<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 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) June 21, 1999
GENERAL DYNAMICS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 1-3671 13-1673581
-------- ------ ----------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3190 Fairview Park Drive, Falls Church, Virginia 22042-4523
------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(703) 876-3000
--------------
Registrant's telephone number, including area code
</TABLE>
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<PAGE> 2
Item 2. Acquisition or Disposition of Assets
On June 21, 1999, General Dynamics Corporation entered into a
definitive agreement to acquire GTE Government Systems Corporation, a
subsidiary of GTE Corporation, for $1.05 billion in cash. GTE Government
Systems is a leader in the advancement of command, control, communications and
intelligence systems; electronic defense systems; communication switching; and
information systems for defense, government and industry in the United States
and abroad. The acquisition will not include certain GTE Government Systems
business units, including its Information Systems Division, which will be
retained by GTE Corporation. The business being acquired has approximately
6,200 employees at locations in Massachusetts and California. The acquisition
will be accounted for under the purchase method of accounting.
The purchase consideration of $1.05 billion in cash was established by
negotiation. General Dynamics expects to use available funds and finance a
portion of the purchase consideration.
The assets acquired include, among other things, machinery, equipment
and other physical property the primary use of which relates to the design of
communication and intelligence systems. It is the present intent of General
Dynamics to continue to devote the assets to such purposes.
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired.
GTE Government Systems Corporation
Audited Combined Financial Statements as of December 31, 1998
Together With Auditors' Report
Unaudited Combined Financial Statements as of March 31, 1999
(b) Pro forma financial information.
Unaudited Pro Forma Combined Financial Statements
Notes to Unaudited Pro Forma Combined Financial Statements
(c ) Exhibits.
Exhibit 10.42 - Stock Purchase Agreement (without Schedules and
Exhibits) dated as of June 21, 1999 between General Dynamics, Contel
Federal Systems, Inc. and GTE Corporation.
Exhibit 23 - Consent of Arthur Andersen LLP
Exhibit 99 - Press Release dated as of June 22, 1999, "General Dynamics
to Acquire Three Units of GTE Government Systems for $1.05 Billion"
-2-
<PAGE> 3
SIGNATURE
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.
GENERAL DYNAMICS CORPORATION
by /s/ John W. Schwartz
-------------------------------
John W. Schwartz
Vice President and Controller
(Authorized Officer and Chief Accounting Officer)
Dated: June 24, 1999
-3-
<PAGE> 4
Item 7(a).
GTE GOVERNMENT SYSTEMS CORPORATION
COMBINED FINANCIAL STATEMENTS
AS OF December 31, 1998
TOGETHER WITH AUDITORS' REPORT
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To GTE Government Systems Corporation:
We have audited the accompanying combined balance sheet of the companies
identified in Note 1 (collectively, GTE Government Systems Corporation) as of
December 31, 1998, and the related combined statements of income, shareholder's
equity, cash flows and comprehensive income for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GTE Government Systems
Corporation as of December 31, 1998 and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
- -------------------------
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 26, 1999
1
<PAGE> 6
GTE GOVERNMENT SYSTEMS CORPORATION
COMBINED BALANCE SHEET
DECEMBER 31, 1998
(Dollars in 000's)
<TABLE>
<CAPTION>
ASSETS 1998
------ ----
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 11,373
Receivables, less allowance of $4,669 393,481
Due from GTE and affiliates 15,425
Inventories 56,918
Deferred income taxes 24,355
Other 3,821
----------
Total current assets 505,373
PROPERTY, PLANT AND EQUIPMENT, net 124,419
DEFERRED INCOME TAXES 85,491
OTHER ASSETS, net 11,282
----------
Total assets $ 726,565
==========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable and current maturities of long-term debt $ 3,438
Accounts and drafts payable 53,831
Accrued payroll and benefits 51,644
Advance billings 113,682
Income taxes payable 33,899
Accrued dividends payable to GTE 13,035
Other current liabilities 79,667
----------
Total current liabilities 349,196
LONG-TERM DEBT, less current maturities 497
EMPLOYEE BENEFIT PLAN OBLIGATIONS 225,122
OTHER NON-CURRENT LIABILITIES 360
MINORITY INTEREST 1,864
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDER'S EQUITY:
Common stock $1.00 par value;
1,000 shares authorized, issued and outstanding 1
Additional paid-in capital 137,741
Retained earnings 13,787
Cumulative translation adjustment (2,003)
----------
Total shareholder's equity 149,526
----------
Total liabilities and shareholder's equity $ 726,565
=========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
2
<PAGE> 7
GTE GOVERNMENT SYSTEMS CORPORATION
COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(Dollars in 000's)
<TABLE>
<CAPTION>
1998
----------
<S> <C>
REVENUE:
Affiliate $ 57,366
Non-affiliate 1,306,262
----------
Total revenue 1,363,628
OPERATING COSTS AND EXPENSES:
Cost of sales (exclusive of depreciation and amortization) 1,052,783
Research and development 24,157
Selling, general and administrative 157,940
Loss on sale of assets 1,692
Depreciation and amortization 33,016
----------
Total operating costs and expenses 1,269,588
OPERATING INCOME 94,040
INTEREST (INCOME) EXPENSE:
Interest expense 4,621
Interest income (2,921)
----------
INCOME BEFORE MINORITY INTEREST AND
PROVISION FOR INCOME TAXES 92,340
MINORITY INTEREST 976
----------
INCOME BEFORE PROVISION FOR INCOME TAXES 91,364
PROVISION FOR INCOME TAXES 36,977
----------
NET INCOME $ 54,387
==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
3
<PAGE> 8
GTE GOVERNMENT SYSTEMS CORPORATION
COMBINED STATEMENT OF SHAREHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
(Dollars in 000's)
<TABLE>
<CAPTION>
(Accumulated
Additional Deficit) / Cumulative
Common Paid-In Retained Translation
Stock Capital Earnings Adjustment Total
----- ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 $ 1 $ 137,741 $ (10,900) $ (2,355) $ 124,487
Net income - - 54,387 - 54,387
Dividends - - (29,700) - (29,700)
Effect of cumulative
translation adjustment - - - 352 352
---------- ---------- ---------- ------------ ----------
BALANCE, December 31, 1998 $ 1 $ 137,741 $ 13,787 $ (2,003) $ 149,526
========== ========== ========== ============= ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
4
<PAGE> 9
GTE GOVERNMENT SYSTEMS CORPORATION
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(Dollars in 000's)
<TABLE>
<CAPTION>
1998
--------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 54,387
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 33,016
Minority interest 976
Deferred income taxes (4,629)
Loss on sale of assets, net 1,692
Changes in assets and liabilities-
Receivables, net (18,996)
Due to/from affiliate (3,714)
Inventories (5,545)
Other current assets 3,708
Accounts and drafts payable 6,635
Accrued payroll and benefits 2,221
Advance billings 14,223
Income taxes payable 16,470
Other current liabilities (2,907)
Employee benefit plan obligations 258
Other non-current liabilities 358
---------
Net cash provided by operating activities 98,153
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (28,346)
Increase in other assets (3,126)
Proceeds from sale of property, plant and equipment 803
Proceeds from sale of assets (Note 11) 7,812
---------
Net cash used in investing activities (22,857)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in due to/from GTE (43,844)
Principal payments under debt agreements (4,714)
Dividends paid (29,316)
---------
Net cash used in financing activities (77,874)
---------
Effect of exchange rate changes on cash 352
---------
DECREASE IN CASH AND CASH EQUIVALENTS (2,226)
CASH AND CASH EQUIVALENTS, beginning of year 13,599
---------
CASH AND CASH EQUIVALENTS, end of year $ 11,373
=========
CASH PAID DURING THE YEAR FOR:
Interest $ 4,316
=======
Income taxes $ 29,290
========
SUPPLEMENTARY DISCLOSURE OF NON-CASH ACTIVITIES:
Capital lease obligations incurred $ 530
=====
Change in accrued dividends $ 384
=====
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
5
<PAGE> 10
GTE GOVERNMENT SYSTEMS CORPORATION
COMBINED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(Dollars in 000's)
<TABLE>
<S> <C>
Net income $54,387
Other comprehensive income, net of tax
Foreign currency translation adjustments 210
--------
Comprehensive income $ 54,597
========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
6
<PAGE> 11
GTE GOVERNMENT SYSTEMS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(Dollars in 000's)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations
GTE Government Systems Corporation (GSC), was incorporated in Delaware in 1982
and is a wholly owned subsidiary of Contel Federal Systems Corporation (CFSC),
which in turn is a wholly owned subsidiary of GTE Corporation (GTE).
Headquartered in Needham Heights, Massachusetts, GSC provides communications and
information solutions and services. GSC is a major integrator of complex
communications and information systems and is a leading developer of military
systems and related software. GSC's primary customers are the U.S. Department of
Defense (DoD), U.S. Federal Government civilian agencies and select foreign
governments.
During the first quarter of 1999, GTE publicly announced a decision to sell GTE
Government Systems Corporation. The sale is expected to close in 1999.
Principles of Combination
The accompanying combined financial statements reflect the financial position
and results of operations of GTE Government Systems Corporation on a combined
basis. All material intercompany balances and transactions have been eliminated.
For purposes of these financial statements GTE Government Systems Corporation or
the Company mean the combined accounts of:
- - GTE Government Systems Corporation and its subsidiaries (100% owned unless
noted):
- GTE Government Systems Overseas Corporation
- GTE Overseas Systems and Services Corporation
- GTE Federal Services Corporation
- Page Europa, S.p.A.
- Contel Page International Holdings, Inc.
- Contel Page International, Inc.
- GTE Interactive Corporation
- GTE Internet Services of Egypt
- DELCOM, Inc. (25% non-voting ownership)
- - GTE Telecom Saudi Arabia LTD (51% ownership)
- - Activities related to certain international contracts owned by other GTE
affiliates.
The financial statements exclude GTE Cybertrust Solutions Incorporated, a wholly
owned subsidiary of GTE Government Systems Corporation, which will be retained
by GTE.
7
<PAGE> 12
Revenue Recognition and Unbilled Receivables
The Company provides services under fixed-price, cost-reimbursement, time and
material, and level of effort contracts. Revenues are generally recognized using
the percentage-of-completion method as costs are incurred, and include
applicable fees in the proportion that costs incurred bear to total estimated
costs. Changes in contract fee rates result in cumulative fee adjustments booked
to current period income. Award fees under cost-reimbursement contracts are
generally recognized upon receipt of contract modification incorporating the
award. When a loss is indicated on any contract in process, provision for the
estimated loss is charged to income currently, as measured by comparing
projected revenues against projected costs prior to the absorption of general
and administrative (G&A) expenses.
Accrued revenues in excess of billings are reported as unbilled receivables.
Such amounts usually become billable upon completion of a specific phase of the
contract, negotiation of contract modifications, completion of government audit
or upon acceptance by the customer. The Company's unbilled receivables are
generally expected to be billed and collected within one year. Costs related to
certain contracts, including applicable indirect costs, are subject to audit by
the U.S. Government. Price adjustment reserves are established for flexibly
priced contracts to recognize the estimated difference between overhead and G&A
rates used to record sales and the expected recoverable rates after negotiation
with the government. Billings in excess of accrued revenues are reported as
Advance Billings.
The Company generally requires that funded contract value be awarded in order to
accrue revenue and margin. Amounts related to claims are included in revenues
only when they can be reliably estimated and realization is probable.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions,
including estimates of anticipated contract costs and revenues utilized in the
earnings recognition process, that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries are translated in
accordance with Statement of Financial Accounting Standards (SFAS) No. 52,
"Foreign Currency Translation." The foreign subsidiaries' functional currency is
the subsidiary's local currency. Accordingly, the Company's foreign subsidiaries
translate monetary assets and liabilities at year-end exchange rates while
non-monetary items are translated at historical rates. Income and expense
accounts are translated at the average rates in effect during the year. The
effects of exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are included in the cumulative translation
adjustment. Net realized gains and losses resulting from foreign currency
remeasurement and transaction gains and losses are included in the combined
statement of income.
Income Taxes
The Company accounts for income taxes using the liability method as set forth in
SFAS No. 109, "Accounting for Income Taxes." Under this method deferred taxes
and liabilities are established for the temporary differences between the
accounting bases and tax bases of the Company's assets and liabilities. Deferred
taxes are measured using enacted tax rates. Provisions for income taxes
recognize the tax effect of all revenue and expense transactions as well as any
changes during the period in deferred tax assets and liabilities. The effects of
changes in tax rates and laws on deferred tax assets and liabilities are
reflected in net income in the period in which such changes are enacted.
The Company's results are included in GTE's consolidated federal income tax
return and certain state income tax returns. As a result, the Company
participates in a tax sharing agreement with GTE and records and remits certain
tax payments to GTE based on its tax liability on a separate company basis.
8
<PAGE> 13
Cash and Cash Equivalents
Cash and cash equivalents include investments in short-term, highly liquid
securities, which have maturities when purchased of three months or less. The
Company classifies drafts outstanding in Accounts and Drafts Payable. At
December 31, 1998, there was $13,356 of drafts outstanding.
At December 31,1998, $5,468 of cash and cash equivalents were held by GTE
Telecom Saudi Arabia Limited. In addition, the Company has $3,337 invested in
certificates of deposits in banks located in the Cayman Islands which may be
subject to U.S. taxation when repatriated.
Financial Instruments
The fair value of the Company's financial instruments, including debt, accounts
payable and receivables, closely approximate their carrying value.
Inventories
Inventories consist primarily of common production builds, contract work
completed in advance of customer funding, and procurements in advance of
customer requirements designed to achieve pricing breaks and/or to maintain
anticipated delivery schedules. Common production builds are distributed to
benefiting contracts based on average cost. Most other inventory is tracked
based on actual cost. Inventories are stated at the lower of cost or net
realizable value.
Property, Plant and Equipment
Property, plant and equipment (PP&E) is stated at original cost. Assets lives
and depreciation methods are generally as follows:
<TABLE>
<S> <C> <C>
Data processing equipment 6 years Double declining balance
Machinery and equipment 3-20 years Double declining balance
Buildings and improvements 20-50 years Straight line or 150% declining balance
Furniture and fixtures 7-15 years Double declining balance
Leasehold improvements Life of lease
or economic life Straight line
Long-life spare parts 7 years Straight line
Property under capital leases Life of lease Double declining balance
</TABLE>
Revenue assets are purchased for specific contracts and depreciated as direct
contract charges on a straight-line basis over the contract term.
Betterments, renewals and extraordinary repairs that extend the life of the
asset are capitalized; other repairs and maintenance are expensed. The cost and
accumulated depreciation applicable to assets retired are removed from the
accounts and the gain or loss in disposition, if any, is recognized in income.
Other Assets
Other assets consist primarily of goodwill and capitalized software development
costs.
Goodwill at December 31, 1998 reflects the costs in excess of fair value of the
net assets of a company acquired in a purchase transaction, and is being
amortized over 20 years.
Software development costs for new software and for enhancements to existing
software are expensed as incurred prior to the establishment of technological
feasibility and subsequent to general release of the product. Software
development costs, after technological feasibility, have been capitalized and
are being amortized on a straight-line basis over the estimated life of the
products or 3 years, whichever is less.
9
<PAGE> 14
Impairment of Long-lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. If the sum of the expected non-discounted cash flows is less
than the carrying amount of the assets, the Company would recognize an
impairment loss. Based on its review, the Company does not believe that any
material impairment of its long-lived assets has occurred as of December 31,
1998.
Recent Accounting Pronouncements
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement establishes standards for the reporting
and display of comprehensive income and its components (revenues, expenses,
gains and losses) in the financial statements. Comprehensive income includes all
non-owner related changes in a company's equity including, among other things,
foreign currency translation adjustments.
In March 1998 the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1, effective January 1,
1999, defines internal-use software and requires that the cost of such software
be expensed as incurred until certain capitalization criteria are met. External
direct costs of materials and services consumed in developing or obtaining
internal-use computer software, and payroll and payroll-related costs for
employees who are directly associated with and who devote time to the
internal-use computer software project (to the extent of the time spent directly
on the project) are capitalized. The Company has elected to expense in-house
developed internal-use software with a cost below $500, and purchased software
with a cost below $200. Generally, training costs and data conversion costs are
expensed as incurred. Prior to the effective date of SOP 98-1, the Company's
practice has generally been to expense internal-use software.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires all costs associated with pre-opening,
pre-operating and organization activities to be expensed as incurred. The
Company will adopt SOP 98-5 beginning January 1, 1999. The Company believes that
adoption of SOP 98-5 will not have a material impact on the Company's financial
statements or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. A company may also implement the statement as of
the beginning of any fiscal quarter after issuance (that is, fiscal quarters
beginning June 16, 1998 and thereafter). SFAS No. 133 cannot be applied
retroactively. SFAS No. 133 must be applied to (a) derivative instruments and
(b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired or substantially modified after December 31, 1997 (and, at the
Company's election, before January 1, 1998). The Company does not expect that
the adoption of this statement will have a material impact on the Company's
financial position or results of operations.
Minority Interest
Minority interest at December 31, 1998 relates to GTE Telecom Saudi Arabia LTD
(51% GTE ownership).
10
<PAGE> 15
Transactions With Parent and Affiliates
The Company is billed by GTE for certain management, research and development,
accounting, treasury, human resource and brand name advertising services. These
charges amounted to $20,321 for the year ended December 31, 1998. The amounts
charged for these transactions are based on a beneficiary analysis performed by
GTE with expenses prorated and invoiced accordingly. GTE provides financing,
investment and cash management services for the Company. The Company had a net
receivable from GTE of $9,185 as of December 31, 1998, which earned interest at
a rate of 5.7%. Net interest expense on intercompany borrowings amounted to
$2,129 in 1998.
The Company performs significant services under contract for other GTE
affiliates. Revenues under these contracts were $57,366 for the year ended
December 31, 1998. The Company had a net receivable from affiliates of $6,240 at
December 31, 1998.
2. RECEIVABLES:
Receivables as of December 31, 1998, consisted of the following:
Trade receivables $ 194,036
Unbilled receivables 198,578
Employee and other receivables 5,536
Allowance for doubtful accounts (4,669)
---------
Receivables, net $ 393,481
=========
The Company classifies in other current liabilities price adjustment reserves
which are established for flexibly priced contracts to recognize the estimated
difference between overhead and G&A rates used to record sales and the expected
recoverable rates after negotiation with the government (See Note 7).
3. INVENTORIES:
As of December 31, 1998, inventories consisted of the following:
Raw material $ 1,438
Work in process 55,334
Finished goods 146
---------
Total inventories $ 56,918
========
11
<PAGE> 16
4. PROPERTY, PLANT AND EQUIPMENT:
As of December 31, 1998, property, plant and equipment consisted of the
following:
<TABLE>
<S> <C>
Land $ 3,588
Data processing equipment 118,951
Machinery and equipment 84,780
Furniture and fixtures 40,128
Buildings and improvements 117,612
Revenue assets 56,401
Long-life spare parts 7,572
Property under capital leases 3,707
Construction in process 7,875
---------
Property, plant and equipment, at cost 440,614
Accumulated depreciation (316,195)
---------
Property, plant and equipment, net $ 124,419
=========
</TABLE>
Depreciation expense in 1998 was $29,916, including $461 for property under
capital leases.
5. OTHER ASSETS:
As of December 31, 1998, other assets consisted of the following:
<TABLE>
<S> <C>
Goodwill $ 16,074
Capitalized software 4,891
Other 1,340
---------
Other assets, at cost 22,305
Accumulated amortization (11,023)
---------
Other assets, net $ 11,282
=========
</TABLE>
Goodwill amortization expense was $656 in 1998. Capitalized software
amortization expense was $2,444 in 1998, including $1,815 related to Network
Management Organization which was sold in November 1998 (See Note 11).
6. DEBT:
As of December 31, 1998, debt consisted of the following:
<TABLE>
<S> <C>
Notes payable $ 2,718
Capital lease agreements (see Note 10)
Due to affiliates 261
Due to nonaffiliates 956
--------
3,935
Less notes payable and current maturities 3,438
--------
$ 497
=========
</TABLE>
The Company's subsidiary, Page Europa S.p.A., has various line of credit
agreements with banks which allow for borrowings of up to $35,000. Interest is
payable quarterly. Borrowings under these lines of credit bear interest at a
weighted average rate of 5.47% at December 31, 1998 and generally expire on
December 31, 1999. At December 31, 1998 $2,718 was outstanding under these line
of credit agreements. As of December 31, 1998 Page Europa, S.p.A. is in
compliance with all debt covenants.
12
<PAGE> 17
7. OTHER CURRENT LIABILITIES:
As of December 31, 1998, other current liabilities consisted of the following:
<TABLE>
<S> <C>
Accrued expenses $ 39,079
Price adjustment reserves 27,658
Warranty accruals 11,285
Contract loss provisions 1,645
--------
Total $ 79,667
========
</TABLE>
Included in accrued expenses are accrued contract costs of $15,364 related to
the Company's obligation to ensure the commercial availability of certain spare
parts under a contract that extends through the year 2008.
Price adjustment reserves are established for flexibly priced contracts to
recognize the estimated difference between overhead and G&A rates used to record
sales and the expected recoverable rates after negotiation with the government.
The reserve considers management's estimate of overhead rate and G&A differences
as well as the effect of open audit questions, non-compliance assertions, and
the impact of negotiated settlements which have not been applied at the
individual contract level.
Warranty accruals are established for contract warranty provisions.
Contract loss provisions are established for the projected marginal losses on
contracts, as measured by comparing projected revenues against projected costs
prior to the absorption of G&A expense.
8. EMPLOYEE BENEFIT PLAN OBLIGATIONS:
As of December 31, 1998, the employee benefit plan liabilities consisted of the
following:
<TABLE>
<S> <C>
Postretirement health and life insurance $ 182,595
Other employee benefit plan obligations 48,244
--------
230,839
Less current postretirement health and
life insurance liabilities (5,717)
--------
Total long-term employee benefit plan liabilities $ 225,122
========
</TABLE>
Incentive Compensation Plans
GTE sponsors several incentive compensation plans to provide awards to its
officers and employees as well as the officers and employees of its
subsidiaries. To be entitled to an annual award, a participant in the plans must
be an employee of GTE or an affiliate at the end of the plan year. Awards under
the plans may be granted in either cash or stock or a combination at the
discretion of the Compensation Committee of the Board of Directors of GTE. The
Company records a fixed incentive compensation expense based on an amount
provided from GTE Service Corporation which is determined based on the
participants' salaries. The Company records an additional estimate of a
discretionary performance based award. Under one of the plans, a participant may
elect to be paid for their award or defer it until a later date. During 1998,
the Company recorded $7,972 of compensation expense under these plans.
13
<PAGE> 18
Stock Option Plans
GTE maintains broad-based stock option plans that cover substantially all
employees. The Company participates in these plans. Prior to 1997, options were
granted separately or in conjunction with stock appreciation rights (SARs). In
1997 the GTE long-term incentive plan (the LTIP) was approved. Each option
granted under the LTIP conveys the right to purchase at fair market value on the
date of grant, shares of GTE common stock. GTE has historically hedged the
potential appreciation related to the SARs and as a result, GTE incurred no net
compensation expense in 1998. Accordingly, no amounts have been allocated to the
Company relative to the SARs.
Savings Plans
The Company participates in the employee savings plans sponsored by GTE under
Section 401(k) of the Internal Revenue Code. The plans cover substantially all
full-time employees. Under the plans, GTE provides matching contributions in GTE
common stock based on qualified employee contributions. Matching contributions
charged to expense by the Company during 1998 were $13,153.
Retirement Plans
The Company participates in noncontributory defined benefit pension plans
sponsored by GTE covering substantially all employees. The benefits to be paid
under these plans are generally based on years of credited service and average
final earnings. GTE's funding policy, subject to the minimum funding
requirements of employee benefit and tax laws, is to contribute such amounts as
are determined on an actuarial basis to accumulate funds sufficient to meet the
plans' benefit obligation to employees upon their retirement. The assets of the
plans consist primarily of corporate equities, government securities, and
corporate debt securities.
The structure of GTE's benefits plans does not provide for the determination of
certain disclosures required by SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." However, the significant
weighted-average assumptions used by GTE for the pension measurements were as
follows at December 31, 1998:
Discount rate 7.00%
Rate of compensation increase 4.75%
Expected return on plan assets 9.00%
Net periodic benefit cost was $617 for the year ended December 31, 1998.
Postretirement Benefits Other Than Pensions
Substantially all of the Company's employees are covered under postretirement
healthcare and life insurance benefit plans sponsored by GTE. The determination
of benefit cost for postretirement health plans is generally based on
comprehensive hospital, medical and surgical benefit plan provisions.
The weighted-average assumptions used by GTE in the actuarial computations for
postretirement benefits were as follows at December 31, 1998:
Discount rate 7.00%
Expected return on plan assets 8.00%
Postretirement benefit cost was $5,307 for the year ended December 31, 1998.
14
<PAGE> 19
Supplemental Executive Retirement Plan
GTE sponsors a supplemental executive retirement plan for certain executives
which the Company participates in. This supplemental plan provides for pension
benefits to be paid on incentive compensation not considered by the GTE
retirement plan. The Company recorded $3,601 in expense related to this plan for
the year ended December 31, 1998.
Long-Term Disability and Worker's Compensation
The Company participates in GTE's long-term disability and workers compensation
plan. The Company records its liability based on information provided to it by
GTE.
Executive Life Insurance
GTE sponsors executive life insurance plans. These plans provide eligible
executives of GTE and its affiliates a postretirement life insurance benefit on
a graduated scale of one to three times final base salary. Upon retirement, a
participant can elect to continue life insurance coverage or convert to an
annuity or lump sum supplemental retirement benefit. Certain executives of the
Company participate in this plan.
9. INCOME TAXES:
The components of domestic and foreign income before provision for income taxes
are as follows:
<TABLE>
<S> <C>
Domestic $ 90,115
Foreign 1,249
-------
Total $ 91,364
=======
</TABLE>
The components of the provision for income taxes for the year ended December 31,
1998 are:
<TABLE>
<S> <C>
Current:
Federal $ 33,443
State 7,597
Foreign 523
------
41,563
------
Deferred:
Federal (3,624)
State (962)
Foreign -
------
(4,586)
------
Provision for income taxes $ 36,977
========
</TABLE>
A reconciliation between taxes computed by applying the statutory federal income
tax rate of 35% to pre-tax income and income taxes provided in the combined
statement of income is as follows:
<TABLE>
<S> <C>
Provision at federal statutory rate $ 31,977
State taxes, net of federal benefit 4,313
Other, net 687
------
Total provision $ 36,977
======
</TABLE>
15
<PAGE> 20
The tax effects of temporary differences that give rise to the deferred income
tax assets and deferred income tax liabilities at December 31, 1998 are as
follows:
<TABLE>
<S> <C>
Depreciation of fixed assets $ 1,631
Pension and benefit plans 17,609
Other post retirement benefits 73,986
Contract accruals and provisions 20,911
Amortization of intangibles (4,805)
Other, net 514
---------
Net deferred tax assets $ 109,846
=========
</TABLE>
Based on management's assessment, it is more likely than not that the net
deferred tax assets will be realized.
10. COMMITMENTS AND CONTINGENCIES:
Lease Commitments
The Company leases various equipment and buildings under operating and capital
leases. The following is a schedule to approximate future minimum lease payments
under these leases
<TABLE>
<CAPTION>
Operating Capital
Fiscal Year Leases Leases
<S> <C> <C>
1999 $ 14,986 $ 805
2000 13,238 369
2001 11,217 159
2002 4,612 9
2003 3,205 4
Thereafter 8,753 0
-------- -------
Total $ 56,011 $ 1,346
========
Less amount representing interest 129
-------
Present value of minimum lease payments 1,217
Less current portion 720
-------
Long-term portion $ 497
=======
</TABLE>
Rental expense charged to operations was approximately $21,315 in 1998, of which
$6,622 was payable to GTE affiliates.
Contingencies
The Company, as a government contractor, is from time to time subject to U.S.
Government investigations relating to its operations and recently responded to a
grand jury subpoena. It is too early in the investigation process to assess
what, if any, charges may be asserted against the Company, and if so, what the
potential range of liability may be. Government contractors that are found to
have violated the False Claims Act, or are indicted or convicted for violations
of other Federal laws, or are considered not to be responsible contractors may
be suspended or debarred from government contracting for some period of time.
Such convictions could also result in fines. Given the Company's dependence on
government contracting, suspension or debarment could have a material adverse
effect on the Company.
16
<PAGE> 21
The Company is negotiating with the U.S. Government under a contract for the
recovery of stepped-up depreciation and related costs pertaining to certain
assets acquired from Western Union in 1986. The Government's Contracting Officer
has not yet issued a final decision. If the Company were to prevail, a pre-tax
gain of approximately $21,000 would be realized, including the impact of booked
reserve positions. If the U.S. Government were to prevail, a pre-tax loss of
approximately $11,000 would be incurred after the effect of booked reserve
positions. In management's opinion, it is probable that the Company will recover
at least enough from this negotiation to avoid a pre-tax loss.
Litigation
The Company is subject to a number of proceedings arising out of the normal
conduct of its business. Management believes that the ultimate resolution of
these matters will not have a material adverse effect on the results of
operations or the financial position of the Company.
Other
In the ordinary course of events, the Company has entered into letter of credit
arrangements and other arrangements with GTE, financial institutions and
insurance carriers aggregating approximately $109,000 at December 31, 1998.
11. SALE OF ASSETS
In November 1998 the Company sold the assets of the Network Management
Organization (NMO). The sale, after consideration of all related obligations,
resulted in a loss of $1,400 which is reflected in operating expenses in the
accompanying combined statement of income. Summarized results of operations for
NMO during 1998 included in the accompanying combined statement of income are as
follows:
<TABLE>
<S> <C>
Revenue $11,380
Operating costs and expenses 16,204
-------
Operating loss (4,824)
Other expense 198
-------
Loss before taxes $(5,022)
=======
</TABLE>
17
<PAGE> 22
12. BUSINESS SEGMENTS
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker, or
decision making group, in deciding how to allocate resources and in assessing
their performance.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business unit requires different technologies, employee skill sets and market
strategies:
1. Communications Systems Division (CSD): Headquartered in Taunton,
Massachusetts, CSD is responsible for strategic and tactical battlefield systems
for U.S. DoD and international customers. The division provides integrated
telecommunications solutions using custom-designed and commercial-off-the shelf
products to meet the needs of military and selected international and commercial
customers. CSD has major contracts with the U.S. Army for mobile tactical
communications, network management, and common hardware / software supply. With
the National Security Agency, CSD holds major contracts for development and
delivery of key management, Local Area Network, Wide Area Network and
Asynchronous Transfer Mode (ATM) encryption equipment.
2. Electronic Systems Division (ESD): Headquartered in Mountain View,
California, ESD provide end-to-end solutions related to intelligence and
information operations. ESD is a leading provider to the U.S. military and
national intelligence communities of custom information management systems and
services. ESD's business is distributed among six capability groups: information
operations; signal intelligence; information and mission management; processing
and exploitation; information operations modeling and simulation; and command,
control communications, computer intelligence surveillance and reconnaissance.
3. Information Systems Division (ISD): Headquartered in Chantilly, Virginia, ISD
provides a broad range of integrated telecommunications services and information
solutions to the U.S. DoD, the U.S. Federal Government civilian agencies, state
and local governments, and select commercial customers. ISD's services and
products fall into the following four categories: professional services, such as
business process reengineering and systems architecture design; business systems
integration including enterprise modernization, office automation systems and
program management; information infrastructure solutions, such as global
communications systems, network modeling and simulation, and network security;
and information technology operations and support.
4. Worldwide Telecommunications Services (WTS): Headquartered in Needham
Heights, Massachusetts, WTS's resources are focused on the engineering,
furnishing, installation (EF&I), operation, and maintenance (O&M) of voice,
video and data communications systems for the U.S. DoD, the U.S. Federal
Government civilian agencies and selected commercial customers. These systems
include ATM networks, large digital switches, satellite communications, campus
distribution, cellular / personal communications services, military
intelligence, and utility meter reading systems. WTS also provides EF&I services
to NATO customers, GTE International, GTE Wireless and GTE Internetworking.
The accounting policies of the operating segments are described in the summary
of significant accounting policies (see note 1). The chief operating decision
makers evaluate performance based on several factors, of which the primary
financial measure is net income.
