<PAGE> 1
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: MAY 5, 1995
COMMISSION FILE NUMBER 1-4238
LORAL CORPORATION
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
TELEPHONE: (212) 697-1105
STATE OF INCORPORATION: NEW YORK
IRS IDENTIFICATION NUMBER: 13-1718360
<PAGE> 2
ITEM 2: ACQUISITION OF ASSETS
On May 5, 1995, the Company acquired substantially all the assets and
liabilities of the Defense Systems operations of Unisys Corporation. The
$862,000,000 purchase price approximates $803,400,000 after agreed-upon
contractual adjustments related to a program termination and certain Unisys
financing arrangements and net of cash acquired. This amount is subject to
further adjustment based on the final net asset values, as defined.
Defense Systems, headquartered in McLean, Virginia, is a leading integrator
of complex, military electronics systems and a leading developer of military
systems and related software. (See "Business Description -- Acquired
Businesses").
The purchase price was determined through arm's length bargaining between
the Registrant and Unisys. The acquisition, effective May 5, 1995, was financed
through commercial paper borrowings, which are supported by the Registrant's
revolving credit agreement.
Business Description -- Acquired Businesses
Defense Systems operates in four business units: Systems Development, Great
Neck, New York, a producer of defense electronic systems, undersea systems,
weather systems, radar systems, and transportation and physical security
systems; Electronic Systems, Eagan, Minnesota, a producer of defense information
systems, air traffic control systems, airborne systems, postal systems and
environmental systems; Communications Systems, Salt Lake City, Utah, a developer
of intelligence collection systems and satellite communications; and Canadian
Operations, Montreal, Canada, a producer of electronic systems for naval and
airborne programs.
ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
<TABLE>
<CAPTION>
PAGE
-------------
<C> <S> <C>
A. Financial Statements
(1) Audited financial statements of Unisys Defense Systems as of
December 31, 1994 and 1993 and for the two years ended December 31,
1994................................................................ A-1 to A-15
(2) Unaudited financial statements of Unisys Defense Systems as of March
31, 1995 and for the three month periods ended March 31, 1995 and
1994................................................................ B-1 to B-6
B. Pro Forma Financial Information
Unaudited Pro Forma Condensed Consolidated Financial Statements of
Loral Corporation and Unisys Defense Systems as of March 31, 1995
and for the year then ended......................................... C-1 to C-4
C. Exhibits
10 Asset Purchase Agreement, as amended, between Loral Corporation
and Unisys Corporation dated as of March 20, 1995.
23 Consent of Ernst & Young LLP
</TABLE>
1
<PAGE> 3
SIGNATURES
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 hereunto duly authorized.
LORAL CORPORATION
-----------------
Registrant
Date: May 22, 1995 By: MICHAEL P. DEBLASIO
--------------------------------
Michael P. DeBlasio
Senior Vice President - Finance
2
<PAGE> 4
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of Unisys Corporation
We have audited the accompanying combined balance sheets of Unisys Defense
Systems (a unit of Unisys Corporation) (the "Company") as of December 31, 1994
and 1993, and the related combined statements of income and cash flows for each
of the two years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1, the Company is part of Unisys Corporation and, as
such, had no separate legal entity status or existence. Transactions with Unisys
Corporation are described in Notes 2, 3, 8, and 11.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Unisys Defense
Systems at December 31, 1994 and 1993, and the combined results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
January 25, 1995
A-1
<PAGE> 5
UNISYS DEFENSE SYSTEMS
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 117,723 $ 53,973
Accounts and notes receivable..................................... 142,932 165,143
Inventories....................................................... 136,746 145,625
Deferred income taxes............................................. 58,651 61,226
Prepaid expenses.................................................. 24,629 10,993
---------- ----------
Total current assets................................................ 480,681 436,960
Property, plant, and equipment, at cost:
Land and land improvements........................................ 78,274 78,342
Buildings and leasehold improvements.............................. 123,472 123,023
Machinery and equipment........................................... 348,416 361,719
---------- ----------
550,162 563,084
Less: allowance for depreciation and amortization................. 346,446 342,729
---------- ----------
Property, plant, and equipment, net................................. 203,716 220,355
Long-term receivables............................................... 3,621 16,694
Cost in excess of net assets acquired............................... 144,456 149,006
Prepaid pension assets.............................................. 219,679 201,473
Other assets........................................................ 8,407 8,980
---------- ----------
$1,060,560 $1,033,468
========= =========
LIABILITIES
Current liabilities:
Estimated income taxes............................................ $ 14,085 $ 25,205
Accounts payable.................................................. 90,794 76,920
Other payables and accruals....................................... 103,739 127,323
---------- ----------
Total current liabilities........................................... 208,618 229,448
Allocated portion of Unisys debt.................................... 305,000 282,000
Deferred income taxes............................................... 93,790 78,567
Other liabilities................................................... 47,201 73,507
Net assets.......................................................... 405,951 369,946
---------- ----------
$1,060,560 $1,033,468
========= =========
</TABLE>
See accompanying notes.
A-2
<PAGE> 6
UNISYS DEFENSE SYSTEMS
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1994 1993
---------- ----------
<S> <C> <C>
Sales.............................................................. $1,431,496 $1,774,018
Costs and expenses:
Cost of sales.................................................... 1,113,563 1,445,008
Selling, general and administrative expenses..................... 115,111 122,693
Research and development expenses................................ 18,020 23,219
Unisys allocations............................................... 27,709 33,500
---------- ----------
1,274,403 1,624,420
---------- ----------
Operating income................................................... 157,093 149,598
Interest expense................................................... 30,992 29,865
Other expenses, net................................................ 10,872 28,681
---------- ----------
Income before taxes on income...................................... 115,229 91,052
Estimated income taxes............................................. 37,746 40,927
---------- ----------
Net income......................................................... $ 77,483 $ 50,125
========= =========
</TABLE>
See accompanying notes.
A-3
<PAGE> 7
UNISYS DEFENSE SYSTEMS
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
---------------------
1994 1993
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................. $ 77,483 $ 50,125
Add (deduct) items to reconcile net income to net cash provided by
operating activities:
Depreciation......................................................... 32,057 38,819
Amortization of cost in excess of net assets acquired................ 4,550 4,550
Decrease (increase) in accounts and notes receivable................. 22,211 (1,801)
Decrease in inventories.............................................. 8,879 44,996
Increase in prepaid expenses......................................... (13,636) (1,263)
Decrease in long-term receivables.................................... 13,073 5,087
Increase in prepaid pension assets................................... (18,206) (17,914)
Decrease in current deferred income tax assets....................... 2,575 7,380
(Decrease) increase in estimated income taxes........................ (11,120) 3,133
Increase (decrease) in accounts payable.............................. 13,874 (15,625)
Decrease in other payables and accruals.............................. (23,584) (24,407)
Increase (decrease) in long-term deferred income tax liabilities..... 15,223 (6,683)
Other................................................................ (24,803) (17,058)
-------- --------
Net cash provided by operating activities.............................. 98,576 69,339
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital additions to properties........................................ (17,491) (23,273)
-------- --------
Net cash used for investing activities................................. (17,491) (23,273)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in related party transactions............................... (40,335) 21,152
Net increase (decrease) in allocated portion of Unisys debt............ 23,000 (55,369)
-------- --------
Net cash used for financing activities................................. (17,335) (34,217)
-------- --------
Increase in cash and cash equivalents.................................. 63,750 11,849
Cash and cash equivalents, beginning of year........................... 53,973 42,124
-------- --------
Cash and cash equivalents, end of year................................. $117,723 $ 53,973
======== ========
</TABLE>
See accompanying notes.
A-4
<PAGE> 8
UNISYS DEFENSE SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
1. UNISYS DEFENSE SYSTEMS
The accompanying financial statements include the combined operations of
Unisys Defense Systems (the "Company") of Unisys Corporation ("Unisys"). The
Company, headquartered in McLean, Virginia, comprises the operations of Systems
Development headquartered in Great Neck, New York; Electronic Systems
headquartered in Eagan, Minnesota; Communications Systems headquartered in Salt
Lake City, Utah; Unisys Government Systems Group Canada headquartered in
Montreal, Canada; and includes certain service contracts managed by the Company.
The Company had no separate legal status or existence. Operations of the Company
in the United States have been conducted for the most part by operating units of
Unisys and international operations are principally conducted by Unisys GSG
Canada Inc. ("GSG Canada"), a wholly-owned Canadian subsidiary of Unisys GSG
Canada Holdings Inc.
The Company operates in one business segment -- information systems,
systems integration and related services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of the
Company as described above. These statements are presented as if the Company had
existed as a corporation separate from its parent, Unisys, during the periods
presented and includes the historical assets, liabilities, sales and expenses
that are directly related to the Company's operations. All transactions between
the Company's units have been eliminated. These combined financial statements
include Unisys corporate overhead allocations which are substantially recovered
in revenue under government contracts.
The accompanying combined financial statements are presented on a
historical cost basis and include adjustments attributable to the 1986
acquisition by Burroughs Corporation, the predecessor of Unisys, of the
operations of the Company formerly conducted by Sperry Corporation.
The financial information included herein may not necessarily reflect the
financial position or the results of operations of the Company in the future or
what the balance sheet or the results of operations of the Company would have
been if it was a separate, stand-alone company during the period presented.
Accounts payable and other payables and accruals for the services business
amounting to $9,100,000 and $7,600,000 at December 31, 1994 and 1993,
respectively, are included in the combined balance sheets. These payables and
accruals for the services contracts were allocated to the Company based on the
revenue of these services contracts compared to total revenue for the Unisys
Federal Systems Services business.
SALES AND COST RECOGNITION
The estimated sales value and cost of performance under firm fixed-price
and fixed-price incentive government contracts in process are recognized under
the percentage-of-completion method. For long-term fixed-price development
contracts in which contract milestones do not adequately reflect progress
towards completion, sales are recognized on internal milestones using an earned
value methodology. Sales under cost-reimbursement type contracts are recognized
as costs are incurred and include applicable earned fees. The fees under such
government contracts may be increased or decreased in accordance with cost or
performance incentive provisions which measure actual performance against
established targets or other criteria. Such incentive fee awards or penalties
are included in sales at the time amounts can be reasonably determined.
Estimates of total contract costs at completion of the contracts include all
such costs which can be reasonably anticipated. General and administrative costs
are expensed as incurred. When management believes that the cost of completing a
contract (excluding general and administrative expenses) will exceed
contract-related
A-5
<PAGE> 9
UNISYS DEFENSE SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
revenue, a loss is recognized. Contract claims are reflected in the combined
financial statements at amounts reflecting the Company's current estimate of
amounts that ultimately will be realized.
As a result of certain contract amendments and settlements, a pre-tax
benefit of approximately $33 million has been included in the combined statement
of income for the year ended December 31, 1994.
CASH EQUIVALENTS
All short-term investments purchased with a maturity of three months or
less are classified as cash equivalents.
INVENTORIES
Inventoried costs relating to long-term contracts and programs are stated
at the actual production costs incurred to date, reduced by amounts identified
with sales value recognized on units delivered or progress completed (measured
on cost-to-cost). The Company accumulates all costs incurred (except general and
administrative costs) using a job-order cost system. Inventoried costs relating
to long-term contracts and programs are reduced by charging any amounts in
excess of estimated realizable value to cost of sales. The costs attributable to
units delivered under long-term contracts are based on average cost of all units
expected to be produced. Progress payments received from customers relating to
the uncompleted portions of contracts are deducted from applicable inventories.
In accordance with industry practice, inventories include amounts relating
to contracts and programs having production cycles longer than one year.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is stated at cost and depreciation is
calculated on the straight-line method. Furniture and most equipment are
depreciated over estimated useful lives ranging from 4 to 7 years. Building
equipment is depreciated over 15 years. Buildings and building additions are
predominantly depreciated over 40 years. Material building improvements are
depreciated over the estimated remaining useful lives or the terms of the
related leases.
Significant renewals and betterments are capitalized. Maintenance and
repairs, as well as renewals of minor amounts, are charged to expense as
incurred.
COSTS IN EXCESS OF NET ASSETS ACQUIRED
Costs in excess of net assets acquired represents an allocation from Unisys
relating to the 1986 purchase of Sperry Corporation and is being amortized on a
straight-line basis over 40 years. Accumulated amortization at December 31, 1994
and 1993 was $36,387,000 and $31,837,000, respectively.
INTERCOMPANY TRANSACTIONS
The Company receives services provided by Unisys which include employee
benefits administration, cash management, certain legal services, public
relations, tax reporting and internal and external audit. Charges for such
services of $27,709,000 and $33,500,000 for 1994 and 1993, respectively, have
been included in costs and expenses in the combined statement of income. The
allocation of these amounts was determined by applying the ratio of total
Company sales to total Unisys sales.
Intercompany transactions between the Company and Unisys result in a change
in amounts due to or from Unisys and its affiliates and generally do not involve
cash settlements.
A-6
<PAGE> 10
UNISYS DEFENSE SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The local currency is the functional currency for foreign operations, and
as such, assets and liabilities are translated into U.S. dollars at year-end
exchange rates. Income and expense items are translated at average exchange
rates during the year. Translation adjustments resulting from changes in
exchange rates are included in net assets.
INCOME TAXES
Income taxes are provided as if units in all countries were stand-alone
units filing separate tax returns. Deferred taxes have not been provided on the
cumulative undistributed earnings of foreign subsidiaries since such amounts are
expected to be reinvested indefinitely.
EARNINGS PER SHARE
Earnings per share have been omitted from the combined statements of income
as the Company was comprised of operations directly or indirectly owned by
Unisys Corporation.
3. INCOME TAXES
Income before income taxes and estimated income taxes for the years ended
December 31, 1994 and 1993 comprise the following (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Income before income taxes:
United States................................................. $ 73,001 $67,934
Foreign....................................................... 42,228 23,118
-------- -------
Total........................................................... $115,229 $91,052
======== =======
Estimated income taxes:
Current:
United States.............................................. $ 15,778 $15,947
Foreign.................................................... (372) 21,011
State and local............................................ 3,275 3,272
-------- -------
Total......................................................... 18,681 40,230
Deferred:
United States.............................................. 10,947 8,766
Foreign.................................................... 6,085 (9,664)
State and local............................................ 2,033 1,595
-------- -------
Total......................................................... 19,065 697
-------- -------
Total estimated income taxes.................................... $ 37,746 $40,927
======== =======
</TABLE>
A-7
<PAGE> 11
UNISYS DEFENSE SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. INCOME TAXES -- (CONTINUED)
Tax effects of temporary differences at December 31, 1994 and 1993 which
give rise to significant portions of deferred tax assets and liabilities were as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Deferred tax assets:
Inventory................................................. $ 25,979 $ 25,938
Postretirement benefits................................... 20,176 23,958
Employee benefits......................................... 18,432 22,100
Other..................................................... 36,049 33,882
-------- --------
Total deferred tax assets...................................... $100,636 $105,878
======== ========
Deferred tax liabilities:
Pensions.................................................. $ 91,134 $ 82,087
Property, plant, and equipment -- purchase price
accounting adjustments.................................. 37,568 38,012
Other..................................................... 7,074 3,120
-------- --------
Total deferred tax liabilities................................. $135,776 $123,219
======== ========
</TABLE>
Reconciliation of United States statutory tax rate to effective tax rate
for the years ended December 31, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
U.S. statutory tax rate.............................................. 35.0% 35.0%
State taxes.......................................................... 3.0 3.5
Amortization of cost in excess of net assets acquired................ 1.5 1.9
Canadian tax credits................................................. (8.7) --
Other................................................................ 2.0 4.5
---- ----
Effective tax rate................................................... 32.8% 44.9%
==== ====
</TABLE>
Cumulative undistributed earnings of foreign subsidiaries, for which no
U.S. income or foreign withholding taxes have been recorded, approximated
$125,000,000 at December 31, 1994. Such earnings are expected to be reinvested
indefinitely. Determination of the amount of the unrecognized deferred tax
liability with respect to such earnings is not practicable. The additional taxes
payable on the earnings of foreign subsidiaries, if remitted, would be offset by
some portion of foreign tax credits.
The Company's U.S. operations were included in the consolidated U.S.
Federal and certain combined and separate state income tax returns of Unisys.
The U.S. tax provision and tax liabilities have been determined as if the
Company's U.S. operations were a stand-alone unit filing separate tax returns.
The U.S. tax liabilities are based on the regular tax system and do not consider
the effects of any alternative minimum tax.
The Canadian subsidiaries file separate Canadian federal and provincial
government returns. Unisys GSG Canada, Inc. has been undergoing Canadian federal
government audits for the years 1990-1993 and Canadian provincial government
audits for the years 1986-1992. In the opinion of management, adequate
provisions for income taxes have been made.
Certain other foreign operations were included in the tax returns of Unisys
subsidiaries doing business in those countries. The amount of tax provision and
tax liabilities related thereto are immaterial.
A-8
<PAGE> 12
UNISYS DEFENSE SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCOUNTS AND NOTES RECEIVABLE
Current accounts and notes receivable at December 31, 1994 and 1993
comprise the following (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Amounts billed to customers.................................... $ 48,669 $ 83,271
Billable receivables not invoiced.............................. 38,303 31,370
Retainage, due upon completion................................. 8,661 10,488
Receivable costs and accrued profits on progress completed
based on internal milestones not billable.................... 40,380 37,377
Other.......................................................... 6,919 2,637
-------- --------
$142,932 $165,143
======== ========
</TABLE>
The balance in billable receivables not invoiced represents billings
expected to be invoiced within the next 60 days. The retainage balance
represents amounts withheld by the U.S. Government under its policy of
withholding fees on cost-type contracts until contract completion, and expected
additional billable general overhead costs and fees on flexibly priced contracts
awaiting final rate negotiations. The internal milestones balance represents
sales recognized on the earned value concept.
Unisys has an agreement with J. P. Morgan ("Morgan") which currently
provides for the sale of up to $60,000,000 of the Company's receivables. As of
December 31, 1994 and 1993, $40,056,000 and $13,940,000, respectively, had been
sold and the Company has recorded a receivable of $6,388,000 and $2,230,000,
respectively, from Morgan which represents a hold back under this agreement.
5. INVENTORIES
Payments received from customers relating to the uncompleted portions of
contracts have been deducted from the applicable inventories. At December 31,
1994 and 1993, this amount was $81,129,000 and $108,343,000, respectively.
6. OTHER PAYABLES AND ACCRUALS
Other payables and accruals at December 31, 1994 and 1993 comprise the
following (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Payrolls and commissions....................................... $ 49,488 $ 66,154
Ill Wind payable............................................... 19,852 13,992
Taxes other than income taxes.................................. 12,587 9,856
Postretirement medical benefits................................ 6,873 9,114
Advance payments............................................... 5,863 21,127
Other.......................................................... 9,076 7,080
-------- --------
$103,739 $127,323
======== ========
</TABLE>
Advance payments represent the excess of amounts received from customers
over revenue recognized to date on those contracts.
7. LEASES
Rent expense, less income from subleases, was $15,103,000 and $16,344,000
for 1994 and 1993, respectively. Minimum net rental commitments, exclusive of
escalation clauses under noncancelable operating
A-9
<PAGE> 13
UNISYS DEFENSE SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. LEASES -- (CONTINUED)
leases outstanding at December 31, 1994, substantially all of which relate to
real properties, were as follows (in thousands of dollars): 1995, $14,366; 1996,
$11,617; 1997, $7,556; 1998, $6,525; 1999, $6,059; and thereafter, $19,282.
8. EMPLOYEE PLANS
RETIREMENT BENEFITS
U.S. employees of the Company are covered by Unisys defined benefit
retirement income plans which generally use a career average pay formula. Unisys
pension funding policy is to contribute annually, at a minimum, amounts required
by applicable law and regulations. Plan assets are invested in a master trust
maintained by Unisys. The master trust invests principally in common stocks,
fixed income securities and real estate. The Company accounts for pension
expense using FASB Statement No. 87 for financial statements and CAS 412 for
government cost recovery.
As a result of restructuring actions, a net curtailment gain (loss) of
$5,600,000 and $(1,600,000) was recognized in 1994 and 1993, respectively.
U.S. pension assets and costs in the combined balance sheet and income
statement were developed based on the assumption that liabilities were spun-off
into separate plans. The components of U.S. pension expense for the years ended
December 31, 1994 and 1993 were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Service cost................................................. $ 19,600 $ 21,900
Interest cost on projected benefit obligation................ 81,800 82,000
Loss on assets............................................... 1,600 14,000
Net amortization and deferral................................ (118,000) (133,500)
--------- ---------
Net pension income........................................... $ (15,000) $ (15,600)
========= =========
</TABLE>
The following table reconciles the funded status of the Company's portion
of Unisys U.S. plans with amounts included in the combined balance sheets at
December 31, 1994 and 1993 (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................. $ 915,800 $1,148,700
---------- ----------
Accumulated benefit obligation............................ 953,100 1,186,400
---------- ----------
Projected benefit obligation.............................. 997,700 1,216,100
Plan assets at fair value................................. 1,099,800 1,193,400
---------- ----------
Plan assets in excess of (less than) projected benefit
obligation................................................ 102,100 (22,700)
Unrecognized net loss....................................... 175,300 297,500
Unrecognized prior service benefit.......................... (57,300) (76,200)
Unrecognized net obligation at date of adoption of FASB
87........................................................ (500) (800)
---------- ----------
Prepaid pension cost recognized in the combined balance
sheet..................................................... $ 219,600 $ 197,800
========= =========
</TABLE>
A-10
<PAGE> 14
UNISYS DEFENSE SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. EMPLOYEE PLANS -- (CONTINUED)
The assumptions used to determine the above data for 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Discount rate...................................................... 8.75% 7.38%
Rate of increase in compensation levels............................ 5.40% 5.13%
Expected long-term rate of return on assets........................ 10.00% 10.00%
</TABLE>
Canadian employees are covered by the Unisys Canada, Inc. pension plan.
