all real property and leases of, and other
interests in, real property (including leases, lands,
options and other such interests), in each case together
with all buildings, fixtures and improvements erected
thereon and all easements, rights of way and all of such
party's rights in any public or private thoroughfare
abutting such real property including without limitation,
the items listed on Schedule 3.08(a);
(ii) all personal property and interests therein,
including machinery, pipes, tools, equipment, furniture,
office equipment, communications equipment, vehicles,
storage tanks, spare and replacement parts, fuel and other
trade fixtures, fixed assets and tangible property
("Personal Property"), including without limitation the
items listed on Schedule 3.08(b);
(iii) all raw materials, work-in-process, supplies and
other inventories;
(iv) all rights under all contracts, agreements,
leases, licenses, commitments, sales and purchase orders and
other instruments (collectively, "Contracts") to which the
Contributing Subsidiary is a party, including, but not
limited to, Contracts listed on Schedule 2.02(a)(iv) or
Schedule 3.12(a) and all Contracts entered into by each
Contributing Subsidiary between the date of this Agreement
and the Closing (collectively, the "Assumed Contracts")
(provided, however, that the Assumed Contracts shall not
include Contracts entered into in breach of this Agreement);
(v) all accounts receivable, notes receivable and
other receivables;
(vi) all prepaid expenses, including, but not limited
to, real estate and ad valorem taxes, leases and rentals;
(vii) all petty cash located at operating facilities
of such party;
(viii) all rights, claims, credits, causes of action or
rights of set-off of such party or its Subsidiaries against
third parties, including without limitation unliquidated
rights under manufacturers' and vendors' warranties (but
excluding counterclaims, cross claims, warranty claims and
indemnity claims and other rights, whether or not yet
asserted, relating to litigation or other claims against
such party that are not Assumed Liabilities);
(ix) all licenses, permits or other governmental
authorizations, including without limitation the items
listed on Schedule 3.13;
(x) Books and Records;
(xi) with respect to DEI, all funds on deposit in the
bank accounts set forth on Part I of Schedule 2.02(a)(xi)
and, with respect to Radian, all funds on deposit in the
bank accounts set forth on Part II of Schedule 2.02(a)(xi)
(the "Contributed Amounts");
(xii) all capital stock and other securities or other
ownership interests of the Material Equity Investment
Entities listed on Schedule 3.27;
(xiii) all of the Contributing Subsidiary's
Intellectual Property Rights;
(xiv) all goodwill attributable to the Contributing
Subsidiary; and
(xv) with respect to DEI, the assets and properties
set forth on Part I of Schedule 2.02(b) and with respect to
Radian, the assets and properties set forth on Part II of
Schedule 2.02(b).
(b) Upon the terms and subject to the conditions of
this Agreement, TDCC agrees to transfer, assign and deliver, or
cause to be transferred, assigned and delivered, to DEI prior to
the Closing, as a contribution, free and clear of all Liens,
other than Permitted Liens or Liens set forth on
Schedule 2.02(b)(x), all of the right, title and interest in, to
and under the assets and properties set forth on Part I of
Schedule 2.02(b) (except for Restricted Assets). Upon the terms
and subject to the conditions of this Agreement, HSB agrees to
transfer, assign and deliver, or cause to be transferred,
assigned and delivered, to Radian prior to the Closing, as a
contribution, free and clear of all Liens, other than Permitted
Liens or Liens set forth on Schedule 2.02(b)(x), all of the
right, title and interest in, to and under the assets and
properties set forth on Part II of Schedule 2.02(b) (in each
case, except for Restricted Assets).
2.03. Excluded Assets. Each party expressly
understands and agrees that, notwithstanding any provision of
this Agreement to the contrary, the following assets and
properties of the Contributing Subsidiaries (the "Excluded
Assets") shall be excluded from the Contributed Assets:
(i) all assets sold or otherwise disposed of in the
ordinary course of the operation of its business and not in
violation of any provisions of this Agreement during the
period from the date of this Agreement until the Closing
Date;
(ii) counterclaims, cross claims, warranty claims and
indemnity claims and other rights, whether or not yet
asserted, relating to litigation or other claims against
such party that are not Assumed Liabilities;
(iii) all rights pursuant to any loan agreement
between DEI and TDCC or Radian and HSB, other than the loan
agreement dated as of the Closing Date between HSB and
Newco;
(iv) minute books for the board of directors,
committees or shareholder meetings, incorporation documents,
and stock transfer records and tax or similar or related
corporate records;
(v) all licenses provided by TDCC to DEI and its
Subsidiaries to use "DOW" in any company name and the DOW
Diamond trademark;
(vi) all assets (including refunds and credits)
related to foreign, U.S. Federal and state income taxes,
both current and deferred;
(vii) all insurance policies and proceeds therefrom;
(viii) with respect to DEI, the bank accounts (but not
the funds in those accounts) set forth on Part I of
Schedule 2.02(a)(xi) and, with respect to Radian, the bank
accounts (but not the funds in those accounts) set forth on
Part II of Schedule 2.02(a)(xi);
(ix) all licenses, permits or other governmental
authorizations, listed on Schedule 3.13, which are not
transferable as a matter of law;
(x) with respect to Radian, the assets and
properties set forth on Schedule 2.03(x); and
(xi) with respect to DEI, the assets and properties
set forth on Schedule 2.03(xi).
2.04. Assumption of Liabilities. Upon the terms and
subject to the conditions of this Agreement, DEI and Radian shall
cause Newco, effective at the time of Closing (except for
liabilities and obligations related to Restricted Assets, which
shall be assumed by Newco when the related Restricted Asset is
contributed to Newco), to assume the following liabilities and
obligations of the Contributing Subsidiaries as the same shall
exist on the Closing Date (collectively, the "Assumed
Liabilities"):
(a) except to the extent that a liability or
obligation referred to in this subparagraph (a) is an Excluded
Liability, all liabilities and obligations reflected on the Third
Quarter Balance Sheet of each party (other than any such
liabilities paid or discharged prior to the Closing Date) and all
liabilities and obligations of the type included in the line item
categories set forth on such Third Quarter Balance Sheet incurred
after the date of the Third Quarter Balance Sheet until the
Closing Date to the extent such liabilities and obligations are
incurred in the ordinary course of business and are not incurred
in violation of any provision of this Agreement (and other than
any such liabilities paid or discharged prior to the Closing
Date);
(b) all liabilities and obligations of the
Contributing Subsidiaries arising under the Assumed Contracts,
including without limitation the Contracts listed on Schedule
2.02(a)(iv) or Schedule 3.12(a), other than (x) liabilities or
obligations arising under Contracts that are Excluded Assets, (y)
liabilities or obligations attributable to any failure by any
such party or its Affiliates to comply with the terms of
Contracts that are Excluded Assets or (z) liabilities or
obligations arising under Contracts that are entered into in
breach of this Agreement; and
(c) all liabilities and obligations set forth in
Part I of Schedule 2.04(c) (which shall be certain liabilities
and obligations of TDCC assumed by DEI) and in Part II of
Schedule 2.04(c) (which shall be certain liabilities and
obligations of HSB assumed by Radian) except, in each case, for
liabilities related to Restricted Assets.
2.05. Excluded Liabilities. Notwithstanding any
provision in this Agreement, Newco is assuming only the Assumed
Liabilities and is not assuming any other liability or obligation
of whatever nature, whether presently in existence or arising
after the date of this Agreement (all such liabilities and
obligations not being assumed being referred to as the "Excluded
Liabilities"). Without in any way limiting the generality of the
foregoing, the following are Excluded Liabilities for purposes of
this Agreement:
(i) any liability or obligation arising from, or
with respect to, the Contributed Assets or the operations of
the Contributed Business which is incurred in, or
attributable to, any period ending on or prior to
September 30, 1995, except (x), to the extent not excluded
pursuant to clause (ii), (iii), (iv), (v) or (vi) below,
liabilities and obligations reflected on the Third Quarter
Balance Sheet of each party or (y) any liability or
obligation pursuant to the Assumed Contracts which, pursuant
to Section 2.04(b) of this Agreement, is an Assumed
Liability;
(ii) with respect to Radian, liability for Debt to
HSB to the extent that Radian's Net Debt exceeds
$18,672,594;
(iii) with respect to DEI, liability for Debt to TDCC;
provided, however, that (a) Debt owed by Dow Umweltservice
GmbH to Dow Deutschland Inc. as reflected on Schedule 1.01
and (b) accounts payable under existing written intercompany
service agreements not to exceed $3.256 million shall be
Assumed Liabilities and not Excluded Liabilities;
(iv) any liability or obligation relating to an
Excluded Asset;
(v) all liabilities related to foreign, U.S. Federal
and state income taxes, both current and deferred; and
(vi) all Environmental Liabilities.
2.06. Intentionally Omitted.
2.07. Assignment of Certain Contracts and Other
Assets. (a) Anything in this Agreement to the contrary notwith-
standing, this Agreement shall not constitute an agreement to
assign any asset listed on Schedule 3.05 or any asset (including
without limitation securities or other ownership interests) or
any Contract or Permit or instrument beneficially owned by either
Contributing Subsidiary or listed on Schedule 2.02(b), or any
claim or right or any benefit arising thereunder or resulting
therefrom if, in any such case, an attempted assignment thereof,
without the consent of a third party thereto, would constitute a
breach or other contravention thereof or in any way adversely
affect the rights of any party thereunder unless or until such
time as the consent of such third party has been obtained
(collectively, the "Restricted Assets").
(b) Both before and after the Closing, each party
shall use all commercially reasonable efforts to obtain any
required consent of third parties for the assignment of any of
its Restricted Assets or any claim or right or any benefit
arising thereunder to Newco. The parties shall cause Newco to
accept assignment of, and in the case of Contracts, assume the
liabilities relating to, any Restricted Asset as soon as such
consent is obtained and shall treat such assignment or assumption
as being effective on the Closing Date. If such consent to
assignment is not obtained, or if an attempted assignment thereof
would be ineffective or would adversely affect the rights of such
party thereunder so that Newco would not in fact receive all such
rights, the parties will use all commercially reasonable efforts
to obtain for Newco the benefits that Newco would have obtained
if such Restricted Asset could have been assigned to Newco.
Those efforts shall include, if such actions will not cause, on a
collective basis, material adverse consequences for Newco or the
parties to this Agreement or if the relevant third party consents
to such action, (i) subcontracting, sub-licensing or sub-leasing
to Newco the rights and obligations under the Restricted Asset,
or (ii) making an arrangement under which such party would
enforce for the benefit of Newco, with Newco assuming such
party's obligations or providing the personnel, equipment or
facilities (at Newco's expense) to such party to perform those
obligations, any and all rights of such party against a third
party. Except as provided in Section 2.07(e), each party will
promptly pay to Newco, when received, all monies (net of
reasonable out-of-pocket expenses) received by such party in
respect of any Restricted Asset or any claim or right or any
benefit arising thereunder, regardless of whether a consent for
the assignment of such Restricted Asset has been or can be
obtained.
(c) Notwithstanding the foregoing, if efforts to
obtain any required consent of third parties for the assignment
of any of its Restricted Assets or any claim or right or any
benefit arising thereunder to Newco would require Newco to (i)
assume any additional obligation (including, but not limited to,
an agreement from Newco which restricts the business activity of
Newco or any of its Affiliates or contains any form of non-
competition clause) or (ii) incur any additional out-of-pocket
expense not reasonably related to the value of the Restricted
Asset, then such obligation or expense shall not be assumed or
incurred without the prior written approval of both TDCC and HSB.
If such approval is not obtained, and if all other commercially
reasonable efforts to obtain such consent have failed, then TDCC,
HSB or such Contributing Subsidiary, as the case may be, shall
dispose of such Restricted Asset. Such party will promptly pay
to Newco, when received, all monies (net of reasonable out-of-
pocket expenses) received by such party in respect of any
disposition of any Restricted Asset.
(d) If, and to the extent that in respect of any
Restricted Asset, (i) consent from a third party cannot be
obtained, (ii) any of the arrangements contemplated in
Section 2.07(b) cannot be made or (iii) approval from TDCC or HSB
to incur any expense or assume any obligation cannot be obtained
and disposition as contemplated in Section 2.07(c) cannot be
made, none of the parties to this Agreement shall have any
further obligation to the other under this Section 2.07 with
respect to such Restricted Asset; provided, however, that the
provisions set forth in Sections 5.12 and 8.02 shall survive with
respect to such Restricted Asset.
(e) DEI's shares of common stock of Ecobilan, S.A.
shall be treated as a Restricted Asset until consents can be
obtained from third parties such that it would not be prejudicial
to Newco for these shares to be transferred to Newco (the
"Ecobilan Consent"). The earnings of Ecobilan, S.A. prior to the
date that the Ecobilan Consent is effective shall not,
notwithstanding anything to the contrary in this Agreement, inure
to the benefit of Newco.
(f) The capital stock and other securities or other
ownership interests of each of the Material Equity Investment
Entities (as defined in Section 3.27) owned by Radian and listed
on Schedule 2.07(f) (the "Special Foreign Assets") shall be
treated as a Restricted Asset; provided, however, that Radian
shall not be required to attempt to assign any of the Special
Foreign Assets or any claim or right or any benefit arising
thereunder to Newco. Notwithstanding anything to the contrary in
this Agreement, Radian agrees to transfer, assign and deliver, or
cause to be transferred, assigned and delivered to Newco as a
contribution, free and clear of all Liens, other than Permitted
Liens or Liens set forth on Schedule 2.02(b)(x), all proceeds
(net of reasonable out-of-pocket expenses), if any, with respect
to the dissolution, sale or disposition of any of the Special
Foreign Assets as soon as practicable after such dissolution,
sale or disposition. Radian, at the direction, with the
assistance, and in collaboration with Newco, will use all
commercially reasonable efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary
or desirable under applicable laws and regulations and any
applicable contractual obligations to cause the dissolution, sale
or disposition, on the best terms practicable, of the Special
Foreign Assets as soon as practicable after the Closing Date.
2.08. Closing. (a) The closing (the "Closing") of
the contribution of the Contributed Assets and the assumption by
Newco of the Assumed Liabilities under this Agreement shall take
place at the offices of Mayer, Brown & Platt, 190 South LaSalle
Street, Chicago, Illinois 60603 as soon as possible, but in no
event later than two (2) business days, after satisfaction of the
conditions set forth in Article VII, or at such other time or
place as the parties may agree (the "Closing Date"). It is
understood and agreed that notwithstanding the Closing Date for
the transactions described herein, the Contributed Business of
each Contributing Subsidiary shall be deemed to have been
operated for the benefit of Newco from and after January 1, 1996.
TDCC agrees to reimburse Newco for any dividends declared or paid
by DEI to TDCC or any of its Affiliates during between January 1,
1996 and the Closing Date. HSB agrees to reimburse Newco for any
dividends declared or paid by Radian to HSB or any of its
Affiliates during the period between January 1, 1996 and the
Closing Date.
(b) At the Closing, Newco shall enter into an
Assignment and Assumption Agreement with each of TDCC, HSB, DEI
and Radian reasonably satisfactory in form and substance to TDCC
and HSB and their respective counsel, and each of TDCC, HSB, DEI
and Radian shall deliver to Newco such special warranty deeds,
bills of sale, stock powers, endorsements, consents and
assignments reasonably satisfactory in form and substance to TDCC
and HSB and their respective counsel, and other good and
sufficient instruments of conveyance and assignment (the
"Conveyance Documents") as TDCC and HSB and their respective
counsel shall deem reasonably necessary or appropriate to vest in
Newco all right, title and interest in, to and under the
Contributed Assets and to effect the assumption by Newco of the
Assumed Liabilities.
2.09. Closing Balance Sheet. (a) As promptly as
practicable after the Closing Date, each of HSB and TDCC will
prepare, or cause its respective Contributing Subsidiary to
prepare, a Closing Balance Sheet. TDCC will cause Deloitte &
Touche LLP and HSB will cause Coopers & Lybrand LLP to conduct an
audit for the purpose of rendering its unqualified report on its
Closing Balance Sheet. As promptly as practicable, but no later
than February 29, 1996, each of DEI or Radian will cause its
Closing Balance Sheet, together with the report thereon of
Deloitte & Touche LLP or Coopers & Lybrand LLP, as the case may
be, to be delivered to the other party. Each Closing Balance
Sheet shall (x) fairly present the consolidated financial
position of the Contributed Business as of 11:59 p.m. on December
31, 1995 on a basis consistent with the accounting principles
used in the preparation of the Third Quarter Balance Sheet of
such Contributing Subsidiary and (y) be prepared in accordance
with GAAP on a basis consistent with those used in the
preparation of such Third Quarter Balance Sheet, except, in the
case of DEI, with respect to the treatment of goodwill and
except, in the case of Radian, with respect to the treatment of
salary continuation agreements.
(b) The parties agree that they will, and DEI and
Radian agree to cause Newco and their respective independent
accountants to, cooperate and assist in the preparation of the
Closing Balance Sheets.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DEI AND RADIAN
EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES
SPECIFICALLY PROVIDED FOR IN THIS AGREEMENT, ALL OF THE
CONTRIBUTED ASSETS ARE CONTRIBUTED TO NEWCO "AS IS" AND "WHERE
IS" WITHOUT IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR
INTENDED USE OR PARTICULAR PURPOSE OR OTHERWISE.
Each Contributing Subsidiary hereby represents and
warrants to each other party and Newco as of the date of this
Agreement that:
3.01. Existence and Power. Such Contributing
Subsidiary is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, and
has all powers and all governmental licenses, authorizations,
consents and approvals required to carry on its business as now
conducted. Such Contributing Subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction where the character of the property owned or leased
by it or the nature of its activities make such qualification
necessary, except for those jurisdictions where failure to be so
qualified would not, individually or in the aggregate, result in
a Material Adverse Change. Such Contributing Subsidiary has
delivered or made available to the other parties true and
complete copies of the certificate of incorporation and bylaws of
such party as currently in effect.
3.02. Authorization. The execution, delivery and
performance by such Contributing Subsidiary of this Agreement,
the other Transaction Documents to which it is a party and all
other documents, instruments and certificates executed and
delivered by such Contributing Subsidiary in connection with this
Agreement or with such other documents, and the consummation by
such Contributing Subsidiary of the transactions contemplated by
this Agreement or by such other documents are within such
Contributing Subsidiary's powers and have been duly authorized by
all necessary action on the part of such Contributing Subsidiary.
This Agreement and each of the other Transaction Documents have
been duly and validly executed and delivered by such Contributing
Subsidiary and each constitutes a valid and binding agreement of
such Contributing Subsidiary, enforceable in accordance with its
terms, except as (i) the enforceability thereof may be limited by
applicable bankruptcy, insolvency, fraudulent transfer,
moratorium or similar laws from time to time in effect affecting
creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of
general applicability.
3.03. Governmental Authorization. Except as set forth
on Schedules 3.03 and 3.05, the execution, delivery and
performance by such Contributing Subsidiary of this Agreement,
the other Transaction Documents to which it is a party and all
other documents, instruments and certificates executed and
delivered by such Contributing Subsidiary in connection with this
Agreement or with such other documents, require no action by or
in respect of, or filing with, any governmental body, agency,
official or authority other than any actions or filings necessary
to transfer or obtain any Permit.
3.04. Non-Contravention. The execution, delivery and
performance by such Contributing Subsidiary of this Agreement,
the other Transaction Documents to which it is a party and all
other documents, instruments and certificates executed and
delivered by such Contributing Subsidiary in connection with this
Agreement or with such other documents do not and will not (i)
contravene or conflict with the certificate of incorporation or
bylaws of such Contributing Subsidiary; (ii) assuming compliance
with the matters referred to in Section 3.03, contravene or
conflict with or constitute a violation of any provision of any
law, regulation, judgment, injunction, order or decree binding
upon or applicable to such Contributing Subsidiary or its
Contributed Business; (iii) assuming the obtaining of all
consents necessary for the assignment of that party's Restricted
Assets (each such consent, a "Required Consent" and collectively,
the "Required Consents"), constitute a default under or give rise
to any right of termination, cancellation or acceleration of any
right or obligation or to a loss of any benefit relating to the
Contributed Business of such Contributing Subsidiary or its
Affiliates to which such Contributing Subsidiary is entitled, or
cause or require the creation of any encumbrance on any
Contributed Asset or the assumption of any debt, other than
Assumed Liabilities, by Newco under any provision of any note,
bond, mortgage, indenture, lease, license, franchise, permit,
agreement, contract or other instrument or obligation binding
upon such Contributing Subsidiary or its Subsidiaries, or any
Person controlling such Contributing Subsidiary or by which any
of the Contributed Assets is or may be bound for which a written
waiver has not been obtained as of the date of this Agreement, or
any Permit; (iv) result in the creation or imposition of any Lien
on any Asset, other than Permitted Liens; or (v) contravene or
conflict with any collective bargaining agreement binding upon
such Contributing Subsidiary.
3.05. Restricted Assets. Schedule 3.05 sets forth, as
to such Contributing Subsidiary, all of that Contributing
Subsidiary's Restricted Assets (other than Assumed Contracts that
are Restricted Assets).
3.06. Third Quarter Financial Statements. The Third
Quarter Financial Statements of such Contributing Subsidiary
fairly present, in all material respects in conformity with GAAP
applied on a consistent basis (except, in the case of DEI with
respect to the treatment of goodwill and, except, in the case of
Radian, with respect to the treatment of salary continuation
agreements), the financial position of such Contributing
Subsidiary and its respective Subsidiaries, taken as a whole, as
of the dates thereof and their results of operations for the
periods then ended. The Third Quarter Financial Statements
reflect all adjustments which are, in the opinion of the
management of such Contributing Subsidiary, necessary for a fair
statement of the results for the period. All such adjustments
are, in the opinion of the management of such Contributing
Subsidiary, of a normal recurring nature.
3.07. Absence of Certain Changes. Since September 30,
1995, the Contributed Business of such Contributing Subsidiary or
its Affiliates has been conducted in the ordinary course
consistent with past practice, and except as set forth on
Schedule 3.07 or as otherwise required or contemplated by this
Agreement, there has not been, with respect to the Contributed
Business of such Contributing Subsidiary or its Affiliates:
(a) any Material Adverse Change;
(b) any creation or other incurrence of any Lien
(other than Permitted Liens or Liens described on
Schedule 2.02(a)) on any material Contributed Asset other
than in the ordinary course of business consistent with past
practice;
(c) any creation of any obligation or liability
(whether fixed, contingent, unliquidated, absolute or
otherwise) with respect to any of the Contributed Assets to
be contributed by it or its Affiliates or with respect to
its Contributed Business that would be an Assumed Liability,
except trade or business obligations incurred in the
ordinary course of business consistent with past practice;
(d) any damage, destruction or other casualty loss
(whether or not covered by insurance) affecting its
Contributed Business or any Contributed Asset which,
individually or in the aggregate, has had, or could
reasonably be expected to result in, a Material Adverse
Change;
(e) any transaction, contract, agreement or other
instrument entered into, or commitment made, by such
Contributing Subsidiary relating to its Contributed Business
or any Contributed Asset (including the acquisition or
disposition of any assets) or any relinquishment by such
Contributing Subsidiary of any contract or other right, in
either case, material to its Contributed Business taken as a
whole, other than transactions and commitments in the
ordinary course of business consistent with past practices
and those required or contemplated by this Agreement or the
other Transaction Documents or any material amendment,
modification or waiver of any Contract;
(f) any change in any method of accounting or
accounting practice by such Contributing Subsidiary with
respect to its Contributed Business, except for any such
change after the date of this Agreement required by reason
of a concurrent change in GAAP;
(g) any (i) grant of any severance or termination
pay to any employee of its Contributed Business, (ii)
entering into any employment, deferred compensation or other
similar agreement (or any amendment to any such existing
agreement) with any employee of its Contributed Business,
(iii) increase in benefits payable under any existing
severance or termination pay policies or employment
agreements or (iv) increase in compensation, bonus or other
benefits payable to employees of its Contributed Business,
other than, in the case of clauses (i) through (iv) above,
in the ordinary course of business consistent with past
practice;
(h) any labor dispute, other than routine individual
grievances, or any activity or proceeding by a labor union
or representative thereof to organize any employees of its
Contributed Business, or any lockouts, strikes, slowdowns,
work stoppages or threats thereof by or with respect to such
employees;
(i) any commitment for a capital expenditure or for
additions or improvements to property, buildings and
equipment, in each case that is anticipated to have an
outstanding balance in excess of $500,000 on the Closing
Date;
(j) any transaction, contract, agreement or other
instrument entered into, or commitment made, by such
Contributing Subsidiary with an Affiliate of such
Contributing Subsidiary, and which relates to the
Contributed Business of such Contributing Subsidiary or its
Affiliates; or
(k) declared, set aside or paid any dividend or
other distribution (whether in cash, stock, or property
or any combination thereof) in respect of its capital
stock.
3.08. Properties. (a) Schedule 3.08(a) correctly
describes all owned, leased or subleased real property included
in the Contributed Assets (collectively, the "Real Property" of
such Contributing Subsidiary), specifying in the case of leases
or subleases, the name of the lessor or sublessor, the lease term
and basic annual rent.
(b) Schedule 3.08(b) correctly describes all owned,
leased or subleased tangible Personal Property of such
Contributing Subsidiary with a book value in excess of $100,000,
and, in the case of owned personal property, any Liens thereon
other than Permitted Liens or Liens set forth on
Schedule 2.02(a), specifying in the case of leases or subleases,
the name of the lessor or sublessor, the lease term and basic
annual rent.
(c) (i) Such Contributing Subsidiary or its
Affiliates have good title (subject only to Permitted Liens
or Liens set forth on Schedule 2.02(a)) to all Contributed
Assets (whether personal, tangible or intangible) reflected
on its Third Quarter Balance Sheet or acquired after the
date of this Agreement, except for properties and assets
sold since the date of this Agreement in the ordinary course
of business consistent with past practice. Upon
consummation of the transactions contemplated by this
Agreement, Newco will have acquired good title in and to, or
a valid leasehold with respect to, each of the Contributed
Assets of such Contributing Subsidiary or its Affiliates
free and clear of all Liens, except for Permitted Liens or
Liens set forth on Schedule 2.02(a).