18
<PAGE> 23
The following table reflects reportable segment-specific information:
<TABLE>
<CAPTION>
GSC
Headquarters /
CSD ESD ISD WTS Other Total
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Non-affiliate $ 391,180 $ 249,384 $ 206,817 $ 445,103 $ 13,778 $1,306,262
Affiliate 12,249 5,387 184 38,067 1,479 57,366
Intersegment 254 224 6 12,232 (12,716) 0
--------- --------- --------- --------- --------- ----------
Total 403,683 254,995 207,007 495,402 2,541 1,363,628
U.S. Government revenues 344,657 232,314 200,865 367,797 2,422 1,148,055
% of total revenues 85.4% 91.1% 97.0% 74.2% 95.3% 84.2%
Depreciation and amortization 4,086 10,156 2,584 5,666 10,524 33,016
Operating income 38,927 18,287 13,445 33,903 (10,522) 94,040
Net interest expense 605 1,710 1,219 2,961 (1,874) 4,621
Net interest (income) 0 (18) 0 (514) (2,389) (2,921)
Income taxes 15,550 6,804 5,004 12,703 (3,084) 36,977
Net income 22,772 9,791 7,222 17,745 (3,143) 54,387
Identifiable assets as of
December 31, 1998 149,346 151,903 96,810 182,617 145,889 726,565
Capital expenditures 4,898 8,141 4,707 3,342 7,258 28,346
</TABLE>
The Company principally operates within the United States; however, it does
operate in certain foreign locations. Domestic revenues were 92.3% of total
revenues in 1998. Of the Company's total identifiable assets, 96.9% were held
domestically.
Intersegment revenues are generally based on arms-length transactions between
the segments, and include an equitable allocation of all related costs. Common
operating expenses are allocated to the segments primarily using the
three-factor formula (based on an equal weighting of a segment's revenues,
payroll, and property/inventory to the total of these categories for the four
segments). Interest expense is primarily allocated to the segments using an
imputed interest calculation of 2% annualized against total segment capital. All
significant intersegment amounts have been eliminated.
"GSC headquarters / other" includes unallocated expenses and income,
intersegment eliminations and the results of NMO (See Note 11).
As displayed in the table above, the U.S. Government contributes over 10% of the
revenues for each segment. No other single customer contributes over 10% of the
revenue for any individual segment.
19
<PAGE> 24
Item 7 (a).
GTE GOVERNMENT SYSTEMS CORPORATION
COMBINED BALANCE SHEET
MARCH 31, 1999
(UNAUDITED)
(Dollars in 000's)
<TABLE>
ASSETS
- ------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 8,232
Receivables, net 395,889
Due from GTE and affiliates 8,824
Inventories 45,267
Deferred income taxes 23,356
Other 7,459
---------
Total Current Assets 489,027
PROPERTY, PLANT AND EQUIPMENT, NET 120,531
DEFERED INCOME TAXES 82,463
OTHER ASSETS, NET 11,974
---------
Total Assets $ 703,995
=========
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES
Notes payable and current maturities of long-term debt $ 3,919
Accounts and drafts payable 35,477
Due to GTE and affiliates 8,396
Accrued payroll and benefits 58,683
Advance billings 107,788
Income taxes payable 20,976
Accrued dividends payable to GTE 4,800
Other current liabilities 78,085
---------
Total Current Liabilities 318,124
LONG-TERM DEBT, LESS CURRENT MATURITIES 398
EMPLOYEE BENEFIT PLAN OBLIGATIONS 229,016
OTHER NONCURRENT LIABILITIES 360
MINORITY INTEREST 1,958
SHAREHOLDER'S EQUITY
Common stock $1.00 par value; 1,000 shares authorized,
issued and outstanding 1
Additional paid-in-capital 137,741
Retained earnings 18,817
Cumulative translation adjustment (2,420)
---------
Total Shareholder's Equity 154,139
---------
Total Liabilities and Shareholder's Equity $ 703,995
=========
</TABLE>
1
<PAGE> 25
GTE GOVERNMENT SYSTEMS CORPORATION
COMBINED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in 000's)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
REVENUE $ 340,794 $ 296,178
OPERATING COSTS AND EXPENSES
Cost of sales (exclusive of depreciation and amortization) 272,928 235,522
Research and development 4,073 6,192
Selling, general and administrative 41,409 34,773
Depreciation and amortization 6,016 7,667
--------- ---------
Total operating costs and expenses 324,426 284,154
--------- ---------
OPERATING INCOME 16,368 12,024
Other non-operating expense 173 (8)
Interest (income) expense (7) 346
--------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES 16,202 11,686
Provision for income taxes 6,726 5,261
--------- ---------
NET INCOME $ 9,476 $ 6,425
========= =========
</TABLE>
2
<PAGE> 26
GTE GOVERNMENT SYSTEMS CORPORATION
COMBINED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars 000's)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,476 $ 6,425
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,016 7,667
Deferred income taxes 4,027 (5,066)
Changes in assets and liabilities:
Receivables, net (5,012) 6,192
Inventories / other current assets 8,013 (1,171)
Income taxes and interest payable (13,452) 8,802
Other current liabilities (16,045) 3,809
Other noncurrent liabilities 797 2,747
--------------- ---------------
Net Cash Provided by Operating Activities (6,180) 29,405
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,895) (4,513)
Increase in other assets 27 522
Proceeds from sale of property, plant and equipment 42 19
--------------- ---------------
Net Cash Used by Investing Activities (1,826) (3,972)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in due to/from GTE 17,490 (15,611)
Principal payments under debt agreements 410 (1,312)
Dividends paid (13,035) (12,651)
--------------- ---------------
Net Cash Used by Financing Activities 4,865 (29,574)
--------------- ---------------
DECREASE IN CASH AND CASH EQUIVALENTS (3,141) (4,141)
CASH AND EQUIVALENTS, beginning of period 11,373 13,599
--------------- ---------------
CASH AND EQUIVALENTS, end of period $ 8,232 $ 9,458
=============== ===============
</TABLE>
3
<PAGE> 27
Item 7 (b).
GENERAL DYNAMICS CORPORATION
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
On June 21, 1999, General Dynamics Corporation entered into an agreement
to acquire certain business units of GTE Government Systems Corporation, a
subsidiary of GTE Corporation, for $1.05 billion in cash. The following
unaudited pro forma combined financial statements give effect to the
acquisition using the purchase method of accounting. The unaudited pro forma
combined financial statements have been prepared from, should be read in
conjunction with and are qualified in their entirety by reference to the
historical consolidated financial statements and notes thereto for General
Dynamics included in its Annual Report on Form 10-K for the year ended December
31, 1998, and the historical combined financial statements of GTE Government
Systems as of December 31, 1998 which are included in this Current Report on
Form 8-K.
The unaudited pro forma combined financial statements give effect to the
acquisition as if it had been consummated, with respect to the statement of
earnings, at the beginning of the periods presented or, with respect to the
balance sheet, as of the dates presented. The pro forma adjustments described
in the accompanying notes are based upon preliminary estimates and certain
assumptions that General Dynamics believes are reasonable under the
circumstances.
The combining companies have different quarterly reporting periods.
General Dynamics' interim financial data is based on a 13-week period. GTE
Government Systems data is as of and for the three months ended March 31, 1999.
The unaudited pro forma combined financial statements are not
necessarily indicative of the actual or future financial position or results of
operations that would have occurred or will occur upon closing of the
acquisition.
1
<PAGE> 28
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended April 4, 1999
------------------------------------------------------
GTE
General Government Pro Forma
Dynamics Systems Adjustments Combined
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 1,377 $ 341 (52) (a) $ 1,666
Operating costs and expenses 1,234 325 (46) (a,b) 1,513
----- --- ----- -----
Operating earnings 143 16 (6) 153
Interest (expense) income, net (1) - (14) (a) (15)
Other income, net 9 - - 9
----- --- ----- -----
Earnings before income taxes 151 16 (20) 147
(Benefit) / provision for income taxes
R&E tax credit (165) - - (165)
Provision 51 7 (8) (e) 50
----- --- ----- -----
(114) 7 (8) (115)
----- --- ----- -----
Net earnings $ 265 $ 9 $ (12) $ 262
===== === ===== =====
Net earnings per share:
Basic $ 2.09 $ 2.06
Diluted 2.07 2.04
Weighted average shares outstanding
(in millions):
Basic 127.0 127.0
Diluted 128.3 128.3
</TABLE>
See notes to unaudited pro forma combined financial statements.
2
<PAGE> 29
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-----------------------------------------------------------
GTE
General Government Pro Forma
Dynamics Systems Adjustments Combined
-------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 4,970 $ 1,364 $ (207) (a) $ 6,127
Operating costs and expenses 4,428 1,270 (177) (a,b,d) 5,521
----- ----- ----- -----
Operating earnings 542 94 (30) 606
Interest (expense) income, net 4 (2) (53) (a,c) (51)
Other income, net 3 - - 3
----- ----- ----- -----
Earnings before minority interest and
income taxes 549 92 (83) 558
Minority interest - (1) - (1)
----- ----- ----- -----
549 91 (83) 557
Provision for income taxes 185 37 (33) (e) 189
----- ----- ----- -----
Net earnings $ 364 $ 54 $ (50) $ 368
===== ===== ===== =====
Net earnings per share:
Basic $ 2.88 $ 2.91
Diluted 2.86 2.89
Weighted average shares outstanding
(in millions):
Basic 126.4 126.4
Diluted 127.2 127.2
</TABLE>
See notes to unaudited pro forma combined financial statements.
3
<PAGE> 30
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(Dollars in millions)
<TABLE>
<CAPTION>
As of April 4, 1999
------------------------------------------------------------
GTE
General Government Pro Forma
ASSETS Dynamics Systems Adjustments Combined
- ------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 133 $ 8 $ (141) (f) $ -
Marketable securities 52 - (52) (f) -
-- ------ ---- -------
185 8 (193) -
Accounts receivable 314 396 (77) (a,g) 633
Due from GTE and affiliates - 9 (9) (a,g) -
Contracts in process 1,186 - 227 (g) 1,413
Inventories - 45 (45) (a,g) -
Deferred income taxes - 23 (23) (a,g) -
Other current assets 729 8 16 (a,g) 753
----- ---- ---- -----
Total Current Assets 2,414 489 (104) 2,799
NONCURRENT ASSETS
Leases receivable-finance operations 181 - - 181
Real estate held for development 63 - - 63
Property, plant and equipment, net 718 121 (8) (a) 831
Intangible assets 1,528 - 725 (f,h,i,j) 2,253
Deferred income taxes - 82 (82) (a,g) -
Other assets 202 12 61 (g,h) 275
----- ---- ---- -----
Total Noncurrent Assets 2,692 215 696 3,603
----- ---- ---- -----
$ 5,106 $ 704 $ 592 $ 6,402
===== ==== ==== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ - $ 4 $ 850 (i) $ 854
Short-term debt-finance operations 58 - - 58
Accounts payable 215 35 (5) (a) 245
Due to GTE and affiliates - 8 (8) (a) -
Accrued payroll and benefits - 59 (59) (a,g) -
Customer deposits - 108 (108) (a,g) -
Income taxes payable - 21 (21) (a) -
Accrued dividends payable to GTE - 5 (5) (a) -
Other current liabilities 1,301 78 127 (a,g) 1,506
----- ---- ---- -----
Total Current Liabilities 1,574 318 771 2,663
NONCURRENT LIABILITIES
Long-term debt 162 - - 162
Long-term debt-finance operations 79 - - 79
Employee benefit plan obligations - 229 (25) (a) 204
Other liabilities 802 1 - 803
Minority interest in consolidated
subsidiaries - 2 - 2
----- ---- ---- -----
Total Noncurrent Liabilities 1,043 232 (25) 1,250
SHAREHOLDERS' EQUITY
Common stock, par 169 - - 169
Additional paid-in-capital 143 137 (137) (j) 143
Retained earnings 2,875 19 (19) (j) 2,875
Treasury stock (695) - - (695)
Accumulated other comprehensive
income (3) (2) 2 (j) (3)
----- ---- ---- -----
Total Shareholders' Equity 2,489 154 (154) 2,489
----- ---- ---- -----
$ 5,106 $ 704 $ 592 $ 6,402
===== ==== ==== =====
</TABLE>
See notes to unaudited pro forma combined financial statements.
4
<PAGE> 31
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(Dollars in millions)
<TABLE>
<CAPTION>
As of December 31, 1998
-----------------------------------------------------------
GTE
General Government Pro Forma
ASSETS Dynamics Systems Adjustments Combined
- ------ -------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 127 $ 11 $ (107) (f) $ 31
Marketable securities 93 - (93) (f) -
-- ---- ---- -----
220 11 (200) 31
Accounts receivable 316 394 (76) (a,g) 634
Due from GTE and affiliates - 15 (15) (a,g) -
Contracts in process 952 - 237 (g) 1,189
Inventories - 57 (57) (a,g) -
Deferred income taxes - 24 (24) (a,g) -
Other current assets 385 4 19 (a,g) 408
----- ---- ---- -----
Total Current Assets 1,873 505 (116) 2,262
NONCURRENT ASSETS
Leases receivable-finance operations 181 - - 181
Real estate held for development 65 - - 65
Property, plant and equipment, net 698 125 (8) (a) 815
Intangible assets 1,525 - 728 (f,h,i,j) 2,253
Deferred income taxes - 86 (86) (a,g) -
Other assets 230 11 64 (g,h) 305
----- ---- ---- -----
Total Noncurrent Assets 2,699 222 698 3,619
----- ---- ---- -----
$ 4,572 $ 727 $ 582 $ 5,881
===== ==== ==== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ 2 $ 3 $ 850 (i) 855
Short-term debt-finance operations 58 - - 58
Accounts payable 295 54 (8) (a) 341
Accrued payroll and billings - 52 (52) (a,g) -
Customer deposits - 114 (114) (a,g) -
Income taxes payable - 34 (34) (a) -
Accrued dividends payable to GTE - 13 (13) (a) -
Other current liabilities 1,106 79 128 (a,g) 1,313
----- --- ---- -----
Total Current Liabilities 1,461 349 757 2,567
NONCURRENT LIABILITIES
Long-term debt 167 - - 167
Long-term debt-finance operations 82 - - 82
Employee benefit plan obligations - 225 (25) (a) 200
Other liabilities 643 1 - 644
Minority interest in consolidated
subsidiaries - 2 - 2
----- --- ---- -----
Total Noncurrent Liabilities 892 228 (25) 1,095
SHAREHOLDERS' EQUITY
Common stock, par 169 - - 169
Additional paid-in-capital 116 138 (138) (j) 116
Retained earnings 2,640 14 (14) (j) 2,640
Treasury stock (706) - - (706)
Accumulated other comprehensive
income - (2) 2 (j) -
----- --- ---- -----
Total Shareholders' Equity 2,219 150 (150) 2,219
----- --- ---- -----
$ 4,572 $ 727 $ 582 $ 5,881
===== === ==== =====
</TABLE>
See notes to unaudited pro forma combined financial statements.
5
<PAGE> 32
GENERAL DYNAMICS CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
The following adjustments give pro forma effect to the transaction:
(a) Eliminate assets, liabilities and results of business unit
not acquired in purchase as well as assets and liabilities
excluded per the purchase agreement.
(b) Record amortization of goodwill acquired over a 38-year period and
depreciation and eliminate amortization of intangible assets
reclassified to goodwill in purchase accounting.
(c) Record estimated increase in interest expense associated with
financing of purchase at an assumed rate of 5.25% and loss of interest
income associated with cash payment from available funds.
(d) Record allocation of depreciation expense recorded by GTE home office.
(e) Adjust the tax provision to General Dynamics' effective tax rate.
(f) Estimated portion of purchase price paid from available funds.
(g) Certain reclassifications and adjustments were made to conform to the
General Dynamics' presentation.
(h) Reclassify intangible assets acquired to goodwill.
(i) Record estimated portion of purchase price financed.
(j) Elimination of equity accounts in purchase accounting.
6
<PAGE> 1
EXHIBIT 10-42
STOCK PURCHASE AGREEMENT
dated as of
June 21, 1999
between
CONTEL FEDERAL SYSTEMS, INC.
and
GENERAL DYNAMICS CORPORATION
<PAGE> 2
<TABLE>
<CAPTION>
Schedules
<S> <C>
SCHEDULE 1.1 Target Statement of Net Assets
SCHEDULE 1.4 Net Assets Adjustments
SCHEDULE 1.5 Pre-Closing Restructuring
SCHEDULE 1.6(a) ISD Disposition
SCHEDULE 1.6(b) Matters Relating to ISD Disposition
SCHEDULE 2.1 Information Relating to the Company and the Subsidiaries
SCHEDULE 2.2 Obligations Relating to Joint Ventures
SCHEDULE 2.3(a) Financial Statements
SCHEDULE 2.3(b) Certain Changes
SCHEDULE 2.4 Tax Returns and Reports
SCHEDULE 2.5 Material Contracts
SCHEDULE 2.6 Encumbrances and Other Matters
SCHEDULE 2.6(a) Information Relating to Real and Personal Property; Title to Property and
Leases
SCHEDULE 2.6(b) Material Real Property of the Company or its Subsidiaries
SCHEDULE 2.7 Intellectual Property
SCHEDULE 2.8 Authorization, Permit, Consent and Approval List
SCHEDULE 2.9 List of Material Claims
SCHEDULE 2.10 Labor Matters
SCHEDULE 2.14(a) ERISA Plans
SCHEDULE 2.14 (g) Retiree Benefits
SCHEDULE 2.17 Certain Business Operations
SCHEDULE 2.18 Environmental Compliance
SCHEDULE 2.20 Government Contracts
SCHEDULE 2.21 Affiliate Transactions
SCHEDULE 4.3 Exceptions to Interim Restrictions on Conduct of Business
SCHEDULE 4.3(h) Real Property Dispositions
SCHEDULE 4.5 Certain Guarantees, Loans and Extensions of Credit
SCHEDULE 4.10 GTE Guarantees
SCHEDULE 5.6 Programs
SCHEDULE 6.1(a)(ii) Transferred Employees
SCHEDULE 6.2(a)(v)(C) Methods and Assumptions
SCHEDULE 6.1(c) Transferred Employee Service
SCHEDULE 6.2(c)(ii)(B) Business Retirees and Active Employees
SCHEDULE 6.2(c)(ii)(C) VEBA Trusts
SCHEDULE 7.1(b) Approvals
SCHEDULE 7.2 Permits
Exhibits
EXHIBIT A Form of Intellectual Property Agreement
EXHIBIT B Form of Transition Services Agreement
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS/PURCHASE & SALE/CLOSING
<S> <C>
1.1 Definitions.............................................................................................1
1.2 Transfer of Stock by Seller.............................................................................9
1.3 The Closing.............................................................................................9
1.4 Purchase and Sale; Purchase Price and Adjustments......................................................10
1.5 Pre-Closing Restructuring; Required Consents...........................................................11
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
2.1 Organization and Related Matters.......................................................................12
2.2 Stock..................................................................................................12
2.3 Financial Statements; Changes; Contingencies...........................................................13
2.4 Tax Returns and Reports................................................................................14
2.5 MaterialContracts......................................................................................15
2.6 Real and Personal Property; Title to Property; Leases..................................................16
2.7 Intellectual Property..................................................................................17
2.8 Authorization; No Conflicts............................................................................17
2.9 Legal Proceedings......................................................................................18
2.10 Labor Matters..........................................................................................18
2.11 Insurance..............................................................................................18
2.12 Permits; Security Clearances...........................................................................18
2.13 Compliance with Law....................................................................................19
2.14 Employee Benefits......................................................................................19
2.15 Intercompany Obligations...............................................................................21
2.16 No Brokers or Finders..................................................................................22
2.17 Operation in the Ordinary Course.......................................................................22
2.18 Environmental Compliance...............................................................................22
2.19 Year 2000..............................................................................................22
2.20 Government Contracts...................................................................................23
2.21 Affiliate Transactions.................................................................................24
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
3.1 Organization and Related Matters.......................................................................24
3.2 Authorization; No Conflicts............................................................................24
3.3 Legal Proceedings......................................................................................24
3.4 Compliance with Law....................................................................................25
3.5 No Brokers or Finders..................................................................................25
3.6 Financing..............................................................................................25
3.7 Investment Representation..............................................................................25
3.8 Investigation; Acknowledgment..........................................................................25
3.9 Insurance Matters......................................................................................26
</TABLE>
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
<S> <C>
PAGE
3.10 Foreign Ownership......................................................................................26
ARTICLE IV
COVENANTS WITH RESPECT TO THE PERIOD PRIOR TO CLOSING
4.1 Access.................................................................................................26
4.2 Financial Information..................................................................................26
4.3 Conduct of Business....................................................................................27
4.4 Reasonable Best Efforts; No Inconsistent Action........................................................28
4.5 Elimination of Intercompany and Affiliate Liabilities..................................................29
4.6 Control of the Business of the Company.................................................................29
4.7 Accuracy of Information................................................................................29
4.8 Bell Atlantic Merger...................................................................................29
4.9 Substitute Guaranty....................................................................................30
4.10 Tax Matters............................................................................................30
ARTICLE V
CONTINUING COVENANTS
5.1 Cooperation............................................................................................31
5.2 Nondisclosure of Proprietary Data......................................................................32
5.3 Tax Matters............................................................................................32
5.4 Use of GTE and Contel Names, Trademarks and Service Marks..............................................37
5.5 Transition Services....................................................................................38
5.6 Noncompetition.........................................................................................38
5.7 Solicitation of Employees..............................................................................40
5.8 Assignment of Confidentiality Agreements...............................................................40
5.9 Adjustment to Corporate Overhead Expenses..............................................................40
ARTICLE VI
EMPLOYEE BENEFITS
6.1 Employee Matters.......................................................................................41
6.2 Employee Benefit Matters...............................................................................42
6.3 Executive Benefit Arrangements.........................................................................50
6.4 Vacation Pay...........................................................................................51
6.5 Employee Rights........................................................................................51
6.6 WARN Act Requirements..................................................................................52
6.7 Indemnification........................................................................................52
6.8 Special Provisions for Certain Employees...............................................................53
6.9 Stock Options and LTIP.................................................................................53
6.10 Cooperation Between Parties............................................................................53
6.11 Successors and Assigns.................................................................................54
</TABLE>
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
ARTICLE VII
CONDITIONS OF PURCHASE
<S> <C>
PAGE
7.1 GeneralConditions......................................................................................54
7.2 Conditions to Obligations of Buyer.....................................................................54
7.3 Conditions to Obligations of Seller....................................................................55
ARTICLE VIII
TERMINATION OF OBLIGATIONS
8.1 Termination of Agreement...............................................................................56
8.2 Effect of Termination..................................................................................56
ARTICLE IX
INDEMNIFICATION; SURVIVAL
9.1 Obligations of Seller..................................................................................57
9.2 Obligations of Buyer...................................................................................57
9.3 Procedure..............................................................................................57
9.4 Survival...............................................................................................59
9.5 Limitations on Indemnification.........................................................................59
9.6 Treatment of Payments..................................................................................60
9.7 Remedies Exclusive.....................................................................................60
9.8 Mitigation.............................................................................................60
ARTICLE X
GENERAL
10.1 Usage..................................................................................................60
10.2 Amendments; Waivers....................................................................................61
10.3 Schedules; Exhibits....................................................................................61
10.4 Further Assurances.....................................................................................61
10.5 Governing Law..........................................................................................62
10.6 Headings...............................................................................................62
10.7 Counterparts...........................................................................................62
10.8 Parties in Interest....................................................................................62
10.9 Performance by Subsidiaries............................................................................62
10.10 Waiver.................................................................................................62
10.11 Severability...........................................................................................62
10.12 No Consequential Damages...............................................................................63
10.13 Knowledge Convention...................................................................................63
10.14 Notices................................................................................................63
10.15 Publicity and Reports..................................................................................64
10.16 Integration............................................................................................64
10.17 Expenses...............................................................................................64
</TABLE>
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
<S> <C>
PAGE
10.18 No Assignment..........................................................................................64
10.19 Representation By Counsel; Interpretation..............................................................65
10.20 Reference of Disputes to Senior Officers of Seller and Buyer...........................................65
10.21 Resolution of Disputes.................................................................................65
</TABLE>
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<PAGE> 7
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is entered into as of June 21,
1999 by and between GENERAL DYNAMICS CORPORATION, a Delaware corporation
("Buyer"), and CONTEL FEDERAL SYSTEMS, INC., a Delaware corporation ("Seller"),
and joined in to the extent set forth in the joinder below by GTE Corporation,
a New York corporation and the corporate parent of Seller ("GTE").
R E C I T A L S
WHEREAS, GTE Government Systems Corp., a Delaware corporation
(the "Company"), and its Subsidiaries are in the business of providing command,
control, communications, computer, information, surveillance and reconnaissance
solutions and services in support of government, commercial and international
customers;
WHEREAS, Seller owns all of the issued and outstanding capital
stock of the Company; and
WHEREAS, Seller desires to sell, and Buyer desires to buy, all
of the issued and outstanding stock of the Company for the consideration
described herein.
A G R E E M E N T
In consideration of the mutual promises contained herein and
intending to be legally bound, the parties agree as follows:
ARTICLE I
DEFINITIONS/PURCHASE & SALE/CLOSING
1.1 DEFINITIONS.
For all purposes of this Agreement and the Exhibits and
Schedules delivered pursuant to this Agreement, and except as otherwise
expressly provided, the following definitions shall apply:
"Action" means any action, complaint, petition, investigation,
suit or other proceeding, whether civil or criminal, in law or in equity, or
before any arbitrator or Governmental Entity.
"Adjustment" has the meaning set forth in Section 5.3(e).
"Affiliate" means, with respect to a specified Person, a Person
that directly, or indirectly through one or more intermediaries, controls, or
is controlled by, or is under common control with, the specified Person.
"Agreement" means this Agreement as amended or supplemented
together with all Exhibits and Schedules attached hereto or expressly
incorporated herein by reference.
<PAGE> 8
"Anti-Assignment Laws" means 41 U.S.C. Section 15, 31 U.S.C.
Section 3727 and FAR Subpart 42.12 and any similar statutes, laws, rules and
regulations.
"Approval" means any approval, authorization, consent,
qualification or registration, or any extension, modification, amendment or
waiver of any of the foregoing, required to be obtained from, or any notice,
statement or other communication required to be filed with or delivered to, any
Governmental Entity.
"Assumed VEBA" has the meaning set forth in Section
6.2(c)(ii)(C).
"Auditors" has the meaning set forth in Section 1.4(c).
"Base Purchase Price" has the meaning set forth in Section
1.4(b).
"Bell Atlantic" means Bell Atlantic Corporation, a Delaware
corporation.
"Bell Atlantic Merger" means the business combination of GTE and
Bell Atlantic pursuant to that certain Agreement and Plan of Merger dated as of
July 27, 1998 among Bell Atlantic, GTE and a wholly-owned subsidiary of Bell
Atlantic, as the same may be amended from time to time.
"Business" means the business of the Company and its
Subsidiaries, taken as a whole, after giving effect to the actions that
comprise the Pre-Closing Restructuring and the ISD Disposition.
"Business Retiree" means any former employee or retiree who,
immediately prior to the date of such individual's termination of employment
with or retirement from the Company or its Affiliates, was employed primarily
in connection with the Business and was eligible for a normal or early
retirement benefit under the Government Systems Pension Plan.
"Buyer" has the meaning set forth in the Preamble hereto.
"Buyer Indemnitees" has the meaning set forth in Section 9.1.
"Buyer LTD Plan" has the meaning set forth in Section 6.8(a).
"Buyer Pension Plan" means a tax-qualified defined benefit
pension plan established or maintained by Buyer or a Buyer Affiliate.
"Buyer Savings Plan" has the meaning set forth in Section
6.2(b)(iii).
"Buyer Trust" means the trust established or maintained by Buyer
or a Buyer Affiliate, to hold the assets funding the Buyer Pension Plan.
"Buyer Welfare Plans" has the meaning set forth in Section
6.2(c)(i).
"Buyer's representatives" has the meaning set forth in Section
4.3.
"Carryover Tax Benefit" has the meaning set forth in Section
5.3(d).
"Classified Contract" means any Government Contract which
involves government classified programs or information subject to special
national security restrictions.
"Closing" has the meaning set forth in Section 1.3.
2
<PAGE> 9
"Closing Date" has the meaning set forth in Section 1.3.
"Closing Date Payment" has the meaning set forth in Section
1.4(b).
"Closing Date Statement of Net Assets" has the meaning set forth
in Section 1.4(c).
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the Recitals hereto.
"Company Pension Participants" shall mean participants in the
Government Systems Pension Plan as of the Closing Date who are either
Transferred Employees or former employees of the Company who immediately prior
to termination of employment with or retirement from GTE and its Subsidiaries,
were employed primarily in connection with the Business.
"Company Pension Plans" has the meaning set forth in Section
6.2(a)(i).
"Company Proprietary Information" means (i) any and all
non-technical, non-public business information included in Non-Statutory
Intellectual Property owned by or licensed (other than by GTE and its
Affiliates) to the Company or its Subsidiaries and (ii) any and all
non-technical, non-public business information related to the Business.
"Confidentiality Agreement" has the meaning set forth in Section
4.1.
"Contract" means any binding written agreement, arrangement,
bond, commitment, franchise, indemnity, indenture or lease.
"Credit" has the meaning set forth in Section 6.2(a)(iii).
"ERLIP" has the meaning set forth in Section 6.3(b).
"Employee" has the meaning set forth in Section 2.14(a).
"Encumbrance" means any claim, charge, easement, encumbrance,
lease, security interest, lien, pledge, restriction (whether on voting, sale,
transfer, disposition or otherwise), except for any restrictions on transfer
generally arising under any applicable federal or state securities law;
provided, however, that "Encumbrance" shall not include any such item that (i)
is reflected or disclosed in the Financial Statements or in title reports made
available to Buyer, (ii) is not material in amount, (iii) constitutes a
statutory lien arising in the ordinary course of business or (iv) does not
singly or in the aggregate with other such items materially detract from the
value of the property or materially detract from or interfere with the use of
property in the ordinary conduct of business as presently conducted.
"Environmental Laws" means all federal, state, local and foreign
laws and regulations relating to pollution or protection of human health or the
environment (including air, surface water, ground water, land surface and
subsurface strata), including laws and regulations relating to emissions,
discharges, releases or threatened releases of Regulated Substances, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transportation or handling of Regulated
Substances.
3
<PAGE> 10
"Environmental Permit" means any license, permit, franchise,
certificate of authority or order, or any extension, modification, amendment or
waiver of the foregoing, required to be issued by any Governmental Entity
pursuant to any applicable Environmental Laws.
"Equity Securities" means any capital stock or other equity
interest or any securities convertible into or exchangeable for capital stock,
or any other rights, warrants or options to acquire any of the foregoing
securities.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Plans" has the meaning set forth in Section 2.14(a).
"Estimated Closing Date Net Assets" has the meaning set forth in
Section 1.4(b).
"Excess Pension Plan" has the meaning set forth in Section
6.3(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excluded Pre-Closing Liability" means any Indemnifiable Loss
(whether or not disclosed on any Schedule to this Agreement or otherwise
disclosed to or known by Buyer or any of its representatives or agents) of or
relating to the Company or any of its Subsidiaries:
(a) except as otherwise expressly provided in Article VI,
arising prior to the Closing Date with respect to any director, officer or
employee of the Company or any of its Subsidiaries, other than any Transferred
Employee, that arises in connection with or relates to any aspect of such
individual's employment or termination of employment by, or the performances of
duties for, the Company or any of its Subsidiaries, the terms or conditions of
the individual's employment or other relationship with the Company or any of
its Subsidiaries or any illness, injury or other harm of any nature arising in
connection with or relating to the employment of any such individual;
(b) arising in connection with any former business, facility
or real property (including the portion of the real property formerly
associated with the Company's Mountain View, California facility) not owned and
operated as part of the Business as of the Closing Date or arising in
connection with any transaction relating to the sale or divestiture of any
business unit, product line, real estate or other similar property prior to the
Closing Date (including the transfer and assignment of the stock of the
Company's Subsidiary, GTE Cybertrust Solutions Incorporated, to an Affiliate of
Seller);
(c) arising from a criminal proceeding, or found by a final,
non-appealable Order, or admitted in a settlement consented to by Seller (such
consent not to be unreasonably withheld), to have resulted from civil fraud,
with respect to actions occurring prior to the Closing Date in connection with
any Government Contract; or
(d) arising in connection with any retroactive, retrospective
or similar adjustment relating to any premium, administrative expense or other
amount paid or payable with respect to any period prior to the Closing Date
under any policy of insurance to which the Company and its Subsidiaries shall
not have access after the Closing Date.