Using a discount rate of 9% and 8% in 1994 and 1993, respectively, and a salary
increase rate of 5.5% for both years, the estimated assets and liabilities at
December 31, 1994 and 1993 were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993
------ -------
<S> <C> <C>
Vested benefit obligation......................................... $5,563 $ 6,353
Accumulated benefit obligation.................................... 5,699 6,511
Projected benefit obligation...................................... 8,350 9,633
Assets at fair value.............................................. 7,348 11,446
Prepaid pension cost recognized in the combined balance sheets.... $ 79 $ 3,673
</TABLE>
The net pension expense for Canadian employees for the years ended December
31, 1994 and 1993 was $672,000 and $527,000, respectively.
OTHER POSTRETIREMENT BENEFITS
The Company provides certain health care benefits for U.S. employees who
retire or terminate after qualifying for such benefits. The Company expects to
fund its share of such benefit costs principally on a pay-as-you-go basis.
In November 1992, the Company announced changes to its postretirement
benefit plans, effective January 1, 1993, whereby the Company's current subsidy
will be phased out, ending as of January 1, 1996. Several lawsuits have been
brought by plan participants challenging the announced changes to the plans, and
the Company is defending them vigorously. In 1994, several of these lawsuits
were resolved which resulted in the Company recognizing a settlement gain of
$6,328,000.
Net periodic postretirement benefit cost for the year ended December 31,
1994 and 1993 includes the following components (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Service cost -- benefits earned during the period................ $ 841 $ 1,034
Interest cost on accumulated postretirement benefit obligation... 7,218 4,531
Net amortization and deferral.................................... (2,645) --
Return on plan assets............................................ 500 (2,757)
------- -------
Net periodic postretirement benefit cost......................... $ 5,914 $ 2,808
======= =======
</TABLE>
A-11
<PAGE> 15
UNISYS DEFENSE SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. EMPLOYEE PLANS -- (CONTINUED)
The status of the plan and amounts recognized in the Company's combined
balance sheets at December 31, 1994 and 1993 was as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Actuarial present value of accumulated postretirement benefit
obligation:
Retirees..................................................... $ 67,383 $ 67,897
Fully eligible active plan participants...................... 16,383 10,787
Other active plan participants............................... 12,278 17,236
-------- --------
96,044 95,920
Less plan assets on fair value............................... (26,500) (30,190)
-------- --------
Accrued postretirement benefit liability in excess of plan
assets....................................................... 69,544 65,730
Unrecognized net loss.......................................... (20,928) (8,000)
-------- --------
Accrued postretirement benefit obligation recognized in the
combined balance sheet....................................... $ 48,616 $ 57,730
======== ========
</TABLE>
As of December 31, 1994, $41,743,000 of this liability was classified as
long-term and $6,873,000 was classified as a current liability.
Plan assets are generally invested in common stocks and fixed-income
securities. The assumed rate of return on plan assets was 8% and 10% in 1994 and
1993, respectively, and the weighted average discount rate used to measure the
accumulated postretirement benefit obligation was 8.75% at December 31, 1994 and
7.35% at December 31, 1993. The assumed health care cost trend rate used in
measuring the expected cost of benefits covered by the plan was 11% for 1995,
gradually declining to 6.5% in 2004 and thereafter. A one-percentage point
increase in the assumed health care cost trend rate would increase the
accumulated postretirement benefit obligation at December 31, 1994 by $9,200,000
and increase the aggregate of the service and interest cost components of net
periodic postretirement health care benefit cost by $900,000.
9. NET ASSETS
Changes in net assets during the years ended December 31, 1994 and 1993
were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Balance at beginning of year................................... $369,946 $300,376
Translation adjustments........................................ (1,143) (1,707)
Intercompany transactions...................................... (40,335) 21,152
Net income..................................................... 77,483 50,125
-------- --------
Balance at end of year......................................... $405,951 $369,946
======== ========
</TABLE>
A-12
<PAGE> 16
UNISYS DEFENSE SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. GEOGRAPHIC AND CUSTOMER INFORMATION
A summary of the Company's geographic and customer information for the
years ended December 31, 1994 and 1993 is presented below (in thousands of
dollars):
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Sales by geographic area:
United States:
Customer............................................... $1,245,368 $1,558,790
Company affiliates..................................... 66,710 97,921
Unisys affiliates...................................... 9,972 12,368
---------- ----------
1,322,050 1,669,079
Canada:
Customer............................................... 171,398 193,309
Company affiliates..................................... 9,040 14,986
---------- ----------
180,438 208,295
Other -- customer......................................... 4,758 9,551
Eliminations:
Company affiliates sales............................... (75,750) (112,907)
---------- ----------
Total....................................................... $1,431,496 $1,774,018
========= =========
Income before taxes on income by geographic area:
United States............................................. $ 73,001 $ 67,934
Canada.................................................... 41,727 22,427
Other..................................................... 501 691
---------- ----------
Total....................................................... $ 115,229 $ 91,052
========= =========
Total assets by geographic area:
United States............................................. $ 907,359 $ 917,665
Canada.................................................... 153,201 115,803
---------- ----------
Total....................................................... $1,060,560 $1,033,468
========= =========
Sales by major customer:
U.S. Government........................................... $1,151,884 $1,489,965
Canadian government....................................... 171,398 193,309
Other..................................................... 108,214 90,744
---------- ----------
Total....................................................... $1,431,496 $1,774,018
========= =========
</TABLE>
11. DEBT
For purposes of the combined financial statements presented herein, the
Company has been allocated a portion of Unisys consolidated debt. This
allocation was determined by applying the ratio of total debt to stockholders'
equity before debt for the consolidated operations of Unisys to net assets of
the Company at December 31, 1994 and 1993. Such debt has been classified as
noncurrent since there are no repayment terms.
The interest expense included in the combined statements of income was
allocated to the Company based on Unisys weighted average interest rates on the
above-mentioned debt and was approximately 10.2% and 10.6% for 1994 and 1993,
respectively.
A-13
<PAGE> 17
UNISYS DEFENSE SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
12. FINANCIAL INSTRUMENTS
Financial instruments with potential credit risk consist principally of
receivables. The amount of billed receivables due from the U.S. government at
December 31, 1994 was $22,543,000. At December 31, 1994, the Company had no
significant concentrations of credit risk.
The Company uses foreign exchange forward contracts to hedge investments of
GSG Canada. Such contracts generally have maturities of less than six months.
Gains or losses on these contracts are included in other expenses, net in the
combined statements of income. During 1994, a gain of $428,000 was recognized on
these contracts. At December 31, 1994, the Company had a total of $200.7 million
of foreign exchange forward contracts, $150.8 million to buy foreign currency
and $49.9 million to sell foreign currency. At December 31, 1993, the Company
had a total of $35.9 million of foreign exchange forward contracts, all
contracts were to buy foreign currency. The fair market value of such contracts
which was obtained from outside sources, approximate the notional value. At
December 31, 1994, the Company had an unrealized gain of $1.6 million related to
the contracts.
Financial instruments also include temporary cash investments which consist
of commercial paper of major corporations. Such investments are classified as
available-for-sale and at December 31, 1994 have maturities of less than one
month. Due to the short maturities of these instruments, they are carried in the
combined balance sheets at cost plus accrued interest, which approximates market
value. Both realized and unrealized gain or losses during 1994 were immaterial.
Unisys on behalf of the Company monitors and controls its risks in the
transactions referred to above by periodically assessing the cost of replacing,
at market rates, foreign exchange forward contracts in the event of default by
the counterparty. The Company believes such risk to be remote. In addition,
before entering such contracts, and periodically during the life of the
contracts, Unisys on behalf of the Company reviews the counterparty's financial
condition.
13. CONTINGENCIES
CONTRACT UNCERTAINTIES
The Company is a subcontractor to Swiftships, a Louisiana-based shipyard
which is providing the Egyptian government with three coastal minehunter
vessels. The Company is providing primarily sonar and navigation systems for the
vessels. Swiftships owes the Company approximately $15 million which was in
arrears. The Company and Swiftships have negotiated a new payment schedule for
such amount.
The Company and International Telephone and Telegraph ("ITT") have settled
a lawsuit by entering into an agreement which provides for the Company, by 1998,
to subcontract to ITT work which will generate approximately $8 million of
profit or to otherwise provide equivalent cash or other consideration to ITT.
Additionally, the Company has agreed to transfer to ITT agreed products or
technology with a market value of $2 million.
The Company is a subcontractor to AYDIN on a firm fixed price contract to
the Turkish government for Turkish mobile radar complexes. The Company is in the
process of filing requests for equitable adjustments in excess of $12 million.
The Company has contracted with the Department of Commerce to provide spare
parts for the Next Generation Radar System. The Company incurred approximately
$40 million of cost to meet certain customer orders. The customer has exercised
a unilateral determination, pricing the spare parts at approximately $28
million. The Company is appealing this determination.
The Company has contracted with the Naval Air Systems Command for the
Antisurface Warfare Improvement Program. The initial contract signed by the
Company provides for development effort and the
A-14
<PAGE> 18
UNISYS DEFENSE SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
13. CONTINGENCIES -- (CONTINUED)
upgrade of one aircraft. Total development cost of $33.8 million is anticipated
of which $11.8 million will not be recovered if further options are not
exercised. Development costs of $3.3 million have been incurred through December
31, 1994. The contract includes options for the upgrade of 80 additional
aircraft. If exercised, $6.6 million of additional development costs will be
required. Under the terms of the contract, these costs will be recovered,
through the exercise of options, at the rate of $200,000 per unit for the next
forty units and $260,000 per unit for the next forty units. The Company expects
total production to exceed 81 units and accordingly believes all the initial
investment will be recovered.
Although uncertainties typically exist as to contract claims and
interpretations, the Company believes that any amounts recognized as sales or in
estimated costs to complete are reasonable. However, amounts actually realized
as sales, or amounts estimated as costs to complete, will be dependent upon
future events, including successful resolution of disputes with various
customers.
DEFENSE CONTRACT AUDIT AGENCY
Payments to the Company on government contracts are subject to adjustments
upon audit by the Defense Contract Audit Agency. Final audit adjustments through
1989 have been completed. Audits have been completed for later years but not
finalized. Future audits and final adjustments are not expected to have a
material effect on the Company's future financial position.
LETTERS OF CREDIT
At December 31, 1994, Unisys had, on behalf of the Company, open letters of
credit outstanding of approximately $94 million. These letters of credit serve
as down payment and performance guarantees on foreign contracts.
ENVIRONMENTAL MATTERS
No liability has been recorded for environmental contingencies which are
known to exist. The Company has recovered incurred environmental costs from the
U.S. Government and anticipates that it will continue to recover these costs
through the pricing of its products and services.
14. "ILL WIND" AGREEMENT
The "Ill Wind" global settlement agreement between Unisys and the U.S.
Government requires, among other things, (a) the foregoing of negotiated profits
and fees, estimated at $46 million, on the North Warning System radar contract;
and (b) the Company to make contingency payments, through 1997, not to exceed a
total of $90,000,000, subject to annual caps, based upon the amount of Unisys
asset sales and net income reported by Unisys during such period. Through
December 31, 1994, the Company has expensed $24,500,000 of such contingency
payments of which $733,000 was expensed in 1994 and $20,000,000 in 1993.
15. OTHER INVESTIGATIONS AND LITIGATIONS
There are various lawsuits, claims and proceedings that have been brought
or asserted against the Company. Although the ultimate results of these
lawsuits, claims and proceedings are not presently determinable, management does
not expect that these matters will have a material adverse effect on the
Company's combined financial position, combined statement of income, or
liquidity.
A-15
<PAGE> 19
UNISYS DEFENSE SYSTEMS
CONDENSED COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1995 1994
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 100,023 $ 117,723
Accounts and notes receivable................................... 129,156 142,932
Inventories..................................................... 148,966 136,746
Deferred income taxes........................................... 58,651 58,651
Prepaid expenses................................................ 20,979 24,629
----------- -----------
Total current assets.............................................. 457,775 480,681
Property, plant and equipment, at cost:
Land and land improvements...................................... 78,274 78,274
Buildings and leasehold improvements............................ 124,189 123,472
Machinery and equipment......................................... 340,519 348,416
----------- -----------
542,982 550,162
Less: allowance for depreciation and amortization............... 346,324 346,446
----------- -----------
Property, plant and equipment, net................................ 196,658 203,716
Long-term receivables............................................. 5,067 3,621
Cost in excess of net assets acquired............................. 143,319 144,456
Prepaid pension assets............................................ 223,904 219,679
Other assets...................................................... 8,306 8,407
----------- -----------
$ 1,035,029 $ 1,060,560
========= =========
CURRENT LIABILITIES:
Estimated income taxes.......................................... $ 9,356 $ 14,085
Accounts payable................................................ 51,045 90,794
Other payables and accruals..................................... 97,228 103,739
----------- -----------
Total current liabilities......................................... 157,629 208,618
Allocated portion of Unisys debt.................................. 314,000 305,000
Deferred income taxes............................................. 93,707 93,790
Other liabilities................................................. 41,743 47,201
Net assets........................................................ 427,950 405,951
----------- -----------
$ 1,035,029 $ 1,060,560
========= =========
</TABLE>
See accompanying notes.
B-1
<PAGE> 20
UNISYS DEFENSE SYSTEMS
CONDENSED COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31
-------------------------
1995 1994
-------- --------
<S> <C> <C>
Sales............................................................. $259,077 $386,013
Costs and expenses:
Cost of sales................................................... 205,179 299,039
Selling, general and administrative expenses.................... 21,763 26,317
Research and development expenses............................... 2,046 5,360
Unisys allocations.............................................. 4,551 7,170
-------- --------
233,539 337,886
-------- --------
Operating income.................................................. 25,538 48,127
Interest expense.................................................. 8,151 7,748
Other expenses, net............................................... 5,516 2,371
-------- --------
Income before taxes on income..................................... 11,871 38,008
Estimated income taxes............................................ 4,748 12,467
-------- --------
Net income........................................................ $ 7,123 $ 25,541
======== ========
</TABLE>
See accompanying notes
B-2
<PAGE> 21
LORAL DEFENSE SYSTEMS
CONDENSED COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MARCH 31
------------------------
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................... $ 7,123 $ 25,541
Add (deduct) items to reconcile net income to net cash provided by
operating activities:
Depreciation........................................................ 6,959 7,664
Amortization of cost in excess of net assets acquired............... 1,138 1,138
Decrease in accounts and notes receivable........................... 13,776 6,998
Decrease (Increase) in inventories.................................. (12,220) 1,731
Decrease in prepaid expenses........................................ 3,650 1,031
(Increase) in long-term receivables................................. (1,446) (7,802)
(Increase) in prepaid pension assets................................ (4,225) (2,658)
Decrease in current deferred income tax assets...................... -- 18,800
(Decrease) in estimated income taxes................................ (4,729) (26,607)
(Decrease) in accounts payable...................................... (39,749) (669)
(Decrease) in other payables and accruals........................... (6,511) (5,075)
(Decrease) Increase in long-term deferred income tax liabilities.... (84) 4,638
Other............................................................... (4,705) (8,776)
-------- --------
Net cash (used in) provided by operating activities................. (41,023) 15,954
-------- --------
Cash flows from investing activities:
Capital additions to properties..................................... (1,140) (3,592)
-------- --------
Net cash used for investing activities.............................. (1,140) (3,592)
-------- --------
Cash flows from financing activities:
Net change in related party transactions............................ 15,463 (39,094)
Net increase in allocated portion of Unisys debt.................... 9,000 23,000
-------- --------
Net cash provided by (used for) financing activities................ 24,463 (16,094)
-------- --------
Decrease in cash and cash equivalents............................... (17,700) (3,732)
Cash and cash equivalents, beginning of period...................... 117,723 53,973
-------- --------
Cash and cash equivalents, end of period............................ $100,023 $ 50,241
======== ========
</TABLE>
See accompanying notes.
B-3
<PAGE> 22
UNISYS DEFENSE SYSTEMS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
MARCH 31, 1995
The accompanying unaudited condensed combined financial statements have
been prepared by the Company pursuant to the rules of the Securities and
Exchange Commission ("SEC") and, in the opinion of the Company, include all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of financial position, results of operations and cash flows (also
see "Basis of Presentation" below). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
SEC rules. The Company believes that the disclosures made are adequate to keep
the information presented from being misleading. The statement of operations for
the three months ended March 31, 1995 is not necessarily indicative of the
results to be expected for the full year. It is suggested that these financial
statements be read in conjunction with the December 31, 1994 audited financial
statements and notes thereto included elsewhere in this filing.
BASIS OF PRESENTATION
The accompanying financial statements include the combined operations of
Unisys Defense Systems (the "Company") of Unisys Corporation ("Unisys"). The
Company had no separate legal status or existence. Operations of the Company in
the United States have been conducted for the most part by operating units of
Unisys and international operations are principally conducted by Unisys GSG
Canada Inc. ("GSG Canada"), a wholly-owned Canadian subsidiary of Unisys GSG
Canada Holdings Inc.
The combined financial statements are presented as if the Company had
existed as a corporation separate from its parent, Unisys, during the periods
presented and includes the historical assets, liabilities, sales and expenses
that are directly related to the Company's operations. All transactions between
the Company's units have been eliminated. These combined financial statements
include Unisys corporate overhead allocations which are substantially recovered
in revenue under government contracts.
The accompanying combined financial statements are presented on a
historical cost basis and include adjustments attributable to the 1986
acquisition by Burroughs Corporation, the predecessor of Unisys, of the
operations of the Company formerly conducted by Sperry Corporation.
The financial information included herein may not necessarily reflect the
financial position or the results of operations of the Company in the future or
what the balance sheet or the results of operations of the Company would have
been if it was a separate, stand-alone company during the period presented.
ACCOUNTS AND NOTES RECEIVABLE
Current accounts and notes receivable comprise the following (in thousands
of dollars):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
------------- ----------------
<S> <C> <C>
Amounts Billed To Customers............ $ 41,322 $ 48,669
Billable Receivables Not Invoiced...... 28,774 38,303
Retainage, Due Upon Completion......... 10,525 8,661
Receivable Costs and Accrued Profits On
Progress Completed Based On Internal
Milestones Not Billable.............. 41,033 40,380
Other.................................. 7,502 6,919
------------- ----------------
$ 129,156 $142,932
============= ================
</TABLE>
B-4
<PAGE> 23
UNISYS DEFENSE SYSTEMS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
The balance in billable receivables not invoiced represents billings
expected to be invoiced within the next 60 days. The retainage balance
represents amounts withheld by the U.S. Government under its policy of
withholding fees on cost-type contracts until contract completion, and expected
additional billable general overhead costs and fees on flexibly priced contracts
awaiting final rate negotiations. The internal milestones balance represents
sales recognized on the earned value concept.
Unisys has an agreement with J.P. Morgan ("Morgan") which currently
provides for the sale of up to $60,000,000 of the Company's receivables. As of
March 31, 1995 and December 31, 1994, $41,061,000 and $40,056,000, respectively,
had been sold and the Company has recorded a receivable of $7,143,000 and
$6,388,000, respectively, from Morgan which represents a hold back under this
agreement.
INVENTORIES
Payments received from customers relating to the uncompleted portions of
contracts have been deducted from the applicable inventories. At March 31, 1995
and December 31, 1994, this amount was $64,743,000 and $81,129,000,
respectively.
OTHER PAYABLES AND ACCRUALS
Other payables and accruals comprise the following (in thousands of
dollars):
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994
-------------- -----------------
<S> <C> <C>
Payrolls and Commission.................. $ 41,640 $ 49,488
Ill Wind Payable......................... 20,763 19,852
Taxes Other Than Income Taxes............ 9,552 12,587
Postretirement Medical Benefits.......... 6,873 6,873
Advance Payments......................... 7,460 5,863
Other.................................... 10,940 9,076
-------------- -----------------
$ 97,228 $ 103,739
=========== =============
</TABLE>
Advance payments represent the excess of amounts received from customers
over revenue recognized to date on those contracts.