(ii) All Material Leases (as defined in
Section 3.12(a)(i)) are in good standing and are valid,
binding and enforceable against such Contributing Subsidiary
or its respective Subsidiaries (and, to the knowledge of
such Contributing Subsidiary, each other party thereto) in
accordance with their respective terms, and there does not
exist, under any lease of real property or personal
property, any material default or any event which, with
notice or lapse of time or both, would constitute a material
default by such Contributing Subsidiary or its Affiliates
or, to the knowledge of such Contributing Subsidiary, by any
other party thereto.
(iii) The buildings, facilities, structures and
equipment currently used in the Contributed Business of such
Contributing Subsidiary or its Affiliates are in reasonable
operating condition and repair and have been reasonably
maintained consistent with standards generally followed in
the industry (giving due account to the age and length of
use of same, ordinary wear and tear excepted), are
substantially suitable for their present uses and, to the
knowledge of such Contributing Subsidiary, have no material
defects.
(iv) The buildings, facilities, structures and
equipment included in the Contributed Assets of such
Contributing Subsidiary or its Affiliates currently have
access to (1) public roads or valid easements over private
streets or private property for such ingress to and egress
from all such plants, buildings and structures and (2) water
supply, storm and sanitary sewer facilities, telephone, gas
and electrical connections, fire protection, drainage and
other public utilities, as is necessary for the conduct of
the Contributed Business of such Contributing Subsidiary or
its Affiliates as currently or heretofore conducted.
(d) Schedule 3.08(d) sets forth all Liens securing
obligations for Debt that encumber any of the Contributed Assets.
(e) Except as set forth on Schedule 3.08(e), no
violation of any law, regulation, ordinance or Permit (including
without limitation laws, regulations, ordinances or Permits
relating to zoning, city planning or similar matters) relating to
the Contributed Business of such Contributing Subsidiary or its
Affiliates currently exists or has existed at any time since
January 1, 1995, except for (i) violations which have not had and
would not reasonably be expected to result, individually or in
the aggregate, in a Material Adverse Change, and (ii) matters
relating to Environmental Laws which are the subject of
Section 3.20. To the knowledge of such Contributing Subsidiary,
there are no developments affecting any of the Contributed Assets
of such Contributing Subsidiary or its Affiliates pending or
threatened which could reasonably be expected to detract
materially from the value of such Contributed Assets, materially
interfere with any present or intended use of any such
Contributed Assets or materially adversely affect the
marketability of such Contributed Assets;
(f) Such Contributing Subsidiary has delivered or
made available to the other Contributing Subsidiary, true and
complete copies of all records, title policies and reports,
leases, contracts and other materials referred to in this
Section 3.08 or described in Schedules 3.08(a) or (b).
3.09. Sufficiency of Assets. The Contributed Assets
contributed by such Contributing Subsidiary constitute all of the
assets (other than Excluded Assets) used or held for use by the
Contributing Subsidiary and its respective Subsidiaries in their
business, and no other assets (other than the Excluded Assets)
are required to operate the Contributed Business of such
Contributing Subsidiary or its Affiliates substantially as
currently or heretofore conducted.
3.10. No Undisclosed Liabilities. Except as set forth
on Schedule 3.10, there are no liabilities of the Contributed
Business of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances which could
reasonably be expected to result in such a liability, other than:
(i) liabilities disclosed or provided for in its
Third Quarter Balance Sheet; or
(ii) liabilities incurred in the ordinary course of
business consistent with past practice.
3.11. Litigation. Except as set forth on
Schedules 3.05, 3.11 or 3.18, there is no action, suit, or
proceeding (or, to the knowledge of such Contributing Subsidiary,
investigation) pending against, or to the knowledge of such
Contributing Subsidiary, threatened against or affecting, its
Contributed Business or any of its Contributed Assets before any
court or arbitrator or any governmental body, agency or official
(nor, to the knowledge of such Contributing Subsidiary, is there
any basis therefor) which, if determined or resolved adversely in
accordance with the plaintiff's demands, would reasonably be
expected to result in a Material Adverse Change or which in any
manner challenges or seeks to prevent, enjoin, alter or
materially delay the transactions contemplated by this Agreement.
3.12. Material Contracts. (a) Except for the
Contracts disclosed in Schedule 3.12(a), with respect to its
Contributed Business, such Contributing Subsidiary and its
respective Subsidiaries are not a party to or subject to:
(i) any lease providing for annual rentals or an
aggregate rental of $100,000 or more (each a "Material
Lease");
(ii) any Contract for the purchase of materials,
supplies, goods, services, equipment or other assets
(including the Contributed Assets) which either provides
payments by such Contributing Subsidiary of $100,000 or more
annually or extends for a term of greater than one year;
(iii) any Contract providing for annual payments of
$1,000,000 or more or extending beyond two years;
(iv) any sales, distribution or other similar
agreement providing for the sale by such Contributing
Subsidiary of materials, supplies, goods, services,
equipment or other assets that, for the period subsequent to
January 1, 1995, provided any revenue to such Contributing
Subsidiary or its respective Subsidiaries or any other such
agreements to be performed subsequent to the date of this
Agreement;
(v) any partnership, joint venture or other similar
contract arrangement or agreement;
(vi) any option agreement, license agreement,
franchise agreement or other agreement in respect of similar
rights granted to or held by such Contributing Subsidiary;
(vii) any agency, dealer, sales representative or
other similar agreement;
(viii) any agreement, contract or commitment that
substantially limits the freedom of such Contributing
Subsidiary or its respective Subsidiaries to compete in any
line of business or with any Person or in any area or to
own, operate, sell, transfer, pledge or otherwise dispose of
or encumber any of its Contributed Assets or which would so
limit the freedom of Newco after the Closing Date;
(ix) any agreement, contract or commitment which is
or relates to an agreement with or for the benefit of any
Affiliate of such Contributing Subsidiary;
(x) any labor union contract;
(xi) any agreement, contract or commitment with any
executive, director or officer of such Contributing
Subsidiary (other than those set forth on Schedule 3.28);
(xii) any agreement or commitment pursuant to which
such Contributing Subsidiary will make loans or advances, or
has or will have incurred debts or become a guarantor or
surety or pledged its credit on or otherwise become
responsible with respect to any undertaking of another
(except for the negotiation or collection of negotiable
instruments in the ordinary course of business);
(xiii) any indentures, credit agreements, loan
agreements, notes, mortgages, security agreements or other
agreements for financing; or
(xiv) Except as set forth on Schedule 3.28, any other
agreement, contract or commitment not made in the ordinary
course of business which is material to its Contributed
Business taken as a whole.
(b) Each of the Assumed Contracts of such
Contributing Subsidiary and each of the Contracts listed on
Schedule 3.12(a) relating to any of its respective Subsidiaries
(the "Subsidiary Contracts") is a valid and binding agreement of
such Contributing Subsidiary or its respective Subsidiaries and
is in full force and effect and, except as set forth on
Schedule 3.12(b), none of such Contributing Subsidiary, its
respective Subsidiary or, to the knowledge of such Contributing
Subsidiary, any other party to such Assumed Contract or
Subsidiary Contract is in default in any material respect under
the terms of any such Contract, nor, to the knowledge of such
Contributing Subsidiary, has any event or circumstance occurred
that, with notice or lapse of time or both, would constitute an
event of default thereunder. True and complete copies of each
such Assumed Contract and Subsidiary Contract have been delivered
or made available to the other Contributing Subsidiary.
3.13. Licenses and Permits. Schedule 3.13 correctly
describes each material license, franchise, permit or other
similar authorization affecting, or relating in any way to, such
Contributing Subsidiary's Contributed Business (which description
shall include whether such license, franchise, permit or
authorization can be transferred to Newco), together with the
name of the government agency or entity issuing such license or
permit (each a "Permit," and together the "Permits"). Except as
set forth in Schedule 3.13, such Permits are valid and in full
force and effect and, assuming the related Required Consents are
obtained, are transferable and none of the Permits (other than
Permits that are Excluded Assets) will, assuming the related
Required Consents have been obtained, be terminated or impaired
or become terminable as a result of the transactions contemplated
by this Agreement. Neither Contributing Subsidiary has any
reason to believe that any such Required Consent will not be
obtained within a reasonable time following the Closing Date.
Except as set forth on Schedule 3.13, upon obtaining all related
Required Consents and upon transfer of the appropriate Permits,
Newco will have all of the right, title and interest in all the
Permits. To the knowledge of such Contributing Subsidiary, no
license, franchise, permit or other similar authorization other
than those described on Schedule 3.13 is currently necessary for
the lawful operation of its Contributed Business in all material
respects as currently or heretofore conducted or the transfer of
its Contributed Business to Newco.
3.14. Insurance Coverage. Such Contributing
Subsidiary has furnished or made available to the other
Contributing Subsidiary a list of, and copies of, all insurance
policies covering its Contributed Business and its employees.
There is no claim relating to the Contributed Business by such
Contributing Subsidiary or its Affiliates pending under any of
such policies as to which coverage has been denied or disputed by
the underwriters of such policies. All premiums billed under all
such policies have been paid and such Contributing Subsidiary or
its Affiliates are otherwise in full compliance with the terms
and conditions of all such policies. Such policies of insurance
(or other policies providing substantially similar insurance
coverage) were in full force and effect for the period prior to
the Closing Date.
3.15. Compliance with Laws. Such Contributing
Subsidiary is not in violation of, has not since January 1, 1995
violated and/or, to such Contributing Subsidiary's knowledge is
not under investigation with respect to, and has not been
threatened to be charged with or given notice of any violation
of, any law, rule, ordinance or regulation, or judgment, order or
decree entered by any court, arbitrator or governmental
authority, domestic or foreign, applicable to the Contributed
Assets of such Contributing Subsidiary or its Affiliates or the
conduct of the Contributed Business of such Contributing
Subsidiary or its Affiliates, except for (i) violations that have
not had and would not reasonably be expected, individually or in
the aggregate, to result in a Material Adverse Change and (ii)
matters relating to Environmental Laws, which are the subject of
Section 3.20.
3.16. Inventories. The inventories set forth in such
Contributing Subsidiary's Third Quarter Balance Sheet have been
properly stated at the lower of cost or fair market value
determined in accordance with GAAP consistently applied by such
Contributing Subsidiary. Since the date of such Third Quarter
Balance Sheet, the inventories related to the Contributed
Business of such Contributing Subsidiary or its Affiliates have
been maintained in the ordinary course of business. All of the
inventory recorded on its Third Quarter Balance Sheet consists of
items of a quality usable or saleable in the normal course of its
Contributed Business consistent with past practices and are and
will be in quantities sufficient for the normal operation of its
Contributed Business in accordance with past practice. Except as
set forth on Schedule 3.16, such Contributing Subsidiary has good
title to each item of inventory which is part of its Contributed
Business, free and clear of all Liens.
3.17. Receivables; Payables. All accounts, notes
receivable and other receivables reflected on the Third Quarter
Balance Sheet of such Contributing Subsidiary are, and all
accounts and notes receivable of such Contributing Subsidiary
arising from or otherwise relating to its Contributed Business
will be at the Closing Date, genuine and arise from bona fide
transactions. Since the date of its Third Quarter Balance Sheet,
such Contributing Subsidiary has not made any change in its
normal practices regarding the collection of accounts receivable
or the payment of accounts payable (including without limitation,
the acceleration of collections or the deferral of payments).
The aging of all accounts receivable for each Contributing
Subsidiary, held by such Contributing Subsidiary as of the date
of its Third Quarter Balance Sheet, is set forth in
Schedule 3.17.
3.18. Intellectual Property. Schedule 3.18 sets forth
a complete and correct list from each Contributing Subsidiary of
(i) all patent applications (including provisional applications)
and patents, and all continuation, divisional, continuation-in-
part, reissue and reexamination applications and patents based on
any of such patent applications and patents and all foreign
equivalents of any of such patent, applications and patents held
by such Contributing Subsidiary; (ii) all disclosures or
descriptions of any invention, whether active or not, that have
not been converted to a patent application; (iii) all registered
copyrights, trademarks, service marks, service names, trade names
used by such Contributing Subsidiary together with any
applications filed by such Contributing Subsidiary for
registration of any of them; and (iv) all license agreements
relating to any of subsections (i) through (iii) to which such
Contributing Subsidiary is a party, irrespective of whether a
particular license agreement pertains to rights granted by the
Contributing Subsidiary, received by the Contributing Subsidiary
or both. Schedule 3.18 also lists all pending and threatened
litigation relating to any one or more of subsections (i) through
(iv) and all actual litigation that has been finally settled
within three (3) years prior to the date of this Agreement.
Schedule 3.18 further identifies any Intellectual Property Rights
within subsections (i) through (iv) that is subject to any court
order, consent decree, agreement or other instrument that
restricts the use or licensing of such Intellectual Property
Rights by such Contributing Subsidiary or its Subsidiaries.
3.19. Finders' Fees. Except as set forth in
Section 4.06, there is no investment banker, broker, finder or
other intermediary which has been retained by, or is authorized
to act on behalf of, such Contributing Subsidiary who might be
entitled to any fee or commission from the other parties or any
of their respective Subsidiaries or Newco upon consummation of
the transactions contemplated by this Agreement.
3.20. Environmental Matters. (a) Except as disclosed
on Schedule 3.20, and to the knowledge of such Contributing
Subsidiary, with respect to the Contributed Business of such
Contributing Subsidiary or its Affiliates:
(i) within the preceding five years, no written
notice, notification, demand, request for information,
citation, summons, complaint or order has been issued, no
written complaint has been filed, no penalty has been
assessed and no investigation or review is pending or
threatened by any governmental entity or other Person with
respect to any (A) alleged violation by such Contributing
Subsidiary or its Affiliates of any Environmental Law or
liability thereunder, (B) alleged failure by such
Contributing Subsidiary to have any Environmental Permit,
(C) Regulated Environmental Activity or (D) Release of
Hazardous Substances;
(ii) the properties of such Contributing Subsidiary
or its Affiliates included as part of the Contributed Assets
are in compliance, in all material respects, with all
Environmental Laws and all Environmental Permits required
for operations have been obtained;
(iii) other than in material compliance with Environ-
mental Laws or Environmental Permits, no polychlorinated
biphenyls, radioactive material, urea formaldehyde, lead,
dioxins, furans, asbestos, asbestos-containing material or
underground storage tank (active or abandoned) is or has
been present within the past five years at any property
included as part of the Contributed Assets of such
Contributing Subsidiary or its Affiliates;
(iv) other than Releases in volumes immaterial to,
and in the normal course of the operations of, the
Contributed Business, no unpermitted Hazardous Substance has
been Released within the past five years (and no
notification of such Release has been filed or made within
the past five years) at, on or under any property included
as part of the Contributed Assets of such Contributing
Subsidiary or its Affiliates;
(v) no property included as part of the Contributed
Assets of such Contributing Subsidiary or its Affiliates or
any property to which such Contributing Subsidiary has,
directly or indirectly, transported, or arranged for the
transportation of, any Hazardous Substances is listed or
proposed for listing, on the National Priorities List
promulgated pursuant to CERCLA, on CERCLIS (as defined in
CERCLA) or on any similar federal, state or foreign list of
sites requiring investigation or clean-up;
(vi) there are no liens under Environmental Laws on
any of the Contributed Assets of such Contributing
Subsidiary or its Affiliates, no government actions have
been taken or are in process which could subject any of such
Contributed Assets to such liens and such Contributing
Subsidiary is not required to place any notice or
restriction relating to Hazardous Substances at any property
included as part of the Contributed Assets owned by it or
its Affiliates in any deed to such property; and
(vii) there are no Environmental Permits of such
Contributing Subsidiary that are nontransferable or require
consent, notification or other action to remain in full
force and effect following the Closing Date in which all
reasonable efforts will not have been made as soon as
practicable after the date of this Agreement to provide
notification to the appropriate government regulatory
authority or to provide, without limitation, any requested
applications, documents or correspondence to such regulatory
authority.
(b) With respect to the Contributed Business of such
Contributing Subsidiary or its Affiliates, there has been no
Environmental Investigation or Audit of which such Contributing
Subsidiary has knowledge in relation to any property included as
part of the Contributed Assets of such Contributing Subsidiary or
its Affiliates which has not been delivered to the other parties
prior to the date of this Agreement.
3.21. Warranties. Except as set forth in
Schedule 3.21, no material warranty or similar claims are
currently pending against such Contributing Subsidiary in
connection with its Contributed Business.
3.22. Customers and Suppliers. Except as set forth on
Schedule 3.22, such Contributing Subsidiary is not engaged in any
material disputes with any customers or suppliers, and to its
knowledge, no customer or supplier representing revenues or
expenses in excess of $250,000 per year to such Contributing
Subsidiary has indicated that it intends to terminate, not renew
any agreement which provides for automatic renewal or adversely
modify its arrangements with such Contributing Subsidiary or its
Contributed Business.
3.23. Books and Records. The Books and Records of
such Contributing Subsidiary with respect to its Contributed
Business (true and complete copies of which have been made
available to the other Contributing Subsidiary) are accurate and
complete in all material respects.
3.24. Taxes. Except as set forth in Schedule 3.24 or
reflected or accrued for in the Third Quarter Balance Sheet of
either Contributing Subsidiary or accrued by either Contributing
Subsidiary in the ordinary course of business after September 30,
1995, such Contributing Subsidiary and its Affiliates have timely
paid, or made provisions for the payment of, all Taxes (including
all interest and penalties thereon) which have accrued during the
Pre-Contribution Tax Period.
3.25. No Other Agreement. Except for sales or other
dispositions of assets in the ordinary course of business and
except as set forth in this Agreement or in Schedule 3.25,
neither Contributing Subsidiary has any contract, agreement,
arrangement or understanding with respect to the sale or other
disposition of any assets (including the Contributed Assets) of
such Contributing Subsidiary or its Affiliates.
3.26. Derivatives. Schedule 3.26 sets forth a
complete and correct list of all Derivative Financial Instruments
(including the face, contract or notional amount of and any open
position relating to such Derivative Financial Instruments and a
brief summary of the nature and terms thereof) as of December 31,
1995 to which such Contributing Subsidiary or any of its
Subsidiaries is a party or by which such Contributing Subsidiary
or any of its Subsidiaries is bound or any of their respective
Contributed Assets are subject or bound (including without
limitation funds of such Contributing Subsidiary or any of its
Subsidiaries invested by any other Person). For purposes of this
Agreement, "Derivative Financial Instrument" means any futures,
forward, swap, option or swaption contract, or any other
financial instrument with similar characteristics and/or
generally characterized by the financial community as a
"derivative" security. The definition of Derivative Financial
Instrument shall not include options or rights of first refusal
that relate to any Affiliate or any Material Equity Investment
Entity of such Contributing Subsidiary included in any agreement
to which any such Contributing Subsidiary is a party or by which
such Contributing Subsidiary is bound.
3.27. Material Equity Investment Entities. (a)
Schedule 3.27 sets forth a complete and correct list of all
Material Equity Investment Entities (as defined below) of such
Contributing Subsidiary, which list sets forth the amount of
capital stock of or other equity interests in such Material
Equity Investment Entities owned by the Contributing Subsidiary,
directly or indirectly. In addition, each Contributing
Subsidiary has furnished or made available to the other parties
copies of each such Material Equity Investment Entity's
certificate of incorporation and by-laws or equivalent
organizational documents. "Material Equity Investment Entity" or
"Material Equity Investment Entities" means any corporation,
partnership, limited liability company, association, trust, joint
venture or other entity or organization of which such
Contributing Subsidiary (either alone or through or together with
any other subsidiary), owns, directly or indirectly, more than
10% of the stock or other equity interests the holder of which is
generally entitled to vote for the election of the board of
directors or other governing body of such corporation,
partnership, limited liability company, association, trust, joint
venture or other entity or organization.
(b) Except, in the case of Radian, for Contracts or
instruments with respect to (i) Amoco Environmental Services
Company, Corporacion Radian, S.A. De C.V., Tecnologias Y
Servicios Ambientales Tesam S.A., ATOS S.A.R.L., Environment,
Transport and Planning, S.L., R.S.K. Environmental Limited,
Radian D-Tech Inc., or Cera Dynamics Limited or (ii) Subsidiaries
wholly owned by Radian (whether beneficially or of record),
neither Contributing Subsidiary nor, to the knowledge of such
Contributing Subsidiary, any of its Material Equity Investment
Entities has entered into any Contract or instrument which would
prohibit or impede the transfer of any of the capital stock and
other securities or other ownership interests of the Material
Equity Investment Entities included in the Contributed Assets of
such Contributing Subsidiary.
(c) Except, in the case of Radian, for (i) Contracts or
instruments with respect to ATOS S.A.R.L., Environment, Transport
and Planning, S.L., and R.S.K. Environmental Limited, (ii) the
Asset Transfer Agreement dated March 15, 1994 by and among
Schlumberger Technology Corporation, Schlumberger Holdings
Limited, Radian and Radian Limited, (iii) the Asset Transfer
Agreement dated December 21, 1992 between Automated Compliance
Systems, Inc. and Radian, and (iv) the following Contracts:
(a) Basic Order Agreement effective January 1, 1994 with Archer
Daniels Midland (Radian Project No. 635046); (b) Technical
Support for Regulatory Development for the Metal Products &
Machinery Manufacturing Industry, Phase I effective October 1,
1994 with the Environmental Protection Agency ("EPA") (Radian
Project No. 630046); (c) Technical Support for Regulatory
Development for the Metal Products & Machinery Manufacturing
Industry Phase 2 effective June 5, 1995 with the EPA (Radian
Project No. 630128); (d) Technical Support for Regulatory
Development for the Pulp & Paper Industry effective June 13, 1995
with the EPA (Radian Project No. 630134); (e) Technical Support
for Regulatory Development for the Pesticide Industry effective
May 31, 1995 with the EPA (Radian Project No. 630131);
(f) Technical Support for Regulatory Development for the
Pharmaceutical Industry effective May 23, 1995 with the EPA
(Radian Project No. 630127); (g) Technical Support for Regulatory
Development for the Industrial Laundry Industry effective
June 22, 1995 with the EPA (Radian Project No. 630135);
(h) Technical Support for Regulatory Development for the
Transportation Equipment Cleaning Industry effective June 19,
1995 with the EPA (Radian Project No. 630136); and (i) Technical
Support for RCRA Hazardous Waste Control Programs effective
December 1, 1992 with the EPA (Radian Project No. 285017),
neither Contributing Subsidiary nor, to the knowledge of such
Contributing Subsidiary, any of its Material Equity Investment
Entities has entered into any Contract or instrument which would
restrict the business activity of Newco, TDCC, HSB or any of
their Affiliates or contains any form of non-competition clause
(an "Anti-Competitive Contract").
3.28. Employment Plans and Benefit Arrangements.
Schedule 3.28 sets forth each Employee Plan and each Benefit
Arrangement that is maintained by, administered by or contributed
to by each Contributing Subsidiary for the benefit of employees
in the Contributed Business. With respect to each such Employee
Plan and Benefit Arrangement (except as disclosed on
Schedule 3.28):
(i) DEI shall provide or make available to Radian
true and correct copies of each Employee Plan and Benefit
Arrangement listed on Schedule 3.28 with respect to which DEI has
any liability (the "DEI Plans"). Radian shall provide or make
available to DEI true and correct copies of each Employee Plan
and Benefit Arrangement listed on Schedule 3.28 with respect to
which Radian has any liability (the "Radian Plans"). DEI has
supplied or made available to Radian, to the extent applicable, a
true and correct copy of the most recent annual report, actuarial
report, accountant's opinion of the plan's financial statements,
summary plan description and Internal Revenue Service ("IRS")
determination letter with respect to each DEI Plan. Radian has
supplied or made available to DEI, to the extent applicable, a
true and correct copy of the most recent annual report, actuarial
report, accountant's opinion of the plan's financial statements,
summary plan description and IRS determination letter with
respect to each Radian Plan.
(ii) Each DEI Plan and each Radian Plan complies and
has been administered in form and in operation in all material
respects with all applicable requirements of law, and no event
has occurred which will or could cause any such plan to fail to
comply with such requirements and no notice has been issued by
any governmental authority questioning or challenging such
compliance.
(iii) Each DEI Plan and each Radian Plan which is an
employee pension benefit plan (as defined in section 3(2) of
ERISA) and which is intended to be tax-qualified under
section 401(a) of the Code has received a favorable determination
letter from the IRS and there have been no amendments to such
plans which are not the subject of a favorable determination
letter issued with respect thereto by the IRS and no event has
occurred which will or could give rise to disqualification of any
such plan.
(iv) Except for The Hartford Steam Boiler Inspection
and Insurance Company Leveraged Employee Stock Ownership Plan
(the "HSB ESOP"), none of the assets of any DEI Plan or Radian
Plan is invested in employer securities or employer real
property.
(v) There have been no "prohibited transactions" (as
described in section 406 of ERISA or section 4975 of the Code)
with respect to any DEI Plan or any Radian Plan.
(vi) There are no actions, suits or claims (other
than routine claims for benefits) pending or threatened involving
any DEI Plan or any Radian Plan or the assets thereof.
(vii) None of the DEI Plans or the Radian Plans are
subject to Title IV of ERISA or are multiemployer plans (as
defined in section 3(37) of ERISA).
(viii) Except as set forth on Schedule 3.28, neither
DEI nor Radian has any liability or contingent liability for
providing, under any DEI Plan or Radian Plan or otherwise, any
post-retirement medical or life insurance benefits, other than
statutory liability for providing group health plan continuation
coverage under Part 6 of Title I of ERISA and section 4980B of
the Code.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TDCC AND HSB
EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES
SPECIFICALLY PROVIDED FOR IN THIS AGREEMENT, ALL OF THE
CONTRIBUTED ASSETS ARE CONTRIBUTED TO NEWCO "AS IS" AND "WHERE
IS" WITHOUT IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR
INTENDED USE OR PARTICULAR PURPOSE OR OTHERWISE.