Notwithstanding the foregoing, the Excluded Pre-Closing Liabilities shall not
be deemed to include (i) any liability or obligation expressly required to be
discharged or performed by Buyer, the Company or any of its Subsidiaries on or
after the Closing Date pursuant to this Agreement or any Related Agreement
4
<PAGE> 11
or (ii) any liability or obligation to the extent such liability or obligation
is specifically reserved for on the Closing Date Statement of Net Assets.
"Financial Statements" has the meaning set forth in Section
2.3(a).
"FRP" has the meaning set forth in Section 6.2(c)(vi).
"GAAP" means generally accepted accounting principles in the
United States.
"Government Contract" means any prime contract, subcontract,
basic ordering agreement, letter contract, purchase order, delivery order, task
order, teaming agreement, or other legally binding commitment thereunder or
relating thereto, in connection with or relating to United States or foreign
(including NATO) government procurements and contracts between the Company or
any of its Subsidiaries and either the U.S. Government or foreign government or
any other prime contractor or subcontractor at any tier.
"Governmental Entity" means any government or any agency,
bureau, board, commission, court, department, official, political subdivision,
tribunal or other instrumentality of any government, whether federal,
interstate, state or local, domestic or foreign.
"Government Systems Pension Plan" means the GTE Government
Systems Corporation Pension Plan for Salaried Employees and any successor plan
thereto.
"GTE" has the meaning set forth in the Preamble hereto.
"GTE Competitive Activities" has the meanings set forth in
Section 5.6(a).
"GTE Competitive Revenues" has the meanings set forth in Section
5.6(c).
"GTE Corporate Policies" has the meaning set forth in Section
3.9.
"GTE Guarantees" has the meaning set forth in Section 4.10.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the related regulations and published
interpretations.
"Income Tax Return" means a Tax Return required to be supplied
to a Governmental Entity with respect to Income Taxes including, where
permitted or required, combined or consolidated returns for any group of
Persons that includes the Company or any of its Subsidiaries.
"Income Taxes" means all Taxes based on or measured by net
income (including any interest and penalties and additions to tax (civil or
criminal) related thereto or to the nonpayment thereof), but excluding
withholding taxes.
"Indemnifiable Claim" means any claim of an Indemnifiable Loss
for or against which any party is entitled to indemnification under this
Agreement; "Indemnified Party" means the party entitled to indemnification
hereunder; and "Indemnifying Party" means the party obligated to provide
indemnification hereunder.
"Indemnifiable Loss" means any cost, damage, disbursement,
expense, Tax, Encumbrance, liability, loss, deficiency, penalty or settlement
of any kind or nature, including reasonable
5
<PAGE> 12
legal, accounting and other professional fees and expenses and amounts paid in
settlement, that are actually imposed on or otherwise actually incurred or
suffered by the specified Person.
"Intellectual Property" means Statutory Intellectual Property
and Non-Statutory Intellectual Property.
"Intellectual Property Agreement" means the Intellectual
Property Agreement to be executed by the parties as of the Closing Date,
substantially in the form of Exhibit A hereto.
"Interim Financial Statements" has the meaning set forth in
section 2.3(a).
"IRS" means the Internal Revenue Service or any successor entity.
"ISD Business" means the business conducted by the ISD Division
of the Company, including providing integrated telecommunications services and
information solutions to the Department of Defense, the federal civil
government, state and local government and commercial customers.
"ISD Division" means the Company's Information Systems Division.
"ISD Disposition" has the meaning set forth in Section 1.6.
"ISD Employees" collectively, means all current employees of the
Company or its Affiliates who as of the Closing Date are actively or inactively
employed primarily in connection with the ISD Business, and former employees of
the Company or its Affiliates who, prior to termination of employment, were
employed primarily in connection with the ISD Business.
"ISD Excluded Liability" means any Indemnifiable Loss (whether
or not disclosed on a Schedule hereto or otherwise disclosed to or know by
Buyer or any of its agents or representatives) arising in connection with the
ISD Disposition or arising prior to, on or after the Closing Date in connection
with the ISD Business; provided that liabilities and obligations incurred by
the Company and its Subsidiaries in connection with intercompany agreements
entered into in connection with the ISD Disposition shall not be deemed to be
ISD Excluded Liabilities.
"ISD Purchaser" has the meaning set forth in Section 1.6(a).
"ISD Retiree" means any former employee or retiree who,
immediately prior to termination of employment with or retirement from the
Company or its Affiliates, was employed primarily in connection with the ISD
Business and was eligible for a normal or early retirement benefit under the
Government Systems Pension Plan.
"ISEP" has the meaning set forth in Section 2.14(e).
"Joint Ventures" means, collectively, the joint venture entities
created pursuant to the agreements listed under the caption "Joint Ventures" on
Schedule 2.5.
"Joint Venture Interests" means, collectively, the debt and
equity ownership interests of Seller and its Affiliates in the Joint Ventures.
"Law" means any constitutional provision, statute or other law,
rule, regulation or interpretation of any Governmental Entity and any Order,
including national security regulations and restrictions, export regulations
and regulations pertaining to classified information.
6
<PAGE> 13
"Leased Real Property" has the meaning set forth in Section
2.6(b).
"LTD Recipient" has the meaning set forth in Section 6.1(g).
"Material Classified Contract" means any Classified Contract
under which the Company or any of its Subsidiaries expect to accrue revenue in
excess of $5,000,000 during the fiscal year ending December 31, 1999 or during
the fiscal year ending December 31, 2000.
"Material Contract" has the meaning set forth in Section 2.5.
"Material Government Contract" means any Government Contract
under which the Company or any of its Subsidiaries expect to accrue revenue in
excess of $5,000,000 during the fiscal year ending December 31, 1999 or during
the fiscal year ending December 31, 2000.
"Net Assets" means as of any particular date the consolidated
net assets of the Business determined in a manner consistent with the
calculation of net assets as set forth in the Target Statement of Net Assets.
"Net Tax Benefit" has the meaning set forth in Section 9.3(c).
"Net Tax Reduction" has the meaning set forth in Section 5.3(d).
"Noncompetition Period" has the meaning set forth in Section
5.6(a).
"Non-Statutory Intellectual Property" means any trade secret,
secret process or other proprietary information or know-how and any rights or
licenses in the foregoing.
"Order" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"Owned Real Property" has the meaning set forth in Section
2.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereto.
"Pension Plan" has the meaning set forth in Section 6.2(a)(i).
"Permit" means any license, permit, franchise, certificate of
authority or order or any extension, modification, amendment or waiver of the
foregoing, required to be issued by any Governmental Entity, but excluding
Environmental Permits.
"Person" means an association, a corporation, an individual, a
partnership, a limited liability company, a limited liability partnership, a
trust or any other entity or organization, including a Governmental Entity.
"Plans" has the meaning set forth in Section 2.14(a).
"Pre-Closing Restructuring" has the meaning set forth in Section
1.5(a).
"Purchase Price" has the meaning set forth in Section 1.4(a).
"Regulated Substance" means (i) any "hazardous substance" or
"pollutant" or "contaminant," as such terms are defined in the Comprehensive
Environmental Response, Compensation and Liability Act (Title 42 United States
Code Section 9601 et seq.), or Title 40 Code of Federal Regulations
7
<PAGE> 14
Part 302, (ii) any toxic or hazardous substance, material or waste (whether
solid, liquid or gaseous), (iii) "petroleum," as that term is defined in the
Resource Conservation and Recovery Act, as amended (Title 42 United States Code
Section 6691 et seq.), or Title 40 Code of Federal Regulations Section 280.1, or
(iv) any other substance or waste which is regulated under any applicable
Environmental Law with respect to its collection, storage, transportation for
disposal, treatment or disposal.
"Related Agreements" means the Intellectual Property Agreement
and the Transition Services Agreement.
"Retained VEBA" has the meaning set forth in Section
6.2(c)(ii)(C).
"Retirement Plans" has the meaning set forth in Section 2.14(c).
"SEC" means the Securities and Exchange Commission or any
successor entity.
"SERP" has the meaning set forth in Section 6.3(a).
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" has the meaning set forth in the Preamble hereto.
"Seller LTD Plan" has the meaning set forth in Section 6.8(a).
"Seller Savings Plans" has the meaning set forth in Section
6.2(b)(i).
"Seller Welfare Plans" has the meaning set forth in Section
6.2(c)(i).
"Seller's representatives" has the meaning set forth in Section
4.3.
"Statutory Intellectual Property" means any copyright, patent,
service mark, trademark, tradename, brand name and domain name, all
registrations or applications for registration of any of the foregoing and any
rights or licenses in the foregoing.
"Stock" means the capital stock of the Company.
"Subsidiary" means, with respect to any Person, any Person in
which such Person has a direct or indirect equity or ownership interest in
excess of 50%. For purposes of this Agreement, the Subsidiaries of the Company
shall mean the Subsidiaries of the Company after giving effect to the actions
that comprise the Pre-Closing Restructuring and the ISD Disposition.
"Target Net Assets" has the meaning set forth in Section 1.4(a).
"Target Statement of Net Assets" means the statement of net
assets of the Business attached hereto as Schedule 1.1 which was derived from
the balance sheet included in the Year-End Financial Statements after giving
effect to the ISD Disposition and the exclusions and adjustments set forth on
Schedule 1.4 hereto.
"Tax" means any foreign, federal, state, county or local income,
sales and use, transfer, excise, franchise, stamp duty, real and personal
property, gross receipt, capital stock, production, business and occupation,
disability, employment, payroll, severance, withholding or tollgate tax or
charge imposed by any Governmental Entity, any interest and penalties and
additions to tax (civil or criminal) related thereto or to the nonpayment
thereof.
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"Tax Return" means a report, return or other information
required to be supplied to a Governmental Entity with respect to Taxes
including, where permitted or required, combined or consolidated returns for
any group of entities that includes the Company or any Subsidiary.
"Transferred Employees" has the meaning set forth in Section
6.1(a).
"Transition Services Agreement" means the Transition Services
Agreement to be executed by the parties as of the Closing Date, substantially
in the form of Exhibit B attached hereto.
"Union Pension Plan" has the meaning set forth in Section
6.2(a)(i).
"U.S. Government" means any agency, division instrumentality,
subdivision, audit group, or procuring office of the federal government.
"VEBA" has the meaning set forth in Section 6.2(c)(ii)(C).
"Year-End Financial Statements" has the meaning set forth in
Section 2.3(a).
1.2 TRANSFER OF STOCK BY SELLER.
Subject to the terms and conditions of this Agreement, Seller agrees to
sell the issued and outstanding Stock of the Company, and to deliver the
certificates evidencing such Stock, to Buyer, and Buyer agrees to purchase such
Stock from Seller, for the consideration hereinafter set forth. The
certificates will be properly endorsed for transfer to or accompanied by a duly
executed stock power in favor of Buyer or its nominee as Buyer may have
directed at least two business days prior to the Closing Date and otherwise in
a form acceptable for transfer on the books of the Company.
1.3 THE CLOSING.
(a) Unless this Agreement shall have been terminated and the
transactions herein have been abandoned pursuant to Article VIII hereof, the
purchase and sale of the Stock shall take place at a closing (the "Closing") to
be held at the offices of O'Melveny & Myers LLP, Citicorp Center, 153 East 53rd
Street, New York, NY 10022 or at such other location as may be agreed upon by
Buyer and Seller.
(b) The Closing shall take place on the third business day
following the satisfaction or waiver of the conditions contained in Sections
7.1(a) and 7.1(b) to the purchase and sale of the Stock of the Company (so long
as the other conditions contained in Article VII are satisfied or waived), or
on such later date as may be agreed upon by Buyer and Seller (the date on which
the Closing occurs is herein referred to as the "Closing Date"). The parties
will use their reasonable best efforts to cause the Closing Date to be
effective as of the end of a month.
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1.4 PURCHASE AND SALE; PURCHASE PRICE AND ADJUSTMENTS.
(a) The aggregate purchase price for the Stock shall be an amount (the
"Purchase Price") equal to the Base Purchase Price (as defined in Section 1.4(b)
below) plus (or, if a negative number, minus) the difference between the Net
Assets as of the Closing Date and the Net Assets set forth on the Target
Statement of Net Assets (the "Target Net Assets"). The parties agree that, if an
asset or liability was included or excluded, as applicable, in the Target
Statement of Net Assets in order to give effect to the ISD Disposition and after
the date hereof it is determined that any such asset or liability should not
have been so included or excluded, as applicable, then for purposes of this
Section 1.4 the Target Statement of Net Assets shall be redetermined to include
or exclude such asset or liability, as appropriate.
(b) Not less than three days prior to the Closing Date, Seller will
give to Buyer a good faith estimate of the Net Assets as of the Closing Date
(the "Estimated Closing Date Net Assets"). On the Closing Date, Buyer agrees to
pay to Seller (the "Closing Date Payment") $1,050,000,000 (the "Base Purchase
Price") plus (or, if a negative number, minus) the difference between the
Estimated Closing Date Net Assets and the Target Net Assets. Such payment shall
be made by wire transfer of immediately available funds in U.S. Dollars to an
account designated by Seller to Buyer at least one business day prior to the
Closing Date.
(c) (i) Within 90 days after the end of the month in which the Closing
occurs, Seller shall cause a statement of Net Assets as of the Closing Date (the
"Closing Date Statement of Net Assets") to be prepared in accordance with GAAP
applied on a basis consistent with the preparation of the Target Statement of
Net Assets (provided, however, that in determining the Closing Date Statement of
Net Assets, the exclusions and adjustments set forth on Schedule 1.4 shall be
given effect), and to be audited by Arthur Andersen LLP, independent public
accountants ("Auditors"). The Closing Date Statement of Net Assets shall be
accompanied by an Auditor's report based upon the audit of the Closing Date
Statement of Net Assets stating, without qualification or limitation arising out
of the scope of the audit, that such statement presents fairly, in all material
respects, the Net Assets presented on such statement as provided for in this
Agreement at the Closing Date in conformity with GAAP consistently applied with
past practice. All costs and expenses of the Auditor in auditing the Closing
Date Statement of Net Assets shall be borne by Seller. Buyer shall cause the
Company and its Subsidiaries and their respective employees and agents to assist
Seller and the Auditors in the preparation of the Closing Date Statement of Net
Assets and shall provide Seller and the Auditors access at all reasonable times
to the personnel, properties, books and records of the Company and its
Subsidiaries for such purpose.
(ii) Buyer agrees that any adjustments proposed in
accordance with Section 1.4(c) will not involve changes in or
challenges to any of Seller's accounting methodologies, policies,
practices or procedures that have been consistently applied with
respect to the Target Statement of Net Assets and the Closing Date
Statement of Net Assets.
(iii) Within 30 days after receipt of the Closing Date
Statement of Net Assets, Buyer shall, in a written notice to Seller,
either accept such Closing Date Statement of Net Assets or describe in
reasonable detail any proposed adjustments to such Closing Date
Statement of Net Assets and the reasons therefor. Any proposed
adjustments by Buyer shall be accompanied by a certificate of its
chief financial officer, stating that such adjustments are required
for the Closing Date Statement of Net Assets to comply with GAAP
applied on a basis consistent with the preparation of the Target
Statement of Net Assets. If Seller shall not have received such notice
of proposed adjustments within such 30-day period, Buyer will be
deemed irrevocably to have accepted the Closing Date Statement of Net
Assets.
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(iv) Buyer and Seller shall negotiate in good faith to
resolve any disputes over any proposed adjustments to the Closing Date
Statement of Net Assets. If any such dispute is not resolved within 30
days following Seller's receipt of the proposed adjustments, Seller
and Buyer jointly shall select an independent public accounting firm
that is nationally recognized in the United States and expert in
Government Contracts to resolve such disputes in accordance with the
standards set forth in this Section 1.4(c), which resolution shall be
final and binding. The fees and expenses of such accounting firm shall
be shared by Seller and Buyer in inverse proportion to the relative
amounts of the disputed amount determined to be for the account of
Seller and Buyer, respectively.
(v) Upon the acceptance of the Closing Date Statement of Net
Assets by Buyer or the resolution in writing of any disputes arising
out of any proposed adjustments, the parties shall, based thereupon,
calculate the Net Assets as of the Closing Date and the final Purchase
Price.
(vi) If the Purchase Price as finally determined above is
greater than the Closing Date Payment, Buyer shall promptly, but no
later than three business days after such acceptance or resolution,
pay to Seller the amount of such difference. If the Purchase Price as
determined above is less than the Closing Date Payment, Seller shall
promptly, but no later than three business days after such acceptance
or resolution, pay to Buyer the amount of such difference. Any such
payment pursuant to this Section 1.4(c) shall be made by wire transfer
of immediately available funds in U.S. Dollars and shall include
interest at a rate of 6%, for the period commencing as of the Closing
Date through and including the date of such payment.
1.5 PRE-CLOSING RESTRUCTURING; REQUIRED CONSENTS.
(a) Seller will use its reasonable best efforts, at its expense, to
cause the actions set forth on Schedule 1.5 to be taken as set forth therein
(such actions are referred to as the "Pre-Closing Restructuring") as soon as
reasonably practicable after the date hereof.
(b) Notwithstanding anything to the contrary contained in this
Agreement, to the extent that the consummation (or attempted consummation) of
any aspect of the Pre-Closing Restructuring is prohibited by any applicable Law
or requires any Approvals or any third-party authorizations, approvals, consents
or waivers that have not been obtained prior to the Closing, that aspect of the
Pre-Closing Restructuring shall not be consummated; provided, however, that
except to the extent that a condition to Closing set forth in Article VII
relating to the foregoing shall not be satisfied, the Closing shall occur
without any adjustment to the Purchase Price even though that aspect of the
Pre-Closing Restructuring has not been consummated. Following the Closing, Buyer
and Seller shall use their reasonable best efforts, and shall cooperate with
each other, to obtain promptly such Approvals or such authorizations, approvals,
consents or waivers; provided, however, that neither Buyer and Seller nor any of
their respective Affiliates shall be required to pay any consideration therefor,
other than filing, recordation or similar fees payable to any Governmental
Entity, which fees shall be paid by Seller. Pending or in the absence of such
Approval or such authorization, approval, consent or waiver, Buyer and Seller
shall cooperate with each other in any reasonable and lawful arrangements
designed to provide to the Company and its Subsidiaries the benefits and
liabilities of the assets related to that aspect of the Pre-Closing
Restructuring. If such Approval or such authorization, approval, consent or
waiver is ultimately obtained, Seller shall, or shall cause its Affiliates to,
promptly consummate such aspect of the Pre-Closing Restructuring.
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1.6 ISD DISPOSITION.
(a) Seller, at its expense, shall cause the Company to (i) consummate
the sale or other disposition of the assets, Intellectual Property, rights,
properties, liabilities and obligations of the Company set forth on Schedule
1.6(a) hereto, to either a third party selected by Seller or to an Affiliate
(other than the Company or any of its Subsidiaries) of Seller (the "ISD
Purchaser" ) and (ii) take all actions, including those set forth on Schedule
1.6(a), to effect the foregoing (collectively, the "ISD Disposition"). Seller
shall use its reasonable best efforts to consummate the ISD Disposition prior to
the Closing Date. In the event that any assets, Intellectual Property, rights,
properties, liabilities and obligations used or held for use primarily in
connection with the ISD Business are not transferred pursuant to the ISD
Disposition, Buyer agrees, at Seller's expense, to the extent such ISD
Disposition occurs after Closing, to promptly transfer or cause the transfer of
such assets, Intellectual Property, rights, properties, liabilities and
obligations to the ISD Purchaser.
(b) Between the date of this Agreement and the Closing Date, the
Company and the ISD Purchaser or their respective Subsidiaries will enter into
agreements with respect to the matters set forth on Schedule 1.6(b).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller makes the representations and warranties contained in this
Article II to Buyer as of the date hereof. The representations and warranties of
Seller contained in this Article II shall be deemed to have been made after
giving effect to the actions that comprise the ISD Disposition and the
Pre-Closing Restructuring. No representation or warranty is made by Seller in
this Article II as to the ISD Business or the ISD Division. For purposes of this
Article II, any documents or information indicated as having been made available
to Buyer shall be deemed to have been so made available if they have been
delivered to Buyer or any of its representatives or agents prior to the date of
this Agreement or if they have been placed in the data room established by
Seller in connection with the transactions contemplated by this Agreement, and
appropriately indexed in accordance with Seller's normal procedures, at least
three business days prior to the date of this Agreement.
2.1 ORGANIZATION AND RELATED MATTERS.
Each of Seller, the Company and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the respective laws of
the jurisdiction of their incorporation or organization. Seller has all
necessary corporate power and authority to execute, deliver and perform this
Agreement and the Related Agreements. Schedule 2.1 lists all Subsidiaries of the
Company and sets forth the capitalization of each such Subsidiary and the
Company's ownership interest therein and the jurisdiction in which the Company
and each Subsidiary was organized. The Company and its Subsidiaries each has all
necessary corporate power and authority to own its respective properties and
assets and to carry on its respective businesses as now conducted and is duly
qualified or licensed to do business as foreign corporations in good standing in
all jurisdictions in which the character or the location of its owned or leased
assets or the nature of the business it conducts requires licensing or
qualification, except where the failure to be so qualified or licensed would not
have a material adverse effect on the business, financial condition or results
of operations of the Company and its Subsidiaries taken as a whole. True,
correct and complete copies of the respective charter documents of the Company
and its Subsidiaries, as in effect on the date hereof, have been made available
to Buyer.
2.2 STOCK.
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Seller owns, beneficially and of record, all of the issued and
outstanding Stock of the Company. Other than such Stock, there are no
outstanding Equity Securities of the Company. Except as described on Schedule
2.1, the Company owns all of the issued and outstanding Equity Securities of
each of its Subsidiaries, beneficially and of record. All of such Equity
Securities of the Company and its Subsidiaries are owned free and clear of any
Encumbrance except as set forth on Schedule 2.1. The authorized capital stock of
the Company and number of shares of Stock outstanding are set forth on Schedule
2.1. Except as set forth on Schedule 2.1, there are no outstanding Contracts or
other rights to subscribe for or purchase, or Contracts or other obligations to
issue or grant any rights to acquire, any Equity Securities of the Company or
any of its Subsidiaries. Except as set forth on Schedule 2.1, there are no
outstanding Contracts of Seller, the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any Equity Securities of any of the
Company or any of its Subsidiaries. All outstanding Equity Securities of the
Company and its Subsidiaries are duly authorized, validly issued and outstanding
and are fully paid and nonassessable. There are no preemptive rights in respect
of any Equity Securities of the Company or any of its Subsidiaries. There are no
outstanding stock appreciation, phantom stock, profit participation or similar
rights with respect to the Company or any of its Subsidiaries. There are no
voting trusts, proxies or other agreements or understandings with respect to the
voting of any capital stock of the Company or any of its Subsidiaries. Except as
part of the Pre-Closing Restructuring or the ISD Disposition, the Board of
Directors of the Company has not declared any dividend or distribution with
respect to the Company's outstanding capital stock the record or payment date
for which is on or after the date of this Agreement. Except as set forth on
Schedule 2.2, neither the Company nor any of its Subsidiaries is subject to any
obligation to contribute cash or other property to, or enter into any material
transaction with, any Joint Venture. The minute books, stock certificate books
and stock record books of the Company and each of its Subsidiaries are correct
and complete in all material respects. Neither the Company nor any of its
Subsidiaries is in default under or in violation of any provision of its charter
or bylaws. Except for the Company's Subsidiaries, the Joint Ventures and as set
forth on Schedule 2.1, the Company in connection with the Business does not
control directly or indirectly or have any direct or indirect material equity
participation in any Person.
2.3 FINANCIAL STATEMENTS; CHANGES; CONTINGENCIES.
(a) Financial Statements. Attached hereto as Schedule 2.3(a) are (i)
the audited combined balance sheet for the Company and its Subsidiaries as of
December 31, 1998, without giving effect to the ISD Disposition, and the related
combined statements of income, comprehensive income, shareholders' equity and
cash flow statements for the year ended December 31, 1998 (collectively, the
"Year-End Financial Statements"), (ii) the Target Statement of Net Assets, and
(iii) the statement of net assets of the Business as of May 31, 1999 (determined
on a basis consistent with the Target Statement of Net Assets), (collectively,
the "Interim Financial Statements"). The Year-End Financial Statements, the
Target Statement of Net Assets and the Interim Financial Statements are referred
to in this Agreement collectively as the "Financial Statements." The Year-End
Financial Statements were prepared in accordance with GAAP, consistently
applied, and present fairly, in all material respects, the financial condition
and results of operations of the Company and its Subsidiaries, without giving
effect to the ISD Disposition, as of the date, and for the period indicated
therein. The Target Statement of Net Assets was derived from the balance sheet
included in the Year-End Financial Statements after giving effect to the ISD
Disposition and the exclusions and adjustments set forth on Schedule 1.4 hereto.
The Interim Financial Statements were determined on a basis consistent with the
Target Statement of Net Assets.
(b) Certain Changes. Except as set forth on Schedule 2.3(b), since
December 31, 1998, there has not been, occurred or arisen any change in or event
affecting the Business that would have a material adverse effect on the
business, financial condition or results of operations of the Company and its
Subsidiaries taken as a whole, excluding any such change that is generally
applicable to the United States
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economy or securities markets as a whole or to the industries in which the
Company and its Subsidiaries operate.
(c) No Other Liabilities. To the knowledge of Seller, as of the date
hereof, neither the Company nor any of its Subsidiaries has incurred any
liabilities in excess of $1,000,000 that would be required in accordance with
GAAP to be disclosed on the Financial Statements except liabilities (i) that are
reflected or disclosed in the Financial Statements, (ii) that are disclosed in
this Agreement, any Related Agreement or the Schedules hereto or thereto, (iii)
that were incurred after December 31, 1998 in the ordinary course of business or
(iv) for Taxes.
2.4 TAX RETURNS AND REPORTS.
Except as disclosed on Schedule 2.4:
(a) the Company and each of its Subsidiaries and, to the knowledge of
Seller, the Joint Ventures, have timely filed all material Tax Returns required
to be filed thereby on or before the date hereof and have paid or will pay prior
to the Closing all Taxes shown to be due thereon, except Taxes that are being
disputed in good faith and are set forth on Schedule 2.4.
(b) To the knowledge of Seller, there are no pending, threatened or
proposed, assessments or claims from any Tax authority for deficiencies,
penalties, interest or other Taxes against the Company or any of its
Subsidiaries or the Joint Ventures, or any of their respective assets,
operations or activities, except where such an assessment or claim would not
have a material adverse effect on the business, financial condition or results
of operations of the Company and its Subsidiaries and the Joint Ventures taken
as a whole, and to Seller's knowledge there is no basis for any such assessment
or claim that could have a material adverse effect on the business, financial
condition or results of operations of the Company and its Subsidiaries and the
Joint Ventures taken as a whole. No claim with respect to the Company or any of
its Subsidiaries, or to Seller's knowledge, the Joint Ventures, has been made by
an authority in a jurisdiction where the Company or such Subsidiary or Joint
Venture does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction, and to Seller's knowledge (i) there is no investigation or
other proceeding pending that may lead to such a claim and (ii) there is no
meritorious basis for any such claim.
(c) Except for certain change-in-control payment that may become
payable in connection with the Bell Atlantic Merger, which payments will be the
responsibility of Seller, neither the Company nor any of its Subsidiaries is
obligated to make any payments or is a party to any agreement that could
obligate it to make any payments that, either individually or collectively,
shall not be fully deductible under Section 280G or Section 162(m) of the Code.
(d) None of the assets or properties of the Company or any of its
Subsidiaries is "limited use property" within the meaning of Revenue Procedure
76-30 or shall be treated as owned by any other Person pursuant to the
provisions of former Section 168(f)(8) of the Code. None of the assets or
properties of the Company or any of its Subsidiaries is required to be or is
being depreciated under the alternative depreciation system of Section 168(g)(2)
of the Code. Seller is not a Person other than a United States Person within the
meaning of the Code. No "industrial development bonds" within the meaning of
Section 103 of the United States Internal Revenue Code of 1954, as amended, and
in effect prior to the enactment of the United States Tax Reform Act of 1986,
"private activity bonds" within the meaning of Section 141 of the Code, or other
tax-exempt financing have been used to finance any of the assets, whether leased
or owned, of the Company or any of the Subsidiaries.
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(e) There are no outstanding rulings of, or closing agreements with,
or requests for rulings or closing agreements with, any Tax authority expressly
addressed to either Seller, the Company or any of the Subsidiaries (or, to the
knowledge of Seller, to any Affiliates of any of the foregoing) with respect to
any Tax or Tax Return that are, or if issued would have a material adverse
effect on the business, financial condition or results of operations for any Tax
Period or portion thereof beginning after the Closing Date.
2.5 MATERIAL CONTRACTS.
Schedule 2.5 contains a list, as of the date of this Agreement, of
each Contract (each of which shall be deemed a "Material Contract"), to which
the Company or any of its Subsidiaries is a party or to which the Company, any
of its Subsidiaries or any of their respective properties is subject or by which
any thereof is bound that:
(a) obligates the Company or any of its Subsidiaries to pay an amount
in excess of $5,000,000 during the fiscal year ending December 31, 1999 or the
fiscal year ending December 31, 2000;
(b) relates to the sale of goods and/or the provision of services
pursuant to which the Company or any of its Subsidiaries expect to accrue
revenue in excess of $10,000,000 during the fiscal year ending December 31, 1999
or the fiscal year ending December 31, 2000;
(c) limits or restricts the ability of the Company or any of its
Subsidiaries to compete or otherwise to conduct its Business in any material
manner or place;
(d) involves an obligation for borrowed money in excess of $250,000,
or provides for a guaranty for borrowed money or is a letter of credit, comfort
letter, surety or other bond in an amount in excess of $250,000 by the Company
or any of its Subsidiaries in respect of any Person other than the Company or
any of its Subsidiaries; or
(e) creates a partnership, limited liability company or joint venture;
or
(f) is a collective bargaining agreement, employment or consulting
agreement or severance or other agreement providing for severance payments or
other additional rights or benefits (whether or not optional) in the event of
the sale of the Company or any of its Subsidiaries; or
(g) is an agreement (including purchase orders, work assignment
requests and work assignment authorizations) between the Company or any of its
Subsidiaries and any other division, unit or Affiliate of Seller other than the
ISD Division requiring payments to or by the Company or any of its Subsidiaries
of more than $1,000,000 during the fiscal year ending December 31, 1999 or the
fiscal year ending December 31, 2000.
Material Contracts shall be deemed not to include any of the following: (i)
real estate leases described in Section 2.6, (ii) Contracts relating to
Intellectual Property licenses described in Section 2.7 and commercial "off the
shelf" software, (iii) matters listed in Schedule 2.21 or (iv) Government
Contracts.
Except as set forth in Schedule 2.5, true copies of the agreements
identified on Schedule 2.5, including all substantive amendments and
modifications thereto but excluding proprietary pricing or technical information
in the possession of the Company or its Subsidiaries as of the date of this
Agreement, have been made available to Buyer. Except as set forth on Schedule
2.5, each Material Contract is valid and in full force and effect according to
its terms, and the Company and its Subsidiaries
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that are parties thereto have performed any accrued obligations thereunder in
all material respects and have not received written notice alleging a default
or breach under any such Material Contract. Except as set forth on Schedule
2.5, consummation of the transactions contemplated by this Agreement will not
(and will not give any Person a right to) terminate or modify any rights of the
Company or any of its Subsidiaries under any Material Contract, except for any
of the foregoing that would not have a material adverse effect on the business,
financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole.
2.6 REAL AND PERSONAL PROPERTY; TITLE TO PROPERTY; LEASES.
(a) Except as set forth on Schedule 2.6(a), the Company and each of
its Subsidiaries have title to or other right to use, free of Encumbrances, (x)
all items of real property material to the Business, including fees, leaseholds
and all other interests in such real property, and (y) such other tangible
assets and properties that are material to the Business, including all such
tangible assets that they purport to own or have the right to use as reflected
in the Financial Statements or that were thereafter acquired, except, in any
such case, for (i) liens for Taxes not yet due or matters otherwise described in
Schedule 2.6(a) (whether or not such liens or other matters constitute
Encumbrances), and (ii) assets and properties not material to the Business that
were disposed of since December 31, 1998 in the ordinary course of business. The
tangible properties of the Company and each of its Subsidiaries that are
material to the Business are in a good state of maintenance and repair (except
for ordinary wear and tear) and are adequate for the Business. The Company and
its Subsidiaries own or have the right to use pursuant to valid lease, sublease,
agreement or permission all material items of tangible personal property
necessary or used for the operation of the Business as presently conducted. All
tangible personal property owned or used by the Company and its Subsidiaries in
connection with the operation of the Business of the date of this Agreement
shall be owned or available for use by the Company and the Subsidiaries on
substantially similar terms and conditions after giving effect to the Closing
and the consummation of the ISD Deposition, except for the failure of such of
the foregoing as would not have a material adverse effect on the business,
financial condition or results of operations of the Company and its Subsidiaries
taken as a whole.