NET ASSETS
Changes in net assets during the period ended March 31, 1995 were as
follows (in thousands of dollars):
<TABLE>
<S> <C>
Balance at December 31, 1994................................ $405,951
Translation adjustments..................................... (587)
Intercompany transactions................................... 15,463
Net income.................................................. 7,123
--------
Balance At March 31, 1995................................... $427,950
========
</TABLE>
CONTINGENCIES
The Company is a subcontractor to AYDIN on a firm fixed price contract to
the Turkish government for Turkish mobile radar complexes. The Company is in the
process of filing requests for equitable adjustments in excess of $12 million.
B-5
<PAGE> 24
UNISYS DEFENSE SYSTEMS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
The Company has contracted with the Department of Commerce to provide spare
parts for the Next Generation Radar System. The Company incurred approximately
$40 million of cost to meet certain customer orders. The customer has exercised
a unilateral determination, pricing the spare parts at approximately $28
million. The Company is appealing this determination.
The Company has contracted with the Naval Air Systems Command for the
Antisurface Warfare Improvement Program. The initial contract signed by the
Company provides for development effort and the upgrade of one aircraft. Total
development cost of $33.8 million is anticipated of which $11.8 million will not
be recovered if further options are not exercised. Development costs of $3.3
million have been incurred through December 31, 1994. The contract includes
options for the upgrade of 80 additional aircraft. If exercised, $6.6 million of
additional development costs will be required. Under the terms of the contract,
these costs will be recovered, through the exercise of options, at the rate of
$200,000 per unit for the next forty units and $260,000 per unit for the next
forty units. The Company expects total production to exceed 81 units and
accordingly believes all the initial investment will be recovered.
No liability has been recorded for environmental contingencies which are
known to exist. The Company has recovered incurred environmental costs from the
U.S. Government and anticipates that it will continue to recover these costs
through the pricing of its products and services.
There are various lawsuits, claims and proceedings that have been brought
or asserted against the Company. Although the ultimate results of these
lawsuits, claims and proceedings are not presently determinable, management does
not expect that these matters will have a material adverse effect on the
Company's combined financial position, combined statement of income, or
liquidity.
B-6
<PAGE> 25
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LORAL CORPORATION AND SUBSIDIARIES AND UNISYS DEFENSE SYSTEMS
The following unaudited pro forma condensed consolidated financial
statements give effect to the acquisition of Unisys Defense Systems ("Defense
Systems"), a unit of Unisys Corporation, by Loral Corporation on May 5, 1995.
The unaudited pro forma condensed consolidated statement of income assumes the
acquisition occurred as of April 1, 1994. The unaudited pro forma condensed
consolidated balance sheet assumes the acquisition occurred as of March 31,
1995. The pro forma information is based on the historical financial statements
of Loral Corporation and Subsidiaries ("Loral" or the "Company") and Defense
Systems for the periods indicated using the purchase method of accounting and
the assumptions and adjustments in the accompanying notes to the unaudited pro
forma condensed consolidated financial statements.
The pro forma adjustments are based upon preliminary estimates of fair
values. Actual adjustments will be based on final appraisals and other analyses
of fair values. The unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes of Loral and Defense Systems. The pro forma data may not be
indicative of the results that actually would have occurred if the acquisition
had been in effect on the date indicated or results that may be obtained in the
future.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED MARCH 31, 1995
PERIODS COMBINED:
LORAL -- APRIL 1, 1994 TO MARCH 31, 1995
UNISYS DEFENSE SYSTEMS -- APRIL 1, 1994 TO MARCH 31, 1995
<TABLE>
<CAPTION>
PRO FORMA
DEFENSE ADJUSTMENTS PRO FORMA
LORAL SYSTEMS (NOTE 1) CONSOLIDATED
-------- -------- ----------- ------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Sales....................................... $5,484.4 $1,304.6 -- $6,789.0
Costs and expenses.......................... 4,919.9 1,186.6 $ 39.7(d) 6,146.2
-------- -------- ----------- ------------
Operating income............................ 564.5 118.0 (39.7) 642.8
Interest expense, net....................... 84.9 28.9 34.0(c) 147.8
-------- -------- ----------- ------------
Income before income taxes and equity in net
loss of affiliates........................ 479.6 89.1 (73.7) 495.0
Income taxes................................ 182.2 30.0 (28.7)(g) 183.5
-------- -------- ----------- ------------
Income before equity in net loss of
affiliates................................ 297.4 59.1 (45.0) 311.5
Equity in net loss of affiliates............ 9.0 -- -- 9.0
-------- -------- ----------- ------------
Net income.................................. $ 288.4 $ 59.1 $ (45.0) $ 302.5
======= ======= =========== ===========
Earnings per share (Note 2):
Primary................................... $ 3.38 $ 3.54
======= ===========
Fully diluted............................. $ 3.38 $ 3.54
======= ===========
Weighted average common shares outstanding:
Primary................................... 85.4 85.4
======= ===========
Fully diluted............................. 85.4 85.4
======= ===========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
C-1
<PAGE> 26
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1995
<TABLE>
<CAPTION>
EXCLUDED
UNISYS ASSETS AND PRO FORMA
DEFENSE LIABILITIES ADJUSTMENTS PRO FORMA
LORAL SYSTEMS (NOTE 1B) (NOTE 1) CONSOLIDATED
-------- -------- ---------- ----------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 125.7 $ 100.0 $ (100.0) $ 125.7
Contracts in process................. 1,147.2 278.1 (7.1) $ (20.0)(d,e) 1,398.2
Deferred income taxes................ 138.4 58.7 (58.7) 138.4
Other current assets................. 141.8 21.0 (8.6) 154.2
-------- -------- ---------- ----------- ------------
Total current assets................... 1,553.1 457.8 (174.4) (20.0) 1,816.5
Property, plant and equipment, net..... 1,141.5 196.7 20.0(d) 1,358.2
Cost in excess of net assets acquired,
less amortization.................... 1,265.9 143.3 348.8(d) 1,758.0
Investment in affiliates............... 251.0 251.0
Deferred income taxes.................. 7.6 10.0(g) 17.6
Prepaid pension cost and other
assets............................... 591.2 237.2 (223.9) 604.5
-------- -------- ---------- ----------- ------------
$4,810.3 $1,035.0 $ (398.3) $ 358.8 $5,805.8
======= ======= ======== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of debt.............. $ 1.0 $ 1.0
Accounts payable, trade.............. 169.7 $ 51.0 220.7
Billings and estimated earnings in
excess of cost.................... 313.4 7.5 320.9
Accrued employment costs............. 235.3 41.6 276.9
Income taxes......................... 80.6 9.4 $ (9.4) 80.6
Other current liabilities............ 216.6 48.2 (31.8) $ 15.0(d) 248.0
-------- -------- ---------- ----------- ------------
Total current liabilities.............. 1,016.6 157.7 (41.2) 15.0 1,148.1
Postretirement benefits................ 611.9 41.7 (41.7) 611.9
Other liabilities...................... 178.8 25.0(e) 203.8
Deferred income taxes.................. 93.7 (93.7)
Long-term debt......................... 1,315.5 314.0 (314.0) 839.0(a,c) 2,154.5
Shareholders' equity:
Common stock......................... 21.5 21.5
Capital surplus...................... 828.7 828.7
Division equity...................... 427.9 92.3 (520.2)
Retained earnings.................... 882.1 882.1
-------- -------- ---------- ----------- ------------
1,732.3 427.9 92.3 (520.2) 1,732.3
Less:
Treasury stock, at cost........... 19.8 19.8
Equity adjustments................ 25.0 25.0
-------- -------- ---------- ----------- ------------
Total shareholders' equity............. 1,687.5 427.9 92.3 (520.2) 1,687.5
-------- -------- ---------- ----------- ------------
$4,810.3 $1,035.0 $ (398.3) $ 358.8 $5,805.8
======= ======= ======== ========= =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
C-2
<PAGE> 27
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. The following facts and assumptions were used in determining the pro forma
effect of the acquisition of Unisys Defense Systems ("Defense Systems"), a
unit of Unisys Corporation.
a. On May 5, 1995, the Company acquired substantially all the assets and
liabilities of the Defense Systems operations of Unisys Corporation. The
$862.0 million purchase price approximates $803.4 million after
agreed-upon contractual adjustments related to a program termination and
certain Unisys financing arrangements and net of cash acquired. This
amount is subject to further adjustment based on the final net asset
values, as defined. For purposes of the unaudited pro forma condensed
consolidated financial statements, a $29.6 million purchase price
adjustment was assumed based upon Defense Systems' net asset values at
March 31, 1995. The purchase price, net of cash acquired, has been
calculated as follows (in millions):
<TABLE>
<S> <C>
Contract price.............................................. $862.0
Agreed-upon contractual adjustments......................... (58.6)
------
Purchase price subject to adjustment........................ 803.4
Estimated acquisition costs................................. 6.0
Estimated adjustment based upon increase in closing net
asset values, as defined, as of March 31, 1995............ 29.6
------
Purchase price after estimated adjustment................... $839.0
======
</TABLE>
The acquisition of Defense Systems has been accounted for as a purchase. As
such, Loral will include the results of operations of Defense Systems from
the acquisition date. The unaudited pro forma condensed consolidated
statement of income ("pro forma statement of income") includes the
operations of Defense Systems for the twelve month period ended March 31,
1995. Such operations have been calculated by adding the Defense Systems
operations for the three month period ended March 31, 1995 and the year
ended December 31, 1994 and deducting the Defense Systems operations for
the three month period ended March 31, 1994. Certain reclassifications have
been made to the historical financial statements of Defense Systems to
conform to Loral's presentation. Pro forma adjustments have been calculated
for the twelve month period.
b. Pursuant to the Asset Purchase Agreement, as amended, certain assets of
Defense Systems were not acquired and certain liabilities were not
assumed. The pro forma condensed consolidated balance sheet ("pro forma
balance sheet") includes adjustments to eliminate the excluded assets and
liabilities which include cash, intercompany debt, amounts relating to
Unisys financing arrangements, income tax accounts, the prepaid pension
asset, the liability for postretirement health care and life insurance
costs, and liabilities related to a Canadian government program
termination and a settlement agreement with the U.S. government. As
described in Notes 1c and 1d, the pro forma statement of income includes
adjustments related to the excluded assets and liabilities.
c. The purchase price was determined through arm's length bargaining between
the Company and Unisys. The acquisition was financed through commercial
paper borrowings supported by an existing revolving credit facility for
$1.2 billion, with a group of banks. The pro forma statement of income
reflects charges for interest expense on the estimated purchase price
plus estimated expenses, net of acquired cash, at an assumed interest
rate of 7.5%. In addition, the pro forma statement of income reflects the
elimination of $28.9 million of net interest expense primarily related to
allocated intercompany debt not assumed in the acquisition.
d. The estimated excess of purchase price over net assets acquired of $492.1
million is being amortized over 40 years. Further, the pro forma balance
sheet includes the elimination of $143.3 million of cost in excess of net
assets acquired included in Defense Systems' historical balance sheet and
the pro forma income statement includes the elimination of $4.6 million
of related amortization expense. Other purchase accounting adjustments to
the pro forma balance sheet, pursuant to the provisions of
C-3
<PAGE> 28
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
Accounting Principles Board Opinion No. 16, include an estimated $30.0
million adjustment relating to a net reduction of accumulated contract
costs resulting from valuing acquired contracts in process at contract
price, minus the estimated cost to complete and an allowance for the
Company's normal profit on its effort to complete such contracts. The
impact of this adjustment relates to contract performance, primarily over
a three to four year period. The pro forma statement of income includes a
resulting adjustment of $6.0 million. The pro forma statement of income
includes an adjustment for $15.0 million representing the estimate of the
ongoing pension and postretirement health care and life insurance costs
after considering the related assets and liabilities assumed in the
transaction and an adjustment for $22.3 million representing the
elimination of the historical credits recorded for such costs. The pro
forma balance sheet includes an accrual of $15.0 million for estimated
costs of integrating the operations. The pro forma balance sheet includes
an adjustment of $20.0 million to record the estimated excess of fair
value of land and buildings over the historical book value and the pro
forma income statement includes a charge of $.7 million for the estimated
depreciation expense over a 15 year life for the depreciable portion. The
fair value of other fixed assets is not expected to differ materially
from their carrying amounts.
e. The pro forma financial statements include adjustments to conform
accounting policies of Defense Systems to the Company's accounting
policies. The pro forma balance sheet includes an adjustment to contracts
in process for $10.0 million for the estimated impact of capitalizing
general and administrative expenses consistent with the Company's
accounting policy. The impact of this accounting change on Defense
Systems' results of operations for the twelve month period ended March
31, 1995 is not significant.
The pro forma balance sheet includes an accrual of $25.0 million for
estimated environmental liabilities of the Defense Systems business. The
Company accrues for environmental contingencies when it is probable that a
liability has been incurred and the amount of the loss can be reasonably
estimated; the historical balance sheet of Defense Systems does not include
a liability for environmental contingencies which are known to exist
because Defense Systems has recovered incurred environmental costs from the
U.S. Government and anticipates that it will continue to recover these
costs through the pricing of its products and services.
f. The pro forma income statement data does not reflect any net cost savings
or economies of scale that management believes would have been achieved
had the acquisition occurred on April 1, 1994. For example, the pro forma
data reflects the Registrant's own corporate overhead expense as well as
approximately $25.1 million of Unisys corporate overhead that had been
charged to Defense Systems.
g. A statutory (federal and state) tax rate of 39.0% was assumed on the pro
forma adjustments and the pro forma balance sheet includes an adjustment
to record an estimated $10.0 million of deferred tax assets related to
differences between book and tax bases for acquired assets and
liabilities.
2. Primary and fully diluted earnings per share are computed based upon the
weighted average number of shares of common stock and common stock
equivalents (stock options) outstanding.
C-4
<PAGE> 29
EXHIBIT INDEX
10 Asset Purchase Agreement, as amended, between Loral Corporation
and Unisys Corporation dated as of March 20, 1995.
23 Consent of Ernst & Young LLP
<PAGE> 1
[EXECUTION COPY]
------------------------------------------------------------
ASSET PURCHASE AGREEMENT
by and between
UNISYS CORPORATION
and
LORAL CORPORATION,
dated as of
March 20, 1995,
as amended
------------------------------------------------------------
<PAGE> 2
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
ARTICLE I CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II CLOSING; PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . 35
2.1 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . 35
2.2 Purchase and Sale of the DS Assets
and Assumption of DS Liabilities . . . . . . . . . . . . . . . . 35
2.3 Consideration for the DS Assets . . . . . . . . . . . . . . . . . . 35
2.4 Deliveries by Seller . . . . . . . . . . . . . . . . . . . . . . . 36
2.5 Deliveries by Buyer . . . . . . . . . . . . . . . . . . . . . . . . 37
2.6 Purchase Price Adjustment . . . . . . . . . . . . . . . . . . . . . 38
2.7 Assignment of Contracts and Rights . . . . . . . . . . . . . . . . 43
ARTICLE III REPRESENTATIONS AND WARRANTIES
OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.1 Incorporation; Good Standing . . . . . . . . . . . . . . . . . . . 45
3.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.3 Consents and Approvals; No Violation . . . . . . . . . . . . . . . 47
3.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 48
3.5 Owned Real Property and Leased
Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . 49
3.6 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . 51
3.7 Litigation; Orders . . . . . . . . . . . . . . . . . . . . . . . . 52
3.8 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . 53
3.9 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
3.10 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . 56
3.11 Sufficiency of and Title to the
DS Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
3.12 DS Contracts and Government Bids . . . . . . . . . . . . . . . . . 58
3.13 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . 61
3.14 Brokers, Finders, etc. . . . . . . . . . . . . . . . . . . . . . . 63
3.15 Capitalization of the DS Subsidiaries . . . . . . . . . . . . . . . 64
3.16 No Implied Representation . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
4.1 Organization; Authorization; etc. . . . . . . . . . . . . . . . . . 65
4.2 Consents and Approvals; No Violations . . . . . . . . . . . . . . . 66
4.3 Brokers, Finders, etc. . . . . . . . . . . . . . . . . . . . . . . 68
4.4 Financial Capability . . . . . . . . . . . . . . . . . . . . . . . 68
4.5 Foreign Ownership; Procurement
Integrity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
4.6 Inspections; Limitations of Seller's
Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE V COVENANTS OF SELLER AND BUYER . . . . . . . . . . . . . . . . . . . 70
5.1 Investigation of Business; Access
to Properties and Records . . . . . . . . . . . . . . . . . . . 70
5.2 Reasonable Efforts; Obtaining
Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
5.3 Antitrust Compliance . . . . . . . . . . . . . . . . . . . . . . . 76
5.4 Further Assurances; Novation; Contract
Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
5.5 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . 82
5.6 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . 87
5.7 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
5.8 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . 89
5.9 Excluded Liabilities; DS Liabilities . . . . . . . . . . . . . . . 97
5.10 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . 97
5.11 Privilege and Litigation Matters . . . . . . . . . . . . . . . . . 101
5.12 Continuing Purchase Rights . . . . . . . . . . . . . . . . . . . . 104
5.13 Noncompetition . . . . . . . . . . . . . . . . . . . . . . . . . . 104
5.14 Certain Contracts and Bids . . . . . . . . . . . . . . . . . . . . 110
5.15 DS Lease "Put" Obligations and
Shared Facilities . . . . . . . . . . . . . . . . . . . . . . . . 111
5.16 Title and Survey Matters . . . . . . . . . . . . . . . . . . . . . 111
5.17 Other Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . 112
ARTICLE VI DS EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
6.1 U.S. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . 116
6.2 Buyer's Obligations . . . . . . . . . . . . . . . . . . . . . . . . 119
6.3 U.S. Defined Benefit Pension Plans . . . . . . . . . . . . . . . . 121
6.4 U.S. Defined Contribution Plans . . . . . . . . . . . . . . . . . . 133
6.5 U.S. Nonqualified Retirement
Plans and Welfare Plans . . . . . . . . . . . . . . . . . . . . . 136
6.6 Canadian Employee Benefit Plans . . . . . . . . . . . . . . . . . . 139
6.7 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . 144
ARTICLE VII TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
7.1 Tax Returns of the DS Business . . . . . . . . . . . . . . . . . . 144
7.2 Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
7.3 Tax Obligations of Seller . . . . . . . . . . . . . . . . . . . . . 145
7.4 Tax Obligations of Buyer . . . . . . . . . . . . . . . . . . . . . 146
7.5 Allocation of Certain Taxes . . . . . . . . . . . . . . . . . . . . 146
7.6 Refunds and Credits . . . . . . . . . . . . . . . . . . . . . . . . 149
7.7 Gains Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
7.8 Section 338 Election . . . . . . . . . . . . . . . . . . . . . . . 150
7.9 Cooperation and Exchange of
Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
7.10 Tax Contests . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
7.11 Tax Sharing Agreements . . . . . . . . . . . . . . . . . . . . . . 156
7.12 Buyers' Option to Acquire
Canadian Cash Balances . . . . . . . . . . . . . . . . . . . . . 156
ARTICLE VIII CONDITIONS OF BUYER'S OBLIGATION
TO CLOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
8.1 Representations, Warranties and
Covenants of Seller . . . . . . . . . . . . . . . . . . . . . . . 158
8.2 Filings; Consents; Waiting Periods . . . . . . . . . . . . . . . . 159
8.3 No Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
8.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . 159
8.5 Material DS Leases . . . . . . . . . . . . . . . . . . . . . . . . 161
ARTICLE IX CONDITIONS TO SELLER'S OBLIGATION
TO CLOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
9.1 Representations, Warranties and
Covenants of Buyer . . . . . . . . . . . . . . . . . . . . . . . 162
9.2 Filings; Consents; Waiting Periods . . . . . . . . . . . . . . . . 162
9.3 No Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
9.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . 163
ARTICLE X TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
10.2 Option to Close . . . . . . . . . . . . . . . . . . . . . . . . . . 165
10.3 Procedure and Effect of Termination . . . . . . . . . . . . . . . . 166
ARTICLE XI SURVIVAL; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . 167
11.1 Survival of Representations, Warranties,
Covenants and Agreements . . . . . . . . . . . . . . . . . . . . 167
11.2 Seller's Indemnification Obligations . . . . . . . . . . . . . . . 169
11.3 Buyer's Indemnification Obligations . . . . . . . . . . . . . . . . 169
11.4 Procedures for Indemnification Claims . . . . . . . . . . . . . . . 170
11.5 No Consequential Damages for Seller
Indemnified Parties or Buyer
Indemnified Parties; Indemnification
Limits; Exclusive Remedy . . . . . . . . . . . . . . . . . . . . 174
11.6 Treatment of Indemnification Payments . . . . . . . . . . . . . . . 176
ARTICLE XII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
12.1 Corporate Name . . . . . . . . . . . . . . . . . . . . . . . . . . 176
12.2 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
12.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
12.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 178
12.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
12.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
12.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 180
12.8 Headings; Definitions . . . . . . . . . . . . . . . . . . . . . . . 181
12.9 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . 181
12.10 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . 182
12.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
</TABLE>
-iii-
<PAGE> 5
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of
March 20, 1995, as amended is by and between Unisys Corporation, a Delaware
corporation ("Seller"), and Loral Corporation, a New York corporation ("Buyer").