Each of TDCC and HSB hereby represents and warrants to
each other party and Newco as of the date of this Agreement that:
4.01. Existence. Such party is duly organized,
validly existing and in good standing under the laws of its
jurisdiction of organization.
4.02. Authorization. The execution, delivery and
performance by such party of this Agreement, the other
Transaction Documents to which it is a party and all other
documents, instruments and certificates executed and delivered by
such party in connection with this Agreement or with such other
documents, and the consummation by such party of the transactions
contemplated by this Agreement and by such other documents are
within such party's powers and have been duly authorized by all
necessary action on the part of such party. This Agreement and
each of the other Transaction Documents have been duly and
validly executed and delivered by such party and each constitutes
a valid and binding agreement of such party, enforceable in
accordance with its terms, except as (i) the enforceability of
this Agreement may be limited by applicable bankruptcy,
insolvency, fraudulent transfer, moratorium or similar laws from
time to time in effect affecting creditors' rights generally and
(ii) the availability of equitable remedies may be limited by
equitable principles of general applicability.
4.03. Governmental Authorization. Except as set forth
on Schedule 4.03, the execution, delivery and performance by such
party of this Agreement, the other Transaction Documents to which
it is a party and all other documents, instruments and
certificates executed and delivered by such party in connection
with this Agreement or with such other documents, require no
action by or in respect of, or filing with, any governmental
body, agency, official or authority other than any filings
necessary to transfer or obtain any Permit.
4.04. Non-Contravention. The execution, delivery and
performance by such party of this Agreement, the other
Transaction Documents to which it is a party and all other
documents, instruments and certificates executed and delivered by
such party in connection with this Agreement or with such other
documents do not and will not (i) contravene or conflict with the
certificate of incorporation or bylaws of such party; (ii)
assuming compliance with the matters referred to in Section 4.03,
contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or
decree binding upon or applicable to such party or its
Contributed Business; (iii) conflict with, or result in the
breach or termination of any provision of or constitute a default
(with or without the giving of notice or the lapse of time or
both) under or give rise to any right of termination,
cancellation or acceleration of any right or obligation or to a
loss of any benefit to which such party is entitled under any
provision of any material agreement, contract, license or other
instrument binding upon such party or any of its properties, or
allow the acceleration of the performance of any obligation of
such party under any note, bond, mortgage, indenture, lease,
license, franchise, permit, agreement, contract or other
instrument or obligation binding upon such party or any of its
properties for which a written waiver has not been obtained as of
the date of this Agreement; (iv) result in the creation or
imposition of any Lien on any asset of such party, except in the
case of clauses (ii), (iii) and (iv), for any such
contraventions, conflicts, violations, breaches, terminations,
defaults, cancellations, losses, accelerations and Liens which,
individually or in the aggregate, would not reasonably be
expected to prevent such party from performing its obligations
under this Agreement.
4.05. Required Approval. The execution, delivery and
performance by such party of this Agreement, the Transaction
Documents to which it is a party and all other documents,
instruments and certificates executed and delivered by such party
in connection with this Agreement or with such other documents,
do not require the approval of such party's stockholders.
4.06. Finders' Fees. Except, in the case of TDCC, for
Donaldson, Lufkin & Jenrette Securities Corporation, whose fees
will be paid by TDCC, and, in the case of HSB, Morgan
Stanley & Co. Incorporated, whose fees will be paid by HSB, there
is no investment banker, broker, finder or other intermediary
which has been retained by, or is authorized to act on behalf of,
such party who might be entitled to any fee or commission from
the other parties or any of their respective Affiliates or Newco
upon consummation of the transactions contemplated by this
Agreement.
ARTICLE V
COVENANTS
5.01. Conduct of the Business. (a) From the date of
this Agreement until the earlier of the Closing Date and the
termination of this Agreement (except as otherwise provided in
this Agreement or as TDCC or HSB, as the case may be, may consent
in writing), TDCC and DEI shall cause the Contributed Business of
DEI, and HSB and Radian shall cause the Contributed Business of
Radian, to be conducted in the ordinary course of business
consistent with past practice and shall use their commercially
reasonable efforts to:
(i) preserve intact the business organizations and
relationships with third parties relating to such
Contributed Business;
(ii) keep available the services of the present
employees connected with such Contributed Business;
(iii) continue making marketing, advertising,
promotional, and other similar expenditures relating to such
Contributed Business in the ordinary course of business
consistent with past practice;
(iv) duly comply in all material respects with all
laws, regulations or ordinances, including without
limitation all Environmental Laws, applicable to such
Contributed Business;
(v) maintain all of its Books and Records relating
to such Contributed Business in the ordinary course of
business consistent with past practice;
(vi) continue the maintenance and repair of the
Contributed Assets relating to such Contributed Business
(including the making of scheduled capital expenditures) in
the ordinary course of business consistent with past
practice;
(vii) maintain in effect insurance with respect to the
Contributed Assets related to such Contributed Business in
the ordinary course of business and against risks, with
carriers and in amounts (including deductibles) consistent
with past practice;
(viii) maintain inventory and equipment related to such
Contributed Business at levels consistent with past
practice; and
(ix) comply in all material respects with all
material contracts relating to such Contributed Business.
(b) Without limiting the generality of the
foregoing, without the prior written consent of TDCC, in the case
of Radian, or HSB, in the case of DEI, from the date of this
Agreement until the Closing Date or the earlier termination of
this Agreement, no Contributing Subsidiary will:
(i) merge or consolidate with any other Person;
(ii) acquire from any other Person, other than in the
ordinary course of business, assets relating to its
Contributed Business having a fair market value in excess of
an aggregate of $1,000,000;
(iii) sell, lease, license, pledge or otherwise
dispose of any Contributed Assets except (i) pursuant to
existing contracts or commitments and (ii) in the ordinary
course of business consistent with past practice; or
(iv) defer the payment of any amounts, or accelerate
the collection of any receivables, except in the ordinary
course of business consistent with past practice;
(v) create or suffer to exist any new Lien or
encumbrance on any of its Contributed Assets, other than
Permitted Liens;
(vi) enter into any material contract or agreement
(or, except for technical amendments to substitute the name
of Newco for the name of such party, any amendment,
modification or waiver of any existing contract or
agreement), that would be an Assumed Liability except in the
ordinary course of business consistent with past practice;
(vii) except in the ordinary course of business
consistent with past practice, accept, receive or allow any
customer to make any prepayment related to its Contributed
Business or its Assets;
(viii) except in the ordinary course of business
consistent with past practice, waive or release any right of
value relating to its Contributed Assets or its Contributed
Business;
(ix) declare, set aside or pay any dividend or other
distribution (whether in cash or stock, or property or any
combination thereof) in respect of its capital stock;
(x) purchase any Derivative Financial Instrument; or
(xi) agree or commit to do any of the foregoing.
5.02. Access to Information. From the date of this
Agreement until the Closing Date or the earlier termination of
this Agreement, and subject to each party's security and safety
practices, each party will (a) give each other party and its
counsel, financial advisors, auditors and other authorized
representatives such access to the offices, properties, books and
records of such party relating to the Contributed Business of
such Contributing Subsidiary, upon reasonable notice and during
normal business hours, as such other party may reasonably
request, (b) furnish to the counsel, financial advisors, auditors
and other authorized representatives of the other party such
financial and operating data and other information relating to
its Contributed Business as such Persons may reasonably request
and (c) instruct the employees, counsel and financial advisors of
such Contributing Subsidiary to cooperate with the other party in
its investigation of its Contributed Business; provided that no
investigation pursuant to this Section shall affect any represen-
tation or warranty given by such party under this Agreement; and
provided further that any investigation pursuant to this Section
shall be conducted in such manner as not to interfere unreason-
ably with the conduct of the Contributed Business of such
Contributing Subsidiary. Notwithstanding the foregoing, no party
shall have access to personnel records of the other party
relating to individual performance or evaluation records, medical
histories or other information which, in such party's good faith
opinion, is sensitive or the disclosure of which could subject
such party to risk of liability. All information, documents and
other materials provided pursuant to this Section shall be held
and dealt with by the Persons receiving the same in accordance
with the Confidentiality Agreement.
5.03. Notices of Certain Events. From the date of
this Agreement until the Closing Date (or the earlier termination
of this Agreement) each of TDCC or HSB shall promptly notify the
other party of:
(i) any notice or other communication from any
Person alleging that the consent of such Person is or may be
required in connection with the transactions contemplated by
this Agreement or any other Transaction Document;
(ii) any notice or other communication from any
governmental or regulatory agency or authority in connection
with the transactions contemplated by this Agreement or any
other Transaction Document; and
(iii) any actions, suits, claims, investigations or
proceedings commenced or, to the best of its knowledge
threatened against, relating to or involving or otherwise
affecting such Contributing Subsidiary or its Contributed
Business that, if pending on the date of this Agreement,
would have been required to have been disclosed pursuant to
Section 3.11 or Section 3.20(a) or that relate to the
consummation of the transactions contemplated by this
Agreement or any other Transaction Document.
5.04. Reasonable Efforts; Further Assurances. Subject
to the terms and conditions of this Agreement, each party will
use all commercially reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things
necessary or desirable under applicable laws and regulations and
any applicable contractual obligations to consummate the
transactions contemplated by this Agreement and the other
Transaction Documents. Each party agrees to execute and deliver
such other documents, certificates, agreements and other writings
and to take such other actions as may be necessary or desirable
in order to consummate or implement expeditiously the
transactions contemplated by this Agreement and the other
Transaction Documents and to vest in Newco good title to the
Contributed Assets of such party (including without limitation in
accordance with Section 2.07, the Restricted Assets), subject
only to Permitted Liens or Liens set forth on Schedule 2.02(a).
5.05. Certain Filings. From the date of this
Agreement until the Closing Date, or such later date as is
reasonably required to obtain all material Permits and to
transfer all Restricted Assets necessary for the operation of the
Contributed Business (or the earlier termination of this
Agreement), the parties shall cooperate with one another (a) in
determining whether any action by or in respect of, or filing
with, any governmental body, agency, official or authority is
required, or any actions, consents, approvals or waivers are
required to be obtained from parties to any material contracts,
in connection with the consummation of the transactions
contemplated by this Agreement or any Transaction Document and
(b) in taking such actions or making any such filings, furnishing
information required in connection therewith and seeking timely
to obtain any such actions, consents, approvals or waivers.
5.06. Public Announcements. From the date of this
Agreement until the Closing Date (or the earlier termination of
this Agreement), except as may be required by applicable law or
any listing agreement with any national securities exchange, any
press release or any public statement with respect to this
Agreement, any Transaction Document or the transactions
contemplated by this Agreement or by such other documents will
require the prior written consent of TDCC and HSB.
5.07. Stockholder Approval. Each of TDCC and HSB, as
sole stockholders of DEI and Radian, respectively, agrees to
execute and deliver its written consent as may be required to
approve the transactions contemplated by this Agreement, to
authorize the execution and delivery by DEI or Radian, as the
case may be, of this Agreement and the other Transaction
Documents and the performance by DEI or Radian, as the case may
be, of its obligations under this Agreement and under the other
Transaction Documents.
5.08. WARN. Each party agrees to comply with all
applicable provisions of the Worker Adjustment, Retraining and
Notification Act and any similar state law applicable to the
transactions contemplated by this Agreement.
5.09. Intentionally Omitted.
5.10. Impairment of Assets. In the event that after
the date of this Agreement, but prior to the Closing Date, a
fire, explosion, flood, confiscation, earthquake or other similar
or dissimilar event impairs any of the Contributed Assets (each
such Contributed Asset is an "Impaired Asset") to be contributed
to Newco, the parties agree to negotiate in good faith to ensure
that, to the extent commercially reasonable, assets (such as
insurance proceeds) which, when taken together with any remaining
value of the Impaired Asset, have a value equal to the value of
the Contributed Asset without the impairment, shall be trans-
ferred to Newco. This provision shall in no way limit either
party's rights under Section 7.01.
5.11. Covenant of Parent. (a) Each of TDCC and HSB,
as the case may be, will cause its respective Contributing
Subsidiary to perform and will be responsible for and guarantee
the timely performance of all of the respective Contributing
Subsidiary's obligations under this Agreement and the LLC
Agreement.
(b) If a dissolution of Newco is caused by the
Bankruptcy of DEI pursuant to Section 9.1 of the LLC Agreement,
Radian shall have the right to require TDCC to purchase all, but
not less than all, of Radian's Company Interest at the price and
upon the terms set forth in Section 8.3 of the LLC Agreement;
provided, however, that such price shall be discounted at a rate
of 4% per year or portion thereof if such purchase shall occur
prior to December 31, 1997.
(c) If DEI shall fail to purchase Radian's Company
Interest at the price and upon the terms and subject to the
conditions set forth in Section 8.3 of the LLC Agreement then,
upon notice of such failure, TDCC shall, within two (2) business
days of such notice, purchase Radian's Company Interest at the
price and upon the terms set forth in Section 8.3 of the LLC
Agreement.
5.12. Covenants Not to Compete. Subject to the
provisions of this Section 5.12, each of TDCC and HSB agrees
that, from the Closing until one year after it has ceased to have
a direct or indirect ownership interest in Newco, neither it nor
its Affiliates (other than DEI with respect to its ownership
interest in Newco or any Restricted Asset in the case of TDCC and
Radian with respect to its ownership interest in Newco or any
Restricted Asset in the case of HSB) will engage in businesses
anywhere in the world that are in direct competition with the
Newco Protected Business, it being understood that these
covenants not to compete shall not at any time prevent each of
TDCC and HSB, and each of their Affiliates, from engaging in (i)
Excluded Businesses, even if such Excluded Businesses compete
with the Newco Protected Business, (ii) in any other businesses
(including without limitation businesses that neither TDCC and
its Affiliates nor HSB and its Affiliates were engaged in as of
the date of this Agreement) that are not directly in competition
with the Newco Protected Business or (iii) maintaining passive
investments of less than 5% of the aggregate equity interests of
any Person that is in direct competition with the Newco Protected
Business. Without limiting the generality of the foregoing,
nothing in this Agreement shall at any time prevent (w) TDCC or
any of its Affiliates from providing systems or services to any
of their Affiliates or to TDCC (including without limitation the
transfer to Buna Sow Leuna Olefinerbund GmbH in Germany ("BSL")
of environmental technology and environmental services as a
result of TDCC's acquisition of a controlling interest in BSL),
(x) HSB or any of its Affiliates from providing systems or
services to any of their Affiliates or to HSB, (y) each of TDCC
and its Affiliates and each of HSB and its Affiliates from
providing services or systems in conjunction with the sale of a
product, or (z) each of TDCC and its Affiliates and each of HSB
and its Affiliates from providing services or systems in
connection with a contract manufacturing relationship or from
entering into a technology license for or relating to the
manufacture, distribution and/or sale of chemical products.
5.13. Liens on Interests in Newco. Each of TDCC and
HSB agrees that it will not create or permit to exist, directly
or indirectly, any Lien on its interest in Newco or any portion
thereof (except (i) Liens for Taxes being contested in good faith
and by appropriate proceedings, (ii) Liens arising in the
ordinary course of business for sums not due or sums being
contested in good faith and by appropriate proceedings and (iii)
Liens pursuant to bona fide credit arrangements provided that a
Person providing credit pursuant to such arrangements shall
acknowledge that, if such Person acquires ownership of any such
interest, such interest shall nevertheless be subject to all the
terms of this Agreement and the LLC Agreement). Any attempt by
either party to create or permit to exist, directly or
indirectly, any Lien (other than the Liens described in the
parenthetical in the immediately preceding sentence) on its
interest in Newco or any portion thereof shall be null, void ab
initio and of no force and effect.
5.14 Covenants Not to File Involuntary Bankruptcy.
Each of TDCC and HSB agrees, to the fullest extent permitted by
law, not to file, or cause any other Person or entity (including
without limitation, any of such Person's shareholders,
subsidiaries or Affiliates) to file, an involuntary bankruptcy
petition against Newco under any state or federal insolvency law,
including without limitation the Federal Bankruptcy Code, or any
amended or successor version thereof.
5.15 Intentionally Omitted.
5.16 Intentionally Omitted.
5.17 Transfers of Capital Stock of Contributing
Subsidiary. (a) Each of TDCC and HSB agrees that it will not
sell any of the capital stock of its Contributing Subsidiary
unless such transfer is (i) pursuant to a written agreement
pursuant to which the transferee agrees to be bound by all of the
terms of this Agreement and the other Transaction Documents as if
it were originally a party to those Agreements and to such other
documents and (ii) in compliance with Section 5.17(b). In
addition to the requirements set forth in the first sentence of
this Section 5.17, HSB agrees that it shall not make such
transfer to any company engaged in a significant way in the
manufacture or sale of primary chemical products without the
consent of TDCC (which consent shall not be unreasonably
withheld).
(b) Neither TDCC nor HSB will, without the consent of the
other, sell the capital stock of its respective Contributing
Subsidiary prior to the third anniversary of the Closing Date.
If, subsequent to the third anniversary of the Closing Date, a
third party with sufficient financial resources (an "Acquiror")
which is not an Affiliate of either TDCC or HSB makes a written
proposal to purchase, at a defined price and pursuant to defined
terms and conditions, from either TDCC or HSB all of the capital
stock of its Contributing Subsidiary, in a bona fide, arm's-
length transaction (a "Acquiror Proposal"), and if such party
desires to enter into negotiations with respect to such Acquiror
Proposal, such party (the "Offeror") shall give written notice to
the other party (the "Offeree") of a desire to so dispose of the
capital stock of the Offeror's Contributing Subsidiary (with
respect to such Offeror, the "Shares"), which proposed
disposition is subject to the following provisions:
(i) The Offeror shall first offer to the Offeree the
right to buy the Offeror's Shares from the Offeror at the
same price and upon the same terms and conditions as (or, if
any such terms and conditions cannot be duplicated, on terms
and conditions financially equivalent to) those the Offeror
has been offered by, and is willing to accept from, the
Acquiror;
(ii) The offer by the Offeror to the Offeree shall
(x) provide written disclosure of all of the details
pertaining to any such Acquiror Proposal, including the
price, terms and conditions and the name and address of the
Acquiror to whom the Offeror is prepared to sell the
Offeror's Shares (such disclosure shall be deemed sufficient
pursuant to this Section 5.17(b) if such disclosure includes
all terms and conditions known to such Offeror), and (y)
provide to the Offeree a written statement of the Acquiror
which sets forth the agreement of the Acquiror, upon the
closing of a purchase pursuant to this Section 5.17(b), to
be bound by all of the terms of this Agreement and the other
Transaction Documents as if it were originally a party to
this Agreement and other Transaction Documents. If the
Offeree elects to exercise its right to purchase the
Offeror's Shares, it shall give written notice thereof to
the Offeror within thirty (30) days after receipt of such
offer from the Offeror (with all required information) and
the purchase of such Shares shall be closed at the offices
of Mayer, Brown & Platt, 190 South LaSalle Street, Chicago,
Illinois 60603 (or at any other mutually agreeable place)
within ninety (90) days after the Offeree's notice of such
election to the Offeror and any necessary governmental
reviews, consents or approvals have occurred (or at any
other mutually agreeable time);
(iii) If, within thirty (30) days after giving the
notice to the Offeree required in this Section 5.17(b), the
Offeree shall not have elected to exercise its right to
purchase the Offeror's Shares, then negotiations may proceed
as if the Offeree shall have approved the sale to the
Acquiror;
(iv) If the Offeree shall approve the sale to the
Acquiror, then the sale of the Shares of the Offeror may be
consummated; provided, however, that such sale must be
closed within one-hundred twenty (120) days after the
expiration of the thirty (30) day period referred to in
subsection (iii) above, at a price and upon terms and
conditions not more favorable, in any material respect, to
the Acquiror than those which were first disclosed to the
Offeree;
(v) At or prior to the consummation of any such sale
to the Acquiror, the Offeror shall furnish to the Offeree
and to Newco (A) an agreement of the Acquiror agreeing to be
bound by the terms of this Agreement and any other
Transaction Documents to which the Offeror is a party and
acknowledging that the Acquiror shall be bound by, and
entitled to the benefits of, those documents, and (B) an
affidavit of the Offeror setting forth: the name and address
of the Acquiror to whom any Shares were sold; the price and
terms and conditions upon which such Shares were sold; and a
statement that the Acquiror is not an Affiliate of the
Offeror; and
(vi) Notwithstanding the foregoing, no party shall be
permitted to present an Acquiror Proposal regarding the
exercise of its right to dispose of the capital stock of its
Contributing Subsidiary pursuant to this Section 5.17(b) in
excess of six times during the previous 60 month period.
5.18 Technology Access. TDCC will provide to Newco,
upon Newco's request, access to, and licenses under, any
technology that (a) is either owned by or licensed to TDCC, (b)
TDCC is authorized to either sublicense or permit the use of by
Newco, and (c) that is reasonably useable in the Newco Services
Business, including without limitation the technology described
in Exhibit A; provided, however, that (i) TDCC shall not be
required to provide access to (x) technology predominantly
applicable to the production or manufacture of chemical products
or (y) MOD series process control technology, including without
limitation software and hardware and (ii) TDCC shall not be
required to incur any costs to develop or obtain technology for
Newco's use. The provision of access to, and licenses under,
technology to Newco pursuant to this Section 5.18 shall be
without cost to Newco, except that Newco shall reimburse TDCC (i)
for any payments TDCC must make to a third party in order to
provide such access and/or license and (ii) for any Taxes borne
by TDCC as a result of the provision of such access and/or
license. Such licenses and, where permitted, such sublicenses
shall be of sufficient scope so as to permit Newco to conduct the
Newco Services Business and shall permit Newco to grant site
licenses to use TDCC technology that is relevant to the Newco
Services Business. If site licenses are not appropriate for a
certain portion of TDCC technology, TDCC and Newco will attempt
to develop an alternate licensing procedure. During the term of
the LLC Agreement, there will be an agreement in place which
provides the mechanism for Newco's access to the technology
granted above.
5.19 Certain Radian Property. If TDCC or DEI
determines that, pursuant to an environmental assessment to be
completed within thirty (30) days from the Closing Date, the
property owned by Radian located in (i) El Dorado County
California and (ii) City of Durham, Durham County, North
Carolina, each as more specifically described in Radian's
Schedule 3.08(a), may subject Newco to any Environmental
Liability or that such property is in breach of the
representations and warranties set forth in Section 3.20, then,
upon notice to Radian and HSB and without any further action by
either TDCC or DEI, such property shall be treated for all
purposes of this Agreement as if it had been an Excluded Asset as
of the Closing Date.
ARTICLE VI
EMPLOYEES AND EMPLOYEE BENEFITS
6.01. Leased Employees. Immediately following the
Closing Date and until such time as provided under and in
accordance with the terms of the Employee Seconding Agreements
(the "Employment Transfer Date"), the Leased Employees will
continue to be employed by the Contributing Subsidiaries or TDCC,
as applicable, and will be leased from the Contributing
Subsidiaries or TDCC, as applicable, to Newco. For the period
following the Closing Date until the Employment Transfer Date,
the DEI Leased Employees shall continue to be treated for
purposes of all of DEI Plans as employees of DEI and the Radian
Leased Employees shall continue to be treated for purposes of the
Radian Plans as employees of Radian. Nothing in this Article VI
shall require TDCC or any Contributing Subsidiary to continue to
employ any person.
6.02. Employment by Newco. Effective as of the
Employment Transfer Date, the DEI Leased Employees and Radian
Leased Employees shall be transferred from employment with the
Contributing Subsidiaries to employment with Newco and Newco
agrees to employ all such Leased Employees as employees-at-will,
except to the extent provided in any employment agreement.
Except as otherwise specifically provided in this Article VI, for
periods after the Employment Transfer Date, the Leased Employees
shall not be eligible to participate in employee benefit plans
and arrangements maintained by the Contributing Subsidiaries.
Nothing in this Article VI shall require Newco to continue to
employ any employee after the Employment Transfer Date.
6.03. Newco Plans. Newco and the Contributing
Subsidiaries shall take the following actions:
(i) On or prior to the Closing Date, each
Contributing Subsidiary shall make all contributions to, in
the case of DEI, the DEI Plans, and, in the case of Radian,
the Radian Plans which are required under the terms thereof
or by applicable law for periods prior to the Closing Date
or which relate to periods prior to the Closing Date.
(ii) Effective as of the Employment Transfer Date,
Newco shall establish and adopt such employee benefit plans,
arrangements, policies and programs (the "Newco Plans") as
DEI and Radian shall mutually agree. The Newco Plans may
be, but shall not be required to be, substantially similar
to the DEI Plans, the Radian Plans or a combination thereof.
(iii) All Leased Employees who become employed by
Newco on the Employment Transfer Date, to the extent
applicable, shall be given credit for all purposes under
each of the Newco Plans for their service with DEI or
Radian, as applicable, including but not limited to the
following purposes: eligibility for participation, vesting,
satisfying any waiting periods, evidence of insurability
requirements, or the application of any pre-existing
condition limitations and determining benefits based on
length of service (such as vacation and severance), and to
the extent applicable, shall be given credit under each of
the Newco Plans which is an employee welfare benefit plan
(as that term is defined in section 3(1) of ERISA) for
amounts paid under a corresponding DEI Plan or Radian Plan,
as applicable, during the same period for purposes of
applying deductibles, copayments and out-of-pocket maximums
as though such amounts had been paid in accordance with the
terms and conditions of Newco Plans.
(iv) On or as soon as practicable after the
Employment Transfer Date, the Dow Environmental Inc.