(b) Schedule 2.6(b) describes in reasonable detail each parcel of the
material real property owned by the Company or any of its Subsidiaries which is
used or held for use in connection with the Business (collectively, the "Owned
Real Property"). The Company or one of its Subsidiaries, as applicable, has good
and marketable fee simple title to such parcel, free and clear of any
Encumbrance, except for (i) installments of real property Taxes not yet
delinquent and recorded easements, covenants and other restrictions that do not
impair the current use, occupancy or value, or the marketability of title, of
the property subject thereto and (ii) Encumbrances that would not have a
material adverse effect on the business, financial condition or results of
operations of the Company and its Subsidiaries taken as a whole. Schedule 2.6(b)
lists all lease and sublease agreements relating to all material real property
leased or subleased by the Company or any of its Subsidiaries in connection with
the Business (collectively, the "Leased Real Property"). Each lease or sublease
relating to the Leased Real Property is valid and in full force and effect
according to its terms and the Company and its Subsidiaries that are parties
thereto have performed any accrued obligations thereunder in all material
respects and have not received any written notice alleging a default or breach
under any such lease or sublease. Other than options, rights of first refusal or
other similar arrangements in favor of the Company and its Subsidiaries under
the leases and subleases relating to the Leased Real Property, neither the
Company nor any of its Subsidiaries has entered into any material contract,
arrangement or understanding with respect to the future ownership, development,
use, occupancy or operation of the Owned Real Property or the Leased Real
Property. There are no pending or, to Seller's knowledge, threatened
condemnation or eminent domain proceedings with respect to the Owned Real
Property, and neither the Company nor any of its Subsidiaries has received
written notice of the intention of any Governmental Entity or other Person to
take or use all or
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any part thereof. To the knowledge of Seller, none of the Owned Real Property
or Leased Real Property or any part thereof has suffered any material damage by
fire or other casualty, which casualty shall not include the presence of
Regulated Substances in the environment, that has not been restored. Except as
set forth on Schedule 1.6(b), no material parcel of Owned or Leased Real
Property is shared by the Business and the ISD Business.
2.7 INTELLECTUAL PROPERTY.
(a) Since June 1, 1996, to the knowledge of Seller, except as set
forth on Schedule 2.7, the Company and its Subsidiaries have not infringed upon
or misappropriated any material Intellectual Property of third parties which
would have a material adverse effect on the Business. Since June 1, 1996, except
as set forth on Schedule 2.7 or as resolved, neither the Company nor any of its
Subsidiaries has received any written charge, complaint, claim, demand or notice
alleging any material interference, infringement, misappropriation or violation
(including any claim that the Company or any of its Subsidiaries must license or
refrain from using any Intellectual Property of any third party). To Seller's
knowledge, no third party has materially interfered with, infringed upon,
misappropriated or otherwise come into conflict with any of the material
Intellectual Property of the Company or any of its Subsidiaries.
(b) Schedule 2.7 identifies each item of Statutory Intellectual
Property owned by the Company or any of its Subsidiaries in connection with the
Business. Seller has made or will make available to Buyer correct and complete
copies of all such Statutory Intellectual Property and all other material
written documentation evidencing ownership and prosecution of each such item.
With respect to each such item of Statutory Intellectual Property required to be
identified in Schedule 2.7, except as otherwise set forth on Schedule 2.7, (i),
the Company and its Subsidiaries possess all right, title and interest in and to
such item, free and clear of any Encumbrance, (ii) such item is not subject to
any outstanding injunction, judgment, order, decree, ruling or charge, and (iii)
no Action is pending or, to Seller's knowledge, threatened that challenges the
legality, validity, enforceability, use or ownership of such item.
(c) Schedule 2.7 identifies each item of material Intellectual
Property of any Person (other than Seller or its Affiliates) used in connection
with the administration of the Business. With respect to each such item of
material Intellectual Property, (i) to Seller's knowledge, the underlying item
is not subject to any outstanding injunction, judgment, order, decree, or
ruling, (ii) no Action is pending or, to Seller's knowledge, threatened that
challenges the Company's or any of its Subsidiaries' use of such item, and (iii)
the Company has not granted any sublicense or similar right with respect to such
item of any Person without permission.
(d) Except as set forth on Schedule 2.7, each material item of
software listed on Schedule 2.7 owned or used by the Company and its
Subsidiaries in connection with the operation of the Business as of the date of
this Agreement shall be owned or available for use by the Company and its
Subsidiaries on substantially identical terms and conditions after giving effect
to the Closing and the consummation of the ISD Disposition.
2.8 AUTHORIZATION; NO CONFLICTS.
The execution, delivery and performance of this Agreement and the
Related Agreements by Seller have been duly and validly authorized by the Board
of Directors of Seller and by all other necessary corporate action on the part
of Seller. This Agreement and, when executed, the Related Agreements constitute,
or will constitute, legally valid and binding obligations of Seller, enforceable
against Seller in accordance with their terms except as may be limited by
bankruptcy, insolvency,
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reorganization, moratorium and other similar laws and equitable principles
relating to or limiting creditors' rights generally. Except as set forth on
Schedule 2.8, the execution, delivery and performance of this Agreement and the
Related Agreements by Seller will not (i) violate, or constitute a breach or
default (whether upon lapse of time and/or the occurrence of any act or event or
otherwise) under, the charter documents or by-laws of Seller, (ii) result in the
imposition of any Encumbrance against the Stock or any material assets or
properties of the Company or any of its Subsidiaries or (iii) violate any Law,
except, in the case of clauses (ii) and (iii) above, for any such violations,
breaches, defaults and impositions as would not have a material adverse effect
on the business, financial condition or results of operations of the Company and
its Subsidiaries taken as a whole. Except for (i) matters identified in Schedule
2.8, (ii) any filings or approvals required under the Hart-Scott-Rodino Act,
(iii) any novations or consents required in connection with Government
Contracts, (iv) the Anti-Assignment Laws and (v) Federal Acquisitions
Regulations, the execution, delivery and performance of this Agreement and the
Related Agreements by Seller will not require any Approvals to be obtained
except for any such Approvals the failure of which to receive would not in the
aggregate have a material adverse effect on the business, financial condition or
results of operations of the Business or have a material adverse effect on the
ability of Seller to consummate the transactions contemplated by this Agreement
and the Related Agreements.
2.9 LEGAL PROCEEDINGS.
Except as set forth on Schedule 2.9, as of the date hereof, there is
no Order or Action pending or, to the knowledge of Seller, threatened, against
or affecting the Company or any of its Subsidiaries that (i) involves a claim or
potential claim of liability in excess of $1,000,000 against or affecting the
Company or any of its Subsidiaries or any of their respective properties or
assets, (ii) enjoins or seeks to enjoin any significant activity by the Company
or any of its Subsidiaries or (iii) individually or when aggregated with one or
more other Orders or Actions has had or would reasonably be expected to have a
material adverse effect on Seller's ability to perform this Agreement or any of
the Related Agreements.
2.10 LABOR MATTERS.
As of the date hereof, there is no material organized labor strike,
dispute, slowdown or stoppage, or collective bargaining or unfair labor practice
claim pending or, to the knowledge of Seller, threatened against or affecting
the Company or the Business. Except as set forth on Schedule 2.10, neither the
Company nor any of its Subsidiaries is a party to a collective bargaining
agreement. Except for the WTS OFCCP conciliation agreement discussed with Buyer,
the Company nor any of its Subsidiaries is a party or otherwise subject to any
conciliation agreement or similar agreement or commitment with the Office of
Federal Contract Compliance Programs.
2.11 INSURANCE.
The Company and its Subsidiaries are, and at all times during the past
two years have been, insured with reputable insurers (or self-insured) against
all risks normally insured against by companies in similar lines of business,
and all of the insurance policies and bonds required to be maintained by the
Company and its Subsidiaries are in full force and effect.
2.12 PERMITS; SECURITY CLEARANCES.
The Company and its Subsidiaries hold all material Permits that are
required by any Governmental Entity to permit each of them to conduct their
respective businesses as now conducted, and all such material Permits are valid
and in full force and effect, subject to the filings and Approvals contemplated
by Section 4.4, except where the failure to hold any such Permit would not,
singly or in the
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aggregate, have a material adverse effect on the business, financial condition
or results of operations of the Company and its Subsidiaries taken as a whole.
To the knowledge of Seller, as of the date hereof, no suspension, cancellation
or termination of any of such material Permits is threatened or imminent. The
Company and its Subsidiaries hold all material facility security clearances
necessary, to the extent applicable, to permit them to conduct the Business as
conducted on the date hereof.
2.13 COMPLIANCE WITH LAW.
The Company and its Subsidiaries are operating the Business in
compliance in all material respects with all applicable Laws, and no Action has
been filed or commenced against or, to Seller's knowledge, has been threatened
against the Company or any of its Subsidiaries alleging any failure to comply in
all material respects with any applicable Law. It is the intent of the parties
hereto that this representation and warranty is not applicable to matters
relating to Income Taxes, employee matters, environmental matters or Government
Contracts, which are the subject of Sections 2.4, 2.14, 2.18 and 2.20,
respectively.
2.14 EMPLOYEE BENEFITS.
(a) Schedule 2.14(a) lists (and identifies the sponsor of) as of the
date hereof each material "employee pension benefit plan," as that term is
defined in Section 3(2) of ERISA, each material "employee welfare benefit plan,"
as that term is defined in Section 3(1) of ERISA, that is subject to Title I of
ERISA (such plans being hereinafter referred to collectively as the "ERISA
Plans" ), each material other retirement, pension, profit-sharing, money
purchase, deferred compensation, incentive compensation, bonus, stock option,
stock purchase, severance pay, unemployment benefit, vacation pay, health, life
or other insurance, fringe benefit, or other employee benefit plan, program,
agreement or arrangement maintained or contributed to as of the date hereof by
the Company or its Affiliates in respect of or for the benefit of any employee
of the Company or its Subsidiaries (an " Employee") or former Employee,
including any such plan, program, agreement or arrangement maintained or
contributed to solely in respect of or for the benefit of Employees or former
Employees employed or formerly employed by the Company or its Subsidiaries
outside of the United States (collectively, together with the ERISA Plans,
referred to hereinafter as the "Plans" and each a "Plan").
(b) With respect to the ERISA Plans:
(i) neither the Company nor any of its Affiliates, any of
the ERISA Plans, any trust created thereunder, or any trustee or
administrator thereof, has engaged in any non-exempt "prohibited
transaction," as that term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any ERISA Plan, or in any
transaction as a result of which the Company or its Subsidiaries would
reasonably be expected to be subject to any material liability
pursuant to Section 409 of ERISA or to either a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed pursuant to
Section 4975 of the Code; and
(ii) since the effective date of ERISA, no liability under
Title IV of ERISA has been incurred by the Company or its Subsidiaries
(other than liability for premiums due to the PBGC) unless such
liability has been, or prior to the Closing Date will be, satisfied in
full.
(c) Except with respect to the matters involved in the IRS Voluntary
Compliance Resolution Compliance Statement in 1998 previously disclosed to
Buyer:
(i) the PBGC has not instituted proceedings to terminate any
ERISA Plan that is subject to Title IV of ERISA (the "Retirement
Plans"), and no such Retirement Plan has
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been the subject of a "reportable event" as that term is defined in
Section 4043 of ERISA, as to which notices would be required to be
filed with the PBGC;
(ii) no ERISA Plan has incurred an "accumulated funding
deficiency," as that term is defined in Section 302 of ERISA and
Section 412 of the Code, whether or not waived, as of the last day of
the most recent fiscal year of each of the ERISA Plans ended prior to
the date of this Agreement;
(iii) each ERISA Plan has been operated and administered in
all material respects in accordance with its provisions and with all
applicable Laws;
(iv) each ERISA Plan that is intended to be "qualified"
within the meaning of Section 401(a) of the Code has been determined
by the IRS to be so qualified, and nothing has occurred since the date
of the most recent such determination (other than the effective date
of certain amendments to the Code the remedial amendment period for
which has not yet expired) that would adversely affect the qualified
status of any of such ERISA Plans;
(v) as of the date hereof, there are no pending material
claims by or on behalf of any of the ERISA Plans, by any employee or
beneficiary covered under any ERISA Plan against any such ERISA Plan,
or otherwise involving any such ERISA Plan (other than routine claims
for benefits and routine expenses);
(vi) no Retirement Plan has been amended in any manner which
would require the posting of a security under Section 401(a)(29) of
the Code or Section 307 of ERISA; and
(vii) all material required reports and descriptions
(including Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's
and summary plan descriptions) have been filed or distributed
appropriately with respect to each ERISA Plan and the requirements of
Part 6 of Subtitle B of Title 1 of ERISA and Section 4980B of the Code
have been met in all material respects with respect to each ERISA Plan
that is an "employee welfare benefit plan" (as defined above) subject
to those requirements;
(viii) all previous contributions (including all employer
contributions and employee salary reduction contributions) or other
payments that are due on or before the date of this Agreement have
been paid to the respective Plans and all contributions for any period
ending on or before the Closing Date that are not yet due will be paid
to each such Plan or accrued in accordance with the past custom and
practice of the Company; and
(ix) Seller has made available to Buyer for each ERISA Plan
correct and complete copies of all plan documents and summary plan
descriptions (including any summaries of material modifications), the
most recent determination letter received from the IRS, the most
recently filed Form 5500 Annual Report, all trust agreements,
insurance contracts and other funding agreements that implement such
Plan, and the most current actuarial reports, and those for the past
two years, if required under ERISA. The valuation summaries provided
by Seller to Buyer reasonably represent the assets and liabilities
attributable to the ERISA Plans calculated in accordance with the
Company's past practices.
(d) None of the ERISA Plans is a "multiemployer plan," as that term is
defined in Section 3(37) of ERISA, and with respect to any such multiemployer
plan, neither the Company nor any
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of its Subsidiaries has made or incurred a "complete withdrawal" or a "partial
withdrawal," as such terms are respectively defined in Sections 4203 and 4205
of ERISA.
(e) Since January 1, 1998, except for communications to Employees and
retirees with respect to (i) the Bell Atlantic Merger protections associated
with benefits relating to retiree welfare, pension, savings plans, severance,
stock options and executive compensation; (ii) the 1998 and 1999 Involuntary
Separation Programs ("ISEP"); and (iii) annual plan enrollment materials,
neither the Company nor any of its Affiliates has communicated to any Employee
or retiree (excluding internal memoranda to management) any plan or commitment,
to create any additional material employee benefit plan or arrangement, to
maintain the benefits provided under any Plan for any specified length of time
or at any specified level, or to materially modify or change any Plan.
(f) Except for the retention bonuses awarded in connection with this
purchase and sale of the Company described in Section 6.1(d), for which Seller
shall retain the obligation, no Plan contains any provision that would prohibit
the transactions contemplated by this Agreement or that would give rise to any
severance, termination or other payments as a result of the transactions
contemplated by this Agreement. Further, no Plan contains any provision that
would prohibit any plan merger or plan spin-off contemplated by this Agreement.
(g) Except as set forth on Schedule 2.14(g), none of the Company or
any of its Affiliates maintains or ever has maintained, or contributes, ever has
contributed, or ever has been required to contribute to any "employee welfare
benefit plan" (as defined above) providing medical, health, life insurance or
other welfare benefits for current or future retired or terminated employees of
the Company or its Subsidiaries, their spouses or their dependents (other than
in accordance with Section 4980B of the Code).
(h) Except with respect to the ISD Disposition and the Pre-Closing
Restructuring or as otherwise contemplated by this Agreement, since January 1,
1998, no employee or group of employees has been transferred or otherwise
reassigned from the Business to any other division, unit or Affiliate of the
Company, or transferred or otherwise reassigned from any other division, unit or
affiliate of the Company to the Business, except for transfers and reassignments
in the ordinary course of business, consistent with past practice, not made in
anticipation of the sale of the Business.
(i) To the best knowledge of Seller, no individual classified as a
non-employee for purposes of receiving employee benefits (such as an independent
contractor, leased employee, consultant or special consultant), regardless of
treatment for other purposes, is eligible to participate in or receive benefits
under any Plan.
(j) The financial statement for the VEBA trusts present fairly, in all
material respects, the financial condition and operations of such trusts.
(k) All material required Tax Returns with respect to each of the
voluntary employees' beneficiary associations maintained by Seller or the
Company on behalf of Company Employees, have been made in a timely manner with
each respective Governmental Entity, and each Tax Return is correct in all
material respects.
(l) Any retention bonus described in Section 6.1(d) paid by Seller to
any Transferred Employee in connection with the transactions contemplated by
this Agreement will not be pensionable compensation under any Plan including
without limitation the Government Systems Pension Plan, the GTE Supplemental
Executive Retirement Plan and the GTE Excess Pension Plan.
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2.15 INTERCOMPANY OBLIGATIONS.
Other than as contemplated by Section 4.5, the consummation of the
transactions contemplated by this Agreement will not (either alone, or upon the
occurrence of any act or event, or with the lapse of time, or both) result in
any payment arising or becoming due from the Company or any of its Subsidiaries
to Seller or any Affiliate of Seller.
2.16 NO BROKERS OR FINDERS.
No agent, broker, finder, or investment or commercial banker, or other
Person or firm engaged by or acting on behalf of Seller, the Company or any of
their respective Affiliates in connection with the negotiation, execution or
performance of this Agreement or the transactions contemplated by this
Agreement, is or will be entitled to any broker's or finder's or similar fee or
other commission arising in connection with this Agreement or such transactions
except for Bear, Stearns & Co. Inc., as to which Seller shall have full
responsibility and neither Buyer, the Company nor any of its Subsidiaries shall
have any liability.
2.17 OPERATION IN THE ORDINARY COURSE.
Except as set forth on Schedule 2.17, since December 31, 1998, the
Company and its Subsidiaries have operated their respective businesses in the
ordinary course and substantially in accordance with past practice, other than
in connection with the public announcement of GTE's intent to sell the Business,
the Pre-Closing Restructuring or changes in general economic conditions in which
the Business operates, in Law or applicable regulations or the official
interpretations thereof or in GAAP.
2.18 ENVIRONMENTAL COMPLIANCE.
Except as set forth on Schedule 2.18 or as set forth in the data room
established by Seller in connection with the transactions contemplated hereby,
(a) the Company and each of its Subsidiaries have substantially complied in all
material respects with all applicable Environmental Laws in connection with the
ownership, use, maintenance and operation of the Owned Real Property and the
Leased Real Property and otherwise in connection with the operation of the
Business, (b) the Company and its Subsidiaries have no material liabilities
under any applicable Environmental Law with respect to the operations or
properties of the Business, (c) no written notices from any Governmental Entity
of any alleged material violation of or any material liability under any
applicable Environmental Law relating to the operations or properties of the
Business have been received by the Company or any of its Subsidiaries since
January 1, 1996, (d) there are no Orders outstanding or any Actions pending or,
to Seller's knowledge, threatened, relating to compliance with or liability
under any applicable Environmental Law affecting the Business, (e) no material
changes or material alterations in the practices or operations of the Business
as presently conducted are required within one year of Closing in order to
comply with any applicable Environmental Law and (f) no audits or other reviews
of the properties or operations of the Business pertaining to compliance with or
liabilities under any applicable Environmental Laws have been performed by
Governmental Entities or third parties that reveal material non-compliance or
material liabilities that have not been addressed by Seller. This Section 2.18
constitutes the sole representation and warranty of the Seller with respect to
Environmental Law or any Regulated Substance.
2.19 YEAR 2000.
The Company and its Subsidiaries have planned and undertaken a
concerted effort so that their computer software, computer firmware, computer
hardware (whether general or special purpose), and other similar or related
items of automated, computerized, and/or software systems that are used or
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relied upon by the Company and its Subsidiaries in their business operations,
or that are incorporated into products sold by the Company and its
Subsidiaries, will not provide incorrect data or results, and will not
malfunction or cease to function, when processing, providing, and/or receiving
date-related or date/time data from, into and between the twentieth and
twenty-first centuries, including during the years 1999 and 2000 and leap year
calculations. This effort is proceeding substantially according to plan, and
Seller believes that any failures in such effort would not reasonably be
expected to have a material adverse effect on the business, financial condition
or results of operation of the Company and its Subsidiaries taken as a whole.
Neither Seller nor the Company and its Subsidiaries make any representation or
warranty with respect to any of their respective customers or suppliers with
respect to the foregoing.
2.20 GOVERNMENT CONTRACTS.
(a) Schedule 2.20 lists all Material Government Contracts other than
Classified Contracts. Except as reflected in Schedule 2.20 or with respect to
matters that have been resolved, with respect to each Government Contract and
Classified Contract:
(i) between January 1, 1997 and the date of this Agreement,
neither the U.S. Government nor any prime contractor or subcontractor
to the Company has notified the Company or any of its Subsidiaries in
writing that the Company or any of its Subsidiaries has breached or
violated any applicable Law in any material respect;
(ii) no termination for default, cure notice or show cause
notice is in effect as of the date hereof pertaining to any Government
Contract or Classified Contract; and
(iii) as of the date hereof, the U.S. Government has not
issued any notices of any material claims against the Company or any
of its Subsidiaries with respect to any Government Contract or
Classified Contract.
(b) Except as listed on Schedule 2.20, as of the date hereof, no
Governmental Entity has provided the Company or any of its Subsidiaries with
notice (other than routine DCAA audits) challenging, questioning or disallowing
any cost in excess of $1,000,000 incurred by the Company or any of its
Subsidiaries pertaining to any Government Contract or Classified Contract.
(c) To the knowledge of Seller, except as set forth in Schedule 2.20
or otherwise disclosed to Buyer, since January 1, 1997, neither the Company, its
Subsidiaries, nor any of their respective directors, officers or employees is
under civil or criminal investigation by any Governmental Entity with respect to
any alleged irregularity, misstatement, omission or any other matter with
respect to any such Government Contract or Classified Contract.
(d) The Company, its Subsidiaries and their directors, officers, or
employees have not been suspended or debarred from procurement programs during
the two year period prior to the date hereof and no such actions are pending or,
to the knowledge of Seller, threatened, and neither the Company nor any of its
Subsidiaries is currently on the List of Parties Excluded from Procurement
Programs.
(e) Except as set forth on Schedule 2.20, with respect to each
Government Contract or Classified Contract, (i) the Company and its Subsidiaries
have complied in all material respects with all terms and conditions of such
Government Contract or Classified Contract, including all clauses, provisions
and requirements incorporated expressly, by reference or by operation of Law,
therein, (ii) the Company and its Subsidiaries have complied in all material
respects with all requirements of all Laws pertaining to such Government
Contract or Classified Contract, including where applicable their
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respective Cost Accounting Standards disclosure statements, and (iii) no money
due to the Company or any of its Subsidiaries pertaining to such Government
Contract or Classified Contract currently is being withheld or set off nor has
any claim in writing been made to withhold or set off money except as required
under the payments terms of such Government Contract or Classified Contract in
the ordinary course of administering such contracts.
(f) No payment has been made by the Company or any of its Subsidiaries
or, to the knowledge of Seller, by any Person on behalf of the Company or any of
its Subsidiaries, in connection with any Government Contract or Classified
Contract in violation of applicable procurement Laws or in violation of, or
requiring disclosure pursuant to, the Foreign Corrupt Practices Act, as amended.
2.21 AFFILIATE TRANSACTIONS.
Except as disclosed in the notes to the Financial Statements or on
Schedule 2.21 or on Schedule 1 of the Intellectual Property Agreement, none of
Seller, GTE or any of their respective Affiliates (other than the Company and
its Subsidiaries) provides or causes to be provided to the Company or its
Subsidiaries any material assets, services or facilities and none of the Company
or any of its Subsidiaries provides or causes to be provided to Seller, GTE or
any of their respective Affiliates (other than the Company and its Subsidiaries)
any material assets, services or facilities.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents, warrants and agrees as of the date hereof as
follows:
3.1 ORGANIZATION AND RELATED MATTERS.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization. Buyer has the necessary corporate power and authority to execute,
deliver and perform this Agreement and the Related Agreements. Buyer has all
necessary corporate power and authority to carry on its business as now being
conducted.
3.2 AUTHORIZATION; NO CONFLICTS.
The execution, delivery and performance of this Agreement and the
Related Agreements by Buyer have been duly and validly authorized by the Board
of Directors of Buyer and by all other necessary corporate action on the part of
Buyer. This Agreement and, when executed, the Related Agreements constitute, or
will constitute, legally valid and binding obligations of Buyer, enforceable
against Buyer in accordance with their terms except as may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws and
equitable principles relating to or limiting creditors' rights generally. The
execution, delivery and performance of this Agreement and the Related Agreements
by Buyer, will not (i) violate or constitute a breach or default (whether upon
lapse of time and/or the occurrence of any act or event or otherwise) under the
charter documents or by-laws of Buyer, (ii) result in the imposition of any
Encumbrance against any material assets or properties of Buyer or (iii) violate
any Law, except for any such violations, breaches, defaults and impositions as
would not reasonably be expected to have a material adverse effect on the
business operations, assets or financial condition of Buyer. Except for any
filings or approvals required under the Hart-Scott-Rodino Act and Federal
Acquisition Regulations, the execution, delivery and performance of this
Agreement and the Related Agreements by Buyer will not require any Approvals to
be obtained except for any such Approvals the failure of which to receive would
not in the aggregate have a material adverse effect on the
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<PAGE> 31
ability of Buyer to consummate the transactions contemplated by this Agreement
and the Related Agreements.
3.3 LEGAL PROCEEDINGS.
There is no Order or Action pending or, to the knowledge of Buyer,
threatened in writing against or affecting Buyer that individually or when
aggregated with one or more other Orders or Actions has or could reasonably be
expected to have a material adverse effect on Buyer's ability to perform this
Agreement.
3.4 COMPLIANCE WITH LAW.
Buyer is operating its businesses in compliance with all applicable
Laws, except for violations of applicable Laws which (i) would not, singly or in
the aggregate, reasonably be expected to have a material adverse effect on the
business, operations, assets or financial condition of Buyer or (ii) could not
reasonably be expected to have a material adverse effect on Buyer's ability to
perform this Agreement.
3.5 NO BROKERS OR FINDERS.
No agent, broker, finder or investment or commercial banker, or other
Person or firms engaged by or acting on behalf of Buyer or its Affiliates in
connection with the negotiation, execution or performance of this Agreement or
the transactions contemplated by this Agreement, is or will be entitled to any
broker's or finder's or similar fees or other commissions arising in connection
with this Agreement or such transactions.
3.6 FINANCING.
Buyer currently has immediately available funds in cash or cash
equivalents, and will at the Closing have immediately available funds in cash,
which are sufficient to pay the Base Purchase Price, to provide the Company with
sufficient working capital and to pay any other amounts payable pursuant to this
Agreement and to consummate the transactions contemplated by this Agreement.
3.7 INVESTMENT REPRESENTATION.
Buyer is aware that the Stock is not registered under the Securities
Act. Buyer is an "accredited investor" as defined under the Securities Act and
possesses such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of its investments hereunder.
Buyer is acquiring the Stock from Seller for its own account, for investment
purposes only and not with a view to the distribution thereof. Buyer agrees that
the Stock will not be sold, transferred, offered for sale, pledged, hypothecated
or otherwise disposed of without registration under the Securities Act, except
pursuant to a valid exemption from registration under the Securities Act.
3.8 INVESTIGATION; ACKNOWLEDGMENT.
Buyer has conducted a review and analysis of the business, operations,
assets, liabilities, results of operations, financial condition, software,
technology and prospects of the Company and its Subsidiaries and acknowledges
that Buyer has been provided adequate access to the personnel, properties,
premises and records of the Company and its Subsidiaries for such purpose.
Except for the representations and warranties contained in this Agreement, Buyer
acknowledges that neither Seller, any of its Affiliates nor any other Person
makes any other express or implied representation or warranty with
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respect to the Stock, the Company or any of its Subsidiaries, the Business or
otherwise or with respect to any other information provided to Buyer, whether
on behalf of Seller or such other Persons, including as to (a) merchantability
or fitness for any particular use or purpose, (b) the operation of the Business
by Buyer after the Closing in any manner other than as used and operated by
Seller or (c) the probable success or profitability of the ownership, use or
operation of the Business by Buyer after the Closing. Neither Seller nor any
other Person will have or be subject to any liability or indemnification
obligation to Buyer or any other Person resulting from the distribution to
Buyer, or Buyer's use of, any such information, including the Confidential
Offering Memorandum dated January 1999 prepared by Bear, Stearns & Co. Inc.
related to the Business and any information, document or material made
available to Buyer in certain "data rooms," management presentations,
functional "break-out" discussions, responses to questions submitted on behalf
of Buyer, whether orally or in writing, or in any other form in expectation of
the transactions contemplated by this Agreement.
3.9 INSURANCE MATTERS.
Buyer acknowledges that the policies and insurance coverage maintained
on behalf of the entities comprising the Business are part of the corporate
insurance program maintained by GTE (the "GTE Corporate Policies"). GTE
Corporate Policies will not be available or transferred to Buyer or the Company
after the Closing. It is understood that GTE shall be free at its discretion at
any time to cancel or not renew any of the GTE Corporate Policies.
3.10 FOREIGN OWNERSHIP
Buyer is not under "foreign ownership, control or influence," as such
term is defined in the U.S. Department of Defense Industrial Security Manual for
Safeguarding Classified Information.
ARTICLE IV
COVENANTS WITH RESPECT TO THE PERIOD PRIOR TO CLOSING
4.1 ACCESS.
Subject to Section 5.2, the confidentiality agreement dated January
25, 1999, between Buyer and GTE (the "Confidentiality Agreement"), applicable
Laws (including national security regulations and restrictions, export
regulations and regulations pertaining to classified information) and doctrines
of attorney-client privilege, Seller shall cause the Company and its
Subsidiaries to authorize and permit Buyer and its representatives (which term
shall be deemed to include its independent accountants and counsel) to have
reasonable access during normal business hours, upon reasonable notice and in
such manner as will not unreasonably interfere with the conduct of the Business,
to (i) their respective properties, books, records, operating instructions and
procedures and all other information with respect to the Business as Buyer may
from time to time reasonably request, and (ii) their officers and employees;
provided, however, nothing in this Section 4.1 shall obligate the Company or any
of its Subsidiaries to provide Buyer with access to information of a more
confidential or proprietary nature than the information provided to Buyer during
its due diligence investigation prior to the date of this Agreement.
4.2 FINANCIAL INFORMATION.
During the period from the date of this Agreement to the Closing Date,
to the extent permitted by applicable Law, Seller will make available to Buyer
within 20 business days after the end of each month monthly unaudited balance
sheets and income statements for the Company and its Subsidiaries, adjusted to
give effect to the ISD Disposition, of a type historically prepared for GTE by
the
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Company. Each of the financial statements delivered pursuant to this Section
4.2 shall be prepared in accordance with the past practices of the Company and
its Subsidiaries consistently applied.
4.3 CONDUCT OF BUSINESS.
During the period from the date of this Agreement to the Closing Date,
except as set forth on Schedule 4.3, Seller agrees that neither the Company nor
any of its Subsidiaries shall without the prior consent of Buyer, which may not
be unreasonably withheld:
(a) conduct the Business in any manner except in the ordinary course;
or
(b) except as may be required by capital contributions made to comply
with Section 4.5, change or amend its charter documents or bylaws; or
(c) except in the ordinary course of business or as required by their
terms, amend or terminate any Contract which would require the approval of the
President of the Company before being so amended or terminated; or
(d) terminate or fail to use reasonable efforts to renew or preserve
any material Permits; or
(e) incur or agree to incur any obligation or liability (absolute or
contingent) that individually calls for payment by the Company or any of its
Subsidiaries of more than $1,000,000, except for liabilities incurred in the
ordinary course of business; or
(f) make any loan, guaranty or other extension of credit, or enter
into any commitment to make any loan, guaranty or other extension of credit
(other than a plan loan under and in accordance with the terms of the Seller
Savings Plans), to or for the benefit of any director, officer, employee,
stockholder or any of their respective Affiliates, except for (i) loans,
guarantees, extensions of credit or commitments therefor made to officers or
employees for moving, relocation and travel expenses consistent with past
practice and (ii) loans, guarantees, extensions of credit or commitments
therefor made between the Company and any of its Subsidiaries or between any of
the Subsidiaries of the Company; or
(g) except pursuant to arrangements in effect on the date hereof, (i)
grant any general or uniform increases in the rates of pay or benefits to
officers, directors or employees (or a class thereof), other than non-material
increases in the ordinary course of business, (ii) grant any material increase
in salary or benefits of any officer or director or pay any special bonus to any
person (other than the retention bonuses to be paid in connection with the
Closing and the ISEP for 1999), or (iii) enter into any new material employment,
collective bargaining or severance agreement; or
(h) sell, transfer, mortgage, encumber or otherwise dispose of any
material assets or liabilities, except (i) for dispositions of property in the
ordinary course not greater than $1,000,000 individually or $5,000,000 in the
aggregate, (ii) as contemplated by this Agreement or the Related Agreements or
(iii) dispositions of real property set forth on Schedule 4.3(h).