WHEREAS, Buyer wishes to purchase from Seller, and Seller
desires to sell to Buyer, the DS Assets (as hereinafter defined) owned by Seller
upon the terms and conditions set forth herein;
NOW, THEREFORE, the parties hereto, intending to be legally
bound, agree as follows:
1.
ARTICLE I
Certain Definitions
Section 1.1. As used in this Agreement the following terms
shall have the following respective meanings:
"Action" shall mean any pending, threatened or future action,
suit, arbitration, inquiry, proceeding or investigation by or before any court,
arbitrator, governmental or other regulatory or administrative agency or
commission, whether civil, criminal or other, and whether known or unknown,
fixed or contingent, or matured or unmatured at the Closing Date or at any time
theretofore or thereafter.
"Adjusted Cash Consideration" shall mean the aggregate cash
consideration to be paid by Buyer pursuant hereto, after
<PAGE> 6
adjusting the Closing Cash Consideration to give effect to any adjustment
pursuant to Sections 2.6, 7.4 or 7.12.
"Affiliate" shall mean any natural person, and any corporation,
partnership or other entity, that directly, or indirectly through one or more
intermediaries, controls or is controlled by or under common control with the
party specified.
"Aggrieved Party" shall have the meaning set forth in Section
11.4(a).
"Agreement" shall have the meaning set forth in the first
paragraph hereof.
"Allocation Agreement" shall have the meaning set forth in
Section 7.2.
"Anti-Assignment Laws" shall mean 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.
"Antitrust Laws" shall mean the Sherman Act, as amended, the
Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as
amended, the Competition Act and all other federal, state and foreign (including
European Union) statutes, rules, regulations, orders, decrees, administrative
and judicial doctrines, and other laws that are designed or intended to
prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade.
"Approval Matrix" shall mean the approval matrix used in the DS
Business and included in Schedule 1.1(e) hereto.
"Arbitrator" shall have the meaning set forth in Section
2.6(c).
<PAGE> 7
"Assigned Patents" shall mean all of Seller's rights, title and
interest in and to, subject to rights held by the U.S. Government and other
third parties that have been licensed by Seller prior to the Closing Date and
subject to the rights retained by Seller pursuant to Section 5.8(k), the patents
and patent applications which claim or describe inventions which were primarily
developed by the DS Business and not used by Seller, other than in the DS
Business, including those listed in Schedule 2.4(d) hereto, subject to Section
5.8(f) hereof, but excluding all patents and patent applications developed at
the Sudbury Development Center.
"Assigned Programs" shall mean all of Seller's rights, title
and interest in and to, subject to rights held by the U.S. Government and other
third parties that have been licensed by Seller prior to the Closing Date and
subject to the rights retained by Seller pursuant to Section 5.8(k), the
copyrighted computer software and related documentation which are listed in
Schedule 2.4(d) hereto, and other programming code and other related materials
(whether or not copyrighted) that were primarily developed by the DS Business
and not used by Seller, other than in the DS Business.
"Assigned Trademarks" shall have the meaning set forth in
Section 5.8(d).
"Base Adjusted Net Assets" shall have the meaning set forth in
Section 2.6(d)(i).
"Bid" shall have the meaning set forth in Section 3.12.
<PAGE> 8
"Bureau of Competition Policy" shall mean the Bureau of
Competition Policy, Consumer and Corporate Affairs Canada.
"Buyer" shall have the meaning set forth in the first paragraph
hereof.
"Buyer DC Plan" shall have the meaning set forth in Section
6.4(ii).
"Buyer Improvement Patent" shall mean a patent obtained by
Buyer, the practice of which requires (i) any of the patent license rights that
are granted to Buyer pursuant to Section 5.8(a), (ii) ownership rights in or to
any other Buyer Improvement Patent or (iii) a license under any Seller
Improvement Patent.
"Buyer Indemnified Parties" shall have the meaning set forth in
Section 11.2.
"Buyer's Accountant" shall have the meaning set forth in
Section 2.6(c).
"Buyer's Canadian Benefit Plans" shall have the meaning set
forth in Section 6.6(c).
"Buyer's Pension Plans" shall have the meaning set forth in
Section 6.3(b).
"Canadian Cash Balance" shall mean the Cash balance held by
each Canadian Subsidiary on the Closing Date.
"Canadian Employees" shall have the meaning set forth in
Section 6.6(a).
"Canadian Retirement Plans" shall have the meaning set forth in
Section 6.6(b).
<PAGE> 9
"Canadian Subsidiaries" shall have the meaning set forth in
Section 6.6(b).
"Canadian Welfare Plans" shall have the meaning set forth in
Section 6.6(c).
"Cash" shall mean cash, money market instruments, bank
accounts, bank deposits, certificates of deposit, lock box receipts, other cash
equivalents, marketable securities and other investment securities.
"Classified Contract" shall mean a DS Contract which involves
government classified programs subject to special national security
restrictions.
"Closing" shall mean the consummation of the transactions
contemplated by Section 2.1.
"Closing Adjusted Net Assets" shall have the meaning set forth
in Section 2.6(d)(ii).
"Closing Audit Payment Date" shall have the meaning set forth
in Section 2.6(d)(iii).
"Closing Cash Consideration" shall have the meaning set forth
in Section 2.5(a).
"Closing Date" shall mean the third business day after the date
on which the conditions set forth in Articles VIII and IX shall be satisfied or
duly waived, or if Seller and Buyer mutually agree on a different date, the date
upon which they have mutually agreed.
"Closing Statement of Adjusted Net Assets" shall have
<PAGE> 10
the meaning set forth in Section 2.6(b).
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor thereto.
"Competition Act" means the Competition Act (Canada).
"Confidential Offering Memorandum" shall have the meaning set
forth in Section 3.16.
"Confidentiality Agreement" shall mean the letter agreement
dated December 22, 1994 between Buyer and Bear, Stearns & Co. Inc. on behalf of
Seller.
"Covered Liabilities" shall mean any and all debts, losses,
claims, damages, costs, demands, fines, judgments, contracts (implied and
expressed, written and unwritten), penalties, obligations, payments, liabilities
of every type and nature (whether civil, criminal or other, and whether known or
unknown, fixed or contingent, matured or unmatured) (including, without
limitation, those arising out of any Action), together with any reasonable costs
and expenses (including, without limitation, reasonable attorneys' fees and
out-of-pocket expenses) incurred in connection with any of the foregoing
(including, without limitation, reasonable costs and expenses incurred in
investigating, preparing or defending any Action).
"Covered Members" shall have the meaning set forth in Section
6.6(a).
"Damages" shall mean any and all debts, losses, claims,
damages, costs, demands, fines, judgments, penalties, obligations, payments,
liabilities of every type and nature (whether civil, criminal or other, and
whether known or unknown,
<PAGE> 11
fixed or contingent, matured or unmatured) (including, without limitation, those
arising out of any Action) including any reasonable costs and expenses
(including, without limitation, reasonable attorneys' fees and out-of-pocket
expenses) incurred in connection with any of the foregoing (including, without
limitation, reasonable costs and expenses incurred in investigating, preparing
or defending any Action), and interest on cash disbursements in respect thereof
at the Prime Rate, compounded quarterly, from the date such cash disbursement is
made until the person claiming the same shall have been indemnified in respect
thereof, net of tax benefits appropriately determined.
"Defined Industrial Fields" shall have the meaning set forth in
Section 5.8(a).
"Disputes" shall have the meaning set forth in Section 2.6(c).
"Draft Closing Statement of Adjusted Net Assets" shall have the
meaning set forth in Section 2.6(b).
"DS Assets" shall mean the following assets, provided,
however, that the DS Assets shall not include any of the Excluded
Assets:
(a) all of the property and assets reflected in the DS December
1994 Statement, including, without limitation, the inventories, plants,
machinery, equipment, tools, supplies, spare parts, furniture,
fixtures, leasehold improvements, accounts and notes receivable and
prepaid expenses (and including all items which would be included on
<PAGE> 12
the DS December 1994 Statement except for the fact that such items are
fully depreciated or expensed, and all of the tangible and intangible
assets of Seller used primarily in the DS Business), plus all items of
a nature used primarily in the DS Business which are acquired in the
ordinary course of business by the DS Business between January 1, 1995
and the Closing Date, less any items which are disposed of, consumed by
or otherwise reduced or eliminated in the ordinary course of business
of the DS Business between January 1, 1995 and the Closing Date;
(b) the DS Contracts, the Government Bids and Bids (subject to
the provisions of Sections 2.7 and 5.14);
(c) the Assigned Patents, Assigned Programs and Assigned
Trademarks;
(d) the DS Books and Records;
(e) the DS Leases;
(f) the Owned Real Property;
(g) all of the outstanding capital stock of the DS
Direct Subsidiaries; and
(h) the Total Transferred Pension Assets.
"DS Books and Records" shall mean originals or copies of all
books and records of Seller relating to the operations of the DS Business,
including, without limitation, books and records relating to DS Employees, the
purchase of materials, supplies and services, research and development,
manufacture and sale of products and services and dealings with customers of the
DS Business, Owned Real Property and Leased Real Property
<PAGE> 13
including all other records of Seller utilized in the DS Business, and including
that portion of Tax Returns, reports, information, schedules and workpapers
relating solely to the DS Subsidiaries and, in sufficient detail to enable Buyer
to perform customary due diligence, information, schedules and workpapers
relating to the DS Business not conducted through DS Subsidiaries and details of
ongoing audits and proceedings disclosed in Schedule 3.7, including the effect
of such audits or proceedings on future taxable periods; provided,
however, that DS Books and Records shall not include any information
that does not relate to the DS Business and Seller shall be entitled to remove
or redact any such information in the DS Books and Records. Prior to the
Closing, Seller and Buyer will cooperate in good faith to identify all materials
that would be DS Books and Records but for the proviso set forth in the
preceding sentence.
"DS Business" shall mean the business conducted by Seller in
the fields of (i) United States and foreign government defense and intelligence
activities, (ii) United States and foreign air traffic control, (iii) the United
States Postal Service and other domestic or foreign physical mail and package
delivery systems (such as Federal Express), (iv) weather, environmental and
agricultural measurement devices, (v) radar systems, (vi) high-end physical
security of the type currently engaged in by the DS Business and (vii) DOD
transportation command and control business, as reflected in the DS Financial
Statements relating to 1994, but which business excludes the Excluded Assets and
the Excluded Liabilities.
<PAGE> 14
"DS Canadian Employee Benefit Plans" shall have the meaning set
forth in Section 6.6(a).
"DS Contracts" shall mean (i) all existing contracts,
agreements and commitments of Seller relating (as to Seller) primarily to the DS
Business (including without limitation all Government Contracts), (ii) the
interdivisional work orders or similar arrangements including without limitation
those listed on Schedule 3.12 in which the DS Business operates as supplier to,
or purchaser from, the other business units of Seller, (iii) the existing
contracts, agreements and commitments of Seller not relating primarily to the DS
Business and listed on Schedule 3.12 and (iv) all contracts, agreements and
commitments of Seller relating primarily to the DS Business which are (A)
entered into between the date of this Agreement and the Closing Date and (B)
permitted by this Agreement; provided, however, that the DS
Contracts shall exclude the Excluded Contracts.
"DS December 1994 Statement" shall mean the audited balance
sheet of the DS Business as of December 31, 1994, contained in Schedule 3.4
hereto.
"DS Direct Subsidiaries" shall mean the subsidiaries of Seller
listed as such on Schedule 3.1(b).
"DS Employee Benefit Plans" shall have the meaning set forth in
Section 6.1(a).
"DS Employees" shall mean all active full-time employees of
Seller and its subsidiaries immediately prior to the Closing Date (including (a)
those on approved leave of absence, but only to the extent they have
reemployment rights guaranteed under federal or state law or under any
applicable collective bargaining agreement, or under any Seller leave of absence
<PAGE> 15
policy and (b) those on short-term disability under Seller's short-term
disability program) whose duties relate primarily to the DS Business regardless
of the company payroll on which such individuals are listed, but excluding: (i)
former employees, (ii) retired employees, (iii) employees previously determined
to be totally or permanently disabled pursuant to any disability plan or policy
of Seller or its subsidiaries or workers' compensation laws and (iv) each
individual listed on Schedule 1.1(a).
"DS Financial Statements" shall mean the audited financial
statements of the DS Business for the years ended December 31, 1993 and 1994,
complete and correct copies of which are set forth in Schedule 3.4 hereto.
"DS Indirect Subsidiaries" shall mean the subsidiaries of
Seller listed as such on Schedule 3.1(b).
"DS Leases" shall mean those leases, subleases and occupancy
agreements of real properties by Seller relating principally to the DS Business
(whether entered into as lessor, lessee, sublessor or sublessee) together with
any modifications, amendments, extensions and renewals of the same, which are
designated as "DS Leases" on Schedule 3.5.
"DS Liabilities" shall mean the following liabilities,
provided, however, that the DS Liabilities shall not include any
of the Excluded Liabilities:
(a) all of the obligations and liabilities accrued or reserved
against in the DS December 1994 Statement to the extent not satisfied
or discharged at or prior to the
<PAGE> 16
Closing Date;
(b) all of the obligations and liabilities of Seller or any of
its subsidiaries relating primarily to the DS Business (provided, that
the only liabilities not exclusively related to the DS Business that
will be DS Liabilities are the portion of such liabilities fairly
allocable to the DS Business) of the type customarily accrued, reserved
against or reflected in the accounts of the DS Business, arising
between December 31, 1994 and the Closing Date which are not satisfied
or discharged at or prior to the Closing Date, including, without
limitation, liabilities for checks issued but not yet presented for
payment;
(c) to the extent provided in Article VII, all obligations and
liabilities of Seller or any of its subsidiaries for Taxes arising out
of or relating to the DS Business or any of the DS Assets;
(d) all obligations and liabilities of Seller or any of its
subsidiaries with respect to Transferred DS Employees under the labor
contracts listed on Schedule 3.9 in respect of all such employees;
(e) all obligations and liabilities of Seller or any of its
subsidiaries described in Section 5.7, and all obligations and
liabilities of Seller or any of its subsidiaries or of any related
employee benefit plan or trust which are to be assumed by Buyer or a
related employee benefit plan or trust as described in Article VI;
(f) all obligations and liabilities of Seller or any
<PAGE> 17
of its subsidiaries for environmental matters for which Buyer assumes
the responsibility under Section 5.10;
(g) every other Covered Liability of Seller or any of its
subsidiaries, absolute or contingent, whether or not reflected on the
DS December 1994 Statement, arising primarily out of or relating
primarily to the DS Business or any of the assets, operations or
activities of the DS Business or relating exclusively thereto, as
heretofore, currently or hereafter conducted (including any predecessor
of Seller or any of its subsidiaries), regardless of by whom such
liability is asserted, whether arising prior to, at or after the
Closing Date and whether or not known, suspected, asserted or claimed
at the Closing Date or at any time theretofore or thereafter,
including, without limitation, any Covered Liability based on
negligence, gross negligence, strict liability or any other theory of
civil, criminal or other liability, whether in law (common or
statutory) or equity, and any other activity undertaken by the DS
Business or relating thereto (provided, that the only liabilities not
exclusively related to the DS Business that will be DS Liabilities are
the portion of such liabilities fairly allocable to the DS Business);
(h) any indemnification in favor of present or former employees
or officers of Seller whose duties related to the DS Business or agents
of Seller in respect of activities relating to the DS Business, which
indemnification is
<PAGE> 18
provided by Seller or any other payment or liability to any person
(including, without limitation, any Seller Indemnified Party) arising
primarily out of and relating primarily to the DS Business as presently
conducted or the matters referred to in the foregoing clauses (a)
through (g) or any Action related thereto (provided, that the only such
liabilities not exclusively related to the DS Business that will be DS
Liabilities are the portion of such liabilities fairly allocable to the
DS Business);
(i) Any claims that may be asserted by the Canadian government
procurement authorities following the Closing arising out of or
relating to amounts charged to the Canadian government on account of
contributions made to the Unisys Canada, Inc. Pension Plan by, or on
behalf of, the Canadian Subsidiaries for the period 1989-1993, and to
the retention by the Canadian Subsidiaries of such contributions (and
interest) after such contributions were returned to the Canadian
Subsidiaries; and
(j) every other obligation or liability stated in this
Agreement to be a DS Liability.
"DS Plan Participants" shall have the meaning set forth in
Section 6.1(a).
"DS Subsidiaries" shall mean the DS Direct Subsidiaries and the
DS Indirect Subsidiaries.
"Effective Canadian Withholding Tax Rate" shall mean a rate
equal to the Canadian withholding Tax that would have applied on the Closing
Date to the distribution had each Canadian Subsidiary distributed the entire
amount of its Canadian Cash Balance, directly or indirectly, to Seller on such
date.
<PAGE> 19
"Environmental Claim" and "Environmental Laws" shall have the
respective meanings set forth in Section 3.13.
"Environmental Reports" shall have the meaning set forth in
Section 3.13(e).
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and any successor thereto.
"Evaluation Materials" shall have the meaning set forth in the
Confidentiality Agreement.
"Excluded Assets" shall mean:
(a) all Cash owned or held by Seller or any of its Affiliates,
including, without limitation, all assets relating to the trusts
qualified under Section 501(c)(9) of the Code set forth on Schedule
6.5(a);
(b) all rights and claims of Seller or any of its Affiliates,
whether now existing or arising hereafter, for refunds and prepayments
of Taxes to the extent set forth in Article VII;
(c) all insurance policies or binders owned or held by Seller
or any of its Affiliates, together with all prepaid premiums thereon,
refunds or adjustments thereunder; provided that insurance
proceeds received by Seller in respect of DS Liabilities are to be paid
to Buyer except as provided in Section 5.10;
(d) all rights and claims of Seller relating to the Excluded
Contracts (subject to the provisions of Section
<PAGE> 20
5.14);
(e) all of the Intellectual Property Rights licensed to Buyer
pursuant to Section 5.8(a);
(f) prepaid pension assets other than the Total Transferred
Pension Assets;
(g) deferred tax assets, other than deferred tax assets of the
DS Subsidiaries;
(h) prepaid expenses relating to Seller's "Ill Wind" settlement
agreement;
(i) all patents and applications listed on Schedule 5.8(f);
(j) notwithstanding their inclusion on Schedule 3.5, two
unutilized Canadian leasehold interests at 2000 Saulteaux Crescent,
Winnipeg, Canada and 100 Alexis Hilton Boulevard, St. Laurent, Canada;
and
(k) the hold back pursuant to the Morgan Agreement.
"Excluded Contracts" shall mean the contracts, bids and work
orders or similar arrangements identified on Schedule 1.1(b) (subject to the
provisions of Section 5.14).
"Excluded Liabilities" shall mean:
(a) all obligations and liabilities of Seller or any of its
Affiliates for Taxes to the extent provided in Article VII;
(b) all obligations and liabilities of Seller or any
<PAGE> 21
of its subsidiaries for borrowed money or in respect of any other
long-term indebtedness including without limitation indebtedness under
any bank lines of credit or bank credit agreements, including, without
limitation, the allocated portion of Seller's debt;
(c) all obligations and liabilities of Seller or any of its
subsidiaries which are expressly retained by them pursuant to this
Agreement or the Transitional Services Agreement;
(d) all obligations and liabilities of Seller under the
Excluded Contracts;
(e) all obligations and liabilities and any interest thereon
relating to Seller's "Ill Wind" settlement agreement;
(f) postretirement medical and life benefits for all employees
of the DS Business who are retired as of the Closing Date and their
respective dependents;
(g) all obligations and liabilities of Seller, including all
IBNR Liabilities of Seller, in respect of claims arising out of or
relating to the DS Business occurring prior to the Closing Date under
the United States and Canadian workers compensation policies maintained
by Seller or any similar policies or programs, including without
limitation occupational health and safety, maintained by the Canadian
Subsidiaries under the laws of Canada and its provinces;
<PAGE> 22
(h) deferred income tax liabilities, other than deferred income
tax liabilities of the DS Subsidiaries;
(i) estimated income tax liabilities;
(j) payables to Seller or any of its Affiliates;
(k) all Covered Liabilities relating to liabilities under
unutilized Canadian Leases referenced in clause (j) of the definition
of Excluded Assets;
(l) the environmental liabilities retained by Seller pursuant
to Section 5.10(d) of this Agreement;
(m) all Covered Liabilities of Seller and subsidiaries
relating to lines of business discontinued prior to the Closing Date;
and all liabilities under federal and state securities laws, laws
related to bankruptcy, insolvency or reorganizations, stockholder suits
arising under applicable state corporate law;
(n) except as otherwise provided in Article VI and Sections
5.17(f) and (g), all Covered Liabilities of Seller, the Canadian
Subsidiaries and their Affiliates arising under or relating to (i) any
employee other than the Transferred DS Employees and (ii) any of the
plans, contracts and arrangements set forth on Schedule 6.1(a) and
Schedule 6.6(a), regardless of by whom such liability is asserted,
whether arising prior to, at or after the Closing Date and whether or
not known, suspected, asserted or claimed as of the Closing Date or at
any time thereto-
<PAGE> 23
fore or thereafter; and
(o) the Reimbursed Canadian Termination Payment.