Retirement Savings Plan (the "DEI 401(k) Plan") and the
Radian Corporation 401(k) Thrift Plan shall be merged with
and into a new defined contribution plan established by
Newco (the "Newco 401(k) Plan"). Prior to such merger, DEI
and Radian, as applicable, shall provide Newco with copies
of a favorable determination letter issued by the IRS that
the DEI 401(k) Plan and the Radian 401(k) Plan, as
applicable, meet the requirements of section 401(a) of the
Code and Newco shall provide DEI and Radian with a copy of a
favorable determination letter issued by the IRS that the
Newco 401(k) Plan meets the requirements of section 401(a)
of the Code. The merger of the DEI 401(k) Plan and the
Radian 401(k) Plan with and into the Newco 401(k) Plan shall
comply in all respects with sections 411(d)(6) and 414(l) of
the Code. Newco, Radian and DEI shall use their reasonable
best efforts to accomplish the mergers described above,
including adoption of plan amendments (including, if
necessary, amendments to the Newco 401(k) Plan to provide
for continuation of outstanding loans that will be
transferred to the Newco 401(k) Plan in connection with the
merger of the DEI 401(k) Plan with and into the Newco 401(k)
Plan) and completion of any required filings with any
governmental agency.
(v) In the event any TDCC Leased Employee becomes an
employee of Newco after the Closing Date, the account
balance of such TDCC Leased Employee (including, to the
extent applicable, any promissory note evidencing a loan to
any such TDCC Leased Employee) shall be transferred to the
Newco 401(k) Plan from The Dow Chemical Company Salaried
Employees' Savings Plan (the "TDCC 401(k) Plan"). Such
transfer shall comply in all respects with section 411(d)(6)
and 414(l) of the Code. Prior to such transfer, TDCC shall
provide Newco with a copy of a favorable determination
letter issued by the IRS that the TDCC 401(k) Plan meets the
requirements of section 401(a) of the Code and Newco shall
provide TDCC with a copy of a favorable determination letter
issued by the IRS that the Newco 401(k) Plan meets the
requirements of section 401(a) of the Code. Newco and TDCC
shall use their reasonable best efforts to accomplish the
transfer described above, including adoption of plan
amendments and completion of any required filings with any
governmental agency.
(vi) On or as soon as practicable after the
Employment Transfer Date, the shares of HSB common stock
("HSB Stock") and any cash balance allocated under the HSB
ESOP to the account of any Radian Leased Employee who
becomes an employee of Newco on the Employment Transfer Date
shall be transferred to the Newco 401(k) Plan from the HSB
ESOP. Such transfer shall comply in all respects with
section 411(d)96) and 414(l) of the Code. Prior to such
transfer, HSB shall provide Newco with a copy of a favorable
determination letter issued by the IRS that the HSB ESOP
meets the requirements of section 401(a) of the Code and
Newco shall provide HSB with a copy of a favorable
determination letter issued by the IRS that the Newco 401(k)
Plan meets the requirements of section 401(a) of the Code.
Newco and HSB shall use their reasonable best efforts to
accomplish the transfer described above, including adoption
of plan amendments and completion of any required filings
with any governmental agency and including, in the case of
Newco, the inclusion in the Newco 401(k) Plan of such
restrictions on the ability of a participant to sell or
dispose of HSB Stock credited to such participant's account
as HSB may reasonably require.
6.04. Relocation. DEI, Radian and Newco acknowledge that
certain Leased Employees who become employees of Newco may need
to relocate physically in order to perform their employment
responsibilities for Newco. Newco agrees to develop as one of
the Newco Plans a policy to cover reasonable relocation costs of
such employees.
ARTICLE VII
CONDITIONS TO CLOSING
7.01. Conditions to the Closing. The obligations of
TDCC and DEI, on the one hand, and HSB and Radian, on the other
hand, to consummate the Closing are subject to the satisfaction
or waiver, at or prior to the Closing, of the following
conditions:
(a) No provision of any applicable law or regulation
and no judgment, injunction, or other similar order or decree
shall prohibit the consummation of the Closing.
(b) (i) The other parties shall have performed in
all material respects all of their obligations under this
Agreement required to be performed by them at or prior to the
Closing Date and (ii) the representations and warranties of the
other parties contained in this Agreement and in any certificate
or other writing delivered by the other parties pursuant to this
Agreement which are qualified as to materiality shall be true and
correct and the representations and warranties of the other
parties contained in this Agreement and in any certificate or
other writing delivered by the other parties pursuant to this
Agreement which are not so qualified shall be true and correct in
all material respects, in each case as of the date when made and
(except in the case of any representation and warranty made as of
specified date) as of the Closing Date, as if made at and as of
such date.
(c) Each of the Transaction Documents shall have
been duly executed by each of the parties to such agreements, and
shall be in full force and effect.
(d) Each Contributing Subsidiary and Newco shall
have provided or executed all certificates, notices or other
documents and taken all other actions reasonably required to
minimize the applicability of transfer taxes on the transfer of
Assets to Newco as contemplated by this Agreement.
(e) Each Contributing Subsidiary shall have been
provided and approved the preliminary business plan of Newco with
respect to the first year of operations of Newco after the
Closing Date.
ARTICLE VIII
SURVIVAL; INDEMNIFICATION
8.01. Survival. The representations and warranties of
the parties contained in this Agreement shall not be limited or
affected by any investigation undertaken by any party, and shall
survive the Closing until the second anniversary of the Closing
Date or (i) in the case of Sections 3.01 and 3.02, indefinitely,
or (ii) in the case of the representations and warranties
relating to Taxes, until expiration of the applicable statutory
period of limitations (giving effect to any waiver, mitigation or
extension thereof), if later, and shall thereafter terminate,
together with any associated right of indemnification pursuant to
Section 8.02. Notwithstanding the preceding sentence, any
representation or warranty in respect of which indemnity may be
sought under Section 8.02, and the associated right of
indemnification under Section 8.02, shall survive the time at
which it would otherwise terminate pursuant to the preceding
sentence, with respect to any matter identified in a notice
(which notice shall identify the representation or warranty
claimed to have been breached or to have been inaccurate, and
shall state with reasonable particularity the nature of the
asserted breach or inaccuracy) given prior to such time to the
party against whom such indemnity may be sought.
8.02. Indemnification. (a) Each of TDCC and DEI, on
the one hand, and HSB and Radian, on the other hand, (each pair,
an "Indemnifying Party") hereby indemnifies each other (the
indemnified pair, an "Indemnified Party") and their Affiliates,
and their respective directors, officers, employees and agents
(collectively, the "Indemnified Parties") against and agrees to
hold each of them harmless from and to defend each of them from
and against any and all Loss incurred or suffered by them,
arising out of or resulting from:
(i) any breach of any representation or warranty in
this Agreement by such Indemnifying Party; or
(ii) any failure by the Indemnifying Party or any of
its Affiliates to perform any of its covenants or agreements
contained in this Agreement (other than those in
Sections 8.02(b) through (k), which are covered in those
sections) or the other Transaction Documents;
provided that such Indemnifying Party shall not be liable under
Section 8.02(a) unless the aggregate amount of Loss with respect
to all matters referred to in Section 8.02(a) exceeds $500,000
(provided, that if such loss does exceed $500,000, the
Indemnifying Party shall only be responsible for the amount of
such loss that exceeds $500,000).
(b) TDCC hereby agrees to indemnify HSB, Radian and
Newco against and to hold HSB, Radian and Newco harmless from any
breach, default or non-performance by TDCC or any of its
Affiliates relating to any or all of the Assumed Contracts
contributed by TDCC or any of its Affiliates where the act,
omission, event or cause of action giving rise to the same arose,
occurred or accrued prior to September 30, 1995. HSB hereby
agrees to indemnify TDCC, DEI and Newco against and to hold TDCC,
DEI and Newco harmless from any breach, default or non-
performance by HSB or any of its Affiliates relating to any or
all of the Assumed Contracts contributed by HSB or any of its
Affiliates where the act, omission, event or cause of action
giving rise to the same arose, occurred or accrued prior to
September 30, 1995.
(c) TDCC and HSB hereby agree to cause Newco to
indemnify each party and its Affiliates against and to cause
Newco to hold each of them harmless from all Assumed Liabilities
and any and all Loss incurred or suffered by such party or any of
its Affiliates arising out of or in connection with any Assumed
Liability.
(d) TDCC hereby agrees to indemnify HSB, Radian and
Newco against and to hold HSB, Radian and Newco harmless from (i)
Excluded Liabilities retained by TDCC or any of its Affiliates
and (ii) any and all Loss incurred or suffered by HSB, Radian or
Newco arising out of or in connection with any such Excluded
Liabilities. HSB hereby agrees to indemnify TDCC, DEI and Newco
against and to hold TDCC, DEI and Newco harmless from (i)
Excluded Liabilities retained by HSB or any of its Affiliates and
(ii) any and all Loss incurred or suffered by TDCC, DEI or Newco
arising out of or in connection with any such Excluded
Liabilities.
(e) TDCC and HSB hereby agree to cause Newco to
indemnify each party and its Affiliates against and to cause
Newco to hold each of them harmless from out-of-pocket losses any
of them incurs because (i) a Restricted Asset cannot be
transferred or by virtue of their efforts to transfer any
Restricted Asset to Newco or (ii), in the case of any Restricted
Asset that is a Special Foreign Asset, by virtue of their efforts
to dissolve, sell or dispose of any such Special Foreign Asset,
including without limitation, in each such case, out-of-pocket
losses paid for a breach of contract claim made by a third party
asserting that TDCC, DEI, HSB or Radian, as the case may be,
cannot perform its obligations under a Contract that is a
Restricted Asset in light of the formation of Newco; provided,
however, that the indemnity in this Section 8.02(e) shall not
cover lost revenues that any of TDCC, DEI, HSB or Radian do not
receive because a third party cancels or refuses to perform under
a Contract that is a Restricted Asset; provided further, however,
that the indemnity in this Section 8.02(e) shall not cover any
and all Loss incurred or suffered with respect to an Anti-
Competitive Contract that was not set forth in Section 3.27(c) of
this Agreement.
(f) TDCC and HSB hereby agree to cause Newco to
indemnify each party to this Agreement and its Affiliates against
and to cause Newco to hold each party to this Agreement and its
Affiliates harmless from any liability for actions by Newco
subsequent to the Closing that result in a final judgment of (i)
infringement of any right relating to intellectual property owned
by an entity that is not a party to this Agreement or an
Affiliate of a party to this Agreement, (ii) misuse of any of the
Intellectual Property listed in Schedule 3.18 or (iii) an
antitrust violation involving any of the Intellectual Property
listed in Schedule 3.18 or a settlement in lieu of any such final
judgment.
(g) TDCC and HSB hereby agree to cause Newco to
indemnify TDCC, HSB and their Affiliates against and to cause
Newco to hold TDCC, HSB and their Affiliates harmless from all
liabilities related to foreign, U.S. Federal and state income
taxes incurred by DEI and Radian during the 1995 fiscal year;
provided, however, that Newco shall not be liable under this
Section 8.02(g) for aggregate amounts exceeding the amount set
forth in Schedule 8.02(g) relating to foreign, U.S. Federal and
state income taxes incurred by DEI and Radian during the 1995
fiscal year.
(h) TDCC and HSB hereby agree to cause Newco to
indemnify against and to cause Newco to hold DEI and its
Affiliates harmless from all costs, expenses, liabilities,
obligations, losses, damages, penalties, proceedings, actions,
suits, or claims of whatever kind or nature ("Claims") which may
be imposed upon, incurred by or asserted against DEI or its
Affiliates after the Closing Date with respect to, relating to,
or arising under or in connection with any DEI Plan and for all
Claims which may be imposed upon, incurred by or asserted against
DEI or its Affiliates with respect to, relating to, or arising
under or in connection with any Newco Plan.
(i) TDCC and HSB hereby agree to cause Newco to
indemnify and to cause Newco to hold Radian and its Affiliates
harmless from all Claims which may be imposed upon, incurred by
or asserted against Radian or its Affiliates after the Closing
Date with respect to, relating to, or arising under or in
connection with any Radian Plan and for all Claims which may be
imposed upon, incurred by or asserted against Radian or its
Affiliates with respect to, relating to or arising under or in
connection with any Newco Plan.
(j) DEI and Radian hereby agree to cause Newco to
indemnify TDCC and its Affiliates against and to cause Newco to
hold TDCC and its Affiliates harmless for all Claims which may be
imposed upon, incurred by or asserted against TDCC or its
Affiliates relating to or arising under or in connection with any
Newco Plan.
(k) DEI and Radian hereby agree to cause Newco to
indemnify HSB and its Affiliates against and to cause Newco to
hold HSB and its Affiliates harmless for all Claims which may be
imposed upon, incurred by or asserted against HSB or its
Affiliates relating to or arising under or in connection with any
Newco Plan.
8.03. Notice of Third Party Claims; Assumption of
Defense. For purposes of this Section 8.03, the term
"Indemnifying Party" shall mean any party responsible for
indemnifying another party pursuant to this Article VIII and
"Indemnified Party" shall mean any party entitled to indemnifica-
tion pursuant to this Article VIII. The Indemnified Party shall
give prompt notice to the Indemnifying Party against whom
indemnity is sought, in accordance with the terms of
Section 10.01, of the assertion of any claim, or the commencement
of any suit, action or proceeding by any third party in respect
of which indemnity may be sought under this Agreement and of any
Losses which the Indemnified Party deems to be within the ambit
of this Article VIII, specifying with reasonable particularity
the basis therefor, and shall give the Indemnifying Party such
information with respect thereto as the Indemnifying Party may
reasonably request (but the prompt giving of such notice shall
not be a condition precedent to indemnification under this
Agreement except to the extent that the Indemnifying Party is
materially prejudiced by any delay in receiving such notice).
The Indemnifying Party may, at its own expense, (a) participate
in and, (b) upon notice to the Indemnified Party and the
Indemnifying Party's written agreement that the Indemnified Party
is entitled to indemnification pursuant to Section 8.02 for Loss
arising out of such claim, suit, action or proceeding, at any
time during the course of any such claim, suit, action or
proceeding, assume the defense thereof; provided that (x) the
Indemnifying Party's counsel is reasonably satisfactory to the
Indemnified Party; and (y) the Indemnifying Party shall there-
after consult with the Indemnified Party upon the Indemnified
Party's reasonable request for such consultation from time to
time with respect to such claim, suit, action or proceeding. If
the Indemnifying Party assumes such defense, the Indemnified
Party shall have the right (but not the duty) to participate in
the defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by the Indemnifying Party.
If, however, the Indemnified Party reasonably determines in its
judgment that representation by the Indemnifying Party's counsel
of both the Indemnifying Party and the Indemnified Party would
present such counsel with a conflict of interest, then such
Indemnified Party may employ separate counsel to represent or
defend it in any such claim, action, suit or proceeding and the
Indemnifying Party shall pay, as incurred, the reasonable fees
and other charges of such separate counsel. Whether or not the
Indemnifying Party chooses to defend or prosecute any such claim,
suit, action or proceeding, the parties to this Agreement shall
cooperate in the defense or prosecution of such claim, suit,
action or proceeding.
8.04. Settlements or Compromises. Any settlement or
compromise made or caused to be made by the Indemnified Party or
the Indemnifying Party, as the case may be, of any such claim,
suit, action or proceeding of the kind referred to in
Section 8.03 shall also be binding upon, and be for the benefit
of, the Indemnifying Party or the Indemnified Party, as the case
may be, in the same manner as if a final judgment or decree had
been entered by a court of competent jurisdiction in the amount
of such settlement or compromise; provided that:
(x) no settlement or compromise shall be
entered into by the Indemnifying Party without the
Indemnified Party's express written consent (which
consent shall not be unreasonably withheld) unless (i)
contained in this Agreement is an unconditional release
by the claimant or the plaintiff of all liability of
the Indemnified Party with respect to such claim or
demand, and (ii) the Indemnifying Party has agreed in
writing that such claim is the subject of indemnity
under Section 8.02; and
(y) no settlement or compromise shall be
entered into by the Indemnified Party without the
Indemnifying Party's express written consent unless the
Indemnified Party shall have given the Indemnifying
Party at least 10 days' notice of any such proposed
settlement or compromise, during which time the
Indemnifying Party may assume the defense of such
claim, suit, action or proceeding (but only if it
provides for security for or payment of any
indemnification obligations in a manner reasonably
satisfactory to the Indemnified Party); provided,
however, that if the Indemnifying Party assumes the
defense of a claim, suit, action or proceeding, the
Indemnified Party may not settle or compromise such
claim, suit, action or proceeding.
8.05. Failure of Indemnifying Party to Act. If the
Indemnifying Party does not elect to assume the defense of any
claim, suit, action or proceeding, then any failure of the
Indemnified Party to defend or to participate in the defense of
any such claim, suit, action or proceeding or to cause the same
to be done, shall not relieve the Indemnifying Party of its
obligations under this Agreement; provided that the Indemnified
Party gives the Indemnifying Party at least 10 days' notice of
its proposed failure to defend or participate and affords the
Indemnifying Party the opportunity to assume the defense thereof.
ARTICLE IX
TERMINATION
9.01. Grounds for Termination. This Agreement may be
terminated prior to the Closing as follows:
(i) by mutual written agreement of TDCC and HSB;
(ii) by either TDCC or HSB if there shall be any law
or regulation that makes the consummation of the
transactions contemplated by this Agreement illegal or
otherwise prohibited or if consummation of the transactions
contemplated by this Agreement would violate any
nonappealable final order, decree or judgment of any court
or governmental body having competent jurisdiction; or
(iii) by either TDCC or HSB if the Closing shall not
have been consummated on or before the date ninety days
after the date of this Agreement; provided that the right to
terminate this Agreement under this Section 9.01(iii) shall
not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or
resulted in, the failure of the Closing to have been
consummated on or before such date.
9.02. Effect of Termination. If this Agreement is
terminated as permitted by Section 9.01, such termination shall
be without liability of either TDCC, HSB, DEI or Radian (or any
shareholder, director, officer, partner, employee, agent,
consultant or representative of such party) to any other party,
and following such termination no party shall have any liability
to any other party; provided that no such termination shall
relieve any party that has breached any provision of this
Agreement from liability for such breach, and any such breaching
party shall remain fully liable for any and all Loss incurred or
suffered by another party to this Agreement as a result of such
breach. The provisions of Section 10.03 and the Confidentiality
Agreement shall survive any termination of this Agreement
pursuant to Section 9.01.
ARTICLE X
MISCELLANEOUS
10.01. Notices. All notices, requests and other
communications under this Agreement shall be in writing and
deemed to have been duly given (i) when sent by telecopy or
facsimile transmission during normal business hours at the
location of receipt, (ii) upon actual receipt if deposited with a
nationally recognized overnight courier service, all charges
prepaid, for delivery to the addressee, or (iii) three days
following deposit with the United States mail by certified first
class mail, postage prepaid, return receipt requested, to such
party at the following addresses:
if to HSB or Radian, to:
The Hartford Steam Boiler Inspection
and Insurance Company
One State Street
P.O. Box 5024
Hartford, Connecticut 06102-5024
Telecopy: (203)722-5710
Attention: General Counsel
with a copy to:
Thomas H. Kennedy, Esq.
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Telecopy: (212)735-3637
if to TDCC or DEI, to:
The Dow Chemical Company
2030 Dow Center
Midland, Michigan 48674
Telecopy: (517) 636-0861
Attention: Jane M. Gootee
with a copy to:
Scott J. Davis, Esq.
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Telecopy: (312) 701-7711
or to such other address as either TDCC or HSB shall furnish to
the other by notice given in accordance with this Section.
10.02. Amendments; No Waivers. (a) Any provision of
this Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an
amendment, by the parties, or in the case of a waiver, by the
party against whom the waiver is to be effective.
(b) No failure or delay by either party in
exercising any right, power or privilege under this Agreement
shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The
rights and remedies provided in this Agreement shall be
cumulative and not exclusive of any rights or remedies provided
by law.
10.03. Expenses. Except as otherwise provided in this
Agreement, if this Agreement is terminated pursuant to
Section 9.01, all costs and expenses incurred in connection with
this Agreement shall be paid by the party incurring such cost or
expense. If this Agreement is not terminated pursuant to
Section 9.01, the costs set forth on Schedule 10.03 shall be
shared equally between the parties, and each party will bear all
other costs and expenses incurred by it, including without
limitation the cost of its legal, accounting and investment
banking fees and out-of-pocket expenses incurred in connection
with Agreement.
10.04. Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns; provided
that no party may assign, delegate or otherwise transfer any of
its rights or obligations under this Agreement without the
consent of the other parties.
10.05. Governing Law. This Agreement shall be
construed in accordance with and governed by the law of the State
of Delaware without regard to the conflicts of law rules of such
State.
10.06. Counterparts. This Agreement may be signed in
any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were
upon the same instrument.
10.07. Entire Agreement. This Agreement and the other
Transaction Documents constitute the entire agreement among the
parties with respect to the subject matter of this Agreement and
supersede all prior agreements, understandings and negotiations,
both written and oral, among the parties with respect to the
subject matter of this Agreement. No representation, inducement,
promise, understanding, condition or warranty not set forth in
this Agreement or in the other documents described above has been
made or relied upon by any of the party to this Agreement.
10.08. Captions. The captions in this Agreement are
included for convenience of reference only and shall be ignored
in the construction or interpretation of this Agreement.
10.09. Specific Performance. Each party to this
Agreement acknowledges that the other parties will be irreparably
harmed and will have no adequate remedy at law if such party
fails to perform any of its obligations under this Agreement. It
is accordingly agreed that, in addition to any other remedies
which may be available, the parties have the right to obtain
injunctive relief to restrain a breach or threatened breach of,
or otherwise obtain specific performance of, the covenants and
other agreements of the parties contained in this Agreement and
the Confidentiality Agreement.
10.10. Severability. Any term or provision of this
Agreement which is invalid or unenforceable shall be ineffective
to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and
provisions of this Agreement.
10.11. No Third Party Beneficiaries. The parties
agree that, except as expressly provided in Section 8.02, there
are no third party beneficiaries of this Agreement (other than,
as provided in this Agreement, Newco) for and none of the
provisions of this Agreement shall be deemed to inure to the
benefit of any Person, including any employee or former employee
of DEI or Radian (including any beneficiary or dependent thereof)
not a party to this Agreement.
The parties have caused this Agreement to be duly
executed.
THE DOW CHEMICAL COMPANY
By:/s/ William S. Stavropoulos
Name: William S. Stavropoulos
Title: President and CEO
DOW ENVIRONMENTAL INC.
By:/s/ L.R. Edmonson
Name: L.R. Edmonson
Title: Senior Vice President
THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE COMPANY
By:/s/ Robert C. Walker
Name:Robert C. Walker
Title: Senior Vice President and General
Counsel
RADIAN CORPORATION
By:/s/ P.E. Hudson
Name: P.E. Hudson
Title: Senior Vice President
EXHIBIT A
1. Water Effluents - technologies to monitor, reduce, and treat
wastewater and treatment residues, such as:
A. separation of suspended solids by methods such as
coagulation, clarification, flotation, centrifugation
and filtration;
B. separation/conversion of inorganics by methods such as
precipitation, ion exchange and reverse osmosis;
C. separation of organics by methods such as adsorption,
membranes, stripping, and extraction;
D. biological treatment via aerobic, anaerobic, and anozic
methods;
E. conversion/destruction of organics via wet air
oxidation, hydrolysis, ozonation, and chlorination
methods;
F. auxiliary unit operations for pH adjustment and nutrient
addition; and
G. sludge dewatering, reduction, and treatment.
2. Thermal Treatment - various forms of thermal treatment for
solids, liquids, and vapors including but not limited to
rotary kilns, fluid-bed incinerators, process rotary kilns,
halogenated acid furnaces, process boilers/furnaces, ground
flares, catalytic combustion, recuperative combustion,
burner management, characterization and feeds to combustion
units, small solid waste incinerators, multiple-hearth
incinerators, molten-bath incinerators, retorting liquid-
injection incinerators, flares, fume incinerators
regenerative combustion, electric heated combustion, feed
atomization, and PICs formation and control.