(i) issue, sell, redeem or acquire for value, or agree to do so, any
Equity Securities of the Company or any of its Subsidiaries; or
(j) make any capital expenditures or commitments with respect thereto
greater than $12,000,000 in the aggregate, except pursuant to the Company's 1999
capital expenditure plan which is attached hereto as part of Schedule 4.3; or
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(k) make any material investment in any other Person, except for
investments by the Company in any of its Subsidiaries; or
(l) agree to or make any commitment to take any actions prohibited by
this Section 4.3.
Buyer hereby designates the two officers of Buyer or its Affiliates
listed on Schedule 4.3, or such other officers as Buyer may designate upon
written notice to Seller (the "Buyer's representatives"), to be responsible for
determining whether consent to any action prohibited by this Section 4.3 shall
be given by Buyer. Seller hereby designates the two officers of GTE or its
Affiliates listed on Schedule 4.3 or such other officers as Seller may designate
upon written notice to Buyer (the "Seller's representatives"), to contact
Buyer's representatives with any requests for consent to any action prohibited
by this Section 4.3. Buyer's representatives shall respond promptly (either
orally or in writing) to any request for consent (which may be oral or written)
to the taking of any action under this Section 4.3. If Buyer's representatives
do not respond to any request within three business days of its receipt, such
consent will be deemed to have been given. Seller may rely on any consent given
orally or in writing by either of Buyer's representatives. The time periods
within which Buyer's representatives must respond shall commence on the date on
which either of Buyer's representatives receives an oral or written request for
consent.
4.4 REASONABLE BEST EFFORTS; NO INCONSISTENT ACTION.
(a) Subject to the terms and conditions hereof, Buyer and Seller shall
cooperate and use their reasonable best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement and to cause the conditions to each other's obligation to close the
transactions contemplated hereby as set forth in Article VII to be satisfied. In
addition, each of Buyer and Seller will be given notice of and a reasonable
opportunity to participate in contacts with any Governmental Entity regarding
antitrust or merger control matters. Buyer and Seller shall cooperate with each
other to the extent reasonable in connection with the foregoing.
(b) In furtherance and not in limitation of the foregoing, Buyer and
Seller shall use their reasonable best efforts to file Notification and Report
Forms under the Hart-Scott-Rodino Act and similar applications with any other
applicable Governmental Entity whose Approval is required in connection with the
consummation of the transactions contemplated by this Agreement as promptly as
practicable following the date hereof and in any event no later than five
business days following the date hereof. Buyer and Seller shall cooperate and
use their respective reasonable best efforts to obtain any Approvals required
for the Closing (including through compliance with the Hart-Scott-Rodino Act and
any applicable foreign governmental reporting requirements), to respond to any
requests for information from a Governmental Entity, and to contest and resist
any Action and to have vacated, lifted, reversed or overturned any Order
(whether temporary, preliminary or permanent) that restricts, prevents or
prohibits the consummation of the transactions contemplated by this Agreement.
The foregoing shall not be deemed to require Buyer to enter into any agreement,
consent decree or other commitment requiring Buyer or any of its Affiliates
(including for this purpose the Company or any of its Subsidiaries) to divest or
hold separate any assets or to take any other action that would have a material
adverse effect on the business, financial condition or results of operations of
Buyer and its Affiliates (including for this purpose the Company and its
Subsidiaries) taken as a whole. To the extent permitted by applicable Law, Buyer
and Seller shall provide the other the opportunity to make copies of all
material correspondence, filings or communications (or memoranda setting forth
the substance thereof) between such party or its representatives, on the one
hand, and any Governmental Entity, on the other hand, with respect to this
Agreement or the transactions contemplated hereby, except for documents filed
pursuant to Item 4(c) of the Hart-Scott-Rodino Notification and Report Form or
communications regarding the same or
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documents or information submitted in response to any request for additional
information or documents pursuant to the Hart-Scott-Rodino Act which reveal
Seller's or Buyer's negotiating objectives or strategies or purchase price
expectations. Buyer and Seller acknowledge that all such information provided
pursuant to the foregoing sentence shall be subject to the terms of the
Confidentiality Agreement.
(c) Buyer and Seller shall notify and keep the other advised as to (i)
any material communication from the Federal Trade Commission, the United States
Department of Justice or any other Governmental Entity regarding any of the
transactions contemplated hereby and (ii) any Action pending and known to such
party or, to its knowledge, threatened, which challenges the transactions
contemplated hereby. Subject to Section 4.9, Buyer and Seller shall not take any
action inconsistent with their obligations under this Agreement which would
materially hinder or delay the consummation of the transactions contemplated by
this Agreement.
4.5 ELIMINATION OF INTERCOMPANY AND AFFILIATE LIABILITIES.
Prior to the Closing Date, Seller shall purchase, cause to be repaid
or (with respect to guarantees) assume liability for (a) any and all loans or
other extensions of credit made or guaranteed by the Company or any of its
Subsidiaries to or for the benefit of any director, officer or employee of GTE
or Seller who remains a director, officer or employee of GTE or Seller after the
Closing Date and (b) any and all loans, guarantees or other extensions of credit
of any amount made to or for the benefit of Seller or any Affiliate of Seller,
except in either case as set forth on Schedule 4.5. Prior to the Closing Date,
the amount of any dividend payable by the Company, together with the principal
amount of, and any accrued but unpaid interest on, any intercompany loans
payable and receivable by the Company shall be cancelled and treated as a
contribution to capital of the Company. The provisions of this Section 4.5 shall
not apply to any intercompany trade accounts payable or receivable with respect
to commercial transactions involving the Company and its Subsidiaries prior to
the Closing Date, excluding for this purpose any corporate overhead charges or
assessments (including assessments relating to GTE Laboratories) payable by the
Company or any of its Subsidiaries with respect to periods prior to the Closing
Date.
4.6 CONTROL OF THE BUSINESS OF THE COMPANY.
Nothing contained in this Agreement shall give Buyer, directly or
indirectly, the right to control or direct the Company's operations prior to the
Closing Date.
4.7 ACCURACY OF INFORMATION.
All documents required to be filed by any of the parties or any of
their respective Subsidiaries with any Governmental Entity in connection with
this Agreement or the transactions contemplated by this Agreement will comply in
all material respects with the provisions of applicable Law.
4.8 BELL ATLANTIC MERGER.
Notwithstanding anything in this Agreement to the contrary (a) neither
Seller nor any of its Affiliates shall have any obligation to take any action
pursuant to this Agreement that would adversely affect the Bell Atlantic Merger
and (b) nothing in this Agreement shall prohibit Seller or any of its Affiliates
from taking any action reasonably required to consummate the Bell Atlantic
Merger. In the event Seller or any of its Affiliates takes any action which, but
for the provisions of this Section 4.8, it is prohibited from taking under this
Agreement, or fails to take any action which, but for the provisions of this
Section 4.8, it is required to take under this Agreement, and such actions or
failures to act,
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individually or in the aggregate, would have a material adverse effect on the
business, financial condition or results of operations of the Company and its
Subsidiaries taken as a whole or a material adverse effect on the ability of
Seller to perform or comply in all material respects with its covenants
contained in this Agreement or in any of the Related Agreements, then Seller
shall promptly advise Buyer of such fact in writing and Buyer shall have the
right to terminate this Agreement in accordance with the provisions of Section
8.1(e).
4.9 SUBSTITUTE GUARANTY.
Prior to the Closing, Buyer agrees to provide a guaranty of Buyer or
substitute letter of credit, comfort letter or similar instrument, in respect of
all obligations of GTE and its Affiliates (other than the Company and its
Subsidiaries) under guarantees, letters of credit, comfort letters, surety bonds
and letters of awareness in favor of or for the benefit of the Company or any of
its Subsidiaries (including in respect of any Contracts the benefits of which
are assigned to or subcontracted to the Company or its Subsidiaries pursuant to
the Pre-Closing Restructuring) including those set forth on Schedule 4.9 or
entered into after the date hereof (collectively, the "GTE Guarantees"),
substantially similar to the applicable GTE Guarantee. To the knowledge of
Seller, all GTE Guarantees in effect on the date hereof are set forth on
Schedule 4.9. Buyer shall use its reasonable best efforts to (i) have the party
in whose favor the applicable GTE Guarantee runs accept the substitute guaranty,
letter of credit or comfort letter, as applicable, offered by Buyer in full
substitution for the applicable GTE Guarantee and (ii) cause the party in whose
favor the applicable GTE Guarantee runs to release GTE from all liability and
all of its obligations under or with respect to the GTE Guarantees. Seller shall
be responsible for delivering all letters of credit, bonds and corporate
guarantees provided by Buyer pursuant to this Section 4.9 to the beneficiaries
thereof and retrieving the corresponding letters of credit, bonds or guarantees
previously delivered by GTE and its Affiliates to such beneficiaries. In the
event any beneficiary fails to accept any letter of credit, bond or corporate
guaranty provided by Buyer pursuant to this Section 4.9, Seller shall leave in
place the letter of credit, bond or corporate guaranty presently held by such
beneficiary and Buyer shall immediately indemnify Seller and its Affiliates in
accordance with the provisions of Article IX from and against all Indemnifiable
Losses suffered or incurred by any Seller Indemnified Party in connection
therewith (including any reasonable bank fees or other out-of-pocket expenses
incurred in maintaining any such letter of credit or bond).
4.10 TAX MATTERS.
(a) No new elections with respect to Taxes, or any changes in current
elections with respect to Taxes, relating to or affecting the Business shall be
made by the Company, its Subsidiaries or any of their Affiliates after the date
of this Agreement through and including the Closing Date that would have a
material adverse effect on the business, financial condition or results of
operations of the Company and its Subsidiaries taken as a whole without the
prior written consent of Buyer which shall not be unreasonably withheld or
delayed. On or prior to the Closing Date, Seller shall use reasonable efforts to
cooperate with Buyer to obtain all clearance certificates or similar documents
that may be required by any state, local, foreign or other taxing authority in
order comply with any bulk sales Tax laws. On or prior to the Closing Date,
Seller shall furnish to Buyer an affidavit stating, under penalty of perjury,
Seller's United States taxpayer identification number and that Seller is not a
foreign person, pursuant to Section 1445(b)(2) of the Code.
(b) Between the date of this Agreement and the Closing Date, to the
extent Seller has knowledge of the commencement or scheduling of any Tax audit,
the assessment of any Tax, the issuance of any notice of Tax due or any bill for
collection of any Tax due for Taxes, or the commencement or scheduling of any
other administrative or judicial proceeding with respect to the determination,
assessment or collection of any Tax of the Company or any of its Subsidiaries
that would have a material
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adverse effect on the business, financial condition or results of operations of
the Company and its Subsidiaries taken as a whole, Seller shall provide prompt
notice to Buyer of such matter, setting forth information (to the extent known)
describing any asserted Tax liability in reasonably detail and including copies
of any notice or other documentation received from the applicable Tax authority
with respect to such matter.
ARTICLE V
CONTINUING COVENANTS
5.1 COOPERATION.
(a) In the event and for so long as any party is actively contesting
or defending against any charge, complaint, Action, audit, suit, proceeding,
hearing, investigation, claim or demand in connection with (i) any transaction
contemplated under this Agreement or (ii) any fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to at or transaction on or prior to the Closing Date involving
the Business, the other party shall cooperate with the contesting or defending
party and its counsel in the contest or defense, make available its personnel
and provide such testimony and access to its books and records as may be
necessary in connection with the contest or defense, at the sole cost and
expense of the contesting or defending party (unless the contesting or defending
party is entitled to indemnification therefor under Article IX). The provisions
of this Section 5.1 shall not be applicable in the case of any claim, action or
suit by one party to this Agreement against the other.
(b) In addition to providing access to books, records, files and other
written materials that relate to the Business in connection with the matters
described in Section 5.1(a), Seller agrees to provide Buyer with reasonable
access to its and its Affiliate's books and records relating to indirect
corporate general and administrative expenses invoiced or allocated to the
Business prior to the Closing Date. Access to the foregoing books and records
shall be provided only to the extent reasonably necessary to permit Buyer to
contest or defend governmental audits or investigations, to complete required
government reports or contract closures relating to periods prior to the Closing
Date or as required by Law or legal process.
(c) Buyer shall cause the Company and its Subsidiaries to maintain all
original books, records, files, documents, papers and agreements in their
possession or control pertaining to the operations of the Business as conducted
prior to the Closing Date for at least five years following the Closing Date or
such longer period as may be required by Law. Seller shall maintain all original
books, records, files, documents, papers and agreements pertaining to the
operations of the Business as conducted prior to the Closing Date that are in
the possession or control of Seller and its Affiliates for at least five years
following the Closing Date or such longer period as may be required by Law. Each
of Seller and Buyer agrees that before destroying or discarding any materials
required to be retained pursuant to this Section 5.1(c), it shall notify the
other party in writing (which notice shall include a description of the
materials to be destroyed or discarded) and such other party may, at its
expense, remove or make copies of such materials within 90 days following the
date of such written notice. In the event the other party has not removed such
materials within such 90-day period, the party desiring to destroy or discard
such materials may proceed with such action without any liability to the other
party.
(d) Except as provided in Section 5.1(f), to the extent the Company or
any of its Subsidiaries may be entitled to any attorney-client work product and
other legal privilege that may exist with respect to the Business, other than
any such privilege relating primarily to any Excluded Pre-Closing Liability or
the ISD Business, Seller acknowledged and agrees that such privilege shall
continue to be a privilege of the Company or such Subsidiary after the Closing
Date. Seller acknowledges that it and its
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Affiliates shall have no right or power after the Closing Date to assert or
waive any such privilege. Seller agrees that it shall, and shall cause its
Affiliates to, take any actions reasonably requested by Buyer, at the sole cost
and expense of Buyer, unless Buyer is entitled to indemnification therefor
under the provisions of Article IX, in order to permit the Company and its
Subsidiaries to preserve and assert any such privilege.
(e) Except as provided in Section 5.1(f), to the extent the Company or
any of its Subsidiaries may be entitled to any attorney-client, work product and
other legal privilege that may exist primarily with respect to any Excluded
Pre-Closing Liability or the ISD Business, Buyer acknowledges and agrees that
the such privilege shall be deemed to be a privilege of the ISD Purchaser after
the Closing Date. Buyer acknowledged that it and its Affiliates (including for
this purpose the company and its Subsidiaries) shall have no right or power
after the Closing Date to assert or waive any such privilege. Buyer agrees that
it shall, and shall cause its Affiliates to, take any actions reasonably
requested by Seller, at the sole cost and expense of Seller, unless Seller is
entitled in indemnification therefor under the provisions of Article IX, in
order to permit the ISD Purchaser to preserve and assert any such privilege.
(f) Notwithstanding anything in Sections 5.1(d) or (e) to the
contrary, the parties shall make decisions jointly with respect to the waiver of
any attorney-client, work product or other legal privilege that may exist with
respect to item number 1 on Schedule 2.20(c) and Excluded Pre-Closing
Liabilities identified in subparagraph (c) of the definition of Excluded
Pre-Closing Liability.
5.2 NONDISCLOSURE OF PROPRIETARY DATA.
(a) After the Closing, except as required by applicable Law, neither
GTE nor Seller nor any of their representatives, agents or Affiliates shall, at
any time, make use of, divulge or otherwise disclose, directly or indirectly,
any Company Proprietary Information, unless such Company Proprietary
Information: (i) is or becomes generally available and known to the public; (ii)
is rightfully received by GTE, Seller, or any of their respective
representatives, agents or Affiliates from any Person without any restriction on
use or disclosure and without breach of any obligation to Buyer; (iii) is
independently developed by or for GTE, Seller or any of their Affiliates,
without reference to or use of Company Proprietary Information; (iv) is the
subject of prior written approval of Buyer; or (v) is disclosed or made
available after the Closing Date by Buyer generally to third parties, without
restriction on use or disclosure. In the event Seller or any of its Affiliates
is requested or required (by oral request or written request for information or
documents in any legal proceeding, interrogatory, subpoena, civil investigative
demand or similar process) to disclose any Company Proprietary Information, then
Seller shall notify Buyer promptly in writing of the request or requirement so
that Buyer may seek an appropriate protective order or waive compliance with
this Section 5.2. If, in the absence of a protective order or receipt of a
waiver hereunder, Seller or any of its Affiliates is, on the advice of outside
counsel, compelled to disclose any Company Proprietary Information to any
Governmental Entity, then Seller or its Affiliate may disclose such Company
Proprietary Information to such Governmental Entity, provided that Seller or
such Affiliate shall use its reasonable best efforts to obtain at the request
and expense of Buyer an order or other assurance that confidential treatment
shall be accorded to such Company Proprietary Information.
(b) The foregoing notwithstanding, Buyer's obligations of
confidentiality as set forth in the Confidentiality Agreement shall survive and
continue until the Closing Date and, thereafter as provided in this Agreement or
the Related Agreements, if there is no Closing, such obligations shall survive
and continue in accordance with the terms and conditions of such Confidentiality
Agreement.
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5.3 TAX MATTERS.
(a) Tax Returns.
(i) Seller shall file or cause to be filed with the
appropriate Governmental Entities having jurisdiction (A) all Tax
Returns to be filed by the Company and/or its Subsidiaries prior to
the Closing Date, and (B) all Income Tax Returns in which GTE (or
Seller) shall include the taxable income of the Company and its
Subsidiaries (to the extent required by law), including the applicable
consolidated federal Income Tax Return in which the income of the
Company is included and in any consolidated or combined Income Tax
Return filed by GTE (or Seller) or an Affiliate thereof in which such
income can be included under applicable law, consistent with past
custom and practice.
(ii) Buyer shall file or cause to be filed with the
appropriate Governmental Entities having jurisdiction all Tax Returns
relating to Taxes of the Company and its Subsidiaries that are
required to be filed after the Closing Date (other than Income Tax
Returns which include periods for which a consolidated, unitary or
combined Income Tax Return of GTE or Seller includes the taxable
income of the Company and its Subsidiaries). With respect to Tax
Returns to be filed by Buyer for any periods for which Seller has sole
liability for the Taxes due (including pursuant to its indemnity
obligations hereunder), such Tax Returns will be properly and timely
filed by Buyer and will be correct, accurate and complete in all
material respects, and Buyer shall furnish a completed copy of such
Tax Returns (to the extent they relate to the Company, its
Subsidiaries or the Joint Ventures) to Seller for Seller's approval
not later than 30 days before the due date for filing such returns
(including extensions thereof). With respect to Tax Returns to be
filed by Buyer for any periods for which GTE and Buyer each have
liability for the Taxes due (including pursuant to any indemnity
obligations hereunder), such Tax Returns will be properly and timely
filed by Buyer and will be correct, accurate and complete in all
material respects, and Buyer shall furnish a completed copy of such
Tax Returns (to the extent they relate to the Company, its
Subsidiaries or the Joint Ventures) to Seller for Seller's review and
comment not later than 30 days before the due date for filing such
returns (including extensions thereof), and Buyer will, in good faith,
incorporate all reasonable comments provided by Seller. Buyer shall
not take (and shall cause the Company and its Subsidiaries not to
take) a position with respect to any item on any Tax Return of the
Company or any of its Subsidiaries which is inconsistent with the
position taken with respect to such item on a prior Tax Return or, if
inconsistent, will obtain Seller's prior written consent (not to be
unreasonably withheld).
(b) Liability for Taxes.
(i) Subject to Section 5.3(e), Seller shall be liable for
and shall hold Buyer, the Company, its Subsidiaries and the Joint
Ventures harmless from any and all Taxes due or payable with respect
to the Company, its Subsidiaries and the Joint Ventures for any
taxable year or period ending on or prior to the Closing Date (or
portion thereof), which includes any Taxes (other than transfer Taxes
that are provided for in Section 5.3(g) hereof), (except for any Tax
liability attributable to Closing Date events occurring after the
Closing that are not in the ordinary course), and creating for this
purpose (in the case that the Closing Date is not the end of the
taxable year under applicable law) the Closing Date as the end of a
short taxable year and determining income or loss for such year on the
basis of closing of the books as of the Closing Date. Buyer shall
prepare, and permit Seller to audit, such analyses as are reasonably
requested by Seller to support any claim for indemnification under
this Section.
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(ii) Buyer shall be liable for and shall hold Seller
harmless from any and all Taxes that are allocable or attributable to
the Company, any of its Subsidiaries or the Joint Ventures for any
taxable year or period ending after the Closing Date (excluding such
Taxes that are attributable to the deemed short taxable year ending on
the Closing Date as provided in Section 5.3(b) (i)).
(iii) With respect to a Tax imposed on any Subsidiary or
Joint Venture that is not wholly-owned (directly or indirectly) by the
Company, any liability to indemnify or right to refund shall be
limited to the Subsidiary's liability for Taxes or right to refund of
Taxes multiplied by the percentage equity interest of that Subsidiary
or Joint Venture owned (directly or indirectly) by the Company (unless
the full amount of the Tax is imposed in full on the Company or
another Subsidiary that is wholly-owned (directly or indirectly) by
the Company).
(iv) GTE and Seller shall not be liable for, and Buyer shall
be liable for, any Tax liability in respect of which Buyer has not
complied in all material respects with Section 5.3(f), and such
failure has materially prejudiced the ability of GTE or Seller to
contest any such Tax Liability .
(v) In the case of any Taxes that are imposed on a periodic
basis and are payable for a taxable period that includes (but does not
end on) the Closing Date, the portion of such Tax which relates to the
portion of such taxable period ending on the Closing Date shall (x) in
the case of any Taxes other than Taxes based upon or related to income
or receipts, be deemed to be the amount of such Tax for the entire
taxable period multiplied by a fraction the numerator of which is the
number of days in the taxable period ending on the Closing Date and
the denominator of which is the number of days in the entire taxable
period, and (y) in the case of any Tax based upon or related to income
or receipts be deemed equal to the amount which would be payable if
the relevant taxable period ended on the Closing Date. Any credits
relating to a taxable period that begins before and ends after the
Closing Date shall be taken into account as though the relevant
taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner
consistent with prior practice of the Company and its Subsidiaries.
For purposes of this Section, ad valorem, real and personal property
Taxes shall be prorated over the privilege period, meaning for these
purposes, the period during which the taxpayer enjoys the use of the
property in consideration of having paid the Tax.
(c) Refunds. Any refunds or credits of Taxes with respect to the
Company or any of its Subsidiaries paid for any period ending on or before the
Closing Date (treating such date as the end of a short taxable year for this
purpose) shall be for the account of Seller. Buyer shall, if Seller so requests
and at Seller's expense, cause the relevant entity (Buyer, the Company or any of
its Subsidiaries or any successor) to file for and obtain any refunds or credits
to which GTE (or Seller) is entitled hereunder, including through the
prosecution of any administrative or judicial proceeding which Seller, in its
sole and absolute discretion, chooses to direct such entity to pursue. Buyer
shall permit Seller to control (at Seller's expense) the prosecution of any such
refund or credit claimed, and when deemed appropriate by Seller, shall cause the
relevant entity to authorize by appropriate power of attorney such person as
Seller shall designate to represent such entity with respect to such refund
claimed. If Buyer becomes aware of any facts that would constitute a reasonable
basis for claiming a refund or credit of Taxes to which Seller is entitled
hereunder, Buyer shall notify Seller of such facts. Buyer shall forward to
Seller any such refund promptly after the refund is received or any such credit
is granted. Notwithstanding the foregoing, the control of the prosecution of a
claim for refund or credit for Taxes paid pursuant to a deficiency assessed
subsequent to the Closing Date as the result of an audit shall be governed by
the provisions of Section 5.3(f), and Buyer will not carry back (nor permit the
Company or any of its Subsidiaries to carry
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back) to any period ending on or before the Closing Date (treating for this
purpose such date as the end of a short taxable year) any losses, deductions or
credits giving rise to a refund of Taxes for such period.
(d) Adjustments Due to Audit, Etc. If an audit adjustment, amended
return or amended assessment (an "Adjustment") after the date hereof shall both
increase a Tax liability which is allocated to GTE or Seller under Section
5.3(b) (or reduce losses or credits otherwise available to GTE or Seller) for a
period ending on or before the Closing Date (treating such date as the end of a
short taxable year for this purpose) and decrease a Tax liability of (or
increase losses or credits otherwise available to) Buyer or the Company or any
of its Subsidiaries for a period ending after the Closing Date (treating such
date as the end of a short taxable year for this purpose), then Buyer shall
promptly pay to Seller an amount equal to the present value amount of such
refund, reduction, credit or adjustment, which present value amount shall be
determined by using a discount rate equal to the mid-term applicable federal
rate in effect on the date on which the Adjustment is made. Similarly, if an
Adjustment shall both decrease a Tax liability which is allocated to GTE or
Seller under Section 5.3(b) (or increase losses or credits of GTE or Seller) for
a period ending on or before the Closing Date and increase the Tax liability of
Buyer, the Company or any of its Subsidiaries (or reduce losses or credits
otherwise available to any such corporation after taking into account this
Agreement) for a period ending after the Closing Date (treating such date as the
end of a short taxable year for this purpose), then Seller shall promptly pay to
Buyer an amount equal to the present value amount of such refund, reduction,
credit or adjustment, which present value amount shall be determined by using a
discount rate equal to the mid-term applicable federal rate in effect on the
date on which the Adjustment is made. This Section 5.3(d) is intended to apply
to Taxes imposed by tax jurisdictions that do not give effect to the elections
to be made pursuant to Section 5.3(l). This Section 5.3(d) shall be effective
with respect to increases and decreases in Tax liability as long as permitted
under applicable law.
(e) Contests. If an audit is commenced, an Adjustment is proposed or
any other claim is made by any tax authority with respect to a Tax liability of
the Company or any of its Subsidiaries which is allocated to GTE or Seller under
Section 5.3(b), or if an Adjustment is proposed that could give Seller the right
to receive a payment pursuant to Section 5.3(e), Buyer shall promptly notify
Seller of such audit or such proposed Adjustment or such claim (unless GTE or
Seller previously was notified directly by the relevant tax authority). If
Seller so requests and at Seller's expense, Buyer shall cause the relevant
entity (Buyer, the Company, any of its Subsidiaries or any successor) to contest
such claim on audit or by appropriate claim for refund or credit of Taxes or in
a related administrative or judicial proceeding which Seller in its sole and
absolute discretion, chooses to direct such entity to pursue, and shall permit
Seller, at its expense, to control the prosecution and settlement of any such
audit or refund claim or related administrative or judicial proceeding with
respect to those matters which could affect the Tax liability of GTE or Seller,
including any liability hereunder, or their right to payment; and, where deemed
necessary by Seller, Buyer shall cause the relevant entity to authorize by
appropriate powers of attorney such persons as Seller shall designate to
represent such entity with respect to such audit or refund claim or related
administrative or judicial proceeding and to settle or otherwise resolve any
such proceeding. Buyer shall further execute and deliver, or cause to be
executed and delivered, to Seller or its designee all instruments and documents
reasonably requested by Seller to implement the provisions of this Section
5.3(e). Any refund of Taxes obtained by Buyer or the affected entity shall be
paid promptly to Seller. In the event an adverse determination may result in
each party having responsibility for any Taxes, each party shall be entitled to
fully participate in that portion of the proceedings relating to the Taxes with
respect to which it may incur liability hereunder; provided, however, that the
party responsible for the greater amount of the Tax liability at issue shall
ultimately control the proceeding, exercising such control in a reasonable
fashion. If an indemnified party has knowledge of an asserted Tax liability with
respect to a matter for which it is to be indemnified hereunder and such party
fails to provide the indemnifying party prompt notice of such asserted Tax
liability, then (i) if the indemnifying party is precluded from contesting the
asserted Tax liability in any forum as a result of the failure to give prompt
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notice, the indemnifying party shall have no obligation to indemnify the
indemnified party for Taxes arising out of such asserted Tax liability and (ii)
if the indemnifying party is not precluded from contesting the asserted Tax
liability in any forum, but such failure to provide prompt notice results in a
monetary detriment to the indemnifying party, then any amount which the
indemnifying party is otherwise required to pay the indemnified party pursuant
to this Agreement shall be reduced by the amount of such detriment.
(f) Information and Cooperation. Subject to the provisions of Section
5.2 and the Confidentiality Agreement, from and after the Closing Date, Buyer
shall deliver to Seller or its designee (including for purposes of this sentence
any tax advisors to Seller), as soon as practicable after Seller's request, such
information and data that are reasonably available concerning the pre-Closing
Date operations of the Company and its Subsidiaries and make available such
knowledgeable employees of Buyer and the Company and its Subsidiaries as Seller
may reasonably request (including employees having special or relevant knowledge
or information pertaining to particular Tax items), including providing the full
and complete information and data required by Seller's customary Tax and
accounting questionnaires to the extent reasonably available, in order to enable
GTE and Seller fully to complete and file all Tax Returns that they may be
required to file with respect to the activities of the Company and its
Subsidiaries through the Closing Date, to respond to and contest audits by any
taxing authorities with respect to such activities, to prosecute any claim for
refund or credit to which GTE or Seller is or may be entitled hereunder and to
otherwise enable GTE and Seller fully to satisfy their accounting and Tax
requirements. From and after the Closing Date, and subject to obligations of
confidentiality, non-disclosure and non-use, Seller shall deliver to Buyer
(including for purposes of this sentence, Buyer's tax advisors), as soon as
practicable after Buyer's request, such information and data that are reasonably
available concerning any Tax attributes that are allocated to the Company or any
of its Subsidiaries that is necessary in order to enable Buyer to complete and
file all Tax Returns that it may be required to file with respect to the
activities of Buyer or the Company or one of its Subsidiaries, from and after
the Closing Date, to respond to and contest audits by any taxing authorities
with respect to such activities, to prosecute any claim for refund or credit to
which Buyer or the Company or any of its Subsidiaries is or may be entitled and
to which GTE or Seller is not entitled hereunder and to otherwise enable Buyer
and the Company and its Subsidiaries to satisfy their accounting and Tax
requirements. Seller shall execute and Buyer shall execute (and shall cause the
Company and each of its Subsidiaries to execute) such documents as may be
necessary to file any Tax Returns, to respond to or contest any audit, to
prosecute any claim for refund or credit and to otherwise satisfy any Tax
requirements relating to the Company or any of its Subsidiaries. Buyer shall
(and shall cause the Company and each of its Subsidiaries to) retain, and shall
provide Seller with reasonable access to, the books and records relating to the
Company and its Subsidiaries for ten years from the Closing Date and for such
additional period as Seller may reasonably request.
(g) Transfer Taxes. Buyer and Seller shall each be responsible for 50%
of all sales, use, gross receipts, registration, business and occupation,
transfer, stamp duty, securities transactions, real estate, and similar Taxes
and notarial fees assessed against or payable by Buyer or Seller under
applicable law in connection with the transfer of the Stock or other
transactions contemplated hereby, and any interest, penalties and additions to
Taxes related to such Taxes, regardless of whether such Taxes become due or
payable on or after the Closing Date; provided, however, that Buyer shall be
responsible for any such transfer Taxes resulting from any election under
Section 338 of the Code or any comparable provision of state, local or foreign
law that is made pursuant to Section 5.3(l) hereof).
(h) Tax Sharing Agreements, Etc. All tax sharing agreements, policies,
arrangements and practices between Seller or an Affiliate of Seller and the
Company and its Subsidiaries shall be terminated as of the Closing Date.
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(i) Amendments to Tax Returns. Buyer shall not, and shall not permit
the Company or any of its Subsidiaries, to amend any Tax Return covering any
period prior to the Closing Date without the prior written consent of Seller.
(j) Relationship with Article IX. In the event of any conflict between
the provisions of this Section 5.3 and the provisions of Article IX, the
provisions of this Section 5.3 shall govern and control with respect to any
matter relating to Taxes.