"E&Y" shall mean Ernst & Young LLP.
"Facilities Sharing Agreement" shall mean an agreement between
Buyer and Seller to continue the sharing of certain facilities currently shared
by the DS Business and other businesses of Seller on commercially reasonable
terms and conditions to be agreed on prior to Closing, which shall be based upon
the standards set forth in Schedule 3.5, unless Buyer is materially prejudiced
thereby.
"Filing Date" shall have the meaning set forth in Section 7.2.
"Frozen Accounts" shall have the meaning set forth in
Section 6.4(iii).
"Government Bid" shall mean any written quotation, bid or
proposal relating primarily to the DS Business made by Seller that if accepted
or awarded would lead to a contract with (i) the U.S. Government or any state,
local or foreign government, or (ii) any prime contractor or higher-tier
subcontractor under any contract described in clause (i) above, including,
without limitation, those listed on Schedule 1.1(c).
"Government Contract" means any prime contract, subcontract,
basic ordering agreement, letter contract,
<PAGE> 24
purchase order or delivery order, including all amendments,
modifications and options thereunder relating primarily to the DS
Business between Seller and (i) the U.S. Government or any state, local
or foreign government, or (ii) any prime contractor or higher-tier
subcontractor, under any contract described in clause (i) above
including, without limitation, those listed on Schedule 1.1(d).
"Guaranties" shall have the meaning set forth in Section
5.7(a).
"Hazardous Waste" shall have the meaning set forth in Section
3.13(a)(iii).
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"IBNR Liabilities" means liabilities and claims covered by
insurance policies maintained by Seller (including self-insurance
programs), regardless of any applicable deductibles which are incurred
prior to the Closing Date.
"Income Taxes" shall have the meaning set forth in Section
7.5(b).
"Indemnifying Party" shall have the meaning set forth in
Section 11.4(a).
"Intellectual Property Rights" means inventions (whether
patented or not), copyrights, know-how, trade secrets, and mask works
owned by, or licensable (without the payment of additional
consideration by Seller) to third
<PAGE> 25
parties by, Seller, and which are used in products manufactured or
under development, or services provided or under development, by the DS
Business as of the Closing Date.
"Investment Canada Approval" shall mean that the
Minister designated for purposes of the Investment Canada Act is
satisfied, or is deemed to be satisfied, that the indirect purchase of
all of the outstanding common shares of Unisys GSG Canada Holdings Inc.
by Buyer under this Agreement is likely to be of net benefit to Canada
for purposes of the Investment Canada Act or that the Director of
Investments for purposes of the Investment Canada Act has determined
that the transactions contemplated in this Agreement are not reviewable
pursuant to the Investment Canada Act.
"Leased Real Property" shall mean any real property
leased by Seller pursuant to a DS Lease.
"Lien" shall mean, with respect to any asset, any
mortgage, deed of trust, lien, pledge, encumbrance, lease, sublease,
license, occupancy agreement, easement, right-of-way, adverse claim or
interest covenant, encroachment, burden, title defect, option,
restriction or limitation of any nature whatsoever, and any charge or
security interest in or on such asset, or the interest of a vendor or a
lessor under any conditional sale agreement, capital lease or title
retention agreement relating to such asset.
"Litigation Matters" shall have the meaning set forth
in Section 5.11(a).
<PAGE> 26
"Material Adverse Effect" shall mean a material
adverse effect on the business, assets or financial condition of the DS
Business, taken as a whole; provided that any adverse financial impact
on the DS Business as a whole of more than $10 million shall be deemed
to constitute a Material Adverse Effect, except with respect to
Section 8.1 where such amount shall be $50 million.
"Material Contracts" shall mean the DS Contracts
listed on Schedule 3.12.
"Material DS Leases" shall mean the real property
leases for the facilities at Salt Lake City, Utah, Reston, Virginia and
Paoli, Pennsylvania.
"Material Leased Property" shall mean any real
property leased by Seller pursuant to a Material DS Lease.
"Morgan Agreement" shall mean the Amended and Restated
Receivables Purchase and Acceptance Facility Agreement between Seller
and J.P. Morgan Delaware dated as of March 1, 1993, as amended.
"Names" shall have the meaning set forth in Section
12.1.
"Net Canadian Cash Balance" shall mean 90% of the
excess of the aggregate amount of all Canadian Cash Balances
(translated into U.S. dollars at exchange rates in effect on the
Closing Date) over Cnd$3,006,388 (translated into U.S. dollars at
exchange rates in effect on the Closing Date).
"Neutral Auditors" shall mean either (i) a firm of
nationally recognized independent public accountants selected by Seller
and Buyer or (ii) if Seller and Buyer
<PAGE> 27
are unable to agree on such a firm, a firm of nationally recognized
independent public accountants which (x) shall not have had a material
relationship with Seller, Buyer or any of their respective Affiliates
within the preceding two years, and (y) shall be appointed by the
American Arbitration Association upon request of either Buyer or
Seller.
"Owned Real Property" shall mean all of the real
property, improvements thereon and rights related thereto owned by
Seller or its Affiliates and designated as "Owned Real Property" on
Schedule 3.5.
"Permitted Exceptions" means (i) Liens for Taxes or
governmental assessments, charges or claims the payment of which is not
yet due, or for Taxes the validity of which is being contested in good
faith by appropriate proceedings; (ii) statutory liens of landlords and
liens of carriers, warehousemen, mechanics, materialmen and other
similar persons and other liens imposed by applicable law incurred in
the ordinary course of business for sums not yet delinquent or being
contested in good faith; (iii) Liens relating to deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (iv) Liens
encumbering the Owned Real Property
<PAGE> 28
or Leased Real Property, whether or not of record and Liens which are
disclosed in any preliminary title report or title opinion (or in any
update of the same as of the Closing Date) or which a current accurate
survey of the Owned Real Property or Leased Real Property would reveal;
provided that such Liens do not materially interfere with or materially
impair the current use of the Owned Real Property or Leased Real
Property to the extent resulting in a Material Adverse Effect; (v) all
DS Leases and DS Contracts; (vi) with respect to any asset which
consists of a leasehold estate or possessory interest in real property,
all Liens and other title matters (whether or not the same are
recorded) to which the underlying fee estate in such real property is
subject; (vii) Liens on any DS Assets in favor of the U.S. or Canadian
Governments, but only to the extent such Liens secure DS Liabilities
arising out of or directly relating to Government Contracts; (viii)
Liens securing the executory obligations of the Seller or any of its
subsidiaries under any Lease that constitutes an "operating lease"
under GAAP; (ix) security interests granted in the ordinary course of
business to the lessors of leased equipment in respect of such leased
equipment; and (x) the rights and interests of Buyer or any Affiliate
of Buyer as provided in this Agreement or any agreement entered into
pursuant to this Agreement. Notwithstanding the foregoing, no Excluded
Liability or Lien arising under the Code or ERISA with respect to the
operation, termination, restoration or funding of any employee benefit
plan or arrangement sponsored by, maintained by or contributed to by
Seller or any member of the ERISA Group or arising in connection with
any excise tax or penalty tax with respect to such plan or arrangement
shall be a Permitted Exception.
"Prime Rate" shall mean the publicly announced prime
commercial lending rate of Morgan Guaranty Trust Company of New York
("Morgan") in effect from time to time,
<PAGE> 29
as computed by Morgan.
"Privileged Information" shall have the meaning set
forth in Section 5.11(a).
"RCRA" shall have the meaning set forth in Section
3.13(a)(iii).
"Reimbursed Canadian Termination Payment" means the
amount due to suppliers other than the promissory notes (aggregating
Cnd$4 million principal amount) payable to Augusta SpA and Westland
Helicopters in respect of the termination of the Canadian helicopter
program.
"Remaining Canadian Termination Claims" means the
obligations of Seller or any of its Affiliates to Litton Systems Canada
or its affiliates and EH Industries Limited arising out of the
termination of the Canadian helicopter program.
"Required Consents" shall mean, collectively, (i) each
consent or novation with respect to any DS Contract required to be
obtained from the other party or parties thereto by virtue of the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby in order to avoid the invalidity of
the transfer of such DS Contract, the termination thereof, a breach or
default thereunder or any other change or modification to the terms
thereof and (ii) each registration, filing, application, notice,
transfer, consent, approval, order, qualification and waiver required
under applicable law to be obtained by virtue of the
<PAGE> 30
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
"Review" shall have the meaning set forth in Section
2.6(c).
"Satellite Field" shall mean the industrial field
consisting of low earth orbit satellites and related ground equipment.
"Section 1060 Statements and Forms" means a statement
described in Treasury Regulation Section 1.1060-1T(h) and any
corresponding provision of any Tax Law with respect to Buyer's
acquisition of the DS Business and all returns, documents, statements
and other forms that are required to be submitted in accordance with
applicable Tax Laws in connection therewith, including, without
limitation, U.S. Internal Revenue Form 8594 (together with any
schedules or attachments thereto).
"Seller" shall have the meaning set forth in the first
paragraph hereof.
"Seller Improvement Patent" shall mean a patent
obtained by Seller, the practice of which requires (i) any of the
patent license rights that are reserved by Seller pursuant to Section
5.8(k), (ii) ownership rights in or to any other Seller Improvement
Patent or (iii) a license under any Buyer Improvement Patent.
"Seller Indemnified Parties" shall have the meaning
set forth in Section 11.3.
"Seller Proprietary Information" shall have the
meaning set forth in Section 5.1(e).
<PAGE> 31
"Seller's Pension Plans" shall have the meaning set
forth in Section 6.3(a).
"Seller's Savings Plans" shall have the meaning set
forth in Section 6.4(i).
"Spread Spectrum Technology" shall mean Intellectual
Property Rights relating to spread spectrum technology.
"Straddle Period" shall have the meaning set forth in
Section 7.5(b).
"Survey" shall have the meaning set forth in Section
5.16(b).
"Surviving Covenants" shall have the meaning set forth
in Section 11.1(c).
"Surviving Representations" shall have the meaning set
forth in Section 11.1(c).
"Target Transfer Amount" shall have the meaning set
forth in Section 6.3(c)(iv).
"Tax Claim" shall have the meaning set forth in
Section 7.10.
"Tax Laws" shall mean the Code, the Income Tax Act
(Canada), as amended, federal, state, local or foreign laws relating to
Taxes and any regulations or official administrative pronouncements
released thereunder.
"Tax Return" shall mean any report, return or
<PAGE> 32
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 DS
Business.
"Taxes" shall mean (a) all taxes (whether federal,
state, local or foreign) based upon or measured by income and any other
tax whatsoever, including, without limitation, gross receipts, profits,
sales, use, occupation, capital, value added, ad valorem, transfer,
franchise, withholding, payroll, employment, excise, or property taxes
or customs duties, together with any interest or penalties imposed with
respect thereto and (b) any obligations under any agreements or
arrangements with respect to any Taxes described in clause (a) above.
"Three Year Plan" means the three-year plan for the DS
Business heretofore delivered by Seller to Buyer.
"Title Commitment" shall have the meaning set forth in
Section 5.16(a).
"Title Company" shall have the meaning set forth in
Section 5.16(a).
"Total Transferred Pension Assets" shall have the
meaning set forth in Section 6.3(c)(iv).
"Transferred DS Employees" shall have the meaning
set forth in Section 6.2.
"Transitional Services Agreement" shall mean a
Transitional Services Agreement to be entered into between Buyer and
Seller promptly after the Closing, the terms of which shall be
negotiated in good faith between the parties hereto and shall provide
for the provision by Seller or
<PAGE> 33
Buyer for a period to end no later than March 31, 1998 of services
provided by Seller or Buyer (other than general corporate overhead
services) in connection with DS Contracts, Government Bids and Bids at
the rates and on the same terms and conditions as have been reflected
in such DS Contracts, Government Bids and Bids (or, in the case of
services provided to Seller, in connection with comparable commitments
by Seller or any of its Affiliates) plus a service charge of $125,000
per month payable monthly for the first eighteen months after the
Closing.
"U.S. Transferred DS Employees" shall have the meaning
set forth in Section 6.3.
"VLSI" shall have the meaning set forth in Section
5.12.
2.
ARTICLE II
Closing; Purchase and Sale
Section 2.1. Time and Place of Closing. The Closing shall take
place on the Closing Date at 9:00 A.M., New York City time, on May 5, 1995 at
the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York,
New York 10019 and shall be effective as of the opening of business, New York
City time, on the Closing Date.
Section 2.2. Purchase and Sale of the DS Assets and Assumption
of DS Liabilities. Subject to the satisfaction or waiver of all of the
conditions set forth herein, on the Closing Date Seller will, as hereinafter
provided, sell, convey, assign,
<PAGE> 34
transfer and deliver all of Seller's right, title and interest at the Closing
Date in and to the DS Assets, and Buyer will purchase, acquire, accept and pay
for, as hereinafter provided, all the DS Assets and will assume all the DS
Liabilities without exception.
Section 2.3. Consideration for the DS Assets. The
aggregate consideration for the DS Assets shall consist of (i) the Adjusted Cash
Consideration and (ii) the assumption by Buyer of, and indemnification by Buyer
with respect to, the DS Liabilities, all pursuant to this Agreement.
Section 2.4. Deliveries by Seller. At the Closing, Seller shall
deliver the following to Buyer, each in form and substance reasonably
satisfactory to Buyer:
(a) a duly executed bill of sale transferring to Buyer all of
the personal property owned or held by Seller as of the Closing Date
which is included in the DS Assets and not covered by the other
provisions of this Section 2.4;
(b) duly executed instruments of assignment or sublease of the
DS Leases to which Seller is a party, in recordable form, together with
the consent of the lessor or sublessor thereto, if obtained;
(c) duly executed instruments of assignment by Seller of the DS
Contracts to which Seller is a party (other than Government Contracts
for which novation agreements are required), subject to Section 2.7;
(d) duly executed instruments of assignment or transfer of the
Assigned Patents, the Assigned Programs and
<PAGE> 35
the Assigned Trademarks;
(e) a certificate dated the Closing Date and validly executed
on behalf of Seller to the effect that the condition set forth in
Section 8.1 has been satisfied;
(f) evidence or copies of any consents, approvals, orders,
qualifications or waivers required pursuant to Section 9.2;
(g) a copy of the resolutions of the board of directors of
Seller authorizing the execution, delivery and performance of this
Agreement by Seller, and certificates of the Secretary or Assistant
Secretary of Seller, dated as of the Closing Date, that such
resolutions were duly adopted and are in full force and effect; and
(h) stock certificates representing all of the outstanding
shares of capital stock of each of the DS Direct Subsidiaries together
with required consents to transfer and duly endorsed in blank for
transfer or accompanied by appropriate stock powers duly executed in
blank; and
(i) the opinion of counsel referred to in Section 8.4.
Section 2.5. Deliveries by Buyer. At the Closing, Buyer shall
deliver the following to Seller, each in form and substance reasonably
satisfactory to Seller:
(a) cash in immediately available funds in the amount of
$862,000,000 (the "Closing Cash Consideration"), by wire transfer of
immediately available funds to a bank account
<PAGE> 36
designated by Seller (or by such means as are otherwise agreed upon by
Buyer and Seller);
(b) a certificate dated the Closing Date and validly executed
on behalf of Buyer to the effect that the condition set forth in
Section 9.1 has been satisfied;
(c) evidence or copies of any consents, approvals, orders,
qualifications or waivers required pursuant to Section 9.2; and
(d) a copy of the resolutions of the board of directors of
Buyer (or its executive committee) authorizing the execution, delivery
and performance of this Agreement by Buyer, and a certificate of its
Secretary or Assistant Secretary, dated as of the Closing Date, that
such resolutions were duly adopted and are in full force and effect;
and
(e) the opinion of counsel referred to in Section 9.4.
Section 2.6. Purchase Price Adjustment. (a) If Closing
Adjusted Net Assets (as defined in Section 2.6(d)) shall exceed Base
Adjusted Net Assets (as defined in Section 2.6(d)) by more than
$2,000,000, then Buyer shall pay or cause to be paid to Seller (or its
designated Affiliate or Affiliates) on the Closing Audit Payment Date
(as defined in Section 2.6(d)) an amount in cash equal to the amount by
which Closing Adjusted Net Assets shall exceed the sum of Base Adjusted
Net Assets plus $2,000,000. If Base Adjusted Net Assets minus
$2,000,000 shall exceed Closing Adjusted Net Assets, then Seller shall
pay or cause to be paid to Buyer (or its designated Affiliate or
<PAGE> 37
Affiliates) on the Closing Audit Payment Date an amount in cash equal
to the amount by which Base Adjusted Net Assets minus $2,000,000 shall
exceed Closing Adjusted Net Assets. Any adjustment to the purchase
price made pursuant to this Section 2.6(a) shall bear interest from the
Closing Date through the date immediately preceding the date of payment
at the Prime Rate. Any payments made pursuant to the terms of this
Section 2.6(a) shall be adjustments to the Adjusted Cash Consideration
set forth in Section 2.3.
(b) As soon as practicable following the Closing Date,
but in no event later than 60 days thereafter, Seller shall prepare or
cause to be prepared a draft statement of Closing Adjusted Net Assets
reviewed by E&Y (the "Draft Closing Statement of Adjusted Net Assets")
which upon formal issuance by E&Y or the resolution of any arbitration
discussed below, shall be referred to as the "Closing Statement of
Adjusted Net Assets". Buyer shall provide Seller and E&Y access to such
of its records and personnel as may reasonably be required for the
preparation of the Draft Closing Statement of Net Assets.
(c) Buyer and its accountant ("Buyer's Accountant")
shall have 30 days to review the Draft Closing Statement of Adjusted
Net Assets and to notify Seller of any disputes Buyer may have relating
to the Draft Closing Statement of Adjusted Net Assets ("Disputes").
Buyer's notice to Seller of the Disputes shall specify in detail all
points of disagreement and demand that a review of the Disputes (a
"Review") be conducted. Buyer and Seller shall
<PAGE> 38
promptly cause Buyer's Accountant and E&Y to consult with respect to
such points of disagreement in an effort to resolve the Disputes. If
Buyer's Accountant and E&Y are able to resolve the Disputes, E&Y shall
formally issue the Closing Statement of Adjusted Net Assets reflecting
such resolution together with the report of E&Y thereon. If Buyer's
Accountant and E&Y are unable to resolve the Disputes within 30 days of
Seller's receipt of notice of a Review, Buyer's Accountant and E&Y
shall jointly select a firm of Neutral Auditors to act as arbitrator
(the "Arbitrator") to resolve any remaining Dispute. The Arbitrator,
within 30 days after having been selected hereunder, shall decide all
remaining Disputes and deliver a written notice of its determination of
the Disputes to Buyer and Seller. All decisions of the Arbitrator shall
be final, conclusive and legally binding on all parties hereto with
respect to the Closing Statement of Adjusted Net Assets. Each of Buyer
and Seller shall pay one-half the fees and expenses of the Arbitrator.
(d) (i) "Base Adjusted Net Assets" shall mean "Net
Assets" to the extent reflected on the DS December 1994 Statement plus
the sum of (1) the amount of any Excluded Liabilities reflected in the
DS December 1994 Statement, (2) the amount of any pension or
postretirement medical liabilities reflected in the DS December 1994
Statement less any portion thereof that is an Excluded Liability, (3)
the amount of any deferred income tax liabilities relating to the DS
Subsidiaries reflected in the DS December 1994 Statement and (4)
$40,056,000, and minus the sum of (1) the amount of any Excluded Assets
reflected in the DS December 1994 Statement, (2) the amount of any
<PAGE> 39
prepaid pension assets reflected in the DS December 1994 Statement
which is not an Excluded Asset and (3) the amount of any deferred
income tax assets relating to the DS Subsidiaries reflected in the DS
December 1994 Statement.
(ii) "Closing Adjusted Net Assets" shall be that
amount which shall be computed using information as of the Closing Date
rather than December 31, 1994 in the same manner as set forth in
Section 2.6(d)(i) (except with respect to item (4) of Section 2.6(d)(i)
which shall not be reflected in the Closing Adjusted Net Assets) and by
applying accounting principles generally accepted in the United States
applied on a basis consistent with the DS December 1994 Statement;
provided, however, that in computing Closing Adjusted
Net Assets:
(1) all valuation allowances and reserves against
inventories or receivables, including but not limited
to general and administrative and other cost
disallowances, bad debts, defective pricing, or
obsolescence, relating to items that were reflected on
the DS December 1994 Statement shall be the same
amounts as reflected in the DS December 1994
Statement;
(2) no new estimates at completion relating to items
that were reflected on the DS December 1994 Statement
shall be prepared; and none of the assumptions
implicit in estimates at completion reflected in the
DS December 1994 Statement shall be revised,
reevaluated or otherwise adjusted;
<PAGE> 40
(3) any foreign currency exchange rates used shall be those used
in the DS December 1994 Statement; and
(4) any contingency reflected as a liability at December 31, 1994
shall be reflected at the same amount at which such liability
was reflected in the DS December 1994 Statement.