3. Soil/groundwater - investigation, characterization,
protection, management, and remediation technologies
including:
A. assessment and monitoring of soil/groundwater;
B. geophysical testing;
C. modeling;
D. containment and/or recovery of contaminated groundwater;
E. remediation of contaminated soil/groundwater;
F. design and operation of landfills and surface
impoundments;
G. landfarming and composting;
H. spill containment;
I. leak detection methods;
J. sewers, sumps, foundations, and other civil engineering
structures;
K. concrete quality; and
L. solidification/fixation of sludges and other wastes.
4. Air Quality - technologies to monitor, prevent, capture,
and/or treat emissions, as well as regulatory compliance,
including:
A. monitoring combustion products;
B. sampling and analysis;
C. modeling;
D. emission calculation methods;
E. quenching/absorption;
F. wet and dry scrubbing;
G. adsorption (carbon and other);
H. particulate removal systems;
I. fugitive emissions management including work on pumps,
valves, gaskets, etc. to reduce emissions;
J. chemical oxidation;
K. VOC monitoring;
L. biological vent treatment;
M. pressure swing adsorption;
N. gas/vapor containment;
O. NOx control;
P. filtering; and
Q. condensation.
EXHIBIT 99.2
LIMITED LIABILITY COMPANY AGREEMENT
OF
RADIAN INTERNATIONAL LLC
Dated as of January 1, 1996
TABLE OF CONTENTS /
Article Title Page
ARTICLE I
DEFINITIONS
1.1 Definitions 1
ARTICLE II
FORMATION
2.1 Formation of the Company 1
2.2 Name 1
2.3 Purposes 1
2.4 Powers of the Company 2
2.5 Member's Authority 2
2.6 Company Property 2
2.7 Principal Place of Business; Registered
Office and Agent 2
2.8 Office of and Agent for Service of Process 2
ARTICLE III
CAPITAL CONTRIBUTIONS
3.1 Initial Contributions 3
3.2 Return of Capital Contribution 3
3.3 Interest 4
3.4 Liability of Members 4
3.5 Additional Contributions 4
3.6 Failure to Contribute 6
ARTICLE IV
INTERESTS OF MEMBERS
4.1 Company Interests of Members 8
4.2 Capital Accounts 8
4.3 Interest on Capital Accounts 8
4.4 Loans from Members 8
4.5 Transferred Capital Accounts 8
ARTICLE V
DISTRIBUTIONS, EXPENSES AND
ALLOCATIONS OF PROFITS AND LOSSES
5.1 Allocations of Net Profits and Net
Losses from Operations 9
5.2 Special Allocations 10
5.3 Expenses of the Company 14
5.4 Distributions 15
5.5 Limitation Upon Distributions 16
5.6 Distributions to Cover Taxes 16
ARTICLE VI
MANAGEMENT RIGHTS, DUTIES AND
POWERS OF THE REPRESENTATIVES
6.1 Management 18
6.2 No Management by Members 19
6.3 Number, Qualification and Tenure of
Representatives 19
6.4 Meetings 20
6.5 Quorum and Voting 21
6.6 Committees 21
6.7 Action Without Meeting 21
6.8 Compensation 22
6.9 Rules of Procedure 22
6.10 Certain Transactions 22
6.11 Right to Rely on Authority of the
Representatives 23
6.12 Responsibility of Members and Representatives 24
6.13 Indemnification 24
6.14 Designation of Tax Matters Partner; Expenses
Regarding Tax Matters; Filing of Tax Returns 26
ARTICLE VII
BOOKS AND RECORDS; REPORTS
TO MEMBERS; CAPITAL ACCOUNT MAINTENANCE
7.1 Books; Reports 27
7.2 Accounting and Fiscal Year 28
7.3 Maintenance of Capital Accounts 28
7.4 Bank Accounts 28
7.5 Insurance 28
ARTICLE VIII
TRANSFER OF COMPANY INTEREST;
RADIAN OPTION TO SELL; LIENS
8.1 Transfer of Company Interest Generally 28
8.2 Transfers of Company Interests 29
8.3 Radian Option to Sell 29
8.4 Liens 30
ARTICLE IX
DISSOLUTION AND WINDING UP
9.1 Dissolution 30
9.2 Winding-Up 32
9.3 Accounting on Dissolution 32
9.4 Accounting; Allocations of Residual Net Profits
and Residual Net Loss After Dissolutions 32
9.5 Conversion of Assets to Cash 33
9.6 Distributions in Liquidation 34
9.7 Compliance with Treasury Regulations 34
9.8 Section 708 Termination 35
9.9 Continuation of the Company 35
9.10 Waiver of Certain Rights 35
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Assignment 36
10.2 Notices 36
10.3 Governing Law 37
10.4 Choice of Forum 37
10.5 Consent to Jurisdiction 37
10.6 Waiver of Jury Trial 37
10.7 Entire Agreement; Amendments 37
10.8 Execution in Counterparts 37
10.9 Remedies and Waiver 37
10.10 Headings 38
10.11 Third Party Beneficiaries 38
10.12 Further Assurances 38
10.13 Public Announcements 38
10.14 Termination 38
Exhibit A Definitions
Schedule 2.3 Chemical Products Manufactured By Radian
Schedule 6.1 Initial Officers and Duties
Schedule 6.10(a)(v) Accounting Policies or Procedures
LIMITED LIABILITY COMPANY AGREEMENT
This LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement")
of Radian International LLC (the "Company"), dated as of January
1, 1996, is between Dow Environmental Inc., a Delaware
corporation ("DEI") and Radian Corporation, a Texas corporation
("Radian"). DEI and Radian are sometimes individually referred
to in this Agreement as a "Member" and collectively as "Members".
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
I.1 Definitions. Capitalized terms used in this Agreement
which are not otherwise defined in this Agreement shall have the
meanings given to such terms in Exhibit A.
ARTICLE II
FORMATION
II.1 Formation of the Company. The Members hereby form a
limited liability company pursuant to the Act on the terms and
for the purposes set forth in this Agreement. The rights and
duties of the Members and the administration and termination of
the Company shall be as provided in the Act, except as modified
by this Agreement.
II.2 Name. The name of the Company shall be "Radian
International LLC" or such other name as is designated from time
to time by the Members and, if such other name is to contain
"DOW", as approved by The Dow Chemical Company ("TDCC"). The
Members Committee is hereby directed to file, or cause to be
filed, with the Secretary of State of the State of Delaware a
Certificate of Formation reflecting the name of the Company.
II.3 Purposes. The purposes of the Company shall be to
engage for profit in the Newco Services Business and to engage
for profit in any and all other activities reasonably related to
or incidental to the Newco Services Business, and to engage for
profit in any other business, whether or not related or
incidental thereto, as determined by the Members from time to
time; provided, however, that the Company shall not engage in the
production or manufacture of chemical products, other than the
chemical products manufactured by Radian as of the Closing Date
and listed on Schedule 2.3, or disclose technology received from
TDCC to any third party if such technology is to be used by, or
on behalf of, the third party to optimize its production or
manufacture of chemical products that are being, or will be,
manufactured or produced by TDCC. Notwithstanding the foregoing,
the Company may engage in the production or manufacture of
analytical reference standard materials for end uses such as
environmental, pharmaceutical and forensic drug analyses, such
materials typically being manufactured and sold in microgram and
gram quantities, but with potential sales up to ten (10)
kilograms per material or product to a given purchaser in a
twelve month period; provided, however, that potential sales in
quantities that exceed the ten (10) kilogram limit will be
referred to the Members Committee for approval.
II.4 Powers of the Company. Subject to the restrictions
set forth in this Agreement, the Company shall have the power to
exercise all the powers and privileges granted by this Agreement
and by law, together with any powers incidental thereto, so far
as such powers and privileges are necessary or appropriate for
the conduct, promotion or attainment of the purposes of the
Company.
II.5 Member's Authority. Except as otherwise provided in
this Agreement, no Member shall have any authority to act for, or
to assume any obligations or responsibilities on behalf of, any
other Member or the Company.
II.6 Company Property. All real and personal property,
whether tangible or intangible (including, without limitation,
all permits and licenses), owned by or granted to or held by the
Company shall be deemed to be owned by or granted to or held by
the Company as an entity, and no Member shall have any ownership
or right to use any such property, except as may be otherwise
agreed by the Company and the Members.
II.7 Principal Place of Business; Registered Office and
Agent. The principal place of business of the Company shall be
located at Austin, Texas or at such other place or places as the
Members Committee may from time to time determine. The business
of the Company may also be conducted at such additional place or
places as the Members Committee may designate; provided, however,
that the Company shall not maintain an office or a principal
place of business in any jurisdiction that would jeopardize the
limitation on liability afforded to the Members under the Act or
this Agreement and; provided, further, that the Members Committee
shall take, or cause to be taken, all steps necessary to preserve
the limited liability of the Members in connection with any such
additional places of business.
II.8 Office of and Agent for Service of Process. The
registered office of the Company in Delaware shall be Corporation
Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.
The Company's agent for service of process on the Company in
Delaware shall be The Corporation Trust Company. The Members
Committee may change, at any time and from time to time, the
location of such registered office and/or such registered agent
upon written notice of the change to the Members.
ARTICLE III
CAPITAL CONTRIBUTIONS
III.1 Initial Contributions. On the Closing Date (or in
the case of Restricted Assets and liabilities associated thereto,
after the Closing Date), certain contributions will be made to
the Company by or on behalf of, and the Company will assume
certain liabilities of, the Members and their Affiliates, all as
provided in the Contribution Agreement (the "Capital
Contribution"). The Members agree that immediately after such
contributions and assumptions, the sum of the cash and the Gross
Asset Value of assets other than cash contributed by each Member,
reduced by liabilities of such Member assumed by the Company, to
be contributed to the Capital Account of each of DEI and Radian,
respectively, will be as follows:
DEI $225,000,000
Radian $150,000,000
III.2 Return of Capital Contribution.
(a) Except as otherwise provided in this Agreement, no
return shall be paid by the Company to any Member on account of
any Capital Contribution. No Member shall have liability to any
other Member for the return of any Capital Contribution and any
such return shall be made only to the extent of available Company
assets in accordance with the terms of this Agreement.
(b) Except as otherwise provided in this Agreement, no
Member shall have priority over the other Member as to the return
of its Capital Contribution or as to distributions of cash made
by the Company.
(c) Except as otherwise provided in this Agreement, a
Member shall not be entitled to withdraw any part of its capital
or to (i) receive any distributions from the Company, (ii) demand
or receive property other than cash in return for its Capital
Contribution or (iii) receive any funds or property of the
Company.
III.3 Interest. No interest shall be paid on any capital
contributed to the Company, notwithstanding any disproportion
between the Capital Contribution of each of the Members.
III.4 Liability of Members. Except as otherwise provided
in the Act and except with respect to their several respective
obligations under this Agreement to contribute their respective
Capital Contributions, the Members shall not have any personal
liability to contribute money or other property to, or in respect
of, the Company or any of its liabilities or obligations.
III.5 Additional Contributions.
(a) No Company Interest or other ownership interest in the
Company or its assets other than those of the Members shall be
issued by the Company without the consent of each Member and,
except as provided in Section 3.1 and this Section 3.5, no Member
shall be obligated to make any additional contributions to the
capital of the Company.
(b) Subject to Section 3.5(e), the Members Committee shall,
if it reasonably determines that the Company needs additional
funds, use its commercially reasonable efforts to obtain a credit
facility (a "Credit Facility") from one or more commercial
lenders in form and substance reasonably satisfactory to the
Members Committee.
(c) If the Members Committee reasonably determines, in its
sole discretion, that it is desirable for the Company to obtain a
guarantee of such Credit Facility, each Member shall cause its
respective Parent to provide such a guarantee, in form and
substance reasonably satisfactory to the Parents and such
commercial lenders, of the amount of such Credit Facility
multiplied by each Member's Company Interest; provided, however,
that if a guarantee is required subsequent to December 31, 1998,
then, for purposes of this Section 3.5(c), each Member's Company
Interest shall be its respective Company Interest as of
January 1, 2000.
(d) Subject to Sections 3.5(e) and (g), if, after using
commercially reasonable efforts to obtain a Credit Facility
pursuant to Sections 3.5(b) and (c), the Members Committee
reasonably determines, in its sole discretion, that such Credit
Facility cannot be obtained on commercially reasonable terms
pursuant to Sections 3.5(b) and (c) or if the Credit Facility
obtained by the Company is insufficient for the needs of the
Company, then each of DEI and Radian hereby agrees to make loans
to the Company (the "Ordinary Loans") in order to support the
needs of the Company in form and substance reasonably satis-
factory to Radian and DEI. The Company's authorized officer
shall notify DEI and Radian in writing at least three (3)
business days in advance of the time each such loan is required
to be made to the Company. Upon such a written request from the
Company's authorized officer, each Member shall make a cash loan
to the Company in an amount equal to (i) the amount of the
Company's loan determined to be needed by the Members Committee
multiplied by (ii) such Member's Company Interest; provided,
however, that if an Ordinary Loan is required subsequent to
December 31, 1998, then, for purposes of this Section 3.5(d),
each Member's Company Interest shall be its respective Company
Interest as of January 1, 2000. An Ordinary Loan shall bear
interest at the rate equal to the lower of (i) the maximum rate
allowed by law or (ii) two (2) percentage points over the Prime
Rate.
(e) Notwithstanding the foregoing, the aggregate amount
borrowed under the Credit Facility or any Ordinary Loans shall
not result in a Debt Ratio in excess of 0.40.
(f) Prior to January 1, 1999, no additional cash
contributions may be required without the prior written consent
of each of the Members. If, on or after January 1, 1999, the
Members Committee determines that the Company requires funds and
that borrowings under a Credit Facility or an Ordinary Loan in
response to such requirement would cause the Debt Ratio to exceed
0.40, each of DEI and Radian hereby agrees that it shall make
cash contributions to the Company in an amount equal to (i) the
amount of the Company's cash requirement in excess of the amount
that would cause the Debt Ratio to equal 0.40 as determined by
the Members Committee multiplied by (ii) such Member's Company
Interest; provided, however, that if an additional cash
contribution is required on or prior to December 31, 1999, then,
for purposes of this Section 3.5(f), each Member's Company
Interest shall be its respective Company Interest as of
January 1, 2000. Once the Members Committee approves an
additional cash contribution, the Company's officers shall have,
subject to any terms or conditions specified by the Members
Committee at the time it so approves such additional cash
contribution, the reasonable discretion to determine the timing
of such cash contribution giving due consideration to the
Company's cash needs as determined by the Members Committee. The
Company's authorized officer shall notify DEI and Radian at least
ten (10) days in advance of the time each such cash contribution
is required to be made to the Company.
(g) Notwithstanding the foregoing (and regardless of
whether the Debt Ratio is less than or equal to 0.40), no Member
shall be required to make any cash contribution, to guarantee the
Credit Facility or to make Ordinary Loans if to do so would cause
such Member or its respective Affiliates to violate any Federal,
state or local law or regulation applicable to such Member or its
respective Affiliates or would, by operation of any such law or
regulation, significantly restrict the Member's or its respective
Affiliates' ability to conduct its business as such business was
conducted prior to the Closing. Each Member shall use, and shall
cause its respective Affiliates to use, all reasonable efforts to
maintain its ability to make the cash contributions, guarantees
and loans contemplated by this Section 3.5.
III.6 Failure to Contribute. If either DEI or Radian (in
either such case, the "Non-Contributing Member") (x) fails
(including a failure because of legal requirements as permitted
by Section 3.5(g)), in whole or in part, to make any cash
contribution, to guarantee the Credit Facility or to make
Ordinary Loans or (y) defaults, in whole or in part, on any other
obligation to pay money under this Agreement within five (5)
business days of giving of notice by the other Member to the Non-
Contributing Member that such cash contribution, guarantee or
Ordinary Loan is due or that the Non-Contributing Member has
defaulted in any other such obligation under this Agreement, DEI
(with respect to circumstances in which Radian is the Non-
Contributing Member) or Radian (with respect to circumstances in
which DEI is the Non-Contributing Member), as the case may be (in
either such case, the "Contributing Member"), shall have the
right to:
(i) advance directly to the Company such additional
cash contribution or provide such guarantee or Ordinary
Loan, or portion thereof, or such other payment of money, or
portion thereof, as the Non-Contributing Member has failed
to make or defaulted on (the "Non-Contributing Member's
Share"), and such advance, together with a proportionate
amount of the corresponding cash contribution or other
payment, if any, made by such Contributing Member, shall be
deemed a loan by the Contributing Member to the Company (a
"Member Loan"). A Member Loan shall bear interest at the
rate equal to the lower of: (A) the maximum rate allowed by
law; or (B) four (4) percentage points over the Prime Rate.
A Member Loan shall be recouped and repaid from all funds
which would have been available to make distributions which
the Members would otherwise be entitled to receive from the
Company but for this Section 3.6, all of which shall instead
be paid by the Company to the Contributing Member and
applied to the payment of the Member Loan and all interest
thereon, until the same shall have been paid in full. It is
understood, however, that to the extent the principal and
interest of a Member Loan are not repaid in full by the
Company from all funds which would otherwise have been
available to make distributions (including any distributions
pursuant to Section 9.6(b)) to the Members, the Non-
Contributing Member shall be obligated to repay an amount
equal to the Non-Contributing Member's Share of the
outstanding balance of the principal and interest of such
Member Loan upon commencement of the winding up of the
Company in accordance with Section 9.2. Any amount which
would otherwise have been available to make distributions
from the Company that is applied to any Member Loan shall be
credited first to any interest then due on such Member Loan,
and the balance of the distribution shall be credited
against the outstanding principal balance of such Member
Loan; or
(ii) upon notice to the Non-Contributing Member,
purchase all, but not less than all, of the Non-Contributing
Member's Company Interest, (A) if on or prior to
December 31, 1998, at the price equal to the amount set
forth in Section 8.3 of this Agreement as if Radian had
exercised its option to sell; provided, however, that such
price shall be discounted at a rate of 10% per year or
portion thereof if such purchase shall occur prior to
December 31, 1997, and (B) thereafter, at the fair market
value therefor. Notwithstanding the foregoing, if the
enforceability of such Contributing Member's right to
purchase the Non-Contributing Member's Company Interest as
set forth in this subsection (ii) is in any way limited by
general equitable principles, Bankruptcy, moratorium, or
other laws affecting creditors' rights generally then, upon
notice to the Non-Contributing Member and the Company, the
Contributing Member or any of its Affiliates shall have the
right to purchase all, but not less than all of the assets
and liabilities of the Company at the fair market value
therefor. In either case, if DEI and Radian cannot agree
upon such fair market value within sixty (60) days after the
notice to purchase the Non-Contributing Member's Interest or
all the assets and liabilities of the Company, as the case
may be, is delivered, either DEI or Radian may, by notice to
the other, invoke the Appraisal Procedure. If the Appraisal
Procedure is required to determine the fair market value of
the Non-Contributing Member's Interest or all the assets and
liabilities of the Company, as the case may be, the fees and
expenses of such Appraisal Procedure shall be paid by the
Non-Contributing Member. The closing of either such sale
shall take place upon the date that is within thirty (30)
days after such fair market value is determined in
accordance with this Section 3.6 and all legal requirements
relating to such sale have been satisfied; provided,
however, that if such sale is not in compliance with any
such legal requirements, then DEI and Radian shall equitably
adjust the arrangements set forth in this Section 3.6(ii) in
light of what is legally possible and in compliance with any
such legal requirements in order to effectuate the intent of
the parties.
Notwithstanding the foregoing, if the Non-Contributing
Member fails, in whole or in part, to make any cash contribution,
to guarantee the Credit Facility or to make Ordinary Loans
because of legal requirements as permitted by Section 3.5(g),
then the Contributing Member shall only have the rights set forth
in subsection (i) above; provided, however, that any Member Loan
caused by legal requirements as permitted by Section 3.5(g) shall
bear interest equal to the interest rate paid on an Ordinary
Loan.
Except as set forth above, the exercise of the right to make
a Member Loan or purchase the Non-Contributing Member's Company
Interest shall be in addition to any other rights or remedies
that the Contributing Member may have under this Agreement or at
law or in equity arising from the Non-Contributing Member's (i)
failure to make the required cash contribution, (ii) failure to
provide its portion of the required guarantee, (iii) failure to
make its required loan or (iv) default in any other obligation to
pay money.
ARTICLE IV
INTERESTS OF MEMBERS
IV.1 Company Interests of Members. The "Company Interests"
of the Members shall be as follows:
For the period: DEI Radian
through December 31, 1999 60% 40%
after December 31, 1999 65% 35%
IV.2 Capital Accounts. A separate Capital Account shall be
established and maintained with respect to each Member.
IV.3 Interest on Capital Accounts. Except as specifically
provided in this Agreement, no Member shall be entitled to any
interest on its Capital Account or its contributions to the
capital of the Company, nor shall any Member have the right to
demand or receive the return of all or any part of its Capital
Account or its contributions to the capital of the Company.
IV.4 Loans from Members. Loans by a Member to the Company
(including, without limitation, any Ordinary Loan or Member Loan)
shall not be considered capital contributions.
IV.5 Transferred Capital Accounts. In the event that any
Member transfers all or a portion of its Company Interest in
accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor Member to the
extent such Capital Account relates to the transferred Company
Interest or portion thereof.
ARTICLE V
DISTRIBUTIONS, EXPENSES AND
ALLOCATIONS OF PROFITS AND LOSSES
V.1 Allocations of Net Profits and Net Losses from
Operations.
(a) Allocation of Net Profits. Subject to Section 5.2 and
Section 9.4, the Net Profits of the Company for each Fiscal Year
will be allocated as follows:
(i) Net Profits will first be allocated to the
Members to offset prior allocations of Net Losses pursuant
to Section 5.1(b)(ii) to the extent such allocations have
not been so offset;
(ii) next, Net Profits will be allocated to the
Members in proportion to their Company Interests as of the
last day of the Fiscal Year to which such Net Profits are
attributable.
(b) Allocation of Net Losses. Subject to Section 5.2 and
Section 9.4, the Net Losses of the Company for each Fiscal Year
will be allocated as follows:
(i) First, Net Losses shall be allocated to the
Members in proportion to their Company Interests as of the
last day of the Fiscal Year to which such Net Losses are
attributable;
(ii) Except as otherwise required by the last sentence
of this Section 5.1(b)(ii), no allocation of loss,
deduction, and/or expenditures described in Code
Section 705(a)(2)(B) shall be charged to the Capital
Accounts of any Member if such allocation would cause such
Member to have an Adjusted Deficit Capital Account. The
amount of the loss, deduction, and/or Code
Section 705(a)(2)(B) expenditure which would have caused a
Member to have an Adjusted Deficit Capital Account shall
instead be charged to the Capital Account of any Members
which would not have an Adjusted Deficit Capital Account as
a result of the allocation, in proportion to their positive
Capital Accounts (after giving effect to the adjustments
described in the definition of Adjusted Deficit Capital
Account), or, if no such Members exist, then to the Members
in accordance with their Company Interest.
(c) Proportionate Share of Items. All allocations of Net
Profits and Net Losses shall be deemed to be comprised of a
proportionate share of all items comprising such Net Profits and
Net Losses.
V.2 Special Allocations.
(a) If any Member unexpectedly receives any adjustments,
allocations, or distributions described in Treas. Regs.
Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6), which create or
increase an Adjusted Deficit Capital Account of the Member, then
items of Company income and gain (consisting of a pro rata
portion of each item of Company income, including gross income,
and gain for such year) shall be specially allocated to the
Capital Account of the Member in an amount and manner sufficient
to eliminate, to the extent required by the Treasury Regulations,
the Adjusted Deficit Capital Account so created as quickly as
possible; provided, however, that an allocation pursuant to this
Section 5.2(a) shall be made only if and to the extent that such
Member would have an Adjusted Deficit Capital Account after all
other allocations provided for in this Section 5.2 have been
tentatively made as if this Section 5.2(a) were not in this
Agreement. It is intended that this Section 5.2(a) be
interpreted to comply with the alternate test for economic effect
set forth in Treas. Regs. Section 1.704-1(b)(2)(ii)(d).
(b) If any Member would have a deficit Capital Account at
the end of any Company taxable year which is in excess of the sum
of (i) the amount that the Member is obligated to restore to the
Company under Treas. Regs. Section 1.704-1(b)(2)(ii)(c) and (ii)
the amount such Member is deemed to be obligated to restore
pursuant to the penultimate sentences of Treas. Regs.
Sections 1.704-2(g)(1) and 1.704-2(i)(5), such Member shall be
specially allocated items of Company income (including gross
income) and gain in the amount of the excess as quickly as
possible; provided, however, that an allocation pursuant to this
Section 5.2(b) shall be made only if and to the extent that such
Member would have a deficit Capital Account in excess of such sum
after all other allocations provided for in this Section 5.2 have
been made as if Section 5.2(a) and this Section 5.2(b) were not
in this Agreement.
(c) Except as otherwise provided in Treas. Regs.
Section 1.704-2(f), notwithstanding any other provision of this
Section 5.2, if there is a net decrease in Partnership Minimum
Gain during any Fiscal Year, each Member shall be specially
allocated items of Company income and gain for such Fiscal Year
(and, if necessary, subsequent Fiscal Years) in an amount equal
to such Member's share of the net decrease in Partnership Minimum
Gain, determined in accordance with Treas. Regs.
Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts
required to be allocated to each Member pursuant thereto. The
items to be so allocated shall be determined in accordance with
Treas. Regs. Sections 1.704-2(f)(6) and 1.704-2(j)(2). This
Section 5.2(c) is intended to comply with the minimum gain
chargeback requirement in Treas. Regs. Section 1.704-2(f) and
shall be interpreted consistently therewith.
(d) Except as otherwise provided in Treas. Regs.
Section 1.704-2(i)(4), notwithstanding any other provision of
this Section 5.2, if there is a net decrease in Partner
Nonrecourse Debt Minimum Gain attributable to a Partner
Nonrecourse Debt during any Fiscal Year, each Member who has a
share of the Partner Nonrecourse Debt Minimum Gain attributable
to such Partner Nonrecourse Debt, determined in accordance with
Treas. Regs. Section 1.704-2(i)(5), shall be specially allocated
items of Company income and gain for such Fiscal Year (and, if
necessary, subsequent Fiscal Years) in an amount equal to such
Member's share of the net decrease in Partner Nonrecourse Debt
Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Treas. Regs. Section 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to
each Member pursuant thereto. The items to be so allocated
shall be determined in accordance with Treas. Regs. Sections
1.704-2(i)(4) and 1.704-2(j)(2). This Section 5.2(d) is intended
to comply with the minimum gain chargeback requirement in
Treas. Regs. Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
(e) Nonrecourse Deductions for any Fiscal Year shall be
specially allocated to the Members in the proportions they share
Net Profits pursuant to Section 5.1(a)(ii).
(f) Any Partner Nonrecourse Deductions for any Fiscal Year
shall be specially allocated to each Member who bears the
economic risk of loss with respect to the Partner Nonrecourse
Debt to which such Partner Nonrecourse Deductions are
attributable in accordance with Treas. Regs.
Section 1.704-2(i)(1).
(g) To the extent an adjustment to the adjusted tax basis
of any Company asset pursuant to Code Section 734(b) or Code
Section 743(b) is required, pursuant to Treas. Regs. Section
1.704-1(b)(2)(iv)(m)(2) or Section 1.704-1(b)(2)(iv)(m)(4), to be
taken into account in determining Capital Accounts as the result
of a distribution to a Member in complete liquidation of its
interest in the Company, the amount of such adjustment to Capital
Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially
allocated to the Member in accordance with its interests in the
Company in the event that Treas. Regs. Section 1.704-
1(b)(2)(iv)(m)(2) applies, or to the Member to whom such
distribution was made in the event that Treas. Regs.
Section 1.704-1(b)(2)(iv)(m)(4) applies.
(h) The allocations set forth in Sections 5.1(b)(ii),
5.2(a), 5.2(b), 5.2(c), 5.2(d), 5.2(e), 5.2(f), and 5.2(g) (the
"Regulatory Allocations") are intended to comply with certain
requirements of the Treasury Regulations. It is the intent of
the Members that, to the extent possible, all Regulatory
Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of Company
income, gain, loss or deduction pursuant to this Section 5.2(h).