(k) Acknowledgment. Seller and Buyer agree that Buyer has purchased
substantially all of the property used in the Business and that in connection
therewith Buyer will employ individuals who immediately before the Closing Date
were employed in such trade or business by Seller. Accordingly, pursuant to Rev.
Proc. 96-60, 1996-2 C.B. 399, or any successor revenue procedure, provided that
Seller makes available to Buyer all necessary payroll records for the calendar
year that includes the Closing Date, Buyer will furnish a Form W-2 to each sum
employee employed by Buyer who had been employed by Seller, disclosing all wages
and other compensation paid for such calendar year, and Taxes withheld
therefrom, and Seller will be relieved of the responsibility to do so.
(l) Section 338(h)(10) Election.
(i) Buyer and Seller shall join in making an election with
respect to the Company and each of its Subsidiaries under Sections
338(g) and 338(h)(10) of the Code (the "Election"). Buyer and Seller
shall report, in connection with the determination of income,
franchise or other taxes measured by net income, the transactions
being undertaken pursuant to this Agreement in a manner consistent
with the Election unless required to do otherwise by law.
(ii) Buyer shall be responsible for the initial preparation
of all forms and documents required in connection with making the
Election, and Buyer and Seller shall timely execute and file all forms
required to be filed to make the Election. Seller shall execute and
deliver to Buyer such documents or forms as are required by any tax
laws to complete the Election.
(iii) To the extent permitted by state and local laws, the
principles and procedures of this Section 5.3(l) shall also apply with
respect to a Section 338 (g) and 338(h)(10) election or equivalent or
comparable provision under state or local law. Seller and Buyer
covenant and agree that to the extent an election similar to a Section
338(g) and 338(h)(10) election under the Code is optional under any
state or local law, they shall so elect so as to treat the
transactions contemplated herein as a sale of assets for state and
local income and franchise tax purposes.
(m) Allocation of Purchase Price. Within the later of 150 days after
the Closing Date or 60 days after delivery of the Closing Date Statement of Net
Assets in accordance with Section 1.4(c), Buyer shall provide to Seller for
Seller's review a draft of the exhibits proposed to be attached to the Form 8023
and a copy of the Internal Revenue Service Form 8594 (if required by applicable
law) or other required forms, if any, related to asset acquisitions and any
required exhibits thereto. Within 30 days after receipt of such documents,
Seller shall, in writing, either agree or state its objections. Seller and Buyer
shall negotiate in good faith to attempt to resolve any objections. If Seller
and Buyer are unable to resolve Seller's objections, the objections shall be
submitted to a public accounting firm with nationally recognized tax expertise
selected jointly by Seller and Buyer for resolution as rapidly as possible.
Seller and Buyer shall file the Form 8023 (and any other documents required by
law to make the Election) on or before the due date for making the Election. The
determination of the public accounting firm will be based solely on
presentations by Seller and Buyer and not by independent review. The fees and
expenses
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of the accounting firm shall be shared by Buyer and Seller in inverse
proportion to the amounts of the disputed amounts determined in favor of Buyer
and Seller, respectively. Seller and Buyer agree to follow said purchase price
allocation (which shall include any adjustments to said allocation resulting
from purchase price adjustments contemplated by Section 9.6 hereof) for
purposes of all U.S. federal and, where applicable, state and local income and
franchise tax returns, to the extent said values are relevant for such
purposes.
(n) If Seller receives any Tax refund relating to the Business for
periods prior to the Closing Date and the Tax liability to which such refund
relates was included as a cost in a cost-reimbursement or fixed-price incentive
(cost-redeterminable) Government Contract, then Seller shall cooperate with
Buyer to determine the appropriate portion of such Tax refund due to any
Governmental Entity as if Buyer had pursued and obtained an identical Tax
refund. Once the appropriate portion due any Governmental Entity is determined,
Seller shall promptly remit to Buyer such amount to be paid to such Governmental
Entity in an appropriate manner to be determined by Buyer. Notwithstanding
Section 9.6 hereof, to the extent a taxing authority treats such a reimbursement
as income subject to Tax, the additional Tax due shall be treated as an
Indemnifiable Loss under Article IX.
5.4 USE OF GTE AND CONTEL NAMES, TRADEMARKS AND SERVICE MARKS.
(a) Subject to the Intellectual Property Agreement, Buyer shall cease
and shall cause the Company to cease any and all use of the designation "GTE"
and "Contel" in any fashion or combination, including words and designs related
to GTE and/or Contel including words and designs related to GTE and/or "Contel",
as well as eliminate the use of any other designation indicating affiliation
with GTE or Seller or any of their respective Subsidiaries, as soon as
practicable after the Closing Date, but not more than 90 days after the Closing
Date, or such longer period as set forth in the Intellectual Property Agreement;
provided, however, that with respect to stationery, contracts, purchase orders,
agreements and other business forms and writings which could result after the
Closing Date in a legal commitment of GTE or Seller or any of their
Subsidiaries, Buyer shall or shall cause the Company to cease immediately after
the Closing Date any use of the designation "GTE" and "Contel" in any fashion or
combination, including words and designs related to GTE and/or Contel, as well
as of any other designation indicating affiliation after the Closing Date with
GTE or Seller or any of their respective Subsidiaries, except to the extent that
applicable law requires such Person to continue such use until such name change
is effected, in which case until such time, but in no event later than one year
following the Closing Date. Within 10 business days after the Closing Date,
Buyer shall notify or shall cause the Company to notify, in writing, all
customers, suppliers and financial institutions having current business
relationships with the Company and its Subsidiaries that the Company and its
Subsidiaries have been acquired from the Seller by the Buyer.
(b) As soon as reasonably practicable, but in any event not later than
30 days after the Closing Date, or such longer period set forth in the
Intellectual Property Agreement, Buyer shall cause the Company and its
Subsidiaries to change each of their names to a new name not including "GTE"
and/or "Contel," including words and designs related to GTE and/or Contel, or
any name confusingly similar thereto and thereafter shall not use and shall
cause the Company and its Subsidiaries not to use or include "GTE" and/or
"Contel," including words and designs related to GTE and/or Contel, as or in
their corporate, popular, trade or domain names.
(c) As of the Closing Date, Buyer shall cease and shall cause the
Company and its Subsidiaries to cease selling any products, offering any
services or otherwise using any trademark, service mark or other indication or
origin including "GTE" and/or "Contel" or any mark or indication of origin
confusingly similar thereto.
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(d) Buyer agrees not to use or seek to register any trade name,
service mark, trademark or domain name identical with or confusingly similar to
"GTE" and/or "Contel," including words and designs related to GTE and/or Contel.
Buyer agrees that it will never directly or indirectly challenge, contest or
call into question or raise any questions concerning the validity or ownership
of "GTE" and/or "Contel" by GTE, any registration or application for
registration of "GTE" or any domain name application or registration containing
"GTE" and/or "Contel." Buyer agrees that nothing herein shall give Buyer any
right to or interest in "GTE" and/or "Contel" except the right to use the same
in accordance with the terms of this Agreement and the Intellectual Property
Agreement, and that, subject to the Intellectual Property Agreement, all and any
uses of "GTE" and/or "Contel" by Buyer shall inure to the benefit of GTE.
5.5 TRANSITION SERVICES.
On or prior to the Closing Date, Seller and the Company shall enter
into a Transition Services Agreement substantially in the form of Exhibit B
attached hereto, pursuant to which Seller and its Affiliates shall provide
certain services to the Company on the terms and conditions therein set forth.
5.6 NONCOMPETITION.
(a) GTE agrees that for a period of five years commencing on the
Closing Date (the "Noncompetitive Period"), GTE shall not, and shall not cause
or permit any of its Subsidiaries to, engage directly or indirectly in any
activities which compete with the Business as presently conducted or proposed to
be conducted, as reflected (i) in the programs for which the Business has been
awarded a Contract as of the Closing Date, or has submitted (and not withdrawn)
a bid or proposal as of the date of this Agreement, (ii) any extensions of such
programs or follow-ons directly derived from such programs and (iii) the
programs listed on Schedule 5.6. The foregoing activities are referred to in
this Agreement collectively as "GTE Competitive Activities."
(b) The provisions of Section 5.6(a) shall not restrict the ability of
GTE or any of its Subsidiaries to (i) provide services under any Government
Contract (other than Government Contracts under which the Company and the
Division Subsidiaries are the sole Subsidiaries providing services) to which GTE
or any of its Subsidiaries is a party as of the date of this Agreement
(including pursuant to any contract options in respect of such Government
Contracts in effect as of the date of this Agreement) or under any bid or
proposal with respect to any Government Contract that was submitted (and not
withdrawn) as of the date of this Agreement and any extensions or follow-ons
directly derived from programs to which such Government Contracts relate, (ii)
engage in GTE Competitive Activities pursuant to a teaming agreement,
subcontract or similar agreement with Buyer or any of its Subsidiaries in
connection with any of the programs indicated in Schedule 5.6, (iii) providing
any customer access to or transport on any network owned or leased in whole or
in part by GTE or any of its Subsidiaries or on any public network (including
any virtual private network), (iv) providing any customer commercially available
telecommunications services (including wireline or wireless telephony services,
network management services, paging services, equipment maintenance, data
services, voice processing services or commercially available services premised
upon packet switching or cell-based technologies (including Internet protocols
and security services)), (v) providing any services to or for the Defense
Advanced Research Project Agency or any successor thereof and (vi) continue to
operate the ISD Business and any logical extensions of such business until the
consummation of the sale or other disposition of the ISD Division to a third
party.
(c) Notwithstanding the provisions of Section 5.6(a), the acquisition
by GTE or any of its Subsidiaries of any person that at the time of such
acquisition is engaged in GTE Competitive Activities, and the continuation of
such GTE Competitive Activities following such acquisition, shall not
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be in breach of the terms of this Section 5.6 if (i) the portion of the revenues
of such Person and its Subsidiaries on a consolidated basis for the fiscal year
ending prior to the date of such acquisition that is attributable to GTE
Competitive Activities by such Person and its Subsidiaries ("GTE Competitive
Revenues") account for less than 20 percent of the revenues of such Person and
its Subsidiaries on a consolidated basis for such fiscal year or (ii) in the
event the foregoing condition is not satisfied, GTE divests sufficient assets
within 12 months after the date of the acquisition so the GTE Competitive
Revenues of such Person and its Subsidiaries on a consolidated basis for such
fiscal year account for less than 20 percent of the revenues of such Person and
its Subsidiaries on a consolidated basis for such fiscal year.
(d) Notwithstanding anything in this Agreement to the contrary,
nothing contained in this Agreement shall prohibit or restrict the operation,
after the Bell Atlantic Merger, of any business of Bell Atlantic existing on the
effective date of the Bell Atlantic Merger or any logical extensions of such
business.
(e) If the final judgment of a court of competent jurisdiction
declares that any term or provision of this Section 5.6 is invalid or
unenforceable, the parties agree that the court making the determination of
invalidity of unenforceability shall have the power to reduce the scope,
duration or area of the term or provision, to delete specific words or phrases
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision and this Agreement
shall be enforceable as so modified.
(f) GTE acknowledges that Buyer would not have an adequate remedy at
law in the event of the violation of the covenant contained in this Section 5.6
and agrees that Buyer shall be entitled to enforce its rights under this Section
5.6 specifically without the requirement of posting any bond or other indemnity.
(g) Notwithstanding anything in this Agreement to the contrary, Buyer
acknowledges that any unaffiliated third party that is the ISD Purchaser or who
acquires the ISD Business from the ISD Purchasers shall not be bound by the
provisions of this Section 5.6.
5.7 SOLICITATION OF EMPLOYEES.
(a) GTE agrees that until January 1, 2001, except to the extent that
Buyer gives its written consent, neither GTE nor any of its Subsidiaries shall
solicit the employment of or employ, as an employee, independent contractor or
otherwise, any individual who is an employee of the Business as of the date of
this Agreement, or any individual who was an employee of the Business and
retired or otherwise terminated employment within the three month period prior
to the Closing Date. GTE and its Subsidiaries shall not be deemed to have
violated the covenant set forth in this Section 5.7(a) as a result of the
placement of any job advertisement or any other solicitation of employment not
specifically directed to individuals covered by this Section 5.7(a), provided
that no such individuals so solicited are in fact employed by GTE or its
Subsidiaries.
(b) Buyer agrees that until January 1, 2001, except to the extent that
GTE gives its written consent, neither it nor any of its Subsidiaries shall
solicit the employment of or employ, as an employee, independent contractor or
otherwise, any (i) individual who retired from or otherwise terminated
employment with GTE or any of its Subsidiaries during the three months prior to
the Closing Date or (ii) executive level or technical employee of GTE or any of
its Subsidiaries (other than the Business) as of the date of this Agreement.
Buyer and its Subsidiaries shall not be deemed to have violated the covenant set
forth in this Section 5.7(b) as a result of the placement of any job
advertisement
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or other general solicitation of employment not specifically directed to
employees of GTE or any of its Subsidiaries, provided that no employees of GTE
or any of its Subsidiaries so solicited are in fact employed by Buyer or its
Subsidiaries.
5.8 ASSIGNMENT OF CONFIDENTIALITY AGREEMENTS. On or prior to the
Closing Date, GTE shall assign to Buyer its rights pertaining to the Business to
enforce the confidentiality provisions existing under all confidentiality
agreements entered into on behalf of GTE or any of its Affiliates with any
prospective purchaser of the Business.
5.9 ADJUSTMENT TO CORPORATE OVERHEAD EXPENSES. The parties acknowledge
that (i) after the Closing there may be disallowances, redeterminations and
rellocations of corporate overhead charges and expenses included in costs billed
prior to the Closing Date under any cost-reimbursement or fixed-price incurred
(cost-redeterminable) Government Contract (collectively "Overhead Adjustments" )
and (ii) the Closing Date Statement of Net Assets will include reserves intended
to cover the net Overhead Adjustments payable by the Company and its
Subsidiaries (after taking into account any Overhead Adjustments that benefit
the Company) after the Closing (the "Overhead Reserves"). In the event that the
aggregate net Overhead Adjustments paid by the Company and its Subsidiaries
(after taking into account any Overhead Adjustments that benefit the Company)
exceed the Overhead Reserves, Seller will pay the Company the excess. If the
Overhead Reserves exceed the aggregate net Overhead Adjustments as of December
31, 2003 (after taking into account any Overhead Adjustments that benefit the
Company), then prior to March 31, 2004, Buyer shall pay to Seller 50% of the
amount by which the Overhead Reserves exceed the aggregate net Overhead
Adjustments.
ARTICLE VI
EMPLOYEE BENEFITS
6.1 EMPLOYEE MATTERS.
(a) Employment by Buyer. (i) Buyer shall cause all active employees of
the Company and its Affiliates employed in the Business on the Closing Date
(hereinafter collectively referred to as "Transferred Employees") to remain
employed by (or remain the responsibility of, as applicable) the Company and its
Subsidiaries as of 12:01 a.m. on the day after the Closing Date in the same or
comparable positions, except as otherwise provided in this Agreement. For
purposes of this Section 6.1(a)(i), the term "active employees" shall include
all full-time and part-time employees, employees on workers' compensation,
military leave, maternity leave, leave under the Family and Medical Leave Act of
1993, leave governed by state law, short-term and long-term disability
(including a disability pension), non-occupational disability, on layoff with
recall rights, and employees on other approved leaves of absence with a legal or
contractual right to reinstatement.
(ii) All Transferred Employees shall be identified on
Schedule 6.1(a)(ii) to be prepared by Seller and submitted to Buyer on
or before the Closing Date.
(iii) Prior to the Closing Date, all employees other than
Transferred Employees will be transferred out of the Company and its
Subsidiaries and will cease to be employees of the Company and its
Subsidiaries. Seller will have full responsibility for all employees
referred to in the preceding sentence and for all former employees of
the Company and its Subsidiaries who, immediately prior to termination
of employment with or retirement from the Company or its Subsidiaries,
were not employed primarily in connection with the Business, including
without limitation, all employment-related liabilities, compensation,
and benefits, accrued through and after the Closing Date.
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(iv) Subject to any applicable collective bargaining
requirements, until December 31, 2000, Buyer shall cause to be
maintained for all Transferred Employees (A) the same base salaries or
wages provided by the Company and its Subsidiaries as of the Closing
Date and (B) opportunities for stock options and short and long-term
bonuses that are, in the aggregate, substantially comparable to such
opportunities with the Company and its Affiliates as of the Closing
Date.
(b) Assumption of Collective Bargaining Agreement. On and after the
Closing Date, except as otherwise provided in this Agreement, Buyer shall
assume, or Buyer shall cause one of its Affiliates to assume, all obligations
under and be bound by the provisions of the collective bargaining agreement
between GTE Government Systems, Worldwide Telecommunications Services (WTS)
Divisions and Communications Workers of America, Local 1126, AFL-CIO.
(c) Recognition of Service. On and after the Closing Date, Buyer shall
cause the Company and its Subsidiaries to recognize the service of each
Transferred Employee for the Company and its Affiliates before the Closing Date
for all employment-related purposes determined in accordance with the practices
and procedures of the Company and its Subsidiaries in effect on the Closing
Date, as if such service had been rendered to Buyer or one of its Affiliates.
Schedule 6.1(c) to be prepared by Seller and submitted to Buyer on or before the
Closing Date shall list the service of each Transferred Employee for the
employment-related purposes referred to in the preceding sentence.
(d) No Accrual of Benefits Under Seller Plans. Transferred Employees
shall not accrue benefits under any employee benefit policies, plans,
arrangements, programs, practices, or agreements of Seller or any of its
Affiliates (including any Plan) after the Closing Date. Seller shall retain or
assume the obligation to pay to Transferred Employees retention bonuses awarded
by Seller. Notwithstanding the foregoing, Seller shall have the option to
require Buyer to pay the retention bonuses to Transferred Employees after the
Closing Date; provided, however, that Seller shall reimburse Buyer for the cost
of such retention bonuses (including applicable payroll taxes). With respect to
annual bonuses other than retention bonuses, Seller shall retain or assume the
obligation to pay to Transferred Employees bonuses with respect to the calendar
year in which the Closing occurs on a pro rata basis for the portion of the
calendar year prior to the Closing Date, such bonuses to be paid in the ordinary
course. Buyer shall assume the obligation to pay to Transferred Employees
bonuses payable with respect to the calendar year in which the Closing occurs on
a pro rata basis for the period from and including the Closing Date until the
end of the calendar year. In determining the pro-rated bonuses payable to
Transferred Employees for services rendered on and after the Closing Date, Buyer
shall in good faith consider and implement Seller's recommendations to ensure
that bonuses are (i) reasonably comparable to the bonuses such employees
received in the year prior to the year in which the Closing occurs and (ii)
determined by employing criteria reasonably comparable to criteria employed by
Seller for the bonus relating to the portion of the calendar year prior to the
Closing Date.
(e) No Duplication of Benefits. Nothing in this Agreement shall cause
duplicate benefits to be paid or provided to or with respect to a Transferred
Employee under any employee benefit policies, plans, arrangements, programs,
practices, or agreements (including any Plan). References herein to a benefit
with respect to a Transferred Employee or Business Retiree shall include, where
applicable, benefits with respect to any eligible dependents and beneficiaries
of such Transferred Employee or Business Retiree under the same employee benefit
policy, plan, arrangement, program, practice, or agreement.
(f) Employees of Seller Treated as Transferred Employees. If any
employee identified in Schedule 6.1(a)(ii) is an employee of an Affiliate of
Seller other than the Company or one of its Subsidiaries, he or she shall be
considered a Transferred Employee and shall be treated under this
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Agreement in a manner that is comparable to the treatment given to the
Transferred Employees who are employed by the Company or its Subsidiaries,
including without limitation, inclusion in the pension plan and VEBA asset
transfers contemplated herein. Such Transferred Employee's service as of the
Closing Date shall be determined in accordance with the practices and
procedures of his or her employer, as in effect on the Closing Date.
(g) Long-Term Disability Recipients. Section 6.8 sets forth certain
special rules that apply to any Transferred Employee who, as of the Closing
Date, either (i) is currently receiving long-term disability benefits under a
long-term disability plan of Seller or one of its Affiliates, (ii) has been
approved for receipt of long-term disability benefits under a long-term
disability plan of Seller or one of its Affiliates, or (iii) is receiving a
disability pension under a Pension Plan. A Transferred Employee described in the
preceding sentence shall be identified by Seller in Schedule 6.1(a)(ii) as an
"LTD Recipient." LTD Recipients shall be treated as Transferred Employees under
this Agreement as described in Section 6.8 and, as such, shall be subject to all
of the provisions of this Agreement governing the benefits of Transferred
Employees, except to the extent specifically provided otherwise in this
Agreement.
(h) Intellectual Property Rights. GTE and Seller shall retain the
right to enforce any and all employee agreements relating to Intellectual
Property retained by GTE or Seller.
6.2 EMPLOYEE BENEFIT MATTERS.
(a) Defined Benefit Plan.
(i) Seller Retention of Company Pension Plans. As of the
date of this Agreement, the Company has adopted the Government Systems
Pension Plan and the Integrated Customer Solutions Union Pension Plan
(the "Union Pension Plan" and together with the Government Systems
Pension Plan, the "Company Pension Plans"). Effective prior to the
Closing Date, Seller will assume sponsorship of the Company Pension
Plans, their related trusts, and all liabilities and obligations
arising under and related to the Company Pension Plans. All necessary
amendments to the Company Pension Plans required in order to carry out
the provisions of this Section 6.2(a) will be made by Company and
Seller prior to the Closing Date. In addition, Seller agrees that it
will cause the Government Systems Pension Plan to be merged with
another defined benefit pension plan sponsored by Seller or an
affiliate of Seller prior to the Closing Date; provided, that Seller
shall continue to account for the assets and liabilities of the
Government Systems Pension Plan as if it continued to be a separate
plan (the "GSC Plan Assets" and the "GSC Plan Liabilities"). Seller
agrees that such plan merger will not affect or change the Government
Systems Pension Plan's benefit liabilities, accrual formula or early
retirement provisions. Any plan that Seller merges with the Government
Systems Pension Plan shall be fully funded as determined under
Sections 404 and 412 of the Code and such plan shall have sufficient
assets so that Code Section 414(l) will be satisfied with respect to
the transfer of assets contemplated in Section 6.2(a)(iv).
(ii) Buyer Pension Plan. Subject to the transfer of assets
described in Section 6.2(a)(iv) below, Buyer agrees to provide pension
benefits for Transferred Employees as follows:
(A) Effective immediately after the Closing Date,
the Transferred Employees who were eligible to participate
in the Government Systems Pension Plan as of the Closing
Date will be eligible to participate under a tax-qualified
defined benefit
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plan established or maintained by Buyer or an Affiliate of
Buyer ("the Buyer Pension Plan").
(B) The Buyer Pension Plan will provide accrued
benefits for Transferred Employees equal to their benefits
accrued through the Closing Date under the written terms of
the Government Systems Pension Plan. To the extent required
to preserve the benefits accrued under the Government
Systems Pension Plan, each Transferred Employee's
compensation with, employment by, and service with Seller
(and, to the extent counted under the Government Systems
Pension Plan, members of Seller's controlled group) prior to
the Closing Date will be considered as compensation with,
employment by, and service with Buyer under the Buyer
Pension Plan.
(C) For a period of at least 5 years following the
Closing Date, Buyer shall retain a benefit accrual formula
and early retirement provisions that are not less favorable
to the Transferred Employees than the benefit accrual
formula and early retirement provisions available to the
Transferred Employees under the Government Systems Pension
Plan as of the Closing Date.
(iii) Transfer of Accrued Benefits of Former Employees.
Subject to the transfer of assets described in Section 6.2(a)(iv)
below, the Buyer Pension Plan will assume the benefit liabilities
under the written terms of the Government Systems Pension Plan
effective as of the Closing Date for former employees of the Business
who are Company Pension Participants.
(iv) Transfer of Assets and Liabilities. Within 45 days
after the Closing Date (the "First Transfer Date"), Seller will cause
to be transferred from the Government Systems Pension Plan to the
Buyer Trust cash, or, to the extent agreed to by Buyer (such agreement
not to be unreasonably withheld), marketable securities, in an amount
equal to the First Pension Transfer Amount, plus interest on the
amount transferred, from the Closing Date through the First Transfer
Date at a rate equal to 4.5% per annum. Within 120 days of the Closing
Date (the "Second Transfer Date"), Seller will cause to be transferred
from the Government Systems Pension Plan to the Buyer Trust cash or,
to the extent agreed to by Buyer (such agreement not to be
unreasonably withheld), marketable securities, in an amount equal to
the Second Pension Transfer Amount, plus interest on the amount
transferred, from the Closing Date through the Second Transfer Date at
a rate equal to 4.5% per annum. The amount to be transferred as of the
Second Transfer Date shall be reduced by the aggregate amount of any
pension benefit payments made by Seller on Buyer's behalf prior to the
Second Transfer Date. Subject to the completion of the transfer of the
First Pension Transfer Amount, the benefit liabilities as of the
Closing Date under the written terms of the Government Systems Pension
Plan relating to the Company Pension Participants (the "Transferred
Liabilities") shall be assumed in full by the Buyer Pension Plan and
Buyer Trust.
(v) Pension Transfer Amount.
(A) For purposes of this Section 6.2, "First
Pension Transfer Amount" shall mean 95% of the Minimum
Pension Transfer Amount, as defined below, except that this
amount shall be determined using plan liabilities as of
January 1, 1999, and the fair market value of plan assets
determined as of January 1, 1999.
(B) For purposes of this Section 6.2, "Second
Pension Transfer Amount" shall mean:
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the amount of assets allocable to Company Pension
Participants as of the Closing Date, pursuant to
48 CFR 9904.413 and which further satisfies the
requirements of 48 CFR 9904.413-50(c)(12)(v) so
that no "adjustment of previously-determined
pension costs" shall be required under the
provisions of 48 CFR 9904.413-50(c)(12), but not
less than the Minimum Pension Transfer Amount,
less the First Pension Transfer Amount.
In the event that the Second Pension Transfer Amount is a negative amount, Buyer
shall transfer assets from the Buyer Trust to the Government Systems Pension
Plan in an amount equal to such negative amount.
(C) The term "Minimum Pension Transfer Amount"
means an amount that is no less than an amount equal to the
Transferred Liabilities, plus a share of GSC Plan Assets in
excess of the GSC Plan Liabilities as of the Closing Date,
where such share is equal to the ratio of the Transferred
Liabilities to the total GSC Plan Liabilities. For purposes
of this Section 6.2(a)( v)(C), GSC Plan Liabilities and the
Transferred Liabilities shall equal the actuarial value of
plan liabilities determined as of the Closing Date using
actuarial cost methods and assumptions for determining
annual pension costs under 48 CFR 9904.412 and 48 CFR
9904.413 used by Seller with respect to the Government
Systems Pension Plan for the plan year ending on December
31, 1998 (such methods and assumptions in effect as of the
date hereof which shall be disclosed on Schedule 6.2(
a)(v)(C) and delivered within 30 days of signing this
Agreement), and GSC Plan Assets shall be valued at fair
market value as of the Closing Date. In addition, where a
segment or business unit has separately identified assets
attributable to its liabilities under the Government Systems
Pension Plan, the GSC Plan Assets and GSC Plan Liabilities
shall be reduced by such separately identifiable liabilities
and assets prior to proration. Seller represents that only
Telecom participants have separately identifiable assets in
the Government Systems Pension Plan and such assets equal
approximately $11 million.
(D) In the event a Governmental Entity audits the
transfer of assets described herein, Buyer and Seller agree
to cooperate with each other in the resolution of such
audit. Buyer shall not dispute Seller's calculation of the
amount of assets to be transferred, except in accordance
with the provisions of Section 6.2(a)(vi). Upon final
resolution of the audit, including any resulting contracting
officer decision (and any appeal therefrom), Seller shall
cause the Government Systems Pension Plan to transfer
additional assets to the Buyer Trust, to the extent
necessary to satisfy the requirements of 48 CFR
9904.413-50(c)(12)(v) so that no "adjustment of previously
determined pension costs" shall be required under the
provisions of 48 CFR 9904.413-50(c)(12), FAR 31.205-6(j)(4),
Government Contracts, or any other law.
(E) Buyer and Seller mutually agree that the asset
transfers contemplated in this section will satisfy the
requirements of Section 414(1) of the Code.
(vi) Verification Procedure.
(A) Seller, on or prior to the Second Transfer
Date, shall notify Buyer in writing of Seller's
determination of the amount of assets required to be
transferred in accordance with the provisions of Section
6.2(a)(iv), shall provide Buyer with a copy of the actuarial
reports relating to the determination of such amount,
together with such related data and materials as Buyer may
reasonably request, and shall provide
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<PAGE> 52
Buyer with a written statement by Seller's actuary that the
amounts of assets proposed to be transferred are not less
than the required amounts determined in accordance with
Section 6.2(a)(v)(C) of this Agreement.
(B) Buyer shall notify Seller in writing of
Buyer's disagreement with any determination of the Minimum
Pension Transfer Amount made by the Seller pursuant to
Section 6.2(a)(v)(C), or with the allocation and transfer of
VEBA assets and liabilities pursuant to Section
6.2(c)(ii)(C), as soon as practicable and in any event
within 90 days after the date on which the information
specified in Section 6.2(a)(vi)(A) or Section 6.2(c)(ii)(C),
as the case may be, is provided to Buyer. If no such notice
is given by Buyer prior to the expiration of the foregoing
period, the determinations contained in Seller's notice to
Buyer shall be conclusive and binding upon the parties. If
Buyer gives written notice to Seller prior to the expiration
of the foregoing period setting forth any objections to the
determinations made by Seller, the parties shall attempt in
good faith to reach an agreement as to all matters in
dispute. If the parties, notwithstanding such good faith
effort, fail to resolve all matters in dispute within 30
days after Buyer advises Seller of its objections, then any
remaining disputed matters shall be finally and conclusively
determined by a qualified independent actuary selected by
Seller and Buyer, which actuary shall not be the regular
actuary of either party. Promptly, but in no event later
than 30 days after its acceptance of its appointment, the
actuary shall determine (based solely on presentations by
Seller and Buyer and not by independent review) only those
matters in dispute and shall render a written report as to
the disputed matters and the resulting calculations of the
pension assets required to be transferred by Seller in
accordance with the provisions of Section 6.2(a), or the
allocation and transfer of VEBA assets and liabilities in
accordance with Section 6.2(c)(ii)(C), as the case may be,
which report shall be conclusive and binding upon the
parties. In a dispute regarding the pension asset transfer,
the independent actuary shall determine only the Minimum
Pension Transfer Amount and shall not interpret or resolve
any dispute under Government Contracts, government
contracting regulations or Section 6.2(a)(v)(B). The fees
and expenses of the independent actuary shall be shared
equally by the parties. In a dispute regarding the pension
asset transfer, Seller shall cause the additional assets, if
any, to be transferred to the Buyer Pension Plan within 10
days of and in accordance with the independent actuary's
report. In a dispute regarding the allocation and transfer
of VEBA assets and liabilities, the parties shall cause the
VEBA assets and liabilities to be reallocated between Seller
or Retained VEBAs and Assumed VEBAs within 10 days of and in
accordance with the independent actuary's report.
(vii) Pension Data. Within 30 days after the Closing Date or
such other date determined by Buyer, Seller will deliver to Buyer such
copies of Seller's applicable personnel, pension and other records
pertaining to the Company Pension Participants and their individual
participation in the Government Systems Pension Plan, and copies of
such other applicable records of Seller or any of its agents or
representatives pertaining to the Company Pension Participants, the
Government Systems Pension Plan or the Seller Trust, as Buyer may
reasonably request.
(b) Savings Plans.
(i) Seller Savings Plans. As of the date of this Agreement,
Seller or its Affiliates have adopted and made contributions to the
GTE Savings Plan and the GTE Hourly Savings Plan (collectively
referred to as the "Seller Savings Plans"). Transferred Employees
shall not be entitled to make contributions to or, except as provided
in Section 6.2(b)(ii), to
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<PAGE> 53
benefit from matching or other contributions under the Seller Savings
Plans on or after the Closing Date. To the extent necessary to
implement the preceding sentence, the Seller Savings Plans will be
amended prior to, but effective on, the Closing Date to terminate
participation in those Plans by the Transferred Employees and to
remove the Company and its Subsidiaries as participating employers
under those plans. The Seller shall cause the accounts of all Seller
Savings Plans to be fully vested as of the Closing Date.