(iii) "Closing Audit Payment Date" shall mean the date which is
five business days after (i) 30 days after Buyer receives the Draft Closing Date
Statement of Adjusted Net Assets, if Seller shall not have received notice from
Buyer on or prior to such date demanding a Review, (ii) the date on which
Buyer's Accountant and E&Y shall resolve all disputes with respect to the amount
of Closing Adjusted Net Assets or (iii) the date on which the Arbitrator shall
resolve all points of disagreement with respect to the amount of Closing
Adjusted Net Assets, as the case may be.
(e) In addition to the foregoing, Buyer will pay to Seller at
the Closing, in addition to the Closing Cash Consideration, an amount equal to
$3,000,000 per month calculated from January 1, 1995 to the Closing Date, which
amount shall be prorated on a daily basis for any partial month. Any payments
pursuant to the terms of this Section 2.6(e) shall be adjustments to the
Adjusted Cash Consideration set forth in Section 2.3.
Section 2.7. Assignment of Contracts and Rights.
Anything in this Agreement to the contrary notwithstanding, this Agreement shall
not constitute an agreement (a) to assign any DS Asset or any claim or right or
any benefit arising under such DS Asset or resulting from such DS Asset, or (b)
to enter into
<PAGE> 41
and/or consummate any sublease or other arrangement pursuant to the Facilities
Sharing Agreement or Transitional Services Agreement if, without the consent of
a third party, such assignment or other transaction would constitute a breach
or other contravention under any agreement to which Seller or its Affiliates
are a party or in any way adversely affect the rights of Buyer or its
Affiliates or Seller or its Affiliates under any DS Asset. Seller and its
Affiliates will use their commercially reasonable best efforts to obtain any
required consents to the assignment thereof to Buyer (or such other transaction
pursuant to the Facilities Sharing Agreement or Transitional Services
Agreement) and Buyer and its Affiliates will use their commercially reasonable
best efforts to cooperate with Seller and its Affiliates in obtaining any
required consents to the assignment thereof or such other transaction; provided
that neither Buyer nor Seller shall be required to make any material payment or
agree to any material undertaking in connection therewith, except for payments
due upon assignment expressly provided for in such agreements, which shall be
paid by Seller. If any such consent is not obtained and as a result thereof
Buyer shall be prevented by such third party from receiving the rights and
benefits with respect to such DS Asset (or such other transaction) intended to
be transferred hereunder, or if an attempted assignment thereof (or such
transaction) would be ineffective or would adversely affect the rights of
Seller thereunder so that Buyer would not in fact receive all such rights or
Seller and its Affiliates would forfeit or otherwise substantially lose the
benefit of rights which Seller and its Affiliates are entitled to retain,
Seller and Buyer will coop-
<PAGE> 42
erate in a mutually agreeable arrangement, as Buyer and Seller shall agree,
under which Buyer would obtain the benefits and assume the obligations
thereunder in accordance with this Agreement, including subcontracting,
sublicensing, or subleasing to Buyer. Seller will promptly pay to Buyer when
received all monies received by Seller under any such DS Asset or any claim or
right or any benefit arising thereunder. Except with respect to Government
Contracts, Buyer shall use its reasonable efforts to obtain the unconditional
release of Seller and its Affiliates from any obligation or liability under or
with respect to any DS Lease, DS Contract or Government Bid being assigned
hereunder; provided, that neither Buyer nor Seller shall be required to make
payment or agree to any material undertaking in connection therewith.
3.
ARTICLE III
Representations and Warranties of Seller
Seller hereby represents and warrants to Buyer as follows:
Section 3.1. Incorporation; Good Standing. (a) Seller is
duly incorporated and validly existing under the laws of the State of Delaware
and has all requisite corporate power and authority to own its properties and
assets and to carry on its business as it is now being conducted. Seller is in
good standing under the laws of the State of Delaware and is in good standing
and duly qualified to transact business in each jurisdiction in which the
nature of the property owned or leased by it or the conduct of its business
requires it to be in good standing or so qualified, except where the failure to
be in good standing or so qualified would not, individually or in the
aggregate, have a Material Adverse Effect.
<PAGE> 43
(b) Schedule 3.1(b) lists all of the DS Direct
Subsidiaries and DS Indirect Subsidiaries, specifying for each its name, the
jurisdiction in which it is incorporated, the number of authorized shares of
its capital stock, the par value of its capital stock, and the holder of its
outstanding capital stock. Each of the DS Direct Subsidiaries and DS Indirect
Subsidiaries is duly incorporated and presently subsisting under the laws of
the jurisdiction in which it is incorporated, has all requisite corporate power
and authority to own its properties and assets and to carry on its business as
it is now being conducted and is in good standing and duly qualified to
transact business in each jurisdiction in which the nature of the property
owned or leased by it or the conduct of its business requires it to be in good
standing or so qualified, except where the failure to be in good standing or so
qualified would not, individually or in the aggregate, have a Material Adverse
Effect.
Section 3.2. Authority. Seller has full corporate power to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Seller and no other corporate
proceedings on the part of Seller are necessary therefor. This Agreement has
been duly executed and delivered by Seller, and, assuming the due execution
hereof by Buyer, this Agreement constitutes a valid and binding obligation of
Seller, enforceable against Seller in accordance with its terms, subject to
applicable bankruptcy, moratorium, reorganization, insolvency and similar laws
of general application relating to or affecting
<PAGE> 44
the rights and remedies of creditors generally and to general equitable
principles (regardless of whether in equity or at law).
Section 3.3. Consents and Approvals; No Violation. Except
for applicable requirements of the HSR Act, the Competition Act and the
Anti-Assignment Laws and except for the Investment Canada Approval, there is no
requirement applicable to Seller to make any filing with, or to obtain any
permit, authorization, consent or approval of, any public body as a condition
to the lawful consummation by Seller of the transactions contemplated by this
Agreement, except such the absence of which would not have a Material Adverse
Effect or a material adverse effect on the parties' abilities to consummate
this Agreement or the transactions contemplated hereby. Except as disclosed in
Schedule 3.3, neither the execution and delivery of this Agreement by Seller
nor the consummation by Seller of the transactions contemplated by this
Agreement will (i) violate any provision of Seller's certificate of
incorporation or by-laws, (ii) assuming compliance with the Anti-Assignment
Laws, result in a default or breach (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any Material Contract, or (iii) assuming compliance with the HSR Act, the
Competition Act and the Anti-Assignment Laws, to Seller's knowledge, violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
Seller or any of the DS Assets, excluding from the foregoing clauses (ii) and
(iii) such violations, defaults or breaches (or rights of termination,
cancellation or acceleration) which, individually or in the aggregate, would
not have a Material Adverse Effect.
<PAGE> 45
Section 3.4. Financial Statements. Schedule 3.4 hereto
contains the audited balance sheet for the DS Business at December 31, 1993,
the DS December 1994 Statement and the related audited statements of income for
the years ended December 31, 1993 and 1994 and the related audited statement of
cash flows for the year ended December 31, 1994 and notes at and for the year
ended December 31, 1994 (collectively, the "DS Financial Statements"). Except
as set forth in Schedule 3.4, the DS Financial Statements present fairly the
financial position at the dates specified therein and results of operation of
the DS Business as owned and operated by Seller for the periods specified
therein in accordance with generally accepted accounting principles
consistently applied (except as otherwise indicated therein) and Regulation S-X
of the Securities and Exchange Commission (except for the omission of
supporting schedules). Prior to the Closing, Seller will deliver to Buyer
audited statements of cash flow and notes for the DS Business for the year
ended December 31, 1993, which will also be deemed to be DS Financial
Statements. Seller will use all reasonable efforts to ensure the full
cooperation of E&Y in connection with the DS Financial Statements and Buyer's
public filings with respect thereto.
Section 3.5. Owned Real Property and Leased Real Property.
(a) Schedule 3.5 lists all of the Owned Real Property. Seller has good and
valid fee simple title to the Owned Real Property and owns all of the
improvements located thereon, subject only to the Permitted Exceptions. The
Owned Real Property, together with the real property owned in fee by Seller
that will be subleased (in part) to Buyer pursuant to the
<PAGE> 46
Facilities Sharing Agreement, constitutes all of the real property owned by
Seller and primarily used in the DS Business. Except as set forth in Schedule
3.5, none of the Owned Real Property is subject to any right or option of any
other person to purchase or lease or otherwise obtain title to or an interest
in such Owned Real Property.
(b) There is no outstanding violation by Seller of a
condition or agreement contained in any easement, restrictive covenant or any
similar instrument or agreement affecting any Owned Real Property or, to
Seller's knowledge, any Leased Real Property, except to the extent the same
would not individually or in the aggregate have a Material Adverse Effect.
(c) To Seller's knowledge, Schedule 3.5 lists all of the
DS Leases. True and complete copies of the Material DS Leases have been made
available by Seller to Buyer. Seller has a valid leasehold interest in the
Material DS Leases and, except for matters which would not individually or in
the aggregate have a Material Adverse Effect, each of the DS Leases is valid
and binding and in full force and effect and has not been modified or amended
except as indicated in the lease documents made available to Buyer. Except as
identified on Schedule 3.5, the assignment or sublease of any of the Material
DS Leases to Buyer in the manner contemplated by the Facilities Sharing
Agreement does not require the consent or approval of any person or entity.
(d) Except as disclosed on Schedule 3.5 hereto, the
leasehold interests relating to the Material DS Leases and the Owned Real
Property are free and clear of all Liens, other than Permitted Exceptions.
Except as set forth on Schedule 3.5 and matters which would not individually or
in the aggregate have a
<PAGE> 47
Material Adverse Effect, neither Seller, and to Seller's knowledge, no other
party, is in default under any of the Material DS Leases and no event exists
which, with the giving of notice or lapse of time or both, would become a
default on the part of any party under any Material DS Lease.
(e) Seller is neither a "foreign person" within the
meaning of Section 1445(f) of the Code nor a "foreign partner" within the
meaning of Section 1446 of the Code.
(f) Upon the transfer of the Owned Real Property located at
Marcus Avenue, Great Neck, New York to Buyer, the applicable land use and
zoning laws, ordinances and regulations currently in effect permit such Owned
Real Property to be used and operated by Buyer in the manner currently being
used by Seller without any Material Adverse Effect.
Section 3.6. Absence of Certain Changes. Except as permitted
or contemplated by this Agreement or as listed in Schedule 3.6 hereto, since
December 31, 1994: (a) the DS Business has been operated in the ordinary
course in all material respects, (b) there has been no material adverse change
in the business or financial condition of the DS Business taken as a whole,
excluding any such change resulting from (i) any change or any development in
worldwide, national or local market, financial or economic conditions, (ii)
war, insurrection or other political change or instability, or (iii) any
regulatory, legislative or economic development or other conditions or
circumstances that generally affect the business in which the DS Business
operates, (c) there has been no physical damage, destruction or loss that
would, after taking into account any
<PAGE> 48
insurance recoveries payable to Buyer in respect thereof, have a Material
Adverse Effect and (d) Seller has not taken or agreed to take any action that,
if taken after the date hereof, would constitute a breach of Section 5.5.
Section 3.7. Litigation; Orders. Schedule 3.7 sets forth (i)
each Action relating to the DS Business that, to Seller's knowledge, is pending
on the date hereof before any court, arbitrator, governmental or other
regulatory agency or commission in which the amount in controversy or of
damages being claimed exceeds $250,000, (ii) each civil fraud, voluntary
disclosure and criminal Action that, to Seller's knowledge, is pending on the
date hereof before any court, arbitrator, governmental or other regulatory
agency or commission, (iii) a summary of charges of discrimination against
Seller and relating to the DS Business that, to Seller's knowledge, are pending
on the date hereof in any United States state or federal equal employment
opportunity agency and (iv) a summary of suits that, to Seller's knowledge, are
pending against Seller on the date hereof before any United States state or
federal court involving employment or employee benefit claims relating to the
DS Business. Except as disclosed in Schedule 3.7 hereto, as of the date
hereof, to Seller's knowledge, there are no Actions relating to the DS Business
pending against Seller that would reasonably be expected to have a Material
Adverse Effect. Except as disclosed in Schedule 3.7 hereto, as of the date
hereof, there are no judgments or outstanding orders, injunctions, decrees,
stipulations or awards (whether rendered by a court or administrative agency,
or by arbitration) against Seller that would reasonably be expected to have a
Material Adverse Effect. Buyer acknowledges and agrees that there are or may
be other Actions relating to the DS Business that Seller does not know to be
<PAGE> 49
pending that have been or may be asserted in the future.
Section 3.8. Intellectual Property. (a) To Seller's
knowledge, Schedule 2.4(d) sets forth a complete and correct list of the
Assigned Patents, as of the date hereof, without giving effect to any patents
that would be Assigned Patents but for the fact that they are listed on
Schedule 5.8(f) hereof. Except as set forth in Schedule 3.8 hereto: (i) there
is no pending Action to which Seller is a party, nor to Seller's knowledge is
there any reason to believe that Seller may become a party to an Action, as a
result of any action or conduct of Seller in the conduct of the DS Business
prior to the date of this Agreement as to which there is a reasonable
probability of a determination adverse to Seller, that involves a claim by any
person of infringement of any Intellectual Property Right in the conduct of the
DS Business; (ii) no Intellectual Property Right is subject to any outstanding
order, judgment, decree or stipulation restricting the use thereof by Seller or
the licensing thereof by Seller to any person; (iii) Seller has not during the
two years preceding the date of this Agreement received any notice to the
effect that the use of the Intellectual Property Rights in the conduct of the
DS Business infringes upon any patent or copyright, violates a patent license,
copyright registration or any pending application relating thereto or conflicts
with or violates any trademark or trade secret right of any person; and (iv)
Seller has the right to grant the licenses granted under this Agreement.
(b) Except as provided in Section 3.8(a)(iv), Seller makes no
representations or warranties with respect to any In-
<PAGE> 50
tellectual Property Right owned by any third party.
Section 3.9. Labor Matters. Schedule 3.9 sets forth a list
of all collective bargaining agreements in effect on the date hereof with labor
unions or associations representing DS Employees. Except as set forth on
Schedule 3.9 in connection with the DS Business and except as would not,
individually or in the aggregate, have a Material Adverse Effect:
(i) no labor organization or group of DS Employees has
made a pending demand for recognition or certification, and there are
no representation or certification proceedings presently pending or,
to Seller's knowledge, threatened to be brought or filed with the
National Labor Relations Board or any other labor relations tribunal
or authority;
(ii) to Seller's knowledge, there are no organizing
activities involving the DS Employees pending with any labor
organization or group of DS Employees;
(iii) there are no strikes, work stoppages, slowdowns,
lockouts, material arbitrations or material grievances or other
material labor disputes pending or, to Seller's knowledge, threatened
against or involving the DS Employees;
(iv) since January 1, 1990 there have been no material
strikes, work stoppages, slowdowns or lockouts involving the DS
Employees;
(v) there are no unfair labor practice charges, grievances
or complaints pending or, to Seller's
<PAGE> 51
knowledge, threatened by or on behalf of any DS Employee
which, if individually or collectively resolved against
Seller and its subsidiaries could result in a material
liability;
(vi) there are no complaints, charges or claims
against Seller or its subsidiaries pending or, to Seller's
knowledge, threatened to be brought or filed with any
public or governmental authority, arbitrator or court based
on, arising out of, in connection with, or otherwise
relating to the employment or termination of employment of
any DS Employee; and
(vii) to Seller's knowledge, Seller and its
subsidiaries are in material compliance with all laws,
regulations and orders relating to the employment of labor,
including the National Labor Relations Act and the Fair
Labor Standards Act, and all such other laws, regulations
and orders relating to wages, hours, collective bargaining,
discrimination, civil rights, safety and health other than
as disclosed on Schedule 3.13.
Section 3.10. Compliance with Law. Except as set forth in
Schedule 3.10, to Seller's knowledge the operations of the DS Business have
been conducted in accordance with all applicable laws, regulations, orders and
other requirements of all courts and other governmental or regulatory
authorities having jurisdiction over Seller and its assets, properties,
subsidiaries and operations, including, without limitation, all
<PAGE> 52
such laws, regulations, orders and requirements promulgated by or relating to
consumer protection, currency exchange, equal opportunity, export controls,
government contracts, health, environmental protection, conservation, wetlands,
architectural barriers to the handicapped, fire, zoning and building,
occupation safety, pension, and securities matters, except to the extent that
any violations thereof would not have a Material Adverse Effect. Except as set
forth in Schedule 3.10, Seller has not received notice of any violation of any
such law, regulation, order or other legal requirement, and is not in default
with respect to any order, writ, judgment, award, injunction or decree of any
federal, provincial, state or local court or governmental or regulatory
authority or arbitrator, domestic or foreign, applicable to the DS Business,
except for violations which individually or in the aggregate, would not have a
Material Adverse Effect.
Section 3.11. Sufficiency of and Title to the DS Assets.
Upon consummation of the transactions contemplated by this Agreement and Buyer
obtaining all Required Consents, Seller will have assigned, transferred and
conveyed to Buyer, directly or indirectly, all of the DS Assets, free and clear
of all Liens (other than Permitted Exceptions). The DS Assets, together with
the Intellectual Property Rights to be licensed to Buyer pursuant to Section
5.8(a) and the rights to be granted to Buyer pursuant to the Transitional
Services Agreement and the Facilities Sharing Agreement, constitute, and on the
Closing Date will constitute, all of the assets (other than Intellectual
Property Rights owned by any third party) that are necessary to permit the
operation of the DS Business in substantially the same manner as such
operations have heretofore been conducted (assuming no change in the material
circumstances external to
<PAGE> 53
Seller relating to the DS Business), except for such unintentional omissions
therefrom as may not reasonably be expected to have a Material Adverse Effect.
Section 3.12. DS Contracts and Government Bids. Except for
any Government Contract or Government Bid containing classified information or
requiring special security clearances for access, the list of DS Contracts and
Government Bids in Schedule 3.12 includes each (i) active DS Contract,
Government Bid, and bid primarily related to the DS Business that would be a
Government Bid except that a nongovernmental entity is the ultimate customer (a
"Bid") which has a stated value, including options, greater than $10,000,000,
and where the DS Business is the seller, (ii) active DS Contract for which the
most recent estimate at completion prior to the date of this Agreement
indicates a loss greater than $1,000,000, and where the DS Business is the
seller, (iii) active DS Contract which has a stated value greater than
$500,000, and where the DS Business is the purchaser, (iv) material joint
venture or teaming agreement which relates to the DS Business, (v)
interdivisional work order or other similar arrangement in excess of $500,000
for work being or to be performed by the DS Business for other business units
of Seller, or for the DS Business by other business units of Seller, (vi)
material agreement by which Seller is the licensee or licensor of Intellectual
Property Rights or other material patent cross-license, (vii) employment or
consulting agreement having a remaining term of at least one year and providing
annual payments in excess of $100,000 or aggregate payments in excess of
$250,000, or (viii) other agreement (other than DS Leases and Government
Contracts), entered into other than in the
<PAGE> 54
ordinary course of business, involving an estimated future payment or payments
in excess of $100,000 per year. To Seller's knowledge, except as set forth on
Schedule 3.12, each of such agreements listed on Schedule 3.12 and each
Classified Contract is a valid and binding obligation of Seller and is in full
force and effect in all material respects; and there are no show-cause notices,
stop work orders, cure notices, default terminations, written notices of
default or similar notices or negative determinations of responsibility which
have been issued against Seller with respect to such agreements and which are
currently in effect which would have a Material Adverse Effect. With respect
to all Government Contracts and Government Bids, including Classified
Contracts, to Seller's knowledge, except as set forth on Schedule 3.12, there
are no (i) civil fraud or criminal investigations by any government
investigative agency, (ii) suspension or debarment proceedings (or equivalent
proceedings) against Seller, (iii) requests by the government for a contract
cost or price adjustment based on a claimed disallowance by the Defense
Contract Audit Agency or claim of defective pricing in excess of $250,000, (iv)
disputes between Seller and the government which have resulted in a government
contracting officer's final decision where the amount in controversy exceeds or
is expected to exceed $250,000, or (v) claims or equitable adjustments by
Seller (other than on behalf of a subcontractor) against the government or any
third party in excess of $250,000, or (vi) government investigations or audits
relating to the recapture of or adjustment in the accumulated surplus under
Seller's Pension Plans or the Canadian Retirement Plans. With respect to each
and every Government Contract or Government Bid, including Classified
Contracts, to Seller's knowledge, except as set forth on Schedule 3.12 and
except for
<PAGE> 55
matters which would not individually or in the aggregate result in a Material
Adverse Effect, (i) all cost or pricing data certified were, at the date
certified, current, accurate and complete in accordance with the Truth in
Negotiations Act, as amended, and the rules and regulations thereunder, (ii)
Seller has complied in all material respects with all material terms and
conditions of such Government Contract or Government Bid, including all
clauses, provisions and requirements incorporated, expressly, by reference or
by operation of law therein, (iii) Seller has complied in all material respects
with all requirements of all applicable laws or agreements pertaining to such
Government Contract or Government Bid, (iv) all representations and
certifications executed, acknowledged or set forth in or pertaining to such
Government Contract or Government Bid were complete and correct in all material
respects as of their effective date, and Seller has complied in all material
respects with all such representations and certifications, (v) neither the U.S.