Therefore, notwithstanding any other provision of this Article V
(other than the Regulatory Allocations), the Members Committee
shall make such offsetting special allocations of Company income,
gain, loss or deduction in whatever manner they determine
appropriate so that, after such offsetting allocations are made,
each Member's Capital Account balance is, to the extent possible,
equal to the Capital Account balance such Member would have had
if the Regulatory Allocations were not part of the Agreement and
all Company items were allocated pursuant to Sections 5.1(a) and
5.1(b). In exercising their discretion under this
Section 5.2(h), the Members Committee shall take into account
future Regulatory Allocations under Sections 5.2(c) and 5.2(d)
that, although not yet made, are likely to offset other
Regulatory Allocations previously made under Sections 5.2(e) and
5.2(f).
(i) For purposes of determining the Net Profits, Net
Losses, or any other items allocable to any period, Net Profits,
Net Losses, and any such other items shall be determined on a
daily, monthly, or other basis, as determined by the Members
Committee using any permissible method under Code Section 706 and
the Treasury Regulations thereunder.
(j) The Members are aware of the income tax consequences of
the allocations made by this Article V and hereby agree to be
bound by the provisions of this Article V in reporting their
shares of Company income and loss for income tax purposes.
(k) Solely for purposes of determining a Member's
proportionate share of the "excess nonrecourse liabilities" of
the Company within the meaning of the Treas. Regs. Section
1.752-3(a)(3), each Member's interest in the Company's profits
shall be such Member's Company Interest.
(l) To the extent permitted by Treas. Regs. Section
1.704-2(h)(3), the Members shall endeavor to treat distributions
as having been made from the proceeds of a Nonrecourse Liability
or a Partner Nonrecourse Debt only to the extent that such
distributions would cause or increase an Adjusted Deficit Capital
Account for any Member.
(m) In accordance with Code Section 704(c) and the Treasury
Regulations thereunder, income, gain, loss, and deduction with
respect to any property contributed to the capital of the Company
shall, solely for tax purposes, be allocated among the Members so
as to take account of any variation between the adjusted basis of
such property to the Company for Federal income tax purposes and
its initial Gross Asset Value, using the method described in
Treas. Reg. Sec. 1.704-3(c).
The Gross Asset Value of property other than goodwill
initially contributed to capital of the Company shall equal such
property's adjusted tax basis for Federal income tax purposes as
of January 1, 1996. The Gross Asset Value of goodwill
contributed to the capital of the Company by each Member shall
equal the excess of the value attributed to such Member's initial
Capital Contribution in Section 3.1 of this Agreement (increased
by liabilities of the Member assumed by the Company) over the
Gross Asset Value of property other than goodwill contributed by
the Member. Goodwill shall be recovered by the Company over 10
years using the straight-line method. The tax departments of HSB
and TDCC shall integrate the property systems of Radian and DEI
and shall calculate the Gross Asset Value of goodwill contributed
by the Members within sixty (60) days of the Closing Date.
In the event the Gross Asset Value of any Company asset is
adjusted pursuant to paragraph (ii) of the definition thereof,
subsequent allocations of income, gain, loss, and deduction with
respect to such asset shall take account of any variation between
the adjusted basis of such asset for Federal income tax purposes
and its Gross Asset Value in the manner provided in Treas. Regs.
Section 1.704-3(a)(6).
Any elections or other decisions relating to such
allocations shall be made by the Tax Matters Partner in any
manner that reasonably reflects the purpose and intention of this
Agreement. Allocations pursuant to this Section 5.2(m) are
solely for purposes of Federal, state, and local taxes and shall
not affect, or in any way be taken into account in computing, any
Member's Capital Account or share of Net Profits, Net Losses,
other items, or distributions pursuant to any provision of this
Agreement.
(n) Gross income attributable to corporations in which the
Company owns an interest shall be allocated in the following
priority:
(i) gross income attributable to dividends received
by the Company from its subsidiaries after December 31, 1999
shall be allocated to the Members in proportion to their
Company Interests as of December 31, 1999, until the amount
of gross income allocated with respect to such dividends
from each such subsidiary pursuant to this clause (i) equals
the net increase, if any, in the retained earnings and
profits (for U.S. tax purposes) of the distributing
subsidiary for the four-year period ending December 31, 1999
to the extent such earnings and profits were not included in
the Net Profits of the Company for such four-year period;
and
(ii) all other gross income resulting from any
dividends or resulting from the application of Code
Section 951 shall be included in Net Profits and allocated
pursuant to Section 5.1.
(o) For each of the years 1996 and 1997 respectively, if
the Net Profits allocated to Radian pursuant to Section 5.1(a)
for such year are less than the lesser of Preferred Accounting
Earnings for such year or Accounting Earnings for such year, then
Radian shall be allocated an amount of gross income so that the
net amount of Net Profits, Net Losses and gross income allocated
to Radian at least equals the lesser of Preferred Accounting
Earnings for such year or Accounting Earnings for such year.
(p) DEI shall be allocated an aggregate amount of gross
income pursuant to this Section 5.2(p) such that the net amount
of Net Profits, Net Losses and gross income allocable to DEI
exceeds the amount that would be allocated to it without taking
this Section 5.2(p) into account by an amount equal to 40% of the
amount by which the Net Profits, Net Losses and gross income
allocated to Radian was increased pursuant to Section 5.2(o).
The amount allocated pursuant to this Section 5.2(p) shall not
exceed 40% of the sum of the following amount calculated for 1996
plus the following amount calculated for 1997: the excess, if
any, of (i) the lesser of Preferred Accounting Earnings or
Accounting Earnings over (ii) 100% of Net Profits. Such amount
shall be allocated to DEI ratably over a five-year period
beginning in 1998.
V.3 Expenses of the Company. All of the Company
expenses shall be billed directly to and paid by the Company.
The Company is specifically authorized to make reimbursements to
any Member that provides goods, materials or services used for or
by the Company provided such are authorized in advance in writing
and are in accordance with the Company's annual budget. In no
event shall any amount charged to the Company as a reimbursable
expense by any Member exceed the amount that the Company would be
required to pay to independent parties for comparable goods,
materials or services. Reimbursement for expenses shall be made
to any Member entitled to such reimbursement regardless of
whether any distributions are made to the Members under the
provisions of this Article V.
V.4 Distributions.
(a) Except as provided in Sections 5.6 and 9.6,
(i) and except as provided in clauses (ii) and (iii)
below, all distributions of cash and/or other Property shall
be made to the Members pro rata in proportion to the
respective Company Interest of the Members on the record
date of the distribution,
(ii) and except as provided in clause (iii) below,
distributions of cash or other Property, the record date of
which is after December 31, 1999, shall continue to be
distributed to the Members pro rata in proportion to the
respective Company Interest of the Members as of
December 31, 1999, until an aggregate amount of cash or
other Property has been distributed pursuant to
Section 5.4(a)(i), this Section 5.4(a)(ii) and Section 5.6
equal to 80% of the sum of (A) the excess of the Net Profits
allocated pursuant to Section 5.1 over the Net Losses
allocated pursuant to Section 5.1 and (B) the excess of any
items in the nature of income or gain which were specially
allocated pursuant to Section 5.2 over any items in the
nature of deduction or loss that were allocated pursuant to
Section 5.2 (other than allocations solely for tax purposes
pursuant to Section 5.2(m)), in the case of (A) and (B),
with respect to periods ending before January 1, 2000, and
(iii) distributions of cash or other Property, the
record date of which is after December 31, 1999, shall be
distributed to the Members pro rata in proportion to the
respective Company Interest of the Members as of
December 31, 1999, until the aggregate amount of cash or
other Property distributed pursuant to this clause (iii)
equals 80% of the aggregate amount of gross income allocated
pursuant to Section 5.2(n)(i) of this Agreement after
December 31, 1999 (net of deemed taxes treated as a dividend
received under Code Section 78).
(b) Except as provided below and in Section 5.5,
distributions of Net Cash Flow and Property shall be made
whenever such distributions are permitted under the Company's
strategic business plan. The Members presently intend to operate
the Company to maximize distributions by the Company to the
Members, to the extent consistent with prudent operation of the
Company, while permitting the Company to retain sufficient
capital resources for the rapid growth of the Company in
accordance with its strategic business plan; provided, however,
that no distribution shall be made if in the sole discretion of
the Members Committee such proposed distribution would materially
impair the ability of the Company to comply with its strategic
business plan or the amount of such distribution is needed for
the operations of the Company.
(c) All amounts withheld pursuant to the Code or any
provisions of state or local tax law from any payment or
distribution to the Members from the Company shall be treated as
amounts distributed to the relevant Member or Members pursuant to
this Section 5.4.
(d) Notwithstanding anything to the contrary in this
Agreement, no distribution shall be made to a Member if such
Member has an Adjusted Deficit Capital Account, or if such
distribution would cause such Member to have an Adjusted Deficit
Capital Account, but such undistributed amounts shall be
distributed to such Members as soon as and to the extent that
such distributions can be made without causing such Member to
have an Adjusted Deficit Capital Account.
V.5 Limitation Upon Distributions. Distributions shall be
declared or paid only if, after giving effect to the
distribution, the assets of the Company are in excess of all
liabilities of the Company, except liabilities to Members on
account of their contributions and liabilities for which the
recourse of creditors is limited to specified Property of the
Company. The fair value of Property that is subject to a
liability for which the recourse of creditors is limited shall be
included in the assets of the Company only to the extent the fair
value of that Property exceeds that liability. Notwithstanding
the foregoing, except as provided in Section 5.6, it is the
current expectation of the Members that no distribution shall be
declared or paid prior to January 1, 1999, and then only if such
distribution is in compliance with this Section 5.5.
V.6 Distributions to Cover Taxes. The Company shall make
the following distributions of cash:
(a) by April 15th of each year, the Company shall
distribute to each Member cash pursuant to this Section 5.6(a) so
that the total amount of cash and/or other Property distributed
to such Member pursuant to any provision of this Article 5 other
than Section 5.6(e) since January 1 of such year at least equals
the product of (i) such Member's Company Interest for such year,
multiplied by (ii) the highest marginal federal income tax rate
effective for corporations as of January 1 of such year,
multiplied by (iii) the total projected federal taxable income to
be reported by the Company with respect to such year, multiplied
by (iv) 25%; provided, that this Section 5.6(a) shall not apply
to DEI for the years 1996 or 1997.
(b) by June 15th of each year, the Company shall distribute
to each Member cash pursuant to this Section 5.6(b) so that the
total amount of cash and/or other Property distributed to such
Member pursuant to any provision of this Article 5 other than
Section 5.6(e) since January 1 of such year at least equals the
product of (i) such Member's Company Interest for such year,
multiplied by (ii) the highest marginal federal income tax rate
effective for corporations as of January 1 of such year,
multiplied by (iii) the total projected federal taxable income to
be reported by the Company with respect to such year, multiplied
by (iv) 50%; provided, that this Section 5.6(b) shall not apply
to DEI for the years 1996 or 1997.
(c) by September 15th of each year, the Company shall
distribute to each Member cash pursuant to this Section 5.6(c) so
that the total amount of cash and/or other Property distributed
to such Member pursuant to any provision of this Article 5 other
than Section 5.6(e) since January 1 of such year at least equals
the product of (i) such Member's Company Interest for such year,
multiplied by (ii) the highest marginal federal income tax rate
effective for corporations as of January 1 of such year,
multiplied by (iii) the total projected federal taxable income to
be reported by the Company with respect to such year, multiplied
by (iv) 75%; provided, that this Section 5.6(c) shall not apply
to DEI for the years 1996 or 1997.
(d) by December 15th of each year, the Company shall
distribute to each Member cash pursuant to this Section 5.6(d) so
that the total amount of cash and/or other Property distributed
to such Member pursuant to any provision of this Article 5 other
than Section 5.6(e) since January 1 of such year at least equals
the product of (i) such Member's Company Interest for such year,
multiplied by (ii) the highest marginal federal income tax rate
effective for corporations as of January 1 of such year,
multiplied by (iii) the total projected federal income tax to be
reported by the Company with respect to such year; provided, that
this Section 5.6(d) shall not apply to DEI for the years 1996 or
1997.
(e) Each year, within ten (10) days after the time the
Internal Revenue Service Form 1065 Schedule K-1 is delivered to
the Members, the Company shall distribute cash to each Member
pursuant to this Section 5.6(e) in an amount equal to any excess
of (i) the product of (A) the taxable income allocated to such
Member as shown on the Internal Revenue Service Form 1065
Schedule K-1 delivered to such Member with respect to the
previous year, multiplied by (B) the highest marginal federal
income tax rate effective for corporations on income earned in
the previous year (blended if necessary to reflect any change in
the highest marginal rate), over (ii) the total amount of cash
and/or other Property distributed to such Member pursuant to any
provision of this Article 5 other than Section 5.6(e) during the
previous year.
ARTICLE VI
MANAGEMENT RIGHTS, DUTIES AND POWERS OF THE REPRESENTATIVES
VI.1 Management. (a) It shall be the duty and
responsibility of the Members Committee solely and exclusively to
manage and control the business and affairs of the Company, and,
subject to Section 6.10, all decisions regarding the business and
affairs of the Company shall be made by the Members Committee.
Except as provided in this Agreement, each Representative shall
have all the rights and powers of a Representative as provided in
the Act and as otherwise provided by law, and any action taken by
a Representative in the manner provided for in this Agreement
shall constitute the act of and serve to bind the Company. The
Members Committee may delegate its authorities and responsibi-
lities for management of the business affairs of the Company to
third parties, but such delegation shall not relieve the Members
Committee of any of its obligations under this Agreement. In
furtherance of this right of delegation, the Members Committee
may appoint and authorize officers of the Company to act on
behalf of the Company with such power and authority as the
Members Committee may delegate in writing to such Member. The
initial officers of the Company, and their duties, are set forth
on Schedule 6.1 to this Agreement. Subject to Section 6.10, the
Members Committee is hereby granted (i) the right, power and
authority to do on behalf of the Company all things which, in its
judgment, are necessary, proper or desirable to carry out the
aforementioned duties and responsibilities, including but not
limited to the right, power and authority from time to time to
incur Company expenses; to employ and dismiss from employment any
and all employees, agents, independent contractors, attorneys and
accountants; to establish employee benefits plans; to enter into
leases for real or personal property; to purchase equipment; and
to manage all other aspects of running the business of the
Company all in accordance with any authorization policy adopted
by the Members Committee; and (ii) such other rights, powers and
authorities of a manager as provided in the Act and as otherwise
provided by law.
(a) Except as set forth in Section 6.10, the Members
Committee shall retain the decision-making authority for the
Company. Notwithstanding the foregoing, it is the express
intention of the Members that the Members Committee manage the
affairs of the Company so as to achieve, to the extent consistent
with prudent operation of the Company, the Preferred Accounting
Earnings for each of Fiscal Years 1996 and 1997.
VI.2 No Management by Members. Except as otherwise
provided in this Agreement, no Member shall take part in the day-
to-day management, or the operation or control of the business
and affairs of the Company. Except as expressly delegated by the
Members Committee, no Member shall be an agent of the Company or
have any right, power or authority to transact any business in
the name of the Company or to act for or on behalf of the
Company.
VI.3 Number, Qualification and Tenure of Representatives.
The Members Committee shall have as few as three and as many as
eleven members, as established from time to time by resolution of
the Members Committee. Initially the Members Committee shall
consist of seven (7) members, four (4) of whom shall be DEI
Representatives and three (3) of whom shall be Radian
Representatives. If the Members Committee shall increase or
decrease the number of members on the Members Committee, then the
composition of the Members Committee of DEI and Radian
Representatives shall as closely as possible reflect the Member's
respective Company Interest at that time; provided, however,
that, at all times, there shall be a majority of DEI
Representatives on the Members Committee. All DEI
Representatives on the Members Committee shall be employees of
DEI or one or more of its Affiliates, and all Radian
Representatives on the Members Committee shall be employees of
Radian or its Affiliates. A DEI Representative shall serve as
Chair of the Members Committee. DEI and Radian shall, within ten
(10) days of the date of this Agreement, notify each other in
writing of the identity of the DEI Representatives and the Radian
Representatives, respectively. DEI, within ten (10) days of the
date of this Agreement, shall notify Radian in writing as to
which of its DEI Representatives is to initially serve as Chair
of the Members Committee. Any Representative shall continue to
serve in such capacity until such Member shall have notified the
other Members in writing of his or her replacement. DEI and
Radian may, by written notice to the other, designate a person to
serve as an alternate for each DEI Representative and each Radian
Representative, respectively (each alternate to a DEI Representa-
tive being referred to in this Agreement as a "DEI Alternate"
and, collectively, as the "DEI Alternates"; each alternate to a
Radian Representative being referred to in this Agreement as a
"Radian Alternate" and, collectively, as the "Radian Alternates";
and the DEI Alternates and the Radian Alternates being
collectively referred to in this Agreement as the "Alternates"),
and such DEI Alternate or Radian Alternate, as the case may be,
shall be entitled, in the absence of such DEI Representative or
Radian Representative, to attend meetings, to have such
Alternate's presence counted for purposes of establishing a
quorum and to vote on behalf of such DEI Representative or Radian
Representative at any meeting of the Members Committee. Each
Member, in dealing with DEI Representatives or Alternates or the
Radian Representatives or Alternates, as the case may be, shall
be entitled to rely conclusively upon the power and authority of
such Representatives or Alternates to bind DEI or Radian, as the
case may be, with respect to all matters unless and until it
receives notice to the contrary in writing from DEI or Radian, as
the case may be. To the fullest extent permitted by law, each
Representative and Alternate shall be deemed the agent of the
Member which appointed such Person a Representative or Alternate,
and such Representative or Alternate shall not be deemed an agent
or a sub-agent of the Company or the other Members and shall have
no duty (fiduciary or otherwise) to the Company or the other
Members. Each Member, by execution of this Agreement, agrees to,
consents to, and acknowledges the delegation of powers and
authority to such Representatives and Alternates, and the actions
and decisions of such Representatives and Alternates within the
scope of their respective authority as provided in this
Agreement.
VI.4 Meetings. The Members Committee shall hold regular
meetings at least once during each Fiscal Year on such date or
dates as specified by the Members Committee. Other regular
meetings shall be held at such time and at such place as shall
from time to time be determined by the Members Committee.
Meetings of the Members Committee may be held by conference
telephone or other means of communication by means of which all
participants can hear each other. Participation in such meeting
in such manner shall constitute attendance and presence in person
at the meeting of the person or persons so participating. No
notice of the regular annual meeting need be given. Special
meetings of the Members Committee may be called by the Chairman
of the Members Committee or by any Member on at least two (2)
business days' notice to the other Member. Attendance by any DEI
Representative or Radian Representative or any DEI Alternate or
Radian Alternate at any meeting of the Members Committee shall
constitute an effective waiver of any required prior notice to
DEI or Radian, as the case may be, of such meeting, unless such
attendee declares at the onset of such meeting that such
attendee's attendance at such meeting is solely for the purpose
of contesting the deficiency of any required notice for the
meeting. The Chairman of the Members Committee shall, (i) with
reasonable advance notice (which in the case of regular meetings
shall not be less than five (5) days), prepare and distribute an
agenda for each meeting of the Members Committee, (ii) organize
and conduct such meeting and (iii) prepare and distribute minutes
of such meeting. Any Member may propose in advance topics for
the agenda or, subject to Section 6.5, raise topics which are not
on the agenda for such meeting. Each Representative or
Alternate of each of DEI and Radian may bring one or more other
advisors to any meeting; provided, that such advisors shall not
have the right to vote on any matter brought before the Members
Committee; and provided further, that the Representatives or
Alternates of either of DEI or Radian shall have the right to
call executive sessions of the Members Committee and to exclude
any Person not a Representative or Alternate from such executive
session.
VI.5 Quorum and Voting. Meetings of the Members Committee
may only be held when a quorum is present (whether present in
person or by telephone or other means of telecommunication). A
quorum of the Members Committee shall be comprised of a majority
of Representatives or Alternates (or any combination thereof in
accordance with Section 6.4) of the full Members Committee as
constituted pursuant to Section 6.3 of this Agreement of which at
least a majority of such majority must be DEI Representatives or
DEI Alternates; provided, however, that if a Radian
Representative or Radian Alternate is not present at any meeting
of the Members Committee then, at such meeting, only such
business as set forth on the agenda for such meeting may be
considered and voted upon. The affirmative vote of a majority of
the Members Committee at a meeting at which a quorum is present
being entitled to vote at any such meeting must be obtained in
connection with the decision of any matter being considered by
the Members Committee. If a quorum is not present, the
Representatives and Alternates present may adjourn the meeting
without notice, other than an announcement at the meeting, until
a quorum shall be present.
VI.6 Committees. The Members Committee may appoint from
among its members an Executive Committee, an Audit Committee, a
Compensation Committee and other committees, composed of two or
more Representatives (one of which must be a Radian
Representative or Radian Alternate), to serve at the pleasure of
the Members Committee. Except as expressly limited by applicable
law or this Agreement, each such committee shall exercise such
powers and authority as the Members Committee may determine and
specify in a writing designating such committee or any amendment
thereto. Unless otherwise specified in the writing designating
the committee, a majority of the members of such committee may
elect its Chair, fix its rules of procedure, fix the time and
place of meetings and specify what notice of meetings, if any,
shall be given. Written records of the proceedings of any
committee shall be maintained and furnished to the Members
Committee.
VI.7 Action Without Meeting. Any action required or
permitted to be taken at a meeting of the Members Committee, or
of any committee thereof, may be taken without a meeting if all
members of the Members Committee, or committee thereof, consent
in writing to such action.
VI.8 Compensation. The Members Committee shall not receive
any compensation, but shall be reimbursed by the Company for
reasonable expenses associated with attendance at meetings.
VI.9 Rules of Procedure. The Members Committee may from
time to time adopt detailed rules and procedures not inconsistent
with this Agreement for the management of the business of the
Company.
VI.10 Certain Transactions.
(a) Except as otherwise set forth in this Agreement, the
Company shall not engage in any of the following actions without
the prior affirmative vote of a majority of the Members Committee
present at a meeting, which majority shall include at least one
Radian Representative or Radian Alternate:
(i) the dissolution or winding-up of the Company;
provided, however, that nothing in this Section 6.10(a)(i)
shall be construed to conflict with the requirement in
Section 9.1(a) of this Agreement that a Bankruptcy of any
Member shall cause the dissolution of the Company;
(ii) the sale by the Company of any Company Interests
or derivative rights relating to such Company Interests;
(iii) changing the nature of the business conducted by
the Company or conducting any activity that is outside the
business purposes of the Company, as set forth in
Section 2.3, or otherwise in contravention of this
Agreement;
(iv) amending this Agreement or the Certificate of
Formation of the Company;
(v) prior to January 1, 1999, any change in the
accounting policies or procedures of the Company set forth
on Schedule 6.10(a)(v), except for any such changes in
accounting policies and procedures required by reason of a
concurrent change in GAAP, government cost accounting
standards or other applicable governmental requirements;
(vi) (A) the amendment or modification of the
transfer pricing provision in any contract between the
Company and TDCC or any of TDCC's Affiliates as of the
Closing Date or (B) the entry into any contract between the
Company or any Subsidiary of the Company, on the one hand,
and any Member or any of its Affiliates, on the other hand,
except as a result of a competitive bidding process or on
terms substantially similar to, or more favorable to the
Company or such Subsidiary than, those that could be entered
into by the Company in a similar transaction with
unaffiliated third parties;
(vii) amending the Company's policy regarding earnings
distributions to Members or the declaration of dividends;
(viii) the purchase or other acquisition of another
business; provided, however, that such consent shall not be
required if the aggregate payments involved in such
transaction and in all such transactions during the previous
12-month period do not require an additional capital
contribution by Radian in excess of $10 million; or
(ix) sell all, or substantially all, of the Company's
assets or enter into any other arrangement in which the
Company's business is transferred to a third party.
In connection with any of the proposed actions set forth in this
Section 6.10(a), the officers of the Company shall keep the
Members Committee informed of the Company's business activities
and provide, or cause to be provided, to the Members Committee
such information as may be reasonably necessary for the Members
Committee to make a prudent judgment to approve or disapprove the
proposed action.
(b) The Members Committee shall keep the Members informed
of the Company's business activities. In addition to providing
the periodic reports required by Section 7.1 of this Agreement,
the Members Committee shall promptly advise, or cause to be
advised, the Members of any material developments in the
Company's business, including, without limitation, prior notice
of the terms and conditions of proposed significant investments,
acquisitions or dispositions, or other significant transactions
involving the Company.
(c) Except as otherwise provided hereunder or required
under the Act, whenever it is stated in this Agreement, including
without limitation, this Section 6.10, that an action of the
Company or of the Members Committee on behalf of the Company or
any other action under this Agreement requires the consent or
agreement of or waiver by the Members, such action shall require
the consent or agreement of each Member.
VI.11 Right to Rely on Authority of the Representatives.
Any action taken by the Representatives in their capacity as
such, acting on behalf of the Company pursuant to the authority
conferred on them in this Agreement, shall be binding on the
Company. In no event shall any Person dealing with the
Representatives with respect to the conduct of the affairs of the
Company be obligated to ascertain that the terms of this
Agreement have been complied with, or be obligated to inquire
into the necessity or expediency of any act or action of the
Representatives. Every contract, agreement, promissory note or
other instrument or document executed by a Representative with
respect to any property of the Company or the conduct of its
affairs, in his/her capacity as a Representative acting on behalf
of the Company pursuant to the authority conferred on him/her in
this Agreement, shall be conclusive evidence in favor of any and
every Person relying thereon or claiming under this Agreement
that (i) at the time of the execution and/or delivery of such
instrument or document, this Agreement was in full force and
effect, (ii) such instrument or document was duly executed in
accordance with the terms and provisions of this Agreement and is
binding upon the Company, and (iii) the Representative was duly
authorized and empowered to execute and deliver any and every
such instrument or document for and on behalf of the Company.