(ii) Matching Contributions. All required matching
contributions with respect to the Transferred Employees' contributions
to the Seller Savings Plans that are eligible for matching and made
before the Closing Date shall be made. Such matching contributions
shall be made not later than the date on which other matching
contributions are made to the Seller Savings Plans with respect to
contributions made at the same time as the Transferred Employees'
Contributions.
(iii) Buyer Savings Plan. Buyer shall take all actions
necessary and appropriate to ensure that, as soon as practicable after
the Closing Date, Buyer or one of its Affiliates maintains or adopts
one or more savings plans (hereinafter referred to in the aggregate as
the "Buyer Savings Plans" and individually as the "Buyer Savings
Plan") effective as of the Closing Date and to ensure that each Buyer
Savings Plan satisfies the following requirements as of the Closing
Date: (A) the Buyer Savings Plan is a qualified, single-employer
individual account plan under Section 401(a) of the Code; (B) the
Buyer Savings Plan does not exclude Transferred Employees from
eligibility to participate therein to the extent they met the
eligibility and participation requirements under the Seller Savings
Plans; and (C) the Buyer Savings Plan permits Transferred Employees to
make before-tax contributions (under Section 401(k) of the Code) and
provides for matching contributions by Buyer or one of its Affiliates.
For purposes of eligibility and vesting under the Buyer Savings Plans,
each Transferred Employee shall be credited with service as of the
Closing Date as determined under the terms of the Seller Savings
Plans. As soon as practicable after the Closing Date, Seller shall
cause GTE Service Corporation to deliver to Buyer a list of the
Transferred Employees covered by the Seller Savings Plans, together
with each Transferred Employee's service under each of the Seller
Savings Plans as of the Closing Date.
(iv) Distribution and Direct Rollover. Seller will permit
each Transferred Employee to elect a distribution of his or her
account balance in a Seller Savings Plan, pursuant to the provisions
of Sections 401(k)(2)(B)(i)(II) and 401(k)(10)(A)(ii) of the Code,
until the end of the second calendar year after the year in which the
Closing Date occurs. Buyer will cause the Buyer Savings Plan to accept
a direct rollover of the taxable portion of a distribution of a
Transferred Employee's account balance from either of the Seller
Savings Plans, including any outstanding loans and related promissory
notes. Seller shall cause the Seller Savings Plans to permit repayment
by coupon payments, in lieu of payroll withholding, of any outstanding
loan from an account balance in a Seller Savings Plan of which a
Transferred Employee does not take a distribution. Buyer shall cause
Seller to be reimbursed for any reasonable costs associated with the
actions required by the preceding sentence.
(v) Trust-to-Trust Transfer. After the end of the second
calendar year after the Closing Date, Buyer, in its sole discretion,
may elect to accept a trust-to-trust transfer of all remaining assets
and liabilities of the Seller Savings Plans relating to the
Transferred Employees. If Buyer so elects, Seller shall direct the
trustee of the Seller Savings Plans to transfer to the trustee or
funding agent of the Buyer Savings Plans an amount in cash equal in
value to the account balances of the Transferred Employees covered by
the Seller Savings Plans as of the date of the transfer; provided that
to the extent the account balances to be transferred consist in whole
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<PAGE> 54
or in part of outstanding loans, Seller shall direct the trustee of
the Seller Savings Plans to transfer to the trustee or funding agent
of the Buyer Savings Plans, in lieu of cash, the promissory notes and
related documents evidencing such loans. Buyer and Seller shall take
such actions as may be required to effect the assignment of such loans
by the trustee of the Seller Savings Plan to the trustee or funding
agent of the Buyer Savings Plan, and Buyer shall cause the trustee or
funding agent of the Buyer Savings Plan to accept the assignment of
such loans. After the date of the transfer of assets and liabilities
pursuant to this Section 6.2(b)(v), Buyer and its Affiliates shall
assume all liabilities for the benefits payable to or with respect to
such Transferred Employees under the Seller Savings Plans, and Seller
and the Seller Savings Plans and their implementing trust shall retain
no liability for such benefits. In connection with the transfer of
assets and liabilities pursuant to this Section 6.2(b)(v), Seller and
Buyer shall cooperate with each other in making all appropriate
filings required by the Code or ERISA and the regulations thereunder,
and the transfer of assets and liabilities pursuant to this Section
6.2(b)(v) shall not take place until as soon as practicable after the
latest of (A) the expiration of the 30-day period following the filing
of any required notices with the IRS pursuant to Section 6058(b) of
the Code, and (B) the date Buyer has delivered to Seller (xx) a copy
of the Buyer Savings Plan and (yy) a copy of the most recent
determination letter from the IRS to the effect that the Buyer Savings
Plan is qualified under Sections 401(a) and 401(k) of the Code,
together with (I) documentation reasonably satisfactory to Seller of
the due adoption of any amendments to the Buyer Savings Plan required
by the IRS as a condition to such qualification and (II) a
certification from Buyer that no events have occurred that adversely
affect the continued validity of such determination letter (apart from
the enactment of any Federal law for which the remedial amendment
period under Section 401(b) of the Code has not yet expired). Seller
agrees to provide similar assurances to Buyer.
(c) Welfare Plans.
(i) Buyer shall take all action necessary and appropriate to
ensure that, as soon as practicable after the Closing Date, Buyer or
one of its Affiliates maintains or adopts, as of the Closing Date, one
or more employee welfare benefit plans, including medical, health,
dental, flexible spending account, accident, life, short-term
disability, and long-term disability and other employee welfare
benefit plans for the benefit of the Transferred Employees (the "Buyer
Welfare Plans"). The Buyer Welfare Plans shall provide as of the
Closing Date pre-retirement benefits to Transferred Employees that, in
the aggregate, are comparable to the pre-retirement benefits to which
they were entitled under the corresponding employee welfare benefit
plans maintained by Seller or its Affiliates on the Closing Date
(hereinafter referred to collectively as the "Seller Welfare Plans").
Subject to Section 6.2(c)(ii)(B) and the transfer of assets required
by Section 6.2(c)(ii)(C), the Buyer Welfare Plans shall provide as of
the Closing Date post-retirement benefits to which Transferred
Employees will be entitled upon retirement that, in the aggregate, are
comparable to the post-retirement benefits to which they would be
entitled upon retirement under the Seller Welfare Plans. For purposes
of determining eligibility to participate in each Buyer Welfare Plan,
each Transferred Employee shall be credited with service, determined
under the terms of the corresponding Seller Welfare Plan on the
Closing Date. Any restrictions on coverage for pre-existing conditions
or requirements for evidence of insurability under the Buyer Welfare
Plans shall be waived for Transferred Employees and Transferred
Employees shall receive credit under the Buyer Welfare Plans for
co-payments and payments under a deductible limit made by them and for
out-of-pocket maximums applicable to them during the plan year of the
Seller Welfare Plan in accordance with the corresponding Seller
Welfare Plans. As soon as practicable after the Closing Date, Seller
shall deliver to Buyer a list of the Transferred Employees who had
credited service under a Seller Welfare Plan, together with each such
Transferred Employee's service, co-payment amounts, and deductible and
out-of-pocket limits
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under such plan. Except as described in Section 6.2(c)(ii)(B), the
Buyer Welfare Plans shall provide benefits as described in this
paragraph until December 31, 2000.
(ii) (A) Subject to Section 6.2(c)(ii)(B) and the transfer
of assets required by Section 6.2(c)(ii)(C), Buyer shall provide or
cause to be provided retiree medical, health, and life benefits to
each Business Retiree comparable to the benefits provided under the
corresponding Seller Welfare Plans as of the Closing Date. Any
restrictions on coverage for pre-existing conditions or requirements
for evidence of insurability under the Buyer Welfare Plans shall be
waived for Business Retirees and Business Retirees shall receive
credit under the Buyer Welfare Plans for co-payments and payments
under a deductible limit made by them and for out-of-pocket maximums
applicable to them during the plan year of the Seller Welfare Plan in
accordance with the corresponding Seller Welfare Plans. For purposes
of determining eligibility to participate in each Buyer Welfare Plan,
each Business Retiree shall be credited with service, determined under
the terms of the corresponding Seller Welfare Plan on the Closing
Date. As soon as practicable after the Closing Date, Seller shall
deliver to Buyer a list of the Business Retirees, together with each
such Business Retiree's service, co-payment amounts and deductible and
out-of-pocket limits under such plan.
(B) With respect to Business Retirees and active
employees of the Company identified on Schedule
6.2(c)(ii)(B) whose combined age and years of service as of
the date of this Agreement total at least 66 (such schedule
to be provided within 30 days after the date of this
Agreement), benefits provided by the Buyer Welfare Plans
shall not be reduced or eliminated, except that Buyer may in
the ordinary course of business: (i) add, delete or change
providers of the benefits described in the Buyer Welfare
Plans; (ii) change, increase or decrease co-payments,
deductibles and other requirements for coverage or benefits
(e.g. utilization review or pre-certification requirements)
under the Buyer Welfare Plans; and/or (iii) make other
changes in administration or changes in the design of the
Buyer Welfare Plans and their coverage and benefits. Buyer
may also transfer the obligation described in this Section
6.2(c)(ii)(B) to another entity in connection with a
transaction in which Buyer sells or transfers all or a
portion of the Business or an outsourcing arrangement, joint
venture, or other business transaction.
(C) VEBAs. Schedule 6.2(c)(ii)(C) identifies the
voluntary employees' beneficiary association ("VEBA") trusts
that will be identified by the parties as "Assumed VEBAs" or
"Retained VEBAs" as soon as practicable after the date of
this Agreement pursuant to good faith negotiations between
the parties. At Closing, the Retained VEBAs shall remain
with Seller or an Affiliate thereof, and the Assumed VEBAs
shall be continued by the Buyer or the Company. Seller shall
share financial information and analysis with Buyer
regarding the VEBA assets and their valuations. Buyer and
Seller shall cooperate with each other in good faith in
determining the liabilities associated with the Transferred
Employees and Business Retirees and the liabilities that are
retained or transferred to GTE and its Affiliates. The
parties shall cooperate in good faith to determine how the
VEBA assets associated with these liabilities shall be
allocated among the Assumed and Seller VEBAs (with transfers
between VEBAs, as necessary) with the objectives of
minimizing taxes or transaction costs and of reasonably
sharing liquid and illiquid assets between the Assumed VEBAs
and the Seller VEBAs, but with the preference that
trust-owned life insurance policies be retained by or be
transferred to a Seller VEBA. The allocation of VEBA assets
shall be done in a manner consistent with the methods
described in 48 CFR 9904.413, using actuarial cost methods
and assumptions used by Seller for the plan year ending
December
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31, 1998. Seller's actuary shall calculate the amounts of
the assets and liabilities to be transferred or retained and
shall provide Buyer with a copy of the actuarial reports
relating to the calculation of such amount, together with
such related data and materials as Buyer may reasonably
request, within 30 days following the Closing Date. Buyer's
actuary shall have the right to audit and review the
calculation made by Seller. If Buyer is unable to agree with
Seller on the amount of the assets and liabilities to be
transferred or retained, the parties shall follow the
verification procedure described in Section 6.2(a)(vi). In
the event a Governmental Entity audits the transfer of
assets described herein, Buyer and Seller agree to cooperate
with each other in the resolution of such audit. Upon final
resolution of the audit, including any resulting contracting
officer decision (and any appeal therefrom), Seller shall
cause a Seller VEBA to transfer to an Assumed VEBA or Buyer
shall cause an Assumed VEBA to transfer to a Seller VEBA, as
appropriate, such amount that Seller will not be required to
make a refund or give a credit to a Governmental Entity
pursuant to FAR 52.215-18 or FAR 31.205-6(o)(6), any
Government Contract, or any other Law.
(iii) Buyer shall refer to GTE Service Corporation and GTE
Service Corporation shall assume responsibility for any valid claim
under a Seller Welfare Plan for medical or dental benefits made by a
Transferred Employee on or after the Closing Date arising from a loss
incurred before the Closing Date. Nothing in this Section 6.2(c) shall
require Seller, any Affiliate of Seller, or the Seller Welfare Plans
to make any payment or to provide any benefit not otherwise provided
by the terms of the Seller Welfare Plans.
(iv) Seller, Buyer, their respective Affiliates, and the
Seller Welfare Plans and the Buyer Welfare Plans shall assist and
cooperate with each other in the disposition of claims made under the
Seller Welfare Plans pursuant to Section 6.2(c)(iii), and in providing
each other with any records, documents, or other information within
its control or to which it has access that is reasonably requested by
any other as necessary or appropriate to the disposition, settlement,
or defense of such claims.
(v) Except as otherwise provided in Sections 6.2(c)(ii)(C)
and 6.2(c)(vi), nothing in this Agreement shall require Seller or its
Affiliates to transfer assets or reserves with respect to the Seller
Welfare Plans to Buyer or the Buyer Welfare Plans.
(vi) As of the Closing Date, Seller shall cause the portion
of the GTE Flexible Reimbursement Plan (the "FRP") applicable to
Transferred Employees to be segregated into a separate component and
all account balances of the Transferred Employees in the FRP shall be
transferred to a flexible reimbursement plan that Buyer shall cause to
be maintained for the duration of the calendar year in which the
Closing Date occurs.
(vii) It is the intent of the parties to this Agreement that
sufficient welfare benefit plan assets shall be transferred to Buyer
such that the U.S. Government shall not be entitled to receive a
credit for an equitable share of previously funded welfare benefit
plan costs pursuant to the Cost Accounting Standards or Federal
Acquisition Regulations in connection with the assumption of welfare
benefit plan liabilities by Buyer or in connection with any transfer
of welfare benefit plan assets contemplated by this Agreement;
provided, however, that such transfer must in all respects comply with
any applicable requirements of ERISA and the Code.
(d) Severance Benefits. On and for a period of at least 36 months
after the Closing Date, Transferred Employees shall be eligible for benefits
under a Buyer severance or separation pay policy or plan that are the same as or
comparable to the severance or separation pay policy benefits that are
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provided by the Company or its Subsidiaries as of the Closing Date. At Buyer's
discretion, the ISEP benefits provided under the Government Systems Pension
Plan may be paid in cash from Buyer's general assets or through a
non-tax-qualified severance arrangement (without adjustment in the amount of
such benefits based on the source of payment). For the purpose of determining
eligibility and for the amount of the severance pay, Buyer shall cause the
service of each such Transferred Employee with Seller and its Affiliates to be
recognized for eligibility, vesting, and benefit determinations under Buyer's
severance or separation pay policy or plan.
6.3 EXECUTIVE BENEFIT ARRANGEMENTS.
(a) SERP and 415 Excess Plan. Buyer shall take all actions necessary
and appropriate to ensure that, as soon as practicable after the Closing Date,
Buyer or one of its Affiliates maintains or adopts one or more plans on behalf
of the Transferred Employees, effective as of the Closing Date, that provide for
eligibility requirements and benefits that are comparable to the eligibility
requirements and benefits provided for under the GTE Supplemental Executive
Retirement Plan ("SERP") and the GTE Excess Pension Plan (the "Excess Pension
Plan") as of the Closing Date. Buyer shall cause Transferred Employees to be
credited under such plans with service and compensation as of the Closing Date
as determined under the terms of the SERP and/or the Excess Pension Plan, as the
case may be, as of the Closing Date. As soon as practicable after the Closing
Date, Seller shall deliver to Buyer a list reflecting each Transferred
Employee's service and compensation under the SERP and the Excess Pension Plan
as of the Closing Date. For a period of at least 5 years following the date of
this Agreement, Buyer shall retain a benefit accrual formula and early
retirement provisions under its plan or plans that are no less favorable than
the benefit accrual formula and early retirement provisions of the SERP and the
Excess Pension Plan as of the Closing Date.
(b) Executive Retired Life Insurance. Buyer shall take all actions
necessary and appropriate to ensure that, as soon as practicable after the
Closing Date, Buyer or one of its Affiliates maintains or adopts a plan (to be
effective as of the Closing Date) on behalf of the Transferred Employees whose
combined age and years of service as of the date of this Agreement total at
least 66 or who are otherwise within 5 years of eligibility for ERLIP, that
provides for eligibility requirements and benefits that are comparable to the
eligibility requirements and benefits provided for under the GTE Executive
Retired Life Insurance Plan (the "ERLIP") as of the Closing Date. Buyer shall
cause Transferred Employees to be credited under such plan as of the Closing
Date with benefits determined under the terms of the ERLIP as of the Closing
Date. As soon as practicable after the Closing Date, Seller shall deliver to
Buyer a list reflecting each Transferred Employee's benefit under the ERLIP as
of the Closing Date. ERLIP shall be subject to the same protections described in
Section 6.2(c)(ii)(B).
6.4 VACATION PAY.
On or after the Closing Date, Buyer shall assume all liabilities and
obligations to Transferred Employees, including Transferred Employees who were
not employees of the Company (as marked by an asterisk on Schedule 6.1(a)(ii)),
in respect of vacation pay accrued during 1999 or subject to carryover from
1998. Buyer shall not reduce the amount of current year unused vacation pay each
Transferred Employee has accrued during the year in which the Closing Date
occurs. Seller and its Affiliates shall have no liability to Transferred
Employees for the vacation payments described above. Seller shall pay
Transferred Employees any banked vacation on or before the Closing Date. Seller
shall provide Buyer at the Closing with a list of the accrued but unused
vacation pay (exclusive of banked vacation), as of the Closing Date, of each
Transferred Employee for the calendar year in which the Closing Date occurs. For
purposes of this Agreement, vacation pay shall include traditional vacation
days, floating holidays, personal days, and any similar time periods.
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6.5 THIRD-PARTY LIMITATIONS.
(a) Nothing expressed or implied in this Article VI shall confer upon
any employee of Seller or its Affiliates, or Buyer or its Affiliates, or upon
any legal representative of such employee, any rights or remedies, including any
right to employment or continued employment for any specified period, of any
nature or kind whatsoever under or by reason of this Agreement.
(b) Nothing in this Agreement shall be deemed to confer upon any
person (nor any beneficiary thereof) any rights under or with respect to any
plan, program, or arrangement described in or contemplated by this Article VI,
and each person (and any beneficiary thereof) shall be entitled to look only to
the express terms of any such plan, program, or arrangement for his or her
rights thereunder. Except as specifically provided for herein, nothing contained
herein shall be construed as prohibiting Buyer from amending or terminating any
plan or arrangement at any time after the Closing Date. Buyer and Company shall
be the sole judge of the number, identity and qualifications of employees
necessary for the conduct of their business operations and, except as expressly
provided for herein, the employment of the Transferred Employees after the
Closing Date will be on such terms and conditions as the Buyer and Company, in
their sole discretion, may from time to time determine.
(c) Nothing in this Agreement shall cause Buyer or its Affiliates or
Seller or its Affiliates to have any obligation to provide employment or any
employee benefits to any individual who is not a Transferred Employee or to
continue to employ any Transferred Employee for any period of time following the
Closing Date.
(d) Nothing in this Agreement will be construed to require Buyer to
provide any benefit to any current or former employee of Seller or any of its
Affiliates other than the benefits specifically described herein.
(e) Except as otherwise specifically provided in this Agreement,
Seller will remain responsible for all benefits under any benefit plan or
arrangement providing change in control, severance, continuation or termination
pay with regard to each Transferred Employee in connection with the transactions
contemplated by this Agreement and occurring prior to the Closing Date.
Notwithstanding the foregoing, Seller shall not be liable for any obligations or
liabilities that result from Buyer's failure to perform or satisfy its
obligations under this Article VI.
6.6 WARN ACT REQUIREMENTS.
Seller will provide Buyer on or prior to the Closing Date with a
written list of all employees of the Business whose employment has been
terminated or whose work hours have been reduced within 90 calendar days
preceding the Closing Date. Such list will indicate the employee's site of
employment, position or job title, name, starting and ending dates of employment
and date of employment loss, termination, layoff and, if applicable, the amount
of hour reduction. Seller shall be responsible for compliance with The Worker
Adjustment and Retraining Notification Act of 1988 and any similar applicable
law, including any requirement to provide for and discharge any and all
notifications, benefits, and liabilities to Company employees and government
agencies for any events occurring on or before the Closing Date and Buyer shall
be responsible for compliance with The Worker Adjustment and Restraining
Notification Act of 1988 and any similar applicable law, including any
requirement to provide for and discharge any and all notifications and
liabilities to Transferred Employees and government agencies, that may arise
after the Closing Date.
6.7 INDEMNIFICATION.
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(a) Buyer's Indemnification. Notwithstanding anything to the contrary
in Article IX, Buyer shall indemnify and hold harmless Seller, its Affiliates,
and their respective directors, officers, employees, agents, and assigns, and
each employee benefit plan or arrangement maintained or contributed to by Seller
or an Affiliate thereof (whether or not such plan or arrangement is an "employee
benefit plan" within the meaning of Section 3(3) of ERISA) and its
administrators, fiduciaries, and agents, from and against (1) any and all
claims, demands, actions, administrative or other proceedings, causes of action,
liability, loss, cost, damage, and expense (including reasonable attorneys'
fees) in any way arising out of or incurred as a result of any action by Buyer,
its Affiliates, their respective directors, officers, employees, or agents, the
administrators or fiduciaries of any employee benefit plan maintained or
contributed to by Buyer or an Affiliate thereof (whether or not such plan or
arrangement is an "employee benefit plan" within the meaning of Section 3(3) of
ERISA), or any of their successors, to change, reduce contributions to,
terminate, fail to continue, fail to pay benefits under, or fail to manage or
administer properly any employee benefit plan or arrangement (whether or not
such plan or arrangement is an "employee benefit plan" within the meaning of
Section 3(3) of ERISA) on or after the Closing Date and (2) any injunctive or
equitable relief sought, granted or otherwise ordered in connection with any
employee benefit plan or arrangement (whether or not such plan or arrangement is
an "employee benefit plan" within the meaning of Section 3(3) of ERISA) arising
on or after the Closing Date.
(b) Seller's Indemnification. Notwithstanding anything to the contrary
in Article IX, Seller shall indemnify and hold harmless Buyer, its Affiliates,
and their respective directors, officers, employees, agents, and assigns, and
each employee benefit plan or arrangement maintained or contributed to by Buyer
or an Affiliate thereof (whether or not such plan or arrangement is an "employee
benefit plan" within the meaning of Section 3(3) of ERISA) and its
administrators, fiduciaries, and agents, from and against (1) any and all
claims, demands, actions, administrative or other proceedings, causes of action,
liability, loss, cost, damage, and expense (including reasonable attorneys'
fees) in any way arising out of or incurred as a result of any action by Seller,
its Affiliates, their respective directors, officers, employees, or agents, the
administrators or fiduciaries of any employee benefit plan maintained or
contributed to by Seller or an Affiliate thereof (whether or not such plan or
arrangement is an "employee benefit plan" within the meaning of Section 3(3) of
ERISA), or any of their successors, to fail to pay benefits under, or fail to
manage or administer properly any employee benefit plan or arrangement (whether
or not such plan or arrangement is an "employee benefit plan" within the meaning
of Section 3(3) of ERISA) before the Closing Date and (2) any injunctive or
equitable relief sought, granted or otherwise ordered in connection with any
employee benefit plan or arrangement (whether or not such plan or arrangement is
an "employee benefit plan" within the meaning of Section 3(3) of ERISA) arising
before the Closing Date.
(c) Defense of Claims. Notwithstanding anything in this Agreement to
the contrary, with respect to an indemnifiable claim arising out of an employee
benefit plan or arrangement (whether or not such plan or arrangement is an
"employee benefit plan" within the meaning of Section 3(3) of ERISA),
irrespective of whether Seller or Buyer is the indemnifying party, Buyer shall
promptly assume control of the defense of such indemnifiable claim and shall
provide Seller with reasonable progress reports of such defense; provided that
GTE or Seller may, at its option, participate in the defense, including having
settlement authority over any claim for which GTE or Seller is responsible for
indemnifying Buyer, of any such indemnifiable claim. In no event may Buyer
settle any such claim without the consent of Seller, which consent shall not
unreasonably be withheld.
6.8 SPECIAL PROVISIONS FOR CERTAIN EMPLOYEES.
(a) Buyer shall take all action necessary and appropriate to ensure
that, as of the Closing Date, Buyer or one of its Affiliates maintains or adopts
a long-term disability plan (the "Buyer LTD Plan") comparable to the long-term
disability plan maintained by the Company and its Subsidiaries on the
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Closing Date (the "Seller LTD Plan"). Seller shall cause any Transferred
Employee who is identified in Schedule 6.1(a)(ii) as an "LTD Recipient" to
continue to be covered as of the Closing Date under Seller's insured LTD Plan,
subject to the terms of such plan. In addition, any Transferred Employee who
has incurred a disability occurrence prior to the Closing shall remain the
responsibility of Seller' s insured LTD Plan with respect to that disability
occurrence, subject to the terms of such plan. Notwithstanding the preceding
sentence, LTD Recipients shall be eligible, as of the Closing Date, for
coverage and benefits under any non-LTD employee benefit plans or programs
maintained by the Buyer or its Affiliates (including without limitation,
disability pensions under the Buyer Pension Plan, age and service credit solely
for purposes of early retirement eligibility under the Buyer Pension Plan, and
medical and dental benefits), under the same terms and conditions that apply to
similarly situated employees of Buyer or its Affiliates.
(b) If any LTD Recipient recovers from his or her disabling condition,
Seller shall have no obligation to offer or provide employment to such LTD
Recipient; however, Buyer or its Affiliates shall have an obligation to offer or
provide employment to such LTD Recipient. If an LTD Recipient who received
disability benefits under the Seller LTD Plan returns to active service with the
Buyer or its Affiliates, the LTD Recipient's period of disability covered under
the Seller LTD Plan shall be treated as a period of service under the employee
benefit plans and programs of the Buyer or its Affiliates to the same extent as
if it had been a period of disability covered by a long-term disability plan of
the Buyer or its Affiliates.
6.9 STOCK OPTIONS AND LTIP.
On or before the Closing Date, Seller shall cause all outstanding
stock options awarded to any Transferred Employee to become fully vested and
exercisable, and shall permit any such Transferred Employee to exercise such
stock options for a two-year period following the Closing Date but in no event
beyond expiration of the option. Seller shall pay any Transferred Employee who
has received a long-term award under Seller's Long Term Incentive Plan ("LTIP")
in a pro rata amount of such award based on the portion of the award cycle prior
to the Closing Date, subject to the terms and administrative practices of the
LTIP. Seller shall pay the LTIP awards at the end of the LTIP award cycle or at
such earlier date as Seller in its sole discretion may elect, to each
Transferred Employee who received such award and who remains employed by the
Company or its Affiliates as of such date.
6.10 COOPERATION BETWEEN PARTIES.
Seller and Buyer shall cooperate in implementing the provisions of
this Article VI. Seller shall use its reasonable best efforts to introduce Buyer
and its Affiliates, at their request, to insurers, service providers and
administrators that pertain to the funding or provision of benefits in respect
of the Transferred Employees. Seller shall cooperate with Buyer in causing
policies or contracts (other than LTD) that pertain to the benefits in respect
of the Transferred Employees to be assigned to Buyer or in arranging for the
issuance of new or modified policies or contracts to Buyer. Prior to Closing,
and for a period until December 31, 2000, Seller shall permit Buyer and its
agents and representatives to have reasonable access, during reasonable business
hours and upon reasonable advance notice, to Seller, its officers and employees
for the purpose of obtaining documents, records or information reasonably
necessary to the operation of Buyer's human resources functions and employee
benefit plans and the continuation of compensation and benefits for the
Transferred Employees. Buyer shall reimburse Seller for the actual costs of such
access and any services provided, including personnel costs, capital costs and
allocated expenses.
6.11 SUCCESSORS AND ASSIGNS.
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In the event Buyer or any of its successors and assigns (i)
consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity in such consolidation or merger,
or (ii) transfers all or substantially all of its properties and assets to any
Person, then, and in each case, proper provision shall be made so that the
successors and assigns of Buyer honor the obligations of Buyer set forth in this
Article VI.
ARTICLE VII
CONDITIONS OF PURCHASE
7.1 GENERAL CONDITIONS.
The obligations of Buyer and Seller to effect the Closing shall be
subject to the following conditions, unless waived in writing by all parties:
(a) No Orders; Legal Proceedings. At the Closing Date, (i) no material
Law or Order shall have been enacted, entered, issued, promulgated or enforced
by any Governmental Entity which prohibits or restrains the transfer of the
Stock and (ii) no material Action shall have been commenced by any Governmental
Entity which seeks to restrain or materially and adversely alter the
transactions contemplated hereby which in the reasonable good faith
determination of Seller or Buyer would render it unlawful to consummate the
transactions contemplated by this Agreement.
(b) Approvals. All Approvals required by applicable Law to be obtained
from any Governmental Entity to effect the transfer of the Stock which are
identified on Schedule 7.1(b) shall have been received or obtained on or prior
to the Closing Date and any applicable waiting period under the
Hart-Scott-Rodino Act shall have expired or been terminated.
(c) Intellectual Property Agreement. Seller and the Company shall have
entered into an Intellectual Property Agreement in the form of Exhibit A.
(d) Transition Arrangements. Seller and the Company shall have entered
into a Transition Services Agreement in the form of Exhibit B.
7.2 CONDITIONS TO OBLIGATIONS OF BUYER.
The obligations of Buyer to effect the Closing shall be subject to the
following conditions, except to the extent waived in writing by Buyer:
(a) Representations and Warranties of Seller. The representations and
warranties of Seller contained herein that are qualified as to materiality shall
be true and correct and the representations and warranties of Seller contained
herein that are not so qualified shall be true and correct in all material
respects, in each case on the date of this Agreement and on the Closing Date as
though made on the Closing Date, unless such representations and warranties by
their terms speak as of an earlier date, in which case they shall be true and
correct, or true and correct in all material respects, as the case may be, as of
such date, except to the extent that the failure of such representations and
warranties to be true and correct, or true and correct in all material respects,
as the case may be, would not, individually or in the aggregate, have a material
adverse effect on the business, financial condition or results of operations of
the Company and Division Subsidiaries taken as a whole.
(b) Covenants of Seller. Seller shall have in all material respects
performed all obligations and complied with all covenants set forth in this
Agreement which are required to be performed or complied with by it at or prior
to the Closing.
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(c) Officer's Certificate. Buyer shall have received a certificate of
Seller signed by an authorized officer of Seller to the effect that the
conditions in Sections 7.2(a) and 7.2(b) have been satisfied.
(d) Resignation of Directors and Certain Officers. The directors and
officers of the Company and its Subsidiaries who will remain employed by Seller
or one of its Affiliates after the Closing Date shall have submitted their
resignations in writing to the Company and/or the relevant Subsidiaries, as
applicable. Such resignations of officers and directors (in such capacity) shall
be effective as of the Closing.
(e) Consents and Permits. Seller shall have received and delivered to
Buyer the consents of third parties and/or confirmations of Governmental
Entities with respect to Permits set forth on Schedule 7.2.
(f) ISD Disposition. The ISD Disposition shall have been consummated
in all material respects in accordance with the terms and conditions of this
Agreement.
7.3 CONDITIONS TO OBLIGATIONS OF SELLER.
The obligations of Seller to effect the Closing shall be subject to
the following conditions, except to the extent waived in writing by Seller:
(a) Representations and Warranties of Buyer. The representations and
warranties of Buyer contained herein that are qualified as to materiality shall
be true and correct and the representations and warranties of Buyer contained
herein that are not so qualified shall be true and correct in all material
respects, in each case on the date of this Agreement and on the Closing Date as
though made on the Closing Date, unless such representations and warranties by
their terms speak as of an earlier date, in which case they shall be true and
correct, or true and correct in all material respects, as the case may be, as of
such date, except to the extent that the failure of such representations and
warranties to be true and correct, or true and correct in all material respects,
as the case may be, would not have a material adverse effect on Buyer's ability
to perform this Agreement.
(b) Covenants of Buyer. Buyer shall have in all material respects
performed all obligations and complied with all covenants set forth in this
Agreement which are required to be performed or complied with by it at or prior
to the Closing.
(c) Officer's Certificate. Seller shall have received a certificate of
Buyer signed by an authorized officer of Buyer to the effect that the conditions
in Sections 7.4(a) and 7.4(b) have been satisfied.
ARTICLE VIII
TERMINATION OF OBLIGATIONS
8.1 TERMINATION OF AGREEMENT.
Anything herein to the contrary notwithstanding, this Agreement and
the Related Agreements may be terminated at any time before the Closing as
follows and in no other manner, provided that the terminating party is not in
material breach of its representations, warranties or covenants set forth
herein:
(a) Mutual Consent. By mutual consent in writing of Buyer and Seller.