Government nor any prime contractor, subcontractor or other person has notified
Seller, either orally or in writing, that Seller has breached or violated any
applicable law, certification, representation or requirement pertaining to such
Government Contract or Government Bid, (vi) Seller's established or disclosed
cost accounting practices are in compliance with all applicable law and
regulations, and (vii) Seller maintains an accounting system and controls
adequate for the proper administration of progress payments by the U.S.
Government.
Section 3.13. Environmental Matters. (a) Except as set
forth in Schedule 3.13 and except as would not, in the aggregate, have a
Material Adverse Effect,
<PAGE> 56
(i) Seller has not received any written notice within the
past three years from a governmental authority that alleges that the
DS Business is not in compliance with the Environmental Laws;
(ii) there is no Environmental Claim with respect to the
DS Business pending against Seller or, to Seller's knowledge, against
any person or entity whose liability for any Environmental Claim
Seller has expressly assumed; and
(iii) to Seller's knowledge, Seller has not treated, stored
or disposed of any Hazardous Waste (as such terms are defined in the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
seq., as amended (the "RCRA")) at any of the real properties owned or
leased by the DS Business, except in compliance with the RCRA.
(b) "Environmental Claim" means any written notice by any
person or entity alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal injuries
or penalties) arising out of, or resulting from the presence, or release into
the environment, of any hazardous substances.
(c) "Environmental Laws" means all applicable federal, state
and local laws and regulations relating to pollution or the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata), including, without limitation, laws and
regulations relating to emissions, discharges, releases or threatened releases
of hazardous substances, or otherwise relating to the use, treatment, storage,
disposal, transport or handling of hazardous
<PAGE> 57
substances.
(d) For purposes of this Section 3.13 and Section 5.10,
"hazardous substances" shall have the meaning set forth in the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section
9601(14), but shall include petroleum products.
(e) Seller has provided Buyer with a copy of certain
environmental assessment and environmental baseline reports for the
manufacturing and engineering facilities of the DS Business, as listed in
Schedule 3.13, together with all applicable environmental permits and required
annual governmental disclosures. These assessments and baselines are
hereinafter referred to collectively as "Environmental Reports." To Seller's
knowledge, the Environmental Reports are accurate, except for errors that would
not reasonably be expected to have a Material Adverse Effect.
Section 3.14. Brokers, Finders, etc. Seller has not employed
any broker, finder, consultant or other intermediary in connection with the
transactions contemplated by this Agreement who would have a valid claim for a
fee or commission from Buyer in connection with such transactions. Seller is
solely responsible for any payment, fee or commission that may be due to Bear,
Stearns & Co. Inc. and James D. Wolfensohn Incorporated in connection with the
transactions contemplated hereby.
Section 3.15. Capitalization of the DS Subsidiaries. All of
the outstanding shares of capital stock of each of the DS Subsidiaries have
been duly authorized and validly issued and
<PAGE> 58
are held as set forth on Schedule 3.1(b). There are not as of the date hereof
and there will not be at the Closing Date any outstanding or authorized
options, warrants, calls, rights, commitments or any other agreements of any
character (other than this Agreement) to which Seller or any of the DS
Subsidiaries is a party, or by which any of them is bound, requiring it to
issue, transfer, sell, purchase, redeem or acquire any shares of capital stock
or any securities or rights convertible into, exchangeable for, or evidencing
the right to subscribe for, any shares of capital stock of any of the DS
Subsidiaries.
Section 3.16. No Implied Representation. NOTWITHSTANDING
ANYTHING CONTAINED IN THIS ARTICLE III OR ANY OTHER PROVISION OF THIS
AGREEMENT, (a) BUYER AND SELLER ACKNOWLEDGE AND AGREE THAT NEITHER SELLER NOR
ANY OF ITS AFFILIATES, AGENTS, EMPLOYEES OR REPRESENTATIVES IS MAKING, WHETHER
CONTAINED IN OR REFERRED TO IN THE EVALUATION MATERIALS THAT HAVE BEEN OR SHALL
HEREAFTER BE PROVIDED TO BUYER OR ANY OF ITS AFFILIATES, AGENTS OR
REPRESENTATIVES (INCLUDING WITHOUT LIMITATION THE CONFIDENTIAL OFFERING
MEMORANDUM RELATING TO THE DS BUSINESS (THE "CONFIDENTIAL OFFERING
MEMORANDUM"), ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED,
BEYOND THOSE EXPRESSLY GIVEN BY SELLER IN THIS AGREEMENT, INCLUDING BUT NOT
LIMITED TO ANY IMPLIED WARRANTY OR REPRESENTATION AS TO THE VALUE, CONDITION,
MERCHANTABILITY OR SUITABILITY AS TO ANY OF THE PROPERTIES OR ASSETS OF THE DS
BUSINESS CARRIED OUT BY SELLER, and (b) IT IS UNDERSTOOD THAT BUYER TAKES SUCH
DS BUSINESS AND DS ASSETS AS IS AND WHERE IS WITH ALL FAULTS AND WITHOUT ANY
IMPLIED WARRANTY OR REPRESENTATION AS TO THE DS LIABILITIES OR ANY ACTION.
NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS WAIVING ANY CLAIMS BUYER MAY
HAVE FOR ACTUAL FRAUD.
<PAGE> 59
4.
ARTICLE IV
Representations and Warranties of Buyer
Buyer hereby represents and warrants to Seller as follows:
Section 4.1. Organization; Authorization; etc. Buyer is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of New York and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Buyer has full corporate power to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Buyer and no other corporate proceedings on the part of
Buyer or any of its Affiliates are necessary therefor. This Agreement has been
duly executed and delivered by Buyer, and, assuming the due execution hereof by
Seller, this Agreement constitutes the legal, valid and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms, subject to
applicable bankruptcy, moratorium, reorganization, insolvency and similar laws
of general application relating to or affecting the rights and remedies of
creditors generally and to general equitable principles (regardless of whether
in equity or at law).
Section 4.2. Consents and Approvals; No Violations. Except
for applicable requirements of the HSR Act and the Com-
<PAGE> 60
petition Act and the Anti-Assignment Laws and except for Investment Canada
Approval, there is no requirement applicable to Buyer to make any filing with,
or to obtain any permit, authorization, consent or approval of, any public body
as a condition to the lawful consummation by Buyer of the transactions
contemplated by this Agreement, except such the absence of which would not have
a material adverse effect on the business, assets or financial condition of
Buyer and its subsidiaries taken as a whole. Neither the execution nor delivery
of this Agreement by Buyer nor the consummation by Buyer of the transactions
contemplated by this Agreement will (i) violate any provision of the charter or
By-Laws or similar organizational instrument of Buyer or any of its Affiliates,
(ii) assuming compliance with the Anti-Assignment Laws, result in a default or
breach (or give rise to any right of termination, cancellation or acceleration)
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, agreement, lease or other instrument or obligation to which
Buyer or any of its Affiliates is a party or by which they or any of their
properties or assets may be bound, or (iii) assuming receipt of Investment
Canada Approval, compliance with the HSR Act, the Competition Act and the
Anti-Assignment Laws, to Buyer's knowledge, violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Buyer, any of its subsidiaries
or any of their properties or assets, excluding from the foregoing clauses (ii)
and (iii) such violations, defaults or breaches (or rights of termination,
cancellation or acceleration) which, in the aggregate, would not have a material
adverse effect on the business, assets or financial condition of Buyer and its
subsidiaries taken as a whole.
Section 4.3. Brokers, Finders, etc. Buyer has not
<PAGE> 61
employed any broker, finder, consultant or other intermediary in connection
with the transactions contemplated by this Agreement who would have a valid
claim for a fee or commission from Seller in connection with such transactions.
Section 4.4. Financial Capability. Buyer will have available
as of the Closing Date (either from its immediately available cash or from
external financing sources, or a combination thereof) funds sufficient to pay
the Closing Cash Consideration and consummate the transactions contemplated by
this Agreement including, without limitation, the payment of the Adjusted Cash
Consideration. On the Closing Date, after giving effect to the transactions
contemplated by this Agreement and to all indebtedness being incurred on such
date in connection therewith, Buyer will not (i) be insolvent (either because
its financial condition is such that the sum of its debts is greater than the
fair value of its assets or because the present fair salable value of its
assets will be less than the amount required to pay its probable liability on
its debts as they become absolute and matured), (ii) have unreasonably small
capital with which to engage in its business or (iii) have incurred or plan to
incur debts beyond its ability to pay as they become absolute and matured.
Section 4.5. Foreign Ownership; Procurement Integrity. 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 and in the Industrial Security Regulation.
Section 4.6. Inspections; Limitation of Seller's
<PAGE> 62
Warranties. Buyer is an informed and sophisticated participant in the
transactions contemplated by this Agreement and has undertaken such
investigation, and has been provided with and has evaluated certain documents
and information in connection with the execution, delivery and performance of
this Agreement. Buyer acknowledges that it is acquiring the DS Business
without any representation or warranty, express or implied, by Seller or any of
its Affiliates except as expressly set forth herein. In furtherance of the
foregoing, and not in limitation thereof, Buyer acknowledges that, except as
expressly set forth herein, no representation or warranty, express or implied,
of Seller or any of its advisors, including, without limitation, Bear, Stearns
& Co. Inc. and James D. Wolfensohn Incorporated, or any of their respective
Affiliates or representatives, with respect to the DS Business (including,
without limitation, the Evaluation Materials, the Confidential Offering
Memorandum, any other information provided to Buyer pursuant to the
Confidentiality Agreement and any financial projection or forecast delivered to
Buyer with respect to the revenues or profitability which may arise from the
DS Business either before or after the Closing Date) shall form the basis of
any claim against Seller or any of its advisors, or any of their respective
Affiliates or representatives, except as otherwise provided in Section 3.16.
With respect to any financial projection or forecast delivered on behalf of
Seller to Buyer, Buyer acknowledges that there are uncertainties inherent in
attempting to make such projections and forecasts and that it is familiar with
such uncertainties.
5.
ARTICLE V
Covenants of Seller and Buyer
Section 5.1. Investigation of Business; Access to
<PAGE> 63
Properties and Records. (a) After the date hereof and prior to the Closing,
Seller shall afford to Buyer and its authorized representatives reasonable
access to all offices, plants and properties of the DS Business and to the DS
Books and Records during normal business hours, in order that Buyer may have
full opportunity to make such investigations as it desires of the affairs of
the DS Business subject to compliance with applicable laws and regulations, and
contractual obligations of Seller or any of its Affiliates, regarding
classified information, security clearances, proprietary information of third
parties, source selection information, and other procurement-sensitive
information; provided, however, that such investigation shall be conducted in
such a manner as to minimize interference with the operation of the DS Business
or any other business of Seller or any of its Affiliates, it being understood
and agreed that all requests for access to the DS Business and the DS Books and
Records shall be made to such representatives of Seller as Seller shall
designate in writing, who shall be solely responsible for coordinating all such
requests and all access permitted hereunder. It is further understood and
agreed that neither Buyer nor its representatives shall contact any of the
employees, customers, suppliers, joint venture partners, team members or other
associates or Affiliates of Seller, in connection with the transactions
contemplated by this Agreement, whether in person or by telephone, mail or
other means of communication, without the specific prior authorization of such
representatives of Seller as Seller may designate in writing, which
authorization shall not be unreasonably withheld. In addition, all notices and
applications to, filings with, and
<PAGE> 64
other contacts with United States or any state, local or foreign governmental
authorities relating to the transactions contemplated by this Agreement, except
with respect to the Investment Canada Approval, shall be made by Buyer only
after prior consultation with, and approval by, Seller, which approval shall
not be unreasonably withheld.
If, as of the date hereof or at any time hereafter prior to
the Closing Date, any officer of Buyer with analogous responsibility to those
individuals listed on Schedule 12.10 becomes aware of or discovers any material
breach of any representation or warranty contained in this Agreement or any
circumstance or condition that upon Closing would constitute such a breach,
Buyer shall promptly so notify Seller; provided that failure to do so shall not
constitute a defense to any claim by Buyer for indemnification hereunder.
(b) Any information provided to Buyer or its
representatives pursuant to this Agreement shall be held by Buyer and its
representatives in accordance with, and shall be subject to the terms of, the
Confidentiality Agreement, which is hereby incorporated in this Agreement as
though fully set forth herein and in accordance with such other terms and
conditions as may otherwise be agreed by the parties; provided, that the
provisions of this Section 5.1(b) (except as provided in Section 5.1(e)) shall
expire following the Closing.
(c) Except as otherwise provided by law or regulation,
Buyer agrees to (i) hold the DS Books and Records transferred to Buyer on the
Closing Date and not to destroy or dispose of any thereof for a period of ten
(10) years from the Closing Date or such longer time as may be required by law,
regulation or Government Contract, and thereafter, if it pro-
<PAGE> 65
poses to destroy or dispose of such DS Books and Records, to offer first in
writing at least 60 days prior to such proposed destruction or disposition to
surrender them to Seller and (ii) at any time and from time to time following
the Closing Date to afford Seller, its accountants and counsel, during normal
business hours, upon at least 48 hours' notice, full access to such DS Books and
Records (including the right to copy such materials at Seller's expense) and to
the DS Employees to the extent that such access may be requested (without
unreasonably disrupting the personnel and operations of the DS Business) for any
legitimate purpose at no cost to Seller (other than for reasonable out-of-pocket
expenses including reasonable personnel costs for other than incidental
cooperation); provided, however, that nothing herein shall limit any of Seller's
rights of discovery.
(d) Seller agrees to make available on a reasonable basis to
Buyer such books and records and access to personnel as Buyer may reasonably
require in connection with support for open years for Seller's allocations of
corporate allocations and interdivisional cost transfers, and to treat such
books and records with respect to Buyer as Buyer is required to treat the DS
Books and Records in accordance with Section 5.1(c).
(e) All information obtained by Buyer concerning the
businesses of Seller other than the DS Business (the "Seller Proprietary
Information") shall be used by Buyer solely as required to perform its
obligations under this Agreement or the Transitional Services Agreement. Buyer
shall not disclose, or permit the disclosure of, any of the Seller Proprietary
Infor-
<PAGE> 66
mation to any person except those persons to whom such disclosure is necessary
to permit Buyer's performance of such obligations. Buyer shall treat, and will
cause its Affiliates and the directors, officers, employees, agents,
representatives and advisors of Buyer or any of its Affiliates to treat, the
Seller Proprietary Information as confidential, using the same degree of care as
Buyer normally employs to safeguard its own highly confidential information from
unauthorized use or disclosure. Notwithstanding the foregoing, the term Seller
Proprietary Information shall not include information which: (i) at the time of
disclosure to Buyer by or on behalf of Seller is already known to Buyer; (ii) is
or becomes known or available to the public other than as a result of an
unauthorized disclosure by Buyer or any of its Affiliates, or any of their
respective directors, officers, employees, agents, representatives or advisors;
(iii) becomes known or available to Buyer without restrictions of
confidentiality from a source other than Seller, provided that such source is
not bound by an agreement prohibiting such disclosure to Buyer; (iv) is required
to be disclosed by Buyer by law, regulation, court order or other legal process,
provided that Buyer shall provide Seller with prompt notice of such requirement
so that Seller may seek an appropriate protective order; or (v) is independently
developed by Buyer and not derived from any of the Seller Proprietary
Information.
Section 5.2. Reasonable Efforts; Obtaining Consents. Subject
to the terms and conditions herein provided, Seller and Buyer agree to use all
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective as promptly as practicable the transactions contemplated by this
Agreement and to cooperate with the other in connection with the
<PAGE> 67
foregoing. Subject to Section 2.7, Seller shall use all reasonable efforts (i)
to obtain all necessary waivers, consents and approvals from other parties to
material loan agreements, leases and other contracts, and (ii) to obtain all
consents, approvals and authorizations that are required to be obtained under
any federal, state, local or foreign law or regulation. Seller and Buyer shall
use all reasonable efforts (i) to lift or rescind any injunction or restraining
order or other order adversely affecting their respective ability to consummate
the transactions contemplated hereby, (ii) to effect all necessary
registrations and filings including, but not limited to, their respective
filings under the HSR Act, the Competition Act and the Investment Canada Act
and submissions of information requested by governmental authorities, and (iii)
to fulfill all their respective conditions to this Agreement. Seller and Buyer
further covenant and agree, with respect to a threatened or pending preliminary
or permanent injunction or other order, decree or ruling or statute, rule,
regulation or executive order that would adversely affect the ability of the
parties hereto to consummate the transactions contemplated hereby, to use all
of their respective reasonable efforts to prevent the entry, enactment or
promulgation thereof, as the case may be.
Section 5.3. Antitrust Compliance. (a) Seller and Buyer
will promptly file or cause to be filed with the Antitrust Division of the
United States Department of Justice and the Federal Trade Commission pursuant
to the HSR Act and with the Bureau of Competition Policy pursuant to the
Competition Act all requisite documents and notifications in connection with
the transactions contemplated by this Agreement. Seller on the one
<PAGE> 68
hand and Buyer on the other hand shall promptly inform the other of any
material communication from the United States Federal Trade Commission, the
Department of Justice, the Bureau of Competition Policy or any other domestic
or foreign government or governmental or multinational authority regarding any
of the transactions contemplated hereby. If either Seller or Buyer or any
Affiliate of Seller or Buyer receives a request for additional information or
documentary material from any such government or authority with respect to the
transactions contemplated hereby, then such party will endeavor in good faith
to make, or cause to be made, as soon as reasonably practicable and after
consultation with the other party, an appropriate response in compliance with
such request. Buyer shall give status reports as reasonably requested by
Seller with respect to any understandings, undertakings or agreements (oral or
written) which Buyer proposes to make or enter into with the United States
Federal Trade Commission, the Department of Justice or any other domestic or
foreign government or governmental or multinational authority in connection
with the transactions contemplated hereby. Seller shall keep any information
so received confidential and shall share such information only with James
Unruh, Harold Barron, Stefan Riesenfeld, and Al Zettlemoyer or their successors
and outside counsel to Seller.
(b) Buyer shall use its commercially reasonable efforts to
resolve such objections, if any, as may be asserted with respect to the
transactions contemplated hereby under any Antitrust Laws. If any suit is
instituted challenging any of the transactions contemplated hereby as violative
of any Antitrust Law, Buyer shall use its commercially reasonable efforts to
take such action (including, without limitation, agreeing to hold separate or
to divest any of the businesses, product lines
<PAGE> 69
or assets of Buyer or any of its Affiliates or of the DS Business) as may be
required (i) by the applicable government or governmental or multinational
authority (including, without limitation, the Antitrust Division of the United
States Department of Justice, the Federal Trade Commission or the Bureau of
Competition Policy) in order to resolve such objections as such government or
authority may have to such transactions under such Antitrust Law, or (ii) by
any domestic or foreign (including European Union) court or similar tribunal,
in any suit brought by a private party or governmental or multinational
authority challenging the transactions contemplated hereby as violative of any
Antitrust Law, in order to avoid the entry of, or to effect the dissolution of,
any injunction, temporary restraining order or other order that has the effect
of preventing the consummation of any of such transactions. The entry by a
court, in any suit brought by a private party or governmental or multinational
authority challenging the transactions contemplated hereby as violative of any
Antitrust Law, of an order or decree permitting the transactions contemplated
hereby, but requiring that any of the businesses, product lines or assets of
any of Buyer or its Affiliates or the DS Business be divested or held separate
by Buyer, or that would otherwise limit Buyer's freedom of action with respect
to, or its ability to retain, the DS Business or any portion thereof or any of
Buyer's or its Affiliates' other assets or businesses, shall not be deemed a
failure to satisfy the conditions specified in Section 8.2 or 8.3.
Section 5.4. Further Assurances; Novation; Contract Audits.
Seller and Buyer agree that, from time to time, whether
<PAGE> 70
before, at or after the Closing Date, each of them will execute and deliver
such further instruments of conveyance and transfer and take such other action
as may be necessary or desirable to carry out the purposes and intents of this
Agreement including by Seller's delivering to Buyer to the extent practicable
the items listed below:
(i) duly executed and acknowledged bargain and sale deeds
without covenant against grantor's acts or limited warranty deeds (or
local equivalent) in recordable form and an omnibus assignment, each
reasonably acceptable to Buyer transferring to Buyer all of Seller's
right, title and interest in and to the Owned Real Property, the
improvements located thereon and rights related thereto;
(ii) duly executed and acknowledged transfer tax and other
required tax forms reasonably required by Buyer to transfer to Buyer
the Owned Real Property and the DS Leases, all in the form required by
applicable law;
(iii) a Non-Foreign Affidavit duly executed and acknowledged
stating that Seller is neither a "foreign person" within the meaning of
Section 1445(f) of the Code nor a "foreign partner" within the meaning
of Section 1446 of the Code in a form that is reasonably satisfactory
to Buyer;
(iv) duly executed 1099-S forms;
(v) duly executed and acknowledged title affidavits and/or
certificates and satisfaction of other requirements as the Title
Company shall reasonably deem necessary or desirable in form and
<PAGE> 71
substance satisfactory to the Title Company (in the
exercise of its reasonable discretion) in connection with
the issuance by the Title Company of title insurance
policies in favor of Buyer on any of the Owned Real
Property and DS Leases;
(vi) duly recorded UCC-3 or other appropriate
termination statements evidencing the termination of all
Liens on the DS Assets other than Permitted Exceptions;
(vii) duly executed elections or certificates in
respect of the Excise Tax Act (Canada) or principal sales
taxes in respect of any assets being transferred hereunder
which are not owned by the Canadian Subsidiaries to ensure
the minimization of taxes or fees payable hereunder; and
(viii) certificates under Section 116 of the Income
Tax Act (Canada) whether in respect of the shares of
Canadian Subsidiaries or other assets being transferred
hereunder or otherwise with a certificate limit, in such
case, equal to the purchase price paid or allocable to the
relevant assets; and
(ix) certificates or other filings required by
state environmental statutes and regulations governing
transfers of real property.