Nothing set forth in this Section 6.11 shall be construed as
relieving the Representatives from liability to the Company or
the Members for breach of any of the provisions of this
Agreement, or for acting or failing to act in such manner as
constitutes an exception from indemnification provisions
contained in Section 6.13.
VI.12 Responsibility of Members and Representatives. No
Member or Representative (or their Affiliates) shall have any
fiduciary or other duty or responsibility to the Company, or to
any other Member or Representative (or their Affiliates), except
as expressly provided in this Agreement or for acts or omissions
that constitute willful misconduct or constitute an intentional
criminal act. No Representative or Alternate shall be liable to
the Company or any Member or other Representative or Alternate
(or their Affiliates) because of a decision by the Members
Committee to have the Company engage in, or not engage in, a
particular business, activity or project.
VI.13 Indemnification. (a) The Company shall indemnify,
to the full extent permitted by the laws of the State of
Delaware, any person who was or is a defendant or is threatened
to be made a defendant to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such
person (i) is or was a Member, Representative, Alternate,
officer, employee or agent of the Company, or (ii) is or was a
Member, Representative, Alternate, officer, employee or agent of
the Company and is or was serving at the request of the Company
as a Member, Representative, Alternate, director, officer,
employee or agent of another corporation, limited liability
company, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or
proceeding, provided that the commission or omission which formed
the basis of such action, suit or proceeding does not constitute
gross negligence or willful misconduct or constitute an
intentional criminal act on the part of such person. Any repeal,
amendment or modification of this Section 6.13 shall not affect
any rights or obligations then existing between the Company and
any then incumbent or former Member, Representative, Alternate,
officer, employee or agent with respect to any state of facts
then or theretofore existing or any action, suit or proceeding
theretofore or thereafter brought based in whole or in part upon
such state of facts.
(a) Expenses incurred by any current or former Member,
Representative, Alternate, officer, employee or agent in
defending or investigating a threatened or pending action, suit
or proceeding shall be paid by the Company in advance of the
final disposition of such action, suit or proceeding, upon
receipt of an undertaking by or on behalf of the Member,
Representative, Alternate, officer, employee or agent to repay
such amount if it ultimately shall be determined that the Member,
Representative, Alternate, officer, employee or agent is not
entitled to be indemnified by the Company as authorized in this
Section 6.13.
(b) The indemnification and advancement of expenses
mandated or permitted by, or granted pursuant to, this
Section 6.13 shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses
may be entitled under any agreement, contract, vote of Members or
disinterested Representatives (or Alternates) or pursuant to the
direction (howsoever embodied) of any court of competent
jurisdiction or otherwise both as to action by the person in an
official capacity and as to action in another capacity while
holding such office. The provisions of this Article VI shall not
be deemed to preclude the indemnification of any person who is
not specified in subsections (a) and (b) above, but whom the
Company has the power or obligation to indemnify under the laws
of the State of Delaware or otherwise.
(c) The Company may purchase and maintain insurance on
behalf of any person who is or was a Member, Representative,
Alternate, officer, employee or agent of the Company, or is or
was serving at the request of the Company as a Member,
Representative, Alternate, director, officer, employee or agent
of another corporation, limited liability company, partnership,
joint venture, trust or other enterprise against any liability
asserted against and incurred by such person in any such
capacity, or arising out of the person's status as such, whether
or not the Company would have the power or the obligation to
indemnify such person of the Company against such liability under
the provisions of this Section 6.13.
(d) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section 6.13 shall
continue as to a person who has ceased to be a Member,
Representative, Alternate, officer, employee or agent of the
Company and shall inure to the benefit of the heirs, executors
and administrators of such person.
VI.14 Designation of Tax Matters Partner; Expenses
Regarding Tax Matters; Filing of Tax Returns.
(a) DEI is hereby designated as the "Tax Matters Partner"
under Section 6231(a)(7) of the Code. During any Company income
tax audit or other income tax controversy with any governmental
agency, the Tax Matters Partner shall keep the Members informed
of all material facts and developments on a timely basis, and
shall consult with the Members at their request. The Tax Matters
Partner shall not be authorized to enter into a settlement which
binds the Members or the Company without the advance written
consent of the Member, except for settlements for de minimis
amounts (e.g., not exceeding $100,000 in the aggregate). The Tax
Matters Partner shall take all actions necessary to cause each
qualifying Member to be a "notice partner" within the meaning of
Sections 6223(a) and 6231(a)(8) of the Code.
(b) All reasonable expenses incurred by the Tax Matters
Partner with respect to any tax matter which does or may affect
the Company, or any Member by reason thereof, including but not
limited to expenses incurred by the Tax Matters Partner acting in
its capacity as Tax Matters Partner in connection with Company-
level administrative or judicial tax proceedings, shall be paid
for out of Company assets. If the Members are permitted by the
Company or permitted under the Code to participate in Company-
level administrative or judicial tax proceedings, the Company
shall be responsible for all expenses incurred by them in
connection with such participation. The cost of any adjustments
to the Members and the cost of any resulting audits or adjust-
ments of the Members' tax returns will be borne solely by the
Members and the cost of any adjustments to the Company and the
cost of any resulting audits or adjustments of the Company's tax
returns will be borne solely by the Company.
(c) The Tax Matters Partner shall prepare and timely file
all tax returns of the Company. The Company shall reimburse the
Tax Matters Partner for the reasonable costs of preparing and
filing the tax returns of the Company.
ARTICLE VII
BOOKS AND RECORDS; REPORTS
TO MEMBERS; CAPITAL ACCOUNT MAINTENANCE
VII.1 Books; Reports. The Company shall maintain or cause
to be maintained separate, full and accurate books and records of
the Company, and the Members or any authorized representative of
the Members will have the right to inspect, examine and copy the
same, and to meet with employees of the Company responsible for
preparing the same, at reasonable times during business hours and
upon reasonable notice. In addition, the Members Committee shall
provide or shall cause to be provided to each Member, its
representatives and an independent accounting firm (if any)
designated by the Member, reasonable access to all such books and
records, during which the Member or such accounting firm may
conduct an audit of the Company; provided, however, that any such
audit shall be conducted at the sole expense of the Member.
Within eight (8) business days after the last day of each
fiscal quarter (or at an earlier date if requested by a Member),
the Company will prepare and deliver to the Members financial
statements in forms reasonably requested by each Member. The
Members Committee shall also prepare and distribute, or cause to
be prepared and distributed, to each Member within sixty (60)
days after the last day of each fiscal quarter, or as soon
thereafter as is practicable, a report which includes (i) a
statement showing results of operations and changes in net assets
prepared on an accrual basis, for such fiscal quarter, (ii) a
statement showing Net Cash Flow for such fiscal quarter, (iii) a
statement showing computation of related party fees and Member
distributions, and (iv) a statement describing any event of
default and any known event which, with the giving of notice or
lapse of time or both, would constitute an event of default under
any indebtedness of the Company. The Members Committee shall
also prepare and distribute, or cause to be prepared and dis-
tributed, to each Member within forty-five (45) days after the
end of each fiscal year, or as soon thereafter as is practicable,
a report with respect to the Company which includes the items set
forth in (i), (ii) and (iii) of the foregoing sentence with
respect to such fiscal year. Such annual report shall be audited
by, and accompanied by an auditor's report containing the opinion
of, the Company's independent public accountants (which opinion,
if qualified, shall state the basis for such qualification). The
Members Committee shall also use its reasonable best efforts to
cause the auditors to provide an annual earnings clearance within
fifteen (15) days after the end of each fiscal year. The costs
of any audits or earnings clearances shall be an expense of the
Company.
The Members Committee shall also engage, or cause to be
engaged, independent public accountants to report on the
Company's consolidated financial statements in accordance with
GAAP. Initially, the auditors of the Company shall be Deloitte &
Touche LLP.
VII.2 Accounting and Fiscal Year. The Company books and
records shall be kept on the accrual basis. The Company's Fiscal
Year shall be the calendar year. The books will be closed at the
end of each Fiscal Year.
VII.3 Maintenance of Capital Accounts. The Members
Committee shall cause the Capital Accounts of the Members to be
determined and maintained throughout the full term of the Company
in accordance with Section 704(b) of the Code.
VII.4 Bank Accounts. All cash funds and securities of the
Company shall be deposited in money market, checking and savings
accounts, certificates of deposit, bankers' acceptances, treasury
bills or notes, or other Federal government debt securities or
commercial paper, all of which shall be kept in the name of the
Company in such Company custody account or accounts as shall be
authorized by the Members Committee or such officers of the
Company as may be delegated such authority from time to time by
the Members Committee. Company funds shall be used only for the
benefit of the Company and shall not be commingled with the funds
of any other Person.
VII.5 Insurance. The Company shall maintain insurance of
such types and for such amounts as are customary for Persons
conducting businesses similar to that conducted by the Company.
Any insurance maintained by the Company shall name the Members
and Parents as an additional named insureds (and shall identify
the Members' status as Members of the Company) and shall provide
at least thirty (30) days' prior notice of change (other than an
increase in coverage), cancellation or non-renewal to the
Members.
ARTICLE VIII
TRANSFER OF COMPANY INTEREST;
RADIAN OPTION TO SELL; LIENS
VIII.1 Transfer of Company Interest Generally. No Member
may assign, transfer or otherwise dispose of all or any portion
of its Company Interest except in accordance with the terms of
this Article VIII. Any attempt by any Member to assign, transfer
or otherwise dispose of all or any portion of its Company
Interest other than in accordance with this Article VIII shall be
null, void ab initio and of no force and effect.
VIII.2 Transfers of Company Interests. Except as otherwise
consented to in writing by the other Member (which consent may be
granted or withheld in the sole and absolute discretion of any
Member), no Member may sell, transfer or otherwise dispose of
(collectively a "Transfer") all or any portion of its Company
Interest. In addition to such consent, no Member may make such a
Transfer unless (i) such a Transfer is pursuant to a written
agreement pursuant to which the transferee agrees to be bound by
all of the terms of this Agreement as if it were originally a
party to this Agreement, (ii) such a Transfer does not cause a
termination of the Company for Federal income tax purposes and
(iii) such a Transfer complies with applicable Federal and state
securities laws.
VIII.3 Radian Option to Sell. From and including
December 31, 1997 through December 31, 1998, Radian, at its
option, upon written notice of not less than thirty (30) days,
may exercise the sell option set forth in this Section 8.3. If
Radian gives the notice referred to in the preceding sentence,
Radian shall have the right to require DEI to purchase, and the
obligation to sell all, but not less than all, of Radian's
Company Interest at a price equal to $131,327,406 plus (i) the
Earnings Shortfall, (ii) the amount of any then outstanding
Ordinary Loans or Member Loans made by Radian or any of its
Affiliates (plus interest thereon), and (iii) any amounts then
outstanding and owed by the Company to HSB under the loan
agreement dated as of January 1, 1996 between HSB and Radian (the
"Loan Agreement") (it being understood that Radian's rights and
obligations under the Loan Agreement will be assigned at the
Closing to the Company). The "Earnings Shortfall" shall equal
the sum of the Preferred Accounting Earnings for Fiscal Year 1996
and Fiscal Year 1997 minus the sum of 40% of the Accounting
Earnings of the Company (which for purposes of this Agreement
shall never be less than zero) for Fiscal Year 1996 and Fiscal
Year 1997, respectively; provided, however, that the Earnings
Shortfall shall not exceed $5,000,000 in the aggregate. If DEI
and Radian cannot agree upon the Accounting Earnings of the
Company within sixty (60) days after the notice referred to in
the first sentence of this Section 8.3, either DEI or Radian may,
by notice to the other, invoke the Appraisal Procedure. If the
Appraisal Procedure is required to determine the Accounting
Earnings, the fees and expenses of such Appraisal Procedure shall
be shared equally by DEI and Radian. The closing of such sale
shall take place upon the date that is within fifteen (15) days
after the later to occur of (i) the determination of the
Accounting Earnings in accordance with this Section 8.3 and (ii)
compliance with any applicable legal requirements; provided,
however, that if such sale is not in compliance with any
applicable legal requirements, then DEI and Radian shall
equitably adjust the arrangements set forth in this Section 8.3
in light of what is legally possible and in compliance with any
applicable legal requirements in order to effectuate the intent
of the parties. Upon the closing of such sale, DEI shall assume
all obligations under any guarantee provided by Radian or its
Affiliates pursuant to Section 3.5 of this Agreement in a written
agreement mutually acceptable to DEI and Radian, and the
Company's obligations under the Loan Agreement and obligation to
pay Radian any amounts in connection with any Ordinary Loans or
Member Loans shall be cancelled. Notwithstanding any other
provision of this Agreement, DEI may assign any of its rights and
obligations under this Section 8.3 to TDCC or any of TDCC's
Affiliates and Radian may assign any of its rights and
obligations under this Section 8.3 to HSB or any of HSB's
Affiliates.
VIII.4 Liens. No Member may, except with the consent of
the other Member (which consent may be granted or withheld in
such Member's sole discretion), create or permit to exist any
Lien on its Company Interest or any portion thereof (except (i)
Liens for current taxes not delinquent or taxes being contested
in good faith and by appropriate proceedings or (ii) Liens
arising in the ordinary course of business for sums not due or
sums being contested in good faith and by appropriate
proceedings). Any attempt by any Member to create or permit to
exist any Lien (other than the Liens described in the second
parenthetical in the immediately preceding sentence) on its
Company Interest or any portion thereof shall be null, void ab
initio and of no force and effect. Notwithstanding anything to
the contrary contained in this Agreement, if any Person obtains a
Lien on the Company Interest, or portion thereof, of any Member
and forecloses on such Lien, (i) the Company shall continue, (ii)
the Person foreclosing on the Lien shall succeed to the economic
interests of the Company Interest, or portion thereof, upon which
it foreclosed but not the voting or other interests which
comprise such Company Interest, or portion thereof, (iii) the
Person foreclosing on such Lien shall not be admitted as a
"Member" without the approval of the Members Committee and the
consent of the other Members (which consent may be granted or
withheld in the sole and absolute discretion of each such
Member), and (iv) any sale or other disposition of the Company
Interest, or portion thereof, upon which such Person foreclosed
shall be subject to the terms of Article VIII of this Agreement.
ARTICLE IX
DISSOLUTION AND WINDING-UP
IX.1 Dissolution. The Company shall be dissolved upon the
first to occur of the following events (each, a "Dissolution
Event"):
(a) the Bankruptcy of any Member;
(b) the election by the Members to dissolve the Company;
(c) the occurrence of any event that makes it unlawful for
the business of the Company to be carried on or for the Members
to carry it on as a limited liability company;
(d) the entry of a decree of judicial dissolution; or
(e) subject to Sections 9.8 and 9.9, the occurrence of any
other event that, absent an agreement to the contrary, causes a
dissolution of the Company under the Act;
provided that, except as provided in the Contribution Agreement,
if a dissolution of the Company is caused by the Bankruptcy of
any Member (the "Bankrupt Member"), then DEI, if it is not the
Bankrupt Member or Radian, if it is not the Bankrupt Member (in
either case, the "Non-Bankrupt Member") may elect to, upon notice
to the Bankrupt Member, purchase (or have an Affiliate purchase)
all, but not less than all, of the Bankrupt Member's Company
Interest at the Purchase Price. The "Purchase Price" to be paid
to the Bankrupt Member (by the Non-Bankrupt Member) in any sale
and purchase of the Bankrupt Member's Company Interest pursuant
to this Section 9.1 shall be (x) 50% of what the entire Company
could be sold for multiplied by the Bankrupt Member's Company
Interest, determined (unless otherwise agreed) in accordance with
the Appraisal Procedure (which Appraisal Procedure shall be at
the expense of the Bankrupt Member), reduced by (y) the amount of
any actual losses, costs, fees, expenses or damages suffered by
the Company, the Non-Bankrupt Member or any of its Affiliates as
a result of such dissolution, and shall be payable to the
Bankrupt Member in five equal annual installments, without
interest, commencing on the date of the transfer of the Company
Interest of the Bankrupt Member (which shall be the tenth (10th)
business day following the determination of the Purchase Price);
provided, however, that if Radian is the Bankrupt Member and if
DEI elects to purchase (or have an Affiliate purchase) all of
Radian's Company Interest on or prior to December 31, 1998, then
the fair market value of Radian's Company Interest for purposes
of (x) above shall be equal to the amount set forth in
Section 8.3 of this Agreement as if Radian had exercised its
option to sell; provided further, however, that such fair market
value (prior to the adjustment set forth below) shall be
discounted at a rate of 10% per year or portion thereof if such
purchase shall occur prior to December 31, 1997. In any winding
up pursuant to Section 9.2 of this Agreement, the amount
otherwise distributable to the Bankrupt Member pursuant to the
following provisions of this Article IX shall be reduced by the
amount of any actual losses, costs, fees, expenses or damages
suffered by the Company or the Non-Bankrupt Member or any of its
Affiliates as a result of such dissolution. Notwithstanding the
foregoing, if the enforceability of such Non-Bankrupt Member's
right to purchase the Bankrupt Member's Company Interest as set
forth above is in any way limited by general equitable
principles, Bankruptcy, moratorium, or other laws affecting
creditors' rights generally then, upon notice to the Bankrupt
Member and the Company, the Non-Bankrupt Member or any of its
Affiliates shall have the right to purchase from the Company all,
but not less than all, of the assets and liabilities of the
Company at the fair market value therefor. If DEI and Radian
cannot agree upon such fair market value within sixty (60) days
after the notice to purchase all the assets and liabilities of
the Company is delivered, either DEI or Radian may, by notice to
the other, invoke the Appraisal Procedure. If the Appraisal
Procedure is required to determine the fair market value of all
the assets and liabilities of the Company, the fees and expenses
of such Appraisal Procedure shall be borne by the Bankrupt
Member. The closing of such sale shall take place upon the date
that is within thirty (30) days after such fair market value is
determined in accordance with this Section 9.1.
IX.2 Winding-Up. Upon dissolution of the Company, and if
the Non-Bankrupt Member has not made any election pursuant to
Section 9.1, the Member with the largest Company Interest or, if
a dissolution of the Company is caused by the Bankruptcy of any
Member, the Non-Bankrupt Member shall wind up the affairs of the
Company in accordance with the Act and, to the extent permitted
by applicable law, shall settle accounts between the Members as
specified in this Article IX. The Member charged with winding up
the affairs of the Company and settling accounts among the
Members under this Agreement shall be referred to as the
"Liquidating Member".
IX.3 Accounting on Dissolution. If the Company is not
continued in accordance with the terms of this Agreement
following a dissolution, then on the date (the "Accounting Date")
which is four (4) months following the date of dissolution, a
proper accounting shall be made of the Company assets,
liabilities and operations, from the date of the last previous
accounting to the Accounting Date. Any items of income, gain,
credit, loss, expense and other deductions which are realized
subsequent to the date of the last previous accounting to the
Accounting Date shall be allocated in accordance with Article V
and proper adjustments shall be made to the Capital Account of
each Member.
IX.4 Accounting; Allocations of Residual Net Profits and
Residual Net Loss After Dissolutions.
(a) Except as provided in Section 9.4(c), any items of gain
or loss that are realized from Company operations or from sales
of Company assets subsequent to the Accounting Date and before
the date of liquidation shall be allocated as provided in
Article V.
(b) Except as provided in Section 9.4(c) and in addition to
the adjustments to the Member's Capital Accounts described above,
if any of the Company's assets are to be distributed in kind
rather than sold, the fair market value of such assets shall be
determined by the Members and a simulated aggregate gain (if any)
or loss (if any) for those assets (based upon the difference
between such fair market value and the Gross Asset Value of such
assets immediately before such revaluation) shall be allocated to
the Members' Capital Accounts as that simulated aggregate gain
(or loss) would have been allocated under Article V if such
assets had been sold for a cash price equal to each asset's fair
market value on the Accounting Date. If DEI and Radian cannot
agree upon such fair market value within sixty (60) days after
the Accounting Date, either DEI or Radian may, by notice to the
other, invoke the Appraisal Procedure. If the Appraisal
Procedure is required to determine the fair market value of such
assets, the fees and expenses of such Appraisal Procedure shall
be shared equally by DEI and Radian.
(c) Prior to the fourth (4th) anniversary of the Closing,
loss from the sale or deemed sale of assets in conjunction with a
dissolution pursuant to this Agreement shall be specially
allocated 100% to DEI; provided, however, that the Losses
specially allocated pursuant to this Section 9.4(c) shall not
exceed the Stairstep Loss Cap calculated as of the date of the
sale or deemed sale giving rise to the Loss.
IX.5 Conversion of Assets to Cash.
(a) If the Company Interest of the Bankrupt Member is not
purchased in accordance with the terms of this Agreement, then
commencing with the date that is four (4) months after the date
of dissolution, unless arrangements satisfactory to all Members
are otherwise made, sufficient assets of the Company will be
converted into cash to permit the Company to pay all its
liabilities other than long-term debts which (i) are secured by
Company assets from which the projected net income is sufficient
to pay installments of principal and interest on such debts as
they become due and (ii) contain terms specifying that neither
the dissolution of the Company nor the distribution of such
property that is subject to and secured by such debts constitutes
a default or causes the acceleration of the maturity of such
indebtedness ("Approved Debts").
(b) Notwithstanding the provisions of Sections 9.6 and 9.7
regarding the method and timing of the liquidation of the assets
of the Company, but subject to the order of priorities set forth
in this Agreement, if on commencement of the winding up process
in accordance with Section 9.2, the Members determine that an
immediate sale of part or all of the Company's assets would be
impractical or would cause undue loss to the Members, the Members
may defer for a reasonable time the liquidation of any assets
except those necessary to satisfy the liabilities of the Company.
(c) In the event that Company assets are distributed in
kind pursuant to Section 9.4(b), the Members shall be consulted
to determine the most tax-efficient manner to make such
distribution, consistent with the liquidation priorities of
Section 9.6.
IX.6 Distributions in Liquidation. As soon as the actions
required by Sections 9.3, 9.4 and 9.5 have been completed, the
Liquidating Member shall cause the cash and assets of the Company
to be distributed in the following order:
(a) To creditors of the Company (other than Members) in
payment of all liabilities of the Company (other than Approved
Debts) in the order of priority as provided by law. If any
liability is contingent or uncertain in amount, a reserve equal
to the maximum amount to which the Company could reasonably be
held liable will be established. Upon the payment or other
discharge of such liability, the amount remaining in such reserve
not needed, if any, will be distributed in accordance with the
remaining provisions of this Section 9.6.
(b) To the Members in payment of all Member Loans and any
interest thereon in accordance with the amount owing to each
Member.
(c) To the Members in payment of all loans other than
Member Loans (including, without limitation, any Ordinary Loans)
and any interest thereon in accordance with the amount owing to
each Member.
(d) To each Member in accordance with the positive balance
in its Capital Account, as set forth in Section 9.7.
(e) Notwithstanding the foregoing provisions of this
Section 9.6 and the provisions of Article V, any distribution
which would be payable to a Member whose actions in violation of
this Agreement caused the dissolution of the Company shall be
reduced by the amount of losses, costs, fees, expenses and
damages suffered by the Company or any Member or its Affiliates
(other than the Member whose actions caused a dissolution) as a
result of such dissolution, and a corresponding allocation of Net
Losses or gross deductions shall be made to such Member.
IX.7 Compliance with Treasury Regulations. In the event
that the Company or any Member's Company Interest is "liquidated"
within the meaning of Treasury Regulation Section 1.704-
1(b)(2)(ii)(g), liquidating distributions shall be made, pursuant
to this Agreement, in accordance with the Members' positive
Capital Account balances, as required by Treasury Regulation
Section 1.704-1(b)(2)(ii)(b)(2), by the end of the taxable year
or, if later, within ninety (90) days after the date of such
liquidation. In determining any Member's Capital Account balance
pursuant to this Section 9.7, any item of gain, loss, deduction,
and credit that has not previously been allocated pursuant to
Article V shall be so allocated.
IX.8 Section 708 Termination. Notwithstanding any other
provision of this Article IX, in the event that the Company is
liquidated within the meaning of Section 1.704-1(b)(2)(ii)(g) of
the Treasury Regulations, but no Dissolution Event has occurred,
the assets of the Company shall not be liquidated, the Company's
liabilities shall not be paid or discharged, and the Company's
affairs shall not be wound up.
IX.9 Continuation of the Company. Unless required by
applicable law, no sale, transfer, assignment or other
disposition by either Member of all or any part of its Company
Interest in accordance with the terms of this Agreement shall
cause a dissolution of the Company, and, if such a dissolution is
required under applicable law, immediately upon such sale,
transfer, assignment or other disposition by either Member, the
Company shall be reconstituted as a limited liability company,
governed by this Agreement, among the transferee, purchaser or
assignee and the remaining Member or Members; provided, however,
that nothing in this Section 9.9 shall be construed to conflict
with the requirement in Section 9.1(a) of this Agreement that a
Bankruptcy of any Member shall cause the dissolution of the
Company. A Member's rights (i) under the Transaction Documents
and (ii) to be a Member shall terminate upon a Transfer of that
Member's Company Interest (including without limitation a
Transfer pursuant to Sections 8.2, 8.3 or 9.1 of this Agreement).
IX.10 Waiver of Certain Rights. Except as provided in this
Agreement or as otherwise agreed in writing by the Members, to
the extent permitted by Delaware law, each Member hereby waives
(i) all rights it may have under Delaware law to cause the
dissolution of the Company (other than dissolution by operation
of law as a result of a transfer of its Company Interest as
expressly permitted by this Agreement), (ii) to the extent a
dissolution occurs by operation of law, the right to cause the
Company to wind up its affairs and make distributions to the
Members pursuant to Article IX upon the occurrence of such
dissolution and (iii) all rights to partition with respect to
real and personal property, provided that this clause shall not
apply to assets that have previously been distributed by the
Company to the Members.