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(b) Closing Not Consummated by Earlier Date. By Seller or Buyer at any
time after December 31, 1999 if the Closing shall not have occurred by such
date, unless extended by mutual consent in writing of Buyer and Seller;
provided, that the right to terminate this Agreement under this Section 8.1(b)
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 occur by such date.
(c) Conditions to Buyer's Performance Not Met. By Buyer upon written
notice to Seller if any event occurs or condition exists which would render
impossible the satisfaction of one or more conditions to the obligations of
Buyer to consummate the Closing contemplated by this Agreement as set forth in
Article VII.
(d) Conditions to Seller's Performance Not Met. By Seller upon written
notice to Buyer if any event occurs or condition exists which would render
impossible the satisfaction of one or more conditions to the obligation of
Seller to consummate the Closing contemplated by this Agreement as set forth in
Article VII.
(e) Material Adverse Circumstance Related to Bell Atlantic Merger.
Buyer may terminate this Agreement by giving written notice to Seller at any
time prior to the Closing in the event Seller or any of its Affiliates takes any
action which, but for the provisions of Section 4.8, it is required to take
under this Agreement, or fails to take any action which, but for the provisions
of Section 4.8, it is prohibited from taking under this Agreement, and such
actions or failures to act, individually or in the aggregate, would have a
material adverse effect on the business, financial condition or results of
operations of the Company and its Subsidiaries taken as a whole or a material
adverse effect on the ability of Seller to perform or comply in all material
respects with its covenants contained in this Agreement or in any of the Related
Agreements.
8.2 EFFECT OF TERMINATION.
In the event that this Agreement and certain Related Agreements shall
be terminated pursuant to Section 8.1, all future obligations of the parties
under this Agreement and such Related Agreements shall terminate without further
liability of any party to another; provided that the obligations of the parties
contained in this Section 8.2 and Sections 10.15 and 10.17 and the
Confidentiality Agreement shall survive any such termination. A termination
under Section 8.1 shall not relieve any party of any liability for a breach of
any covenant or agreement under this Agreement or any such Related Agreements,
or be deemed to constitute a waiver of any available remedy (including specific
performance if available) for any such breach. In the event of a termination
under Section 8.1, no party shall have any liability under this Agreement
because of the failure of any representation or warranty made by such party
hereunder to be true and correct.
ARTICLE IX
INDEMNIFICATION; SURVIVAL
9.1 OBLIGATIONS OF SELLER.
Effective as of the Closing, Seller agrees to indemnify and hold
harmless Buyer, the Company and each of their Subsidiaries, and their respective
directors, officers, employees, Affiliates, agents and assigns ("Buyer
Indemnitees") from and against any and all Indemnifiable Losses based upon or
arising from:
(a) any inaccuracy in any of the representations and warranties made
by Seller on the Closing Date in or pursuant to this Agreement;
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(b) any material breach or nonperformance of any of the covenants or
agreements of Seller contained in this Agreement or the Related Agreements,
including any matter as to which Seller in other provisions of this Agreement
(including Section 5.3 and 6.7) has expressly agreed to indemnify Buyer or
(subsequent to Closing) the Company or any Subsidiary of the Company;
(c) item number 1 on Schedule 2.20(c); or
(d) any Excluded Pre-Closing Liability or any ISD Excluded Liability.
9.2 OBLIGATIONS OF BUYER.
Effective as of the Closing, Buyer agrees to indemnify and hold
harmless Seller and its directors, officers, employees, Affiliates, agents and
assigns ("Seller Indemnitees") from and against any and all Indemnifiable Losses
based upon or arising from:
(a) any inaccuracy in any of the representations and warranties made
by Buyer on the Closing Date in or pursuant to this Agreement,
(b) any material breach or nonperformance of any of the covenants or
agreements of Buyer contained in this Agreement or the Related Agreements,
including any matter as to which Buyer in other provisions of this Agreement
(including Sections 5.3 and 6.7) has expressly agreed to indemnify Seller;
(c) the conduct of the Business after the Closing; or
(d) any GTE Guarantee remaining outstanding after the Closing.
9.3 PROCEDURE.
(a) Notice of Third Party Claims. Any party seeking indemnification of
any Indemnifiable Loss or potential Indemnifiable Loss arising from a claim
asserted by a third party shall give written notice to the party from whom
indemnification is sought. Written notice to the Indemnifying Party of the
existence of a third-party claim shall be given by the Indemnified Party
promptly after its receipt of an assertion of liability from the third party,
and in any event within 10 days of such assertion; provided that no delay on the
part of the Indemnified Party in notifying the Indemnifying Party shall relieve
the Indemnifying Party from any obligation hereunder unless, and then solely to
the extent that, the Indemnifying Party is prejudiced thereby. In the event the
provisions of Section 5.3 or Section 6.7 conflict with the provisions of this
Section 9.3, the provisions of Section 5.3 or Section 6.7, as applicable, shall
govern.
(b) Defense. The Indemnifying Party may, at its option, control the
defense of an Indemnifiable Claim by giving notice of the exercise of such
option within 30 days after written notice of such Indemnifiable Claim is given
to the Indemnifying Party; provided that, with respect to item number 1 on
Schedule 2.20(c) and any Excluded Pre-Closing Liabilities referred to in clause
(c) of such definition, Buyer will cause the Company to continue to defend such
matters after the Closing Date. Notwithstanding the foregoing, the Indemnified
Party shall have the right to retain counsel of its choice at its own expense
and participate in the defense of the Indemnified Claim. If the Indemnifying
Party does not assume such defense or the Indemnifying Party notifies the
Indemnified Party within 30 days that it will not assume such defense, the
Indemnified Party may control the defense of such claim and may settle the claim
on behalf of and for the account and risk of the Indemnifying Party, who shall
be bound by the
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result. In all cases, the party without the right to control the defense of
the Indemnified Claim may participate in the defense at its own expense.
(c) Tax Adjustments. Any amounts payable by the Indemnifying Party to
or on behalf of an Indemnified Party in respect of an Indemnifiable Loss shall
be adjusted as follows. The Indemnified Party shall reimburse the Indemnifying
Party an amount equal to the present value amount of the net reduction in any
year in the liability for Income Taxes of the Indemnified Party or any member of
a consolidated or combined tax group of which the Indemnified Party is, or was
at any time, part, which reduction will be realized (either through the
reduction of a Tax liability or the increase of a Tax loss or credit) with
respect to any period after the Closing Date and which reduction would not have
been realized but for the amounts paid (or any audit adjustment or deficiency
with respect thereto, if applicable) in respect of an Indemnifiable Loss, or
amounts paid by the Indemnified Party pursuant to this paragraph (a "Net Tax
Benefit"). The present value amount of the Net Tax Benefit shall be determined
by: (i) using a discount rate equal to the mid-term applicable federal rate in
effect on the date by which the payment subject to the Net Tax Benefit
adjustment is due, (ii) discounting back to the date by which the payment
subject to the Net Tax Benefit adjustment is due and (iii) using reasonable
assumptions regarding the date (or dates) on which such Net Tax Benefit will be
realized, which assumptions must be verified by an independent certified public
accountant chosen by the Indemnifying Party if requested by the Indemnifying
Party. Buyer agrees to provide Seller or their designated representatives with
assistance and such documents and records reasonably requested by them that are
relevant to their ability to determine when a Net Tax Benefit will be realized,
including but not limited to copies of Tax Returns, estimated tax payments,
schedules, and related supporting documents.
(d) Settlement Limitations. Notwithstanding anything in this Section
9.3 to the contrary, neither the Indemnifying Party nor the Indemnified Party
shall, without the written consent of the other party, settle or compromise any
Indemnifiable Claim or permit a default or consent to entry of any judgment,
unless such settlement or compromise includes a complete release of the
Indemnified Party with respect to liability related to such Indemnifiable Claim.
Notwithstanding clause (i) of the preceding sentence, if a settlement offer
solely for money damages is made by the applicable third party claimant, and the
Indemnifying Party notifies the Indemnified Party in writing of the Indemnifying
Party's willingness to accept the settlement offer and pay the amount called for
by such offer without reservation of any rights or defenses against the
Indemnified Party, the Indemnified Party may continue to contest such claim,
free of any participation by the Indemnifying Party, and the amount of any
ultimate liability with respect to such Indemnifiable Claim that the
Indemnifying Party has an obligation to pay hereunder shall be limited to the
lesser of (A) the amount of the settlement offer that the Indemnified Party
declined to accept plus the Indemnifiable Losses of the Indemnified Party
relating to such Indemnifiable Claim through the date of its rejection of the
settlement offer or (B) the aggregate Indemnifiable Losses of the Indemnified
Party with respect to such claim. If the Indemnifying Party makes any payment on
any claim, the Indemnifying Party shall be subrogated, to the extent of such
payment, to all rights and remedies of the Indemnified Party to any insurance
benefits or other claims of the Indemnified Party with respect to such claim.
9.4 SURVIVAL.
The representations and warranties contained in or made pursuant to
this Agreement and the Related Agreements shall expire on April 30, 2001 except
that (i) the representations and warranties contained in Sections 2.1, 2.2.,
2.16, 3.5 and 3.7 shall remain in full force and effect indefinitely, (ii) the
representations and warranties contained in Sections 2.4 and 2.14 shall remain
in full force and effect until the expiration of the applicable statute of
limitations period, and (iii) the representations and warranties contained in
Sections 2.18 and 2.20 shall remain in full force and effect until the fifth
anniversary of the Closing Date. This Article IX shall survive the Closing and
shall remain in effect (a)
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with respect to Sections 9.1(a) and 9.2(a), so long as the relevant
representations and warranties survive, (b) with respect to Sections 9.1(b) and
9.2(b) to the extent those Sections relate to the covenants set forth in Article
IV (other than Section 4.10 which shall survive until the expiration of the
applicable statutes of limitations periods) , for one year, (c) with respect to
Sections 9.1(b) and 9.2(b) to the extent those Sections relate to covenants
other than as set forth in Article IV, so long as the applicable covenant
survives and (d) with respect to Sections 9.1(c), 9.1(d) and 9.2(c),
indefinitely. Any matter as to which a claim has been asserted by notice to the
other party that is pending or unresolved at the end of any applicable
limitation period shall continue to be covered by this Article IX
notwithstanding any applicable statute of limitations (which the parties hereby
waive) until such matter is finally terminated or otherwise resolved by the
parties under this Agreement or by a court of competent jurisdiction and any
amounts payable hereunder are finally determined and paid.
9.5 LIMITATIONS ON INDEMNIFICATION.
(a) Seller shall not be required to indemnify any Person under Section
9.1(a) unless the aggregate of all amounts for which indemnity would otherwise
be payable by Seller exceeds 1.5% of the Base Purchase Price, and in such event,
Seller shall be responsible for only the amount in excess of such 1.5% of the
Base Purchase Price, except that such limitation shall not apply to any claims
arising out of Sections 2.1, 2.2, 2.4 or 2.16 for which Seller shall indemnify
the Indemnified Party for the full amount of any Indemnifiable Loss. In no event
shall the total indemnification to be paid by Seller under this Article IX
exceeds 10% of the Base Purchase Price. Any Indemnifiable Claim with respect to
any breach or nonperformance by either party of a representation, warranty,
covenant or agreement shall be limited to the amount of actual damages sustained
by the Indemnified Party by reason of such breach or nonperformance, net of any
insurance proceeds and Net Tax Benefits. Any amounts required to be paid by
Seller pursuant to Section 5.3 (other than Section 5.3(b)(ii) of this Agreement)
shall not be deemed to be an indemnification payment for purposes of this
Section 9.5.
(b) Seller's obligations under Section 9.1(c) with respect to item
number 1 on Schedule 2.20(c) and 9.1(d) with respect to Excluded Pre-Closing
Liabilities identified in subparagraph (c) of the definition of Excluded
Pre-Closing Liability (as they relate to criminal conduct) shall (i) not include
any Indemnifiable Losses resulting from any conviction, debarment or suspension
that may result from such item other than the costs of defense and any fines or
penalties related thereto and (ii) not be subject to the provisions of Section
9.5(a). Seller hereby waives any requirement that Buyer provide notice of item
number 1 on Schedule 2.20(c). In addition, the parties agree that Buyer shall
cause the Company to continue to defend such matters after the Closing Date in
accordance with the provisions of Article IX.
(c) If an inaccuracy in any of the representations and warranties made
by Seller or a breach of any covenants of Seller gives rise to an adjustment in
the purchase price for the Stock pursuant to Section 1.4, or otherwise was the
basis for a proposed adjustment to any Closing Date Statement of Net Assets,
then such inaccuracy or breach shall not give rise to an indemnification
obligation under Section 9.1.
9.6 TREATMENT OF PAYMENTS.
All payments made pursuant to this Article IX (other than a payment
based on an obligation arising under Section 5.3(h)) shall be treated by the
parties as adjustments to the purchase price for the Stock; provided, however,
that to the extent or taxing authority treats such payment as income subject to
Tax, the additional Tax due shall be treated as an Indemnifiable Loss.
Notwithstanding anything in this Agreement to the contrary, Buyer shall not be
indemnified or reimbursed for any tax consequences arising from adjustments to
the basis of any asset resulting from an adjustment to the Purchase Price or any
additional Taxes resulting from any such basis adjustment.
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9.7 REMEDIES EXCLUSIVE.
The remedies provided for in this Article IX shall constitute the sole
and exclusive remedy for any post-Closing claims made for breach of this
Agreement or otherwise in connection with the transactions contemplated hereby,
except for claims arising out of any breach of the Confidentiality Agreement,
the Intellectual Property Agreement, Section 5.2 and 10.4, Article VI or this
Article IX. Each party hereby waives any provision of Law to the extent that it
would limit or restrict the agreement contained in this Section 9.7.
9.8 MITIGATION.
The parties shall cooperate with each other with respect to resolving
any claim or liability with respect to which one party is obligated to indemnify
the other party hereunder, including by making commercially reasonable efforts
to mitigate or resolve any such claim or liability. In the event that any party
shall fail to make such commercially reasonable efforts to mitigate or resolve
any claim or liability, then notwithstanding anything else to the contrary
contained herein, the other party shall not be required to indemnify any Person
for any Indemnifiable Loss that could reasonably be expected to have been
avoided if such party, as the case may be, had made such efforts.
ARTICLE X
GENERAL
10.1 USAGE.
All terms defined herein have the meanings assigned to them herein for
all purposes, and such meanings are equally applicable to both the singular and
plural forms of the terms defined. "Include", "includes" and "including" shall
be deemed to be followed by "without limitation" whether or not they are in fact
followed by such words or words of like import. "Writing", "written" and
comparable terms refer to printing, typing, lithography and other means of
reproducing words in a visible form. Any instrument or Law defined or referred
to herein means such instrument or Law as from time to time amended, modified or
supplemented, including (in the case of instruments) by waiver or consent and
(in the case of any Law) by succession of comparable successor Laws and includes
(in the case of instruments) references to all attachments thereto and
instruments incorporated therein. References to a Person are, unless the context
otherwise requires, also to its successors and assigns. Any term defined herein
by reference to any instrument or Law has such meaning whether or not such
instrument or Law is in effect. "Shall" and "will" have equal force and effect.
"Hereof", "herein", "hereunder" and comparable terms refer to the entire
instrument in which such terms are used and not to any particular article,
section or other subdivision thereof or attachment thereto. References to "the
date of this Agreement," "the date hereof" or words of like import shall mean
June 21, 1999. References in an instrument to "Article", "Section" or another
subdivision or to an attachment are, unless the context otherwise requires, to
an article, section or subdivision of or an attachment to such instrument.
References to any gender include, unless the context otherwise requires,
references to all genders, and references to the singular include, unless the
context otherwise requires, references to the plural and vice versa. All
accounting terms not otherwise defined herein have the meaning assigned under
generally accepted accounting principles in the United States which have
effective dates on or prior to December 31, 1998.
10.2 AMENDMENTS; WAIVERS.
This Agreement and any schedule or exhibit attached hereto may be
amended only by agreement in writing of all parties. No waiver of any provision
nor consent to any exception to the terms
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<PAGE> 68
of this Agreement or any agreement contemplated hereby shall be effective
unless in writing and signed by the party to be bound and then only to the
specific purpose, extent and instance so provided.
10.3 SCHEDULES; EXHIBITS.
Each schedule and exhibit delivered pursuant to the terms of this
Agreement shall be in writing and shall constitute a part of this Agreement,
although schedules need not be attached to each copy of this Agreement. The mere
inclusion of an item in a Schedule as an exception to a representation or
warranty shall not be deemed an admission by Seller that such item represents an
exception or material fact, event or circumstance. Further, any fact or item
which is clearly disclosed on any Schedule to this Agreement or in the Financial
Statements in such a way as to make its relevance or applicability to
information called for by another Schedule or other Schedules to this Agreement
reasonably apparent shall be deemed to be disclosed on such other Schedule or
Schedules, as the case may be, notwithstanding the omission of a reference or
cross-reference thereto.
10.4 FURTHER ASSURANCES.
Each of Buyer and Seller will use commercially reasonable efforts to
cause all conditions to its and the other parties' obligations hereunder to be
timely satisfied and to perform and fulfill all obligations on its part to be
performed and fulfilled under this Agreement, to the end that the transactions
contemplated by this Agreement shall be effected substantially in accordance
with its terms as soon as reasonably practicable. Each of Buyer and Seller shall
execute and deliver both before and after the Closing such further certificates,
agreements and other documents and take such other actions as the other party
may reasonably request to consummate or implement the transactions contemplated
hereby (including the ISD Disposition) or to evidence such events or matters.
With respect to the securing of any requisite Approvals after Closing, the
parties shall timely and promptly make all filings which may be required for the
securing of such Approvals. In furtherance and not in limitation of the
foregoing, each of Buyer and Seller shall use commercially reasonable efforts to
file notification and report forms and similar applications with any applicable
Governmental Entity whose Approval may be required following the Closing Date.
Buyer and Seller shall cooperate and use their respective commercially
reasonable efforts to respond to any requests for information by any
Governmental Entity in connection with such post-Closing Approvals.
10.5 GOVERNING LAW.
This Agreement and the legal relations between the parties shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and performed in such State and without regard to
conflicts of law doctrines (other than New York General Obligations Law, Section
5-1401).
10.6 HEADINGS.
The descriptive headings of the Articles, Sections and subsections of
this Agreement are for convenience only and do not constitute a part of this
Agreement.
10.7 COUNTERPARTS.
This Agreement and any amendment hereto or any other agreement (or
document) delivered pursuant hereto may be executed in one or more counterparts
and by different parties in separate counterparts. All of such counterparts
shall constitute one and the same agreement (or other document)
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and shall become effective (unless otherwise provided therein) when one or more
counterparts have been signed by each party and delivered to the other party.
10.8 PARTIES IN INTEREST.
This Agreement shall be binding upon and inure to the benefit of each
party, and nothing in this Agreement, express or implied, is intended to confer
upon any other Person any rights or remedies of any nature whatsoever under or
by reason of this Agreement. Nothing in this Agreement is intended to relieve or
discharge the obligation of any third person to any party to this Agreement.
10.9 PERFORMANCE BY SUBSIDIARIES.
Each party agrees to cause its Subsidiaries to comply with any
obligations hereunder relating to such Subsidiaries and to cause its
Subsidiaries to take any other action which may be necessary or reasonably
requested by the other party in order to consummate the transactions
contemplated by this Agreement.
10.10 WAIVER.
No failure on the part of any party to exercise or delay in exercising
any right hereunder shall be deemed a waiver thereof, nor shall any single or
partial exercise preclude any further or other exercise of such or any other
right.
10.11 SEVERABILITY.
If any provision of this Agreement is determined to be invalid,
illegal or unenforceable by any Governmental Entity, the remaining provisions of
this Agreement to the extent permitted by Law shall remain in full force and
effect provided that the essential terms and conditions of this Agreement for
both parties remain valid, binding and enforceable and provided that the
economic and legal substance of the transactions contemplated is not affected in
any manner materially adverse to any party. In event of any such determination,
the parties agree to negotiate in good faith to modify this Agreement to fulfill
as closely as possible the original intents and purposes hereof. To the extent
permitted by Law, the parties hereby to the same extent waive any provision of
Law that renders any provision hereof prohibited or unenforceable in any
respect.
10.12 NO CONSEQUENTIAL DAMAGES.
Notwithstanding any provision of this Agreement to the contrary,
neither party shall be entitled in connection with any breach or violation of
this Agreement to recover any (a) punitive, exemplary or other special damages
or (b) indirect, incidental or consequential damages, including any damages
relating to loss of profit or business opportunity, to the extent such damages
are not a reasonably foreseeable result of such breach or violation. The
foregoing shall not limit the right of either party to indemnification in
accordance with the provisions of Article IX with respect to all components of
any claim, settlement, award or judgment against such party by any unaffiliated
third party.
10.13 KNOWLEDGE CONVENTION.
Whenever any statement herein or in any schedule, exhibit, certificate
or other document delivered to any party pursuant to this Agreement is made "to
[its] knowledge" or words of similar intent or effect of any party or its
representative, the Person making such statement shall be deemed to be making
such statements "to [its] best knowledge" and shall be accountable only for
facts and other
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information, which as of the date the representation is given, are actually
known to the Person making such statement, which with respect to Persons that
are corporations, means the knowledge of its executive officers.
10.14 NOTICES.
Any notice or other communication hereunder must be given in writing
and (a) delivered in person, (b) transmitted by telefax or telecommunications
mechanism, provided that any notice so given is also mailed as provided in
clause (c), (c) mailed by certified or registered mail (postage prepaid),
receipt requested, or (d) sent by Express Mail, Federal Express or other express
delivery service, receipt requested, to the parties and at the addresses
specified herein or to such other address or to such other person as either
party shall have last designated by such notice to the other party. Each such
notice or other communication shall be effective (i) if given by
telecommunication, when transmitted to the applicable number so specified herein
and an appropriate confirmation of transmission is received, (ii) if given by
mail, three days after such communication is deposited in the mails with first
class postage prepaid, addressed as aforesaid or (iii) if given by any other
means, when actually received at such address. Any notice or other communication
hereunder shall be delivered as follows:
<TABLE>
<S> <C>
If to Buyer: General Dynamics Corporation
3190 Fairview Park Drive
Falls Church, Virginia 22042-4523
Attention: David A. Savner, Esq.
Senior Vice President and General Counsel
Telecopy No.: (703) 876-3125
With a copy to: Jenner & Block
601 13th Street, N.W.
Washington, D.C. 20005
Attention: Craig A. Roeder, Esq.
Telecopy No.: (202) 639-6600
If to Seller: c/o GTE Corporation
1255 Corporate Drive
Irving, Texas 75038-2518
Attention: William P. Barr.
Executive Vice President - Government and
Regulatory Advocacy and General Counsel
Telecopy No.: (972) 507-2332
With a copy to: O'Melveny & Myers LLP
555 13th Street, N.W.
Washington, D.C. 20004
Attention: David G. Pommerening
Telecopy No.: (202) 383-5414
</TABLE>
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10.15 PUBLICITY AND REPORTS.
Seller and Buyer shall coordinate all publicity relating to the
transactions contemplated by this Agreement and no party shall issue any press
release, publicity statement or other public notice relating to this Agreement,
or the transactions contemplated by this Agreement, without consulting with the
other party; provided that to the extent that independent legal counsel to
Seller or Buyer, as the case may be, shall deliver a written opinion to the
other party that a particular action is required by applicable law, the parties
shall be obligated only to use commercially reasonable efforts to consult with
the other party prior to issuing any such press release, publicity statement or
other public notice.
10.16 INTEGRATION.
This Agreement, the Confidentiality Agreement and the Related
Agreements, together with the schedules and exhibits thereto, (i) constitute the
entire agreement among the parties pertaining to the subject matter hereof and
(ii) supersede all prior agreements and understandings of the parties in
connection therewith, except for the Confidentiality Agreement, which remains in
full force and effect.
10.17 EXPENSES.
Seller and Buyer shall each pay their own expenses incident to the
evaluation of the Company and the Businesses and the negotiation, preparation
and performance of this Agreement and the transactions contemplated hereby,
including but not limited to the fees, expenses and disbursements of their
respective investment bankers, accountants and counsel. The expenses of the
Company shall be paid by Seller.
10.18 NO ASSIGNMENT.
Neither this Agreement nor any rights or obligations under it are
assignable by Buyer except that Buyer may assign its rights hereunder to any
wholly-owned subsidiary of Buyer. Buyer shall remain liable to Seller for the
payment of the consideration set forth herein and other obligations of Buyer
hereunder notwithstanding a permitted assignment. Seller may assign its rights
under this Agreement to any Affiliate of the Seller or to any Person that
acquires all of the issued and outstanding capital stock of the Company.
10.19 REPRESENTATION BY COUNSEL; INTERPRETATION.
Seller and Buyer each acknowledge that each party to this Agreement
has been represented by counsel in connection with this Agreement and the
transactions contemplated by this Agreement. Accordingly, any rule of Law or any
legal decision that would require interpretation of any claimed ambiguities in
this Agreement against the party that drafted it has no application and is
expressly waived. The provisions of this Agreement shall be interpreted in a
reasonable manner to effect the intent of Buyer and Seller.
10.20 REFERENCE OF DISPUTES TO SENIOR OFFICERS OF SELLER AND BUYER.
Any dispute between Seller and Buyer arising out of or in connection
with this Agreement or the Related Agreements or any alleged breach hereof or
thereof may, at the option of either Seller or Buyer, be submitted for
discussion and possible resolution by senior officers of Seller and Buyer, as
designated by their respective chief executive officers, for a period of 30 days
(or such longer period as the parties may in particular cases so decide) before
initiating any litigation pursuant to Section 10.21 hereof.
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10.21 RESOLUTION OF DISPUTES.
All litigation relating to or arising under or in connection with this
Agreement or any of the Related Agreements shall be brought only in the federal
or state courts located in the State and County of New York, which shall have
exclusive jurisdiction to resolve any disputes with respect to this Agreement or
the Related Agreements, with each party irrevocably consenting to the
jurisdiction thereof for any actions, suits or proceedings arising out of or
relating to this Agreement or the Related Agreements. The parties hereto
irrevocably waive trial by jury in any legal action or proceeding relating to
this Agreement, the Related Agreements or any other agreement entered into in
connection therewith and for any counterclaim with respect thereto. In the event
of any breach of the provisions of this Agreement or the Related Agreements, the
non-breaching party shall be entitled to equitable relief, including in the form
of injunctions and orders for specific performance, where the applicable legal
standards for such relief in such courts are met, in addition to all other
remedies available to the non-breaching party with respect thereto at law or in
equity.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the day and year
first above written.
GENERAL DYNAMICS CORPORATION
By:
--------------------------
Title:
-----------------------
CONTEL FEDERAL SYSTEMS, INC.
By:
--------------------------
Title:
-----------------------
S-1
<PAGE> 74
Joinder
GTE hereby joins in this Agreement solely for the purpose of Sections
5.6, 5.7 and 5.8 hereof and for the purpose of guaranteeing the performance by
Seller of its obligations under Article IX of this Agreement. In furtherance
thereof, GTE represents and warrants as of the date hereof as follows: (i) GTE
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation; (ii) GTE has all necessary corporate
power and authority to execute, deliver and perform its obligations under the
Joinder; (iii) GTE owns, beneficially and of record, all of the issued and
outstanding capital stock of Seller; (iv) the execution, delivery and
performance of this Joinder by GTE have been duly and validly authorized by all
necessary corporate action on the part of GTE; and (v) this Joinder constitutes
the legally valid and binding obligation of GTE, enforceable against GTE in
accordance with its terms except as may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws and equitable principles
relating to or limiting creditors' right generally.
GTE CORPORATION
By:
--------------------------
Title:
-----------------------
S-2
<PAGE> 1
Exhibit 23
Form 8-K, Commission File
Number 1-3671
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report on the combined financial statements of GTE
Government Systems Corporation included in this Form 8-K, into General Dynamics
Corporation's previously filed Registration Statements File Numbers 33-23448,
2-23904, 2-23032, 2-28952, 2-50980, 2-24270, 33-42799, 33-80213 and 33-81051.
/s/ ARTHUR ANDERSEN LLP
------------------------
ARTHUR ANDERSEN LLP
Boston, Massachusetts
June 24, 1999
<PAGE> 1
FOR IMMEDIATE RELEASE
TUESDAY, JUNE 22, 1999
GENERAL DYNAMICS TO ACQUIRE THREE UNITS
OF GTE GOVERNMENT SYSTEMS FOR $1.05 BILLION
FALLS CHURCH, VA -- General Dynamics (NYSE: GD) and GTE Corporation
(NYSE: GTE) announced today that they have entered into a definitive agreement
for General Dynamics to acquire three units of GTE's Government Systems
organization for $1.05 billion in cash.
The transaction has been approved by the boards of directors of both
companies and is subject to normal regulatory approvals. General Dynamics will
assume no GTE debt in the transaction. The acquisition will be treated for tax
and accounting purposes as an asset purchase and is expected to close within 60
days. The acquisition will be immediately accretive to General Dynamics'
earnings.
GTE Government Systems is a leader in the advancement of command,
control, communications and intelligence systems; electronic defense systems,
communication switching; and information systems for defense, government, and
industry in the United States and abroad. Included in the purchase are the
Communication Systems Division in Taunton, Massachusetts; Worldwide
Telecommunications Services in Needham Heights, Massachusetts; and Electronic
Systems Division in Mountain View, California. Together, these units have a
backlog of $900 million, approximately 6,200 employees, and expect to have 1999
revenues of approximately $1.2 billion.
When the transaction closes, these units will be part of General
Dynamics Information Systems and Technology business group.
"This is a solid addition to our defense core and a superb strategic
fit," said Nicholas D. Chabraja, General Dynamics chairman and chief executive
officer. "We formed the Information Systems and Technology group in 1998 from a
series of acquisitions. Anticipated 1999 revenues for the group had been
estimated at $1 billion. With this acquisition, we more than double the size of
the group, and tremendously expand its capabilities. The Government Systems
organization gives us world-class information assurance, land communication and
networking capabilities. It strengthens our signal processing, applications and
(more)
<PAGE> 2
decision support capabilities, and creates a world wide information systems
support and services organization," Chabraja said. "We are committed to our
defense customers and see significant growth opportunities in the defense
electronics market. We believe this transaction provides strong career
opportunities and a good corporate home to the fine GTE employees who have made
their organization so successful."
GTE Chairman and CEO Charles R. Lee said, "GTE Government Systems
has been a central part of GTE's heritage, and a major contributor to our
success. It is gratifying that one of the defense industry's most prominent and
highly regarded companies, General Dynamics, recognizes the talent and
creativity of this outstanding team. At the same time, this transaction is
important to GTE as we focus on our core telecommunications services and
reposition ourselves for future growth."
The transaction is the most recent in GTE's previously announced
initiative to sell non-core business assets to generate more than $3 billion in
after-tax proceeds. On May 27, GTE announced reaching agreements to sell
wireline properties in Alaska to the Alaska Telephone Exchange Acquisition
Corporation, Inc. (ATEAC) and in Arizona, California and Minnesota to Citizens
Utilities. Proceeds from the sale of GTE's Government Systems unit and wireline
properties will be used to pay off debt that will be incurred with GTE's pending
purchase of Ameritech wireless properties in Illinois and Missouri, and to
invest in future high-growth strategic initiatives.
General Dynamics, headquartered in Falls Church, Virginia, supplies
sophisticated defense systems and services to the United States government and
its allies around the world. The company employs 29,800 people and had 1998
sales of approximately $5 billion.
GTE Corporation, based in Irving, Texas, is a leading
telecommunications provider with one of the industry's broadest arrays of
products and services. The company has 120,000 employees and had 1998 sales of
more than $25 billion.
MEDIA CONTACTS
For General Dynamics: Norine Lyons - 703 876-3190
E-mail: [email protected]
For GTE: Peter Thonis - 972 507-5367
E-mail: [email protected]
<PAGE> 3
GENERAL DYNAMICS ANALYST/PRESS MEETING AND CONFERENCE CALL
WITH CHAIRMAN NICK CHABRAJA
9:30 A.M. TUESDAY, JUNE 22, 1999
The New York Palace Hotel - Winslow Room
455 Madison Avenue (50th St.)
New York, NY 10022
212 888-7000
Dial-in number (US and Canada): 1 800 553-2506
International callers: 303 267-1006
CALL IN BY 9:20 AM
A replay of the conference will be available for 48 hours following the call.
US and Canada: 1 800 625-5288
International callers: 303 804-1855
Reservation number 562634