ARTICLE X
MISCELLANEOUS PROVISIONS
X.1 Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors and assigns; provided that no assignment of any
Company Interest, or portion thereof, shall be effective unless
made in accordance with the terms of this Agreement. The sale,
transfer or assignment of a Company Interest, or portion thereof,
in accordance with the terms of this Agreement shall result in
the transfer to the purchaser, transferee or assignee of a
Company Interest, or portion thereof, that is equal to the sold,
transferred or assigned Company Interest, or the sold, trans-
ferred or assigned portion thereof, of the seller, transferor or
assignor and shall cause the purchaser, transferee or assignee to
be subject to and to incur all obligations pertaining to the
sold, transferred or assigned Company Interest, or the sold,
transferred or assigned portion thereof.
X.2 Notices. All communications, notices and consents
provided for in this Agreement shall be in writing and be given
by delivery (including delivery by courier, overnight delivery
service or facsimile transmittal), with delivery effective on
receipt. Notices shall be addressed as follows:
if to DEI to:
Dow Environmental Inc.
c/o The Dow Chemical Company
2030 Dow Center
Midland, Michigan 48674
Telecopy: (517) 636-0861
Attention: General Counsel
if to Radian at:
Radian Corporation
c/o The Hartford Steam Boiler Inspection
and Insurance Company
One State Street
P.O. Box 5024
Hartford, Connecticut 06102-5024
Telecopy: (203) 722-5710
Attention: General Counsel
or at such other address as either DEI or Radian may from time to
time designate by notice duly given in accordance with the
provisions of this Section.
X.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware
without regard to the conflicts of law rules of such state.
X.4 Choice of Forum. All suits, actions or proceedings
arising out of or relating to this Agreement shall be brought in
a state or federal court located in the State of Delaware, which
courts shall be an appropriate forum for all such suits, actions
or proceedings. Each Member waives any objection which it may
now or hereafter have to the laying of venue in any such court of
any such suit, action or proceeding.
X.5 Consent to Jurisdiction. Each Member irrevocably
submits to the jurisdiction of any state or federal court located
in the State of Delaware in any such suit, action or proceeding
referred to in Section 10.4.
X.6 Waiver of Jury Trial. EACH MEMBER WAIVES ANY RIGHT TO
A TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT AND AGREES THAT ANY SUCH SUIT,
ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE
A JURY.
X.7 Entire Agreement; Amendments. This Agreement
(including the exhibit and schedules to this Agreement) together
with the other Transaction Documents (including any exhibits or
schedules thereto) embody the entire agreement and understanding
between the parties with respect to the subject matter of this
Agreement, and supersede any agreements, representations,
warranties or understandings, oral or written, between the
parties with respect to the subject matter of this Agreement and
the other Transaction Documents entered into prior to the date of
this Agreement. This Agreement may be amended or modified
(including, without limitation, to admit a new member or members,
other than any new member or members admitted to the Company
pursuant to a transfer of the Company Interest (or a portion
thereof) of a Member pursuant to Section 8.2) only by an
instrument in writing executed by all of the Members owning
Company Interests as of the date of such amendment or
modification.
X.8 Execution in Counterparts. This Agreement may be
signed in counterparts. Any single counterpart or set of
counterparts signed, in either case, by all the parties to this
Agreement constitutes a full and original agreement for all
purposes.
X.9 Remedies and Waiver. No failure or delay in exercising
any right under this Agreement shall operate as a waiver of or
impair any such right. No single or partial exercise of any such
right shall preclude any other or further exercise thereof or the
exercise of any other right. Any waiver must be given in writing
to be effective, and no waiver shall be deemed a waiver of any
other right.
X.10 Headings. The headings of Articles and Sections have
been included in this Agreement for convenience only and shall
not constitute a part of this Agreement for any other purpose.
X.11 Third Party Beneficiaries. This Agreement is solely
for the benefit of the parties to this Agreement and the parties
having the right to indemnification pursuant to Section 6.13, and
no provision of this Agreement confers upon third parties (other
than the parties having the right to indemnification pursuant to
Section 6.13) any remedy, claim, liability, reimbursement, claim
of action or other right in excess of those existing without
reference to this Agreement.
X.12 Further Assurances. Each Member agrees to execute and
deliver such other documents, certificates, agreements and other
writings and to take such other actions as may be necessary or
desirable in order to consummate or implement expeditiously the
transactions contemplated by the Transaction Documents and to
vest in the Company good title to the Contributed Assets, subject
only to Permitted Liens.
X.13 Public Announcements. Except as may be required by
applicable law or any listing agreement of any Member or Member's
Affiliates with any national securities exchange, neither the
Company nor any Member nor any Affiliate thereof will issue any
press release or make any public statement with respect to the
business of the Company or its financial performance or condition
without the prior written consent of the Members unless either
(i) a draft of the proposed release has been provided to each
Member at least twenty-four (24) hours prior to its proposed
release in order to permit the Members to comment thereon,
(ii) such press release or other public statement contains
factual information (or discussion or analysis of or comment
based upon such factual information) previously provided in
writing to such Person by the Members Committee, or (iii)
required by law.
X.14 Termination. This Agreement shall terminate if the
Contribution Agreement terminates and the Closing has not
occurred.
IN WITNESS WHEREOF, the parties have signed this Agreement
on the date first written above.
DOW ENVIRONMENTAL INC.
By:/s/ Paul Goldstein
Paul Goldstein
President
RADIAN CORPORATION
By:/s/ Donald M. Carlton
Donald M. Carlton
President and Chief Executive Officer
EXHIBIT A
Schedule of Definitions
"Accounting Date" has the meaning set forth in Section 9.3
of this Agreement.
"Accounting Earnings" means the maximum amount of earnings
before interest expense and taxes on income that the Company is
allowed to report under GAAP.
"Act" means the Delaware Limited Liability Company Act,
Delaware Code Title 6, Sec. 18-101 et seq., or any successor
thereto, as in effect at the time of reference.
"Adjusted Deficit Capital Account" means, with respect to
any Member, the deficit balance, if any, in such Member's Capital
Account as of the end of the taxable year, after giving effect to
the following adjustments:
(i) credit to such Capital Account of any amount which such
Member is obligated to restore or deemed obligated to
restore under Treas. Regs. Sec. 1.704-1(b)(2)(ii)(b)(3)
and 1.704-1(b)(2)(ii)(c), as well as any addition thereto
pursuant to the penultimate sentences of Treas. Regs.
Sec. 1.704-2(g)(1) and (i)(5); and
(ii) debit to such Capital Account of the items described in
Treas. Regs. Sec. 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
This definition of Adjusted Deficit Capital Account is intended
to comply with Treas. Regs. Sec. 1.704-1(b)(2)(ii)(d), and will be
interpreted consistently with those regulations.
"Affiliate" has the meaning set forth in the Contribution
Agreement.
"Agreement" has the meaning set forth in the Preamble to
this Agreement.
"Alternates" has the meaning set forth in Section 6.3 of
the Agreement.
"Appraisal Procedure" means the following: If any price,
value, amount or determination to be determined under the
Agreement cannot timely be established by agreement, then either
DEI or Radian, by written notice to the other, may invoke this
Appraisal Procedure. Each of DEI and Radian shall appoint its
Qualified Expert to conduct an appropriate valuation and shall
give notice of such appointment to the other Member within
fifteen (15) days after delivery of the notice invoking such
procedure. If DEI or Radian does not appoint its Qualified
Expert within such fifteen (15) day period, the valuation made by
the Qualified Expert appointed by the other Member shall be
conclusive and binding on the Members. If within thirty (30)
days after appointment of the Qualified Experts, such Qualified
Experts are unable to agree upon an appropriate valuation but the
higher valuation is not greater than 110% of the lower valuation,
then the valuation which shall be binding on the Members shall be
the average of the two valuations given by the Qualified Experts.
If the higher valuation is greater than 110% of the lower
valuation, the two (2) Qualified Experts jointly shall appoint a
third Qualified Expert within fifteen (15) days thereafter, or,
if they do not do so, either DEI or Radian may request the
American Arbitration Association, or any organization successor
thereto, to appoint the third Qualified Expert. The decision of
the third Qualified Expert shall be given within sixty (60) days
after its appointment, shall be at least equal to the lower
valuation, shall not exceed the higher valuation and shall be
binding on the Members.
"Approved Debts" has the meaning set forth in
Section 9.5(a) of this Agreement.
"Bankrupt" means any Person with respect to which a
Bankruptcy shall have occurred.
"Bankruptcy" shall mean with respect to any Person the
occurrence of either of the following events:
(i) the Person shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of
or taking possession by any such official in an involuntary
case or other proceeding commenced against it, or shall
make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due,
or shall take any corporate action to authorize any of the
foregoing; or
(ii) an involuntary case or other proceeding shall be
commenced against the Person seeking liquidation, reorgani-
zation or other relief with respect to it or its debts
under any bankruptcy, insolvency or other similar law now
or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of sixty (60) days;
or an order for relief shall be entered against the Person
under the federal bankruptcy laws as now or hereafter in
effect.
"Bankrupt Member" has the meaning set forth in Section 9.1
of this Agreement.
"Capital Account" shall mean a separate account maintained
for each Member in accordance with Treas. Reg. 1.704-1(b)(2)(iv)
as follows:
(a) To each Member's Capital Account there shall be credited
such Member's Capital Contributions, such Member's
distributive share of Net Profits and any items in the
nature of income or gain which are specially allocated
pursuant to Section 5.2 of this Agreement, and the amount
of any Company liabilities assumed by such Member or which
are secured by any Property distributed to such Member.
(b) To each Member's Capital Account there shall be debited
the amount of cash and the Gross Asset Value of any
Property distributed to such Member pursuant to any
provision of this Agreement, such Member's distributive
share of Net Losses and any items in the nature of expenses
or losses which are specially allocated pursuant to
Section 5.2 of this Agreement, and the amount of any
liabilities of such Member assumed by the Company or which
are secured by any property contributed by such Member to
the Company.
"Capital Contribution" has the meaning set forth in Article
III of this Agreement.
"Closing" has the meaning set forth in the Contribution
Agreement.
"Closing Date" has the meaning set forth in the
Contribution Agreement.
"Code" means the Internal Revenue Code of 1986, as amended
and the regulations promulgated thereunder.
"Company" has the meaning set forth in the Preamble to this
Agreement.
"Company Interests" has the meaning set forth in
Section 4.1 of this Agreement.
"Contributed Assets" has the meaning set forth in the
Contribution Agreement.
"Contributing Member" has the meaning set forth in
Section 3.6 of this Agreement.
"Contribution Agreement" means that certain Contribution
Agreement dated as of the Closing Date among TDCC, The Hartford
Steam Boiler Inspection and Insurance Co., DEI and Radian.
"Credit Facility" has the meaning set forth in
Section 3.5(b) of this Agreement.
"Debt" shall mean, as to any person, (a) indebtedness of
such Person for borrowed money, (b) indebtedness of such
Person for the deferred purchase price of services or
property (other than normal trade accounts payable),
(c) obligations of such Person under leases which have been, or,
in accordance with generally accepted accounting principles,
should be, recorded as capitalized leases, (d) indebtedness of
such Person consisting of unpaid reimbursement obligations in
respect of all outstanding drawings under letters of credit
issued for the account of such Person and (e) Debt of others
guaranteed by such Person.
"Debt Ratio" means a fraction (i) the numerator of which is
equal to the Debt of the Company and (ii) the denominator of
which is the sum of Debt plus the sum of the current GAAP equity
accounts of each of the Members.
"DEI" has the meaning set forth in the Preamble of this
Agreement.
"DEI Alternate" and "DEI Alternates" have the meanings set
forth in Section 6.3 of this Agreement.
"DEI Representative" and "DEI Representatives" means an
employee or employees of DEI or one or more of its Affiliates
selected by DEI to represent it on the Members Committee.
"Depreciation" means, for each Fiscal Year, an amount equal
to the depreciation, amortization, or other cost recovery
deduction allowable with respect to an asset for such Fiscal
Year, except that if the Gross Asset Value of an asset differs
from its adjusted basis for Federal income tax purposes at the
beginning of such Fiscal Year, Depreciation shall be an amount
which bears the same ratio to such beginning Gross Asset Value as
the Federal income tax depreciation, amortization, or other cost
recovery deduction for such Fiscal Year bears to such beginning
adjusted tax basis; provided, however, that if the adjusted basis
for Federal income tax purposes of an asset at the beginning of
such Fiscal Year is zero, Depreciation shall be determined with
reference to such beginning Gross Asset Value using any
reasonable method selected by the Members Committee.
"Dissolution Event" has the meaning set forth in
Section 9.1 of this Agreement.
"Earnings Shortfall" has the meaning set forth in
Section 8.3 of this Agreement.
"Fiscal Year" has the meaning set forth in Section 7.2 of
this Agreement.
"GAAP" means the generally accepted accounting
principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a
significant segment of the accounting profession in the United
States.
"Gross Asset Value" means, with respect to any asset, the
asset's adjusted basis for Federal income tax purposes, except as
follows:
(i) The initial Gross Asset Value of any asset contributed by
a Member to the Company shall be the fair market value of
such asset at the time it is accepted by the Company,
unreduced by any liability secured by such asset, as
determined by the contributing Member and the
Representatives;
(ii) the acquisition of an additional interest in the
Company by any new or existing Member in exchange for more
than a de minimis Capital Contribution; (b) the
distribution by the Company to a Member of more than a de
minimis amount of Property as consideration for an interest
in the Company; and (c) the liquidation of the Company
within the meaning of Treas. Regs. Sec. 1.704-1(b)(2)(ii)(g).
(iii) The Gross Asset Value of any Company asset
distributed to any Member shall be adjusted to equal the
fair market value of such asset, unreduced by any liability
secured by such asset, on the date of distribution as
determined by the distributee and the Representatives; and
(iv) The Gross Asset Values of Company assets shall be
increased (or decreased) to reflect any adjustments to the
adjusted basis of such assets pursuant to Code Sec. 734(b) or
Code Sec. 743(b), but only to the extent that such adjustments
are taken into account in determining Capital Accounts
pursuant to Treas. Regs. Sec. 1.704-1(b)(2)(iv)(m) and para-
graph (vi) of the definition of "Net Profits" and "Net
Losses" and Section 5.2(g) of this Agreement.
If the Gross Asset Value of an asset has been determined or
adjusted pursuant to paragraphs (i), (ii), or (iv) of this
Agreement, such Gross Asset Value shall thereafter be adjusted by
the Depreciation taken into account with respect to such asset
for purposes of computing Net Profits and Net Losses.
"Lien" means, with respect to any asset, any mortgage,
lien, pledge, charge, security interest, easement, right of way,
title defect or encumbrance of any kind with respect to such
asset.
"Liquidating Member" has the meaning set forth in
Section 9.2 of this Agreement.
"Loan Agreement" has the meaning set forth in Section 8.3
of this Agreement.
"Loss" has the meaning set forth in the Contribution
Agreement.
"Member" has the meaning set forth in the Preamble of this
Agreement.
"Member Loan" has the meaning set forth in Section 3.6 of
this Agreement.
"Members Committee" means the committee of Representatives
described in Article VI of this Agreement.
"Net Cash Flow" shall mean all cash, revenues, and funds
received by the Company, including Capital Contributions, less
the sum of the following to the extent paid or set aside by the
Company:
(i) all principal and interest payments on indebtedness of
the Company and all other sums paid to lenders;
(ii) all cash expenditures incurred incident to the normal
operation of the Company's business; and
(iii) such Reserves as the Representatives deem reasonably
necessary to the proper operation of the Company's
business;
all as determined by the Representatives.
"Net Profits" and "Net Losses" shall mean, for each Fiscal
Year, an amount equal to the Company's taxable income or loss for
such Fiscal Year, determined in accordance with Code Sec. 703(a)
(for this purpose, all items of income, gain, loss, or deduction
required to be stated separately pursuant to Code Sec. 703(a)(1)
shall be included in taxable income or loss), with the following
adjustments:
(i) any income of the Company that is exempt from Federal
income tax and not otherwise taken into account in
computing Net Profits or Net Losses pursuant to this
definition shall be added to such taxable income or loss;
(ii) any expenditures of the Company described in Code
Sec. 705(a)(2)(B) or treated as Code Sec. 705(a)(2)(B) expendi-
tures pursuant to Treas. Regs. Sec. 1.704-1(b)(2)(iv)(i), and
not otherwise taken into account in computing Net Profits
or Net Losses pursuant to this definition shall be
subtracted from such taxable income or loss;
(iii) in the event the Gross Asset Value of any Company asset
is adjusted pursuant to paragraphs (ii) or (iii) of the
definition of "Gross Asset Value," the amount of such
adjustment shall be taken into account as gain or loss from
the disposition of such asset for purposes of computing Net
Profits or Net Losses;
(iv) gain or loss resulting from any disposition of Property
with respect to which gain or loss is recognized for
Federal income tax purposes shall be computed by reference
to the Gross Asset Value of the property disposed of,
notwithstanding that the adjusted tax basis of such
property differs from its Gross Asset Value;
(v) in lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such
taxable income or loss there shall be taken into account
Depreciation for such Fiscal Year, computed in accordance
with the definition of Depreciation above;
(vi) to the extent an adjustment to the adjusted tax basis of
any Company asset pursuant to Code Sec. 734(b) or Code
Sec. 743(b) is required pursuant to Treas. Regs.
Sec. 1.704-1(b)(2)(iv)(m)(4) to be taken into account in
determining Capital Accounts as a result of a distribution
other than in complete liquidation of a Member's Interest,
the amount of such adjustment shall be treated as an item
of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases the basis of
the asset) from the disposition of the asset and shall be
taken into account for purposes of computing Net Profits or
Net Losses; and
(vii) notwithstanding any other provision of this definition,
any items which are specially allocated pursuant to Section
5.2 of this Agreement shall not be taken into account in
computing Net Profits or Net Losses.
The amounts of items of Company income, gain, loss or
deduction available to be specially allocated pursuant to
Section 5.2 of this Agreement shall be determined by applying
rules analogous to those set forth in paragraphs (i) through (vi)
above.
"Newco Services Business" has the meaning set forth in the
Contribution Agreement.
"Non-Bankrupt Member" has the meaning set forth in
Section 9.1 of this Agreement.
"Non-Contributing Member" has the meaning set forth in
Section 3.6 of this Agreement.
"Non-Contributing Member's Share" has the meaning set forth
in Section 3.6 of this Agreement.
"Nonrecourse Deductions" has the meaning set forth in
Treas. Regs. Sec. 1.704-2(b)(1).
"Nonrecourse Liability" has the meaning set forth in Treas.
Regs. Sec. 1.704-2(b)(3).
"Ordinary Loans" has the meaning set forth in
Section 3.5(d) of this Agreement.
"Parent" shall mean with respect to DEI, TDCC, and with
respect to Radian, The Hartford Steam Boiler Inspection and
Insurance Company.
"Partner Nonrecourse Debt" has the meaning set forth in
Treas. Regs. Sec. 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" means an amount,
with respect to each Partner Nonrecourse Debt, equal to the
Partnership Minimum Gain that would result if such Partner
Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Treas. Regs. Sec. 1.704-2(i)(3).
"Partner Nonrecourse Deductions" has the meaning set forth
in Treas. Regs. Sec. 1.704-2(i)(1) and 1.704-2(i)(2).
"Partnership Minimum Gain" has the meaning set forth in
Treas. Regs. Sec. 1.704-2(b)(2) and 1.704-2(d).
"Permitted Liens" has the meaning set forth in the
Contribution Agreement.
"Person" has the meaning set forth in the Contribution
Agreement.
"Preferred Accounting Earnings" shall mean Accounting
Earnings equal to $19 million for Fiscal Year 1996 and $21
million for Fiscal Year 1997.
"Prime Rate" means the rate publicly announced from time to
time by Citibank, N.A. in New York City as its prime rate.
"Property" means all real and personal property contributed
to or acquired by the Company and any improvements thereto, and
shall include both tangible and intangible property.
"Purchase Price" has the meaning set forth in Section 9.1
of this Agreement.
"Qualified Expert" means either (i) an investment banking
firm or (ii) an independent accounting firm, in either case, of
national and international reputation.
"Radian" has the meaning set forth in the Preamble to this
Agreement.
"Radian Alternate" and "Radian Alternates" have the
meanings set forth in Section 6.3 of this Agreement.
"Radian Representative" and "Radian Representatives" means
an employee or employees of Radian or one or more of its
Affiliates selected by Radian to represent it on the Members
Committee.
"Regulatory Allocations" has the meaning set forth in
Section 5.2(h) of this Agreement.
"Representatives" means each of the Representatives of the
Company designated from time to time by the Members in accordance
with Section 6.3 of this Agreement. As used in this Agreement
and for purposes of the Act, the term Representative shall have
the same meaning and have such rights, powers and authorities of
a "manager" as provided in the Act and as otherwise provided by
law.
"Restricted Asset" has the meaning set forth in the
Contribution Agreement.
"Stairstep Loss Cap" means an amount equal to $200,000,000
less the product of (i) the number of days that have elapsed
since the Closing Date and (ii) $136,986.30; provided, however,
that such Stairstep Loss Cap shall never be less then zero.
"Subsidiary" or "Subsidiaries" has the meaning set forth in
the Contribution Agreement.
"Tax Matters Partner" has the meaning set forth in
Section 6.14 of this Agreement.
"TDCC" has the meaning set forth in Section 2.2 of this
Agreement.
"Transaction Documents" has the meaning set forth in the
Contribution Agreement.
"Transfer" has the meaning set forth in Section 8.2 of this
Agreement.
"Treasury Regulations" or "Treas. Regs." includes temporary
and final regulations promulgated under the Code in effect on the
date of this Agreement and the corresponding sections of any
regulations subsequently issued that amend or supersede those
regulations.
<PAGE>
Limited Liability Company Agreement
Schedule 6.1
Initial Officers and Duties
Designation. The officers of the Company shall be chosen
by the Members Committee and shall be a President, a Secretary
and a Treasurer. The Members Committee also may choose such
other officers or agents as from time to time may appear
necessary or advisable in the conduct of the business and affairs
of the Company. Any number of offices may be held by the same
person, unless otherwise prohibited by law or the Limited
Liability Company Agreement. The Members Committee also may
delegate to any other officer of the Company the power to choose
such other officers and to prescribe their respective duties and
powers.
Election and Term. The Members Committee shall elect the
officers of the Company at its first regular meeting during each
Fiscal Year. The officers so elected shall exercise such powers
and perform such duties as shall be determined from time to time
by the Members Committee; and all officers of the Company shall
hold office until their successors are elected by the Members
Committee, or until their earlier resignation or removal.
Resignation. Any officer may resign at any time by giving
written notice to the President or the Secretary of the Company.
Unless otherwise stated in such notice of resignation, the
acceptance thereof shall not be necessary to make it effective;
and such resignation shall take effect at the time specified
therein or, in the absence of such specification, it shall take
effect upon the receipt of the notice of resignation.
Removal. Except where otherwise expressly provided in a
contract authorized by the Members Committee, any officer elected
by the Members Committee may be removed at any time with or
without cause by the affirmative vote of a majority of the entire
Members Committee.
Vacancies. A vacancy in any office may be filled for the
unexpired portion of the term by the Members Committee.
Chair of the Members Committee. The Chair of the Members
Committee, shall preside at all meetings of the Representatives
of the Members Committee. The Chair of the Members Committee
also shall perform such other duties and may exercise such other
powers as may be assigned from time to time by the Members
Committee.
President. The President shall be the chief executive
officer of the Company, and, subject to the control of the
Members Committee, shall be in general and active charge of the
business and affairs of the Company. The President shall have
power to sign certificates of stock, contracts and instruments of
conveyance, checks, drafts, notes, orders for the payment of
money, authorized bonds, and similar obligations. In the absence
or disability of the Chair of the Members Committee, or if the
Members Committee does not appoint one, the President shall
preside at all meetings of the Members and of the Members
Committee. The President shall perform such other duties as may
be assigned from time to time by the Members Committee.
Vice Presidents. Each Senior Vice President or Vice
President, if there be any, shall have such powers and perform
such duties as may be assigned by the President or the Members
Committee.
Secretary. The Secretary shall keep the minutes and give
notices of all meetings of the Members Committee and such
committees as directed by the Members Committee. The Secretary
shall have charge of such books and papers as the Members
Committee may require. The Secretary is authorized to certify
copies of extracts from minutes and of documents in the
Secretary's charge, and anyone may rely on such certified copies
to the same effect as if such copies were originals and may rely
upon any statement of fact concerning the Company certified by
the Secretary. The Secretary shall perform all acts incident to
the office of Secretary, subject to the control of the Members
Committee.
Treasurer. The Treasurer shall have the custody of the
Company funds and securities, shall keep full and accurate
accounts of receipts and disbursements in books belonging to the
Company and shall deposit all moneys and other valuable effects
in the name and to the credit of the Company in such depositories
as may be designated by the Members Committee. The Treasurer
shall disburse the funds of the Company as may be ordered by the
Members Committee, taking proper vouchers for such disbursements,
and shall render to the President and the Members Committee, at
its regular meetings, or when the Members Committee so requires,
an account of all transactions taken as Treasurer and of the
financial condition of the Company. If required by the Members
Committee, the Treasurer shall give the Company a bond in such
sum and with such surety or sureties as shall be satisfactory to
the Members Committee for the faithful performance of the duties
of the office of Treasurer and for the restoration to the
Company, in case of the Treasurer's death, resignation,
retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in the
possession or under the control of the Treasurer and belonging to
the Company.
Other Officers. Such other officers as the Members
Committee may choose shall perform such duties and have such
powers as from time to time may be assigned to them by the
Members Committee. The Members Committee may delegate to any
other officers of the Company the power to choose such other
officers and to prescribe their respective duties and powers.
Compensation of Officers. The officers of the Company
shall receive such compensation for their services as the Members
Committee from time to time may determine.
<PAGE>
Limited Liability Company Agreement
Schedule 6.10(a)(v)
Accounting Policies and Procedures
The current GAAP accounting policies and procedures
followed by Radian Corporation, which are hereby adopted by
the Company, to the extent that those policies and
procedures do not substantially conflict with The Dow
Chemical Company Accounting Manual (2 volumes).
See: The Dow Chemical Company Accounting Manual (2 volumes)