Following the date hereof, the parties shall cooperate
<PAGE> 72
to preserve the Government Bids and facilitate the award of the DS Contracts
pursuant thereto consistent with applicable laws and regulations. Following the
Closing Date, (i) the parties shall use their reasonable efforts to obtain any
necessary novation agreements of all Government Contracts and Government Bids
requiring novation and (ii) the parties shall cooperate reasonably with each
other in connection with any litigation brought by a third party, audit,
inquiry, investigation or similar proceeding with respect to the DS Business.
Upon a party's reasonable request, at such party's expense and subject to
confidentiality agreements reasonably acceptable to the other party, the other
party shall make available appropriate personnel and provide pertinent records
to assist in any such litigation, audit, inquiry, investigation or proceeding.
Section 5.5. Conduct of Business. From the date hereof until
the Closing, except as provided for in, or contemplated by, this Agreement,
and, except as consented to or approved by Buyer, Seller covenants and agrees
that:
(a) Seller will conduct, or cause to be conducted, the DS
Business in the ordinary course in all material respects and will not
(i) enter into any material transaction or acquire any assets, raw
materials or properties except in the ordinary course of business,
(ii) subject any of the DS Assets, or any part thereof, to any Lien or
suffer such to exist other than such Liens as may arise in the
ordinary course of business or by operation of law which will not,
individually or in the aggregate, have a Material Adverse Effect;
(b) Seller will not permit the DS Business, except in the
ordinary course of business, to (i) create, incur or
<PAGE> 73
assume any long-term or short-term debt for borrowed money (including
obligations in respect of capital leases), except intercompany or
intracompany loans and advances between the DS Business and Seller, if,
in any such case, such debt would constitute a DS Liability after the
Closing Date; (ii) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person, if such assumption, guarantee,
endorsement or other liability is in each case material to the DS
Business taken as a whole, provided that Seller and the DS Business may
endorse negotiable instruments; or (iii) make any material loans,
advances or capital contributions to or investments in, any person
(other than customary loans or advances to employees), if such loan,
advance, contribution or investment would constitute a DS Asset;
(c) except as required by law or contractual obligations
existing on the date hereof, Seller will not permit the DS Business to
(i) increase in any manner the base compensation (except in the
ordinary course of business) of, or enter into any new bonus or
incentive agreement or arrangement with, any of the DS Employees; (ii)
enter into any new employment, severance, consulting, or other
compensation agreement with any existing DS Employee; (iii) enter into
any new (or amend any existing) pension, profit-sharing, deferred
compensation, group insurance, severance pay, retirement or other
employee benefit plan, fund or similar arrangement or commit itself to
amend any of such plans, funds or similar arrangements in existence on
the
<PAGE> 74
date hereof (other than as required by applicable law); or (iv) change
the composition of employees whose duties relate principally to the DS
Business by transferring employees to or from the DS Business or from
or to the business of Seller which is not a part of the DS Business;
(d) except in the ordinary course of business or
pursuant to law or contractual obligations existing on the date
hereof, Seller will not permit the DS Business to (i) sell,
transfer or otherwise dispose of any of its material DS Assets,
(ii) other than Permitted Exceptions, create any Lien on any DS
Assets, (iii) enter into any material joint venture or
partnership for the conduct of DS Business, or (iv) purchase or
otherwise acquire any material assets or securities of any
person (including without limitation other divisions and
subsidiaries of Seller) which would become DS Assets.
(e) Seller will not permit the DS Business to:
(i) make or commit to make any capital
expenditure in excess of Seller's approved capital
expenditure budget for the DS Business for 1995 set
forth on Schedule 5.5(e);
(ii) pay, loan or advance any amount to, or
sell, transfer or lease any properties or assets to,
or enter into any agreement or arrangement with, any
of its Affiliates except in accordance with past
practices;
(iii) fail to keep in full force and effect
insurance comparable in amount and scope to
<PAGE> 75
coverage maintained in respect of the DS Business;
(iv) make any change in any method of
accounting or accounting principle, method, estimate
or practice except for any such change required by
reason of a concurrent change in GAAP;
(v) settle, release or forgive any claim or
litigation, on a basis less favorable to Seller than
the target established by Seller for such matter as of
the date hereof;
(vi) except with respect to the acceptance of
any bid outstanding on the date hereof, make, enter
into, modify or amend in any material respect or
terminate any contract or bid which would require the
approval of the Executive Vice President of Seller
with responsibility for the DS Business under the
Approval Matrix; and
(vii) commit to do any of the foregoing.
(f) From and after the date hereof and until the Closing Date,
Seller will:
(i) use all reasonable efforts to continue
to maintain in all material respects the DS Assets in
accordance with present practices in a condition
<PAGE> 76
suitable for their current use;
(ii) with respect to the DS Business, keep
its books of account, records and files in the
ordinary course and in accordance with existing
practices; and
(iii) use all reasonable efforts to continue
to maintain existing business relationships with
suppliers and customers of the DS Business other than
relationships that Seller reasonably determines are
not economically beneficial to the DS Business.
Notwithstanding the provisions of this Section 5.5, nothing in this Agreement
shall be construed or interpreted to prevent the DS Business from, incident to
the normal cash management procedures of Seller, (i) making, accepting or
settling intercompany or intracompany advances, transfers or loans to, from or
with one another or with Seller or any Affiliate; (ii) selling accounts
receivable; or (iii) engaging in any other transaction including, without
limitation, short-term investments in bank deposits, money market instruments,
time deposits, certificates of deposit and bankers' acceptances and borrowings
for working capital purposes.
Section 5.6. Public Announcements. From the date hereof
until the Closing Date, except as required by law or the rules of any national
securities exchange, Seller and Buyer will consult with each other before
issuing, or permitting any agent or Affiliate to issue, any press releases or
otherwise making or permitting any agent or Affiliate to make, any public
statements with respect to this Agreement and the transactions contemplated
<PAGE> 77
hereby.
Section 5.7. Guaranties. (a) Buyer shall offer itself
or one or more of its Affiliates to be substituted in all respects for Seller or
any of its Affiliates, effective as of the Closing, in respect of the following
obligations of Seller and any such Affiliate (collectively, the "Guaranties"):
(i) all obligations under each of the guaranties, letters of credit, letters of
comfort, bid bonds and performance bonds obtained by Seller or any of such
Affiliates solely for the benefit of the DS Business, which guaranties, letters
of credit, letters of comfort, bid bonds and performance bonds are set forth in
Schedule 5.7 and (ii) the portion that is solely for the benefit of the DS
Business of each of the obligations of Seller and any such Affiliate under each
of the guaranties, letters of credit, letters of comfort, bid bonds and
performance bonds obtained by Seller or any of such Affiliates for the joint
benefit of the DS Business and any other business units of Seller,
provided that Seller will duly and punctually perform the portion of
such obligations which are solely for the benefit of Seller's divisions other
than the DS Business. If Buyer is unable to effect such a substitution with
respect to any of the Guaranties after using its best efforts to do so, Buyer
shall obtain letters of credit, of a form and from financial institutions
satisfactory to Seller, with respect to the obligations covered by each of the
Guaranties for which Buyer does not effect such substitution. As a result of the
substitution contemplated by the first sentence of this Section 5.7 and/or the
letter or letters of credit contemplated by the second sentence hereof, Seller
and its Affiliates shall, from and after the Closing,
<PAGE> 78
cease to have any obligation whatsoever arising from or in connection with the
Guaranties except for obligations, if any, for which Seller or the appropriate
Affiliate will be fully indemnified pursuant to a letter of credit obtained by
Buyer.
(b) On and after the Closing Date, Buyer will obtain the
release of and return to Seller as soon as practicable any and all collateral
(other than collateral included in the DS Assets) pledged pursuant to any
Guaranties. Any amounts refunded under any Guaranties relating to periods prior
to the Closing Date and any cash collateral deposited prior to the Closing Date
that is released shall be refunded to Seller, except to the extent such amounts
are reflected as assets on the Closing Statement of Adjusted Net Assets.
Section 5.8. Intellectual Property. (a) Except with
respect to the Assigned Patents, Assigned Programs and Assigned Trademarks,
Seller hereby grants to Buyer, effective as of the Closing Date, a perpetual,
fully paid-up, worldwide license under the Intellectual Property Rights to use
and make or have made products and services, and to sell such products and
services solely to customers in the Defined Industrial Fields (as defined below)
and, with respect to the Spread Spectrum Technology only, in the Satellite
Field, subject to Buyer and Seller having entered into a mutually satisfactory
confidentiality agreement on commercially reasonable terms; provided,
however, that commercial-off-the-shelf ("COTS") products shall be
excluded from such license grant. The licenses granted pursuant to this Section
5.8(a) shall be exclusive, subject to the rights of Seller and the rights of the
U.S. Government and other third parties that have been licensed by Seller prior
to the Closing Date, for a period of three years
<PAGE> 79
after the Closing Date, and shall thereafter be non-exclusive, provided that
with respect to Intellectual Property Rights not primarily developed by the DS
Business such licenses shall always be non-exclusive and provided further, that
with respect to the Spread Spectrum Technology in the Satellite Field, such
licenses shall be without any right to grant sublicenses and shall be exclusive
for a period of three (3) years, subject to a reservation in Seller, its
Affiliates, or any joint venture, partnership or similar arrangement operating
in the Satellite Field in which Seller or any of its Affiliates has a
significant equity or equity-like interest, of unlimited rights to use the
Spread Spectrum Technology. Such licenses to Buyer with respect to the Spread
Spectrum Technology shall be perpetual and nonexclusive after said three (3)
year period. The licenses granted pursuant to this Section 5.8(a) shall be
nontransferable, and Buyer shall not be entitled to assign or sublicense any of
its rights thereunder, except that (i) such licenses also include the right to
grant sublicenses to Buyer's Affiliates and permit sublicensed Affiliates to
license their Affiliates, (ii) Buyer shall be entitled to assign all of its
rights and obligations thereunder, together with all of its obligations under
the confidentiality agreement referred to above, to any successor entity that
acquires the business or product line to which the applicable licensed
Intellectual Property Rights relate, (iii) Buyer shall be entitled to sublicense
any of its rights thereunder with the written consent of Seller, which shall not
be unreasonably withheld and (iv) Buyer shall be entitled to sublicense or
assign limited rights thereto as customarily required by the U.S. Government and
other
<PAGE> 80
governmental customers, in connection with any bona fide sale of products or
services. The Defined Industrial Fields shall mean the following industrial
fields: (i) United States and foreign government defense and intelligence
activities, (ii) United States and foreign air traffic control, (iii) the United
States Postal Service and other domestic or foreign physical mail and package
delivery services (such as Federal Express), (iv) weather, environmental and
agricultural measurement devices, (v) radar systems, (vi) high-end physical
security of the type currently engaged in by the DS Business, and (vii) DOD
transportation command and control business.
(b) In addition to the license granted in Section 5.8(a) above,
with respect to the Intellectual Property Rights developed primarily by the DS
Business and used by Seller (other than in the DS Business), Seller will grant
to Buyer, at Buyer's request, a perpetual, worldwide, royalty-bearing license,
on commercially reasonable terms, to use and make or have made products and
services, and to sell such products and services to customers outside of the
Defined Industrial Fields subject to Buyer and Seller having executed a mutually
satisfactory confidentiality agreement; provided that such license shall
be granted on a royalty-free basis for the application of products and services
sold in the Defined Industrial Field for use by a governmental authority or any
entity providing a privatized governmental function for the purpose of such
privatized governmental function. This license shall be non-exclusive, except
that notwithstanding anything to the contrary in Section 5.8(a), subject to the
rights of the U.S. Government and other third parties that have been licensed by
Seller prior to the grant of any license to Buyer under this Section 5.8(b),
Seller shall not license any Intellectual Property Rights that may be
<PAGE> 81
subject to the license under this Section 5.8(b) to any third party other than
an Affiliate of Seller to sell products and services to customers in the Defined
Industrial Fields. The royalties payable pursuant to the license granted
pursuant to this Section 5.8(b) shall be on commercially reasonable terms and
conditions consistent with that which is customarily charged for such a license
in the applicable field of use. The license granted pursuant to this Section
5.8(b) shall be nontransferable, and Buyer shall not be entitled to assign or
sublicense any of its rights thereunder, except that (i) such licenses also
include the right to grant sublicenses of the same to Buyer's Affiliates and to
permit sublicensed Affiliates to license their Affiliates, (ii) Buyer shall be
entitled to assign all of its rights and obligations thereunder, together with
all of its obligations under the confidentiality provisions referred to above,
to any successor entity that acquires the business or product line to which the
applicable licensed Intellectual Property Rights relate, (iii) Buyer shall be
entitled to sublicense any of its rights thereunder with the written consent of
Seller and (iv) Buyer shall be entitled to sublicense or assign limited rights
thereto as customarily required by the U.S. Government and other governmental
customers, in connection with any bona fide sale of products or services.
(c) The licenses of Intellectual Property Rights granted herein
shall not (except as provided in the second sentences of Sections 5.8(a) and
(b)) affect Seller's right to use, disclose or otherwise freely deal with any
Intellectual Property Rights licensed hereunder.
<PAGE> 82
(d) Seller shall assign, effective as of the Closing
Date, to Buyer all of its rights in the trademarks, trade names, and service
marks listed in Schedule 5.8(d) and all associated goodwill (the "Assigned
Trademarks"). No license shall be granted with respect to any other trademarks,
trade names or service marks owned by or licensable by Seller or any of its
Affiliates (including, without limitation, the trademark "Unisys").
(e) Seller covenants that for a period of two years from the
Closing Date it shall reasonably assist Buyer in obtaining licenses in respect
of patents and copyrights owned by third parties used in the DS Business as of
the Closing Date; provided, however, that in no event will this
Section 5.8(e) require Seller to make any payment to any such third party, to
offer or grant to any third party financial or other accommodations or to
provide any rights under its intellectual properties to any third party in
connection therewith.
(f) For a period of two years after the Closing, in the event
Buyer brings to the attention of Seller in writing any patents or patent
applications, exclusive of those listed in Schedule 5.8(f), which claim or
describe inventions developed primarily by the DS Business and not used by
Seller (other than in the DS Business) and/or any copyrighted materials, or any
programming code and related materials (whether copyrighted or not) developed
primarily by the DS Business and not used by Seller (other than in the DS
Business), Seller and Buyer agree to treat any such patents or patent
applications as Assigned Patents and any such copyrighted or programming
materials as Assigned Programs, in accordance with this Agreement, subject to
the rights held by the U.S. Government and other third parties
<PAGE> 83
that have been licensed by Buyer prior to the date of the assignment to Seller
of any such Assigned Patents or Assigned Programs, and Seller shall have rights
thereunder pursuant to Section 5.8(k).
(g) For a period of two years after the Closing, in the event
Seller brings to the attention of Buyer in writing any patents or patent
applications which claim or describe inventions not developed primarily by the
DS Business and not used by Seller (other than in the DS Business) or any
copyrighted materials not developed solely by employees of the DS Business,
Seller and Buyer agree not to treat any such patents or patent applications as
Assigned Patents and not to treat any such copyrighted materials as Assigned
Programs, and to the extent that any such patents, patent applications or
copyrighted materials constitute Intellectual Property Rights, subject to the
rights held by the U.S. Government and other third parties that have been
licensed by Buyer prior to the date of the assignment to Seller of any such
Intellectual Property Rights and Buyer shall have rights thereunder pursuant to
Section 5.8(a) and Section 5.8(b).
(h) Seller agrees to grant and hereby grants to Buyer a license
under each Seller Improvement Patent, of the same scope as the license granted
under Section 5.8(a).
(i) Buyer agrees to grant and hereby grants to Seller a
perpetual, fully paid-up worldwide, nonexclusive and unrestricted license under
each Buyer Improvement Patent, to use, make or have made, and sell Seller's
products and services outside the Defined Industrial Fields. Each such license
also
<PAGE> 84
includes the right to grant sublicenses of the same extent to Seller's
Affiliates and permit sublicensed Affiliates to license their Affiliates.
(j) Seller covenants and agrees that, upon the request of
Buyer, Seller will execute and deliver any and all papers, execute all documents
and instruments and do all lawful acts as may be necessary to perfect Buyer's
right and title in and to the Assigned Patents, Assigned Programs and Assigned
Trademarks. The parties will bear their own costs with respect to the
preparation of all papers, documents and instruments and all costs associated
with the assignment to Buyer of the Assigned Patents, Assigned Programs and
Assigned Trademarks.
(k) Seller hereby reserves for itself a perpetual, fully
paid-up, worldwide, nonexclusive and unrestricted license under (A) the Assigned
Patents to enable Seller to use, make or have made, and sell its products and
services solely for uses outside the Defined Industrial Fields subject to Buyer
and Seller having entered into a mutually satisfactory confidentiality agreement
on commercially reasonable terms and (B) the Assigned Programs to copy, modify,
perform and prepare and sublicense derivative works based upon such Assigned
Programs solely for applications outside the Defined Industrial Fields. The
license reserved pursuant to this Section 5.8(k) shall be subject to Section
5.13 and shall be nontransferable, and Seller shall not be entitled to assign or
sublicense any of its rights hereunder, except that (i) such license also
includes the right to grant sublicenses to Seller's Affiliates and permit
sublicensed Affiliates to license their Affiliates, (ii) Seller shall be
entitled to assign all of its rights and obligations thereunder together with
its obligations under the
<PAGE> 85
confidentiality agreement referred to in the next preceding sentence to any
successor entity that acquires the business or product line to which the
applicable licensed Intellectual Property Rights relate, (iii) Seller shall be
entitled to sublicense any of its rights thereunder with the written consent of
Buyer, which shall not be unreasonably withheld and (iv) Seller shall be
entitled to sublicense or assign limited rights thereto as customarily required
by the U.S. Government and other customers, in connection with any bona fide
sale of products or services.
Section 5.9. Excluded Liabilities; DS Liabilities.
(a) Seller agrees that it shall continue to bear the expense of, and
responsibility for, the Excluded Liabilities.
(b) Buyer agrees, effective at the Closing, to assume the
expense of, and responsibility for, the DS Liabilities.
Section 5.10. Environmental Matters. (a) From and after
the Closing Date, Buyer agrees that it shall bear the expense of, and
responsibility for, and shall indemnify Seller against the consequences of, any
monitoring, investigation, remedial design or remediation relating to the sites
operated by the DS Business as of the Closing Date required by a governmental
authority to comply with any Environmental Law, except for any demand for
reimbursement of costs (including, without limitation, oversight costs) incurred
prior to the Closing Date, or any claims of non-governmental third parties, and
claims of drinking water supply utilities or authorities or like entities, in
each case relating to matters arising prior to the Closing Date, whether or not
such monitoring, investigation, remedial
<PAGE> 86
design or remediation activities are already under way or may be required by a
governmental authority in the future and whether or not such expenses or
liabilities were included in the DS December 1994 Statement.
(b) From and after the Closing Date, Buyer agrees that it shall
bear the expense of, and responsibility for, and shall indemnify Seller against
the consequences of, any and all environmental costs relating to sites operated
by the DS Business as of the Closing Date arising from environmental compliance
matters relating to facts disclosed by Seller, whether such matters arise prior
to or after the Closing, but not including claims of non-governmental third
parties and drinking water supply utilities or authorities or like entities
third party claims.
(c) Buyer hereby acknowledges that Seller may have rights to
cost recovery, indemnification or contribution (a "Cost Recovery") arising from
Seller's environmental costs at the DS Business prior to the Closing Date, and
Seller acknowledges that Buyer may have rights to Cost Recovery arising from
Buyer's environmental costs at the DS Business after the Closing Date. If Seller
shall litigate to final judgment a claim arising from Seller's environmental
costs at the DS Business which judgment provides for compensation for
post-Closing remediation, Seller shall provide to Buyer the benefit of such
judgment to the extent that it relates to any period after the Closing. Seller
will indemnify and hold harmless Buyer and its Affiliates from and against any
Covered Liabilities Buyer and its Affiliates may incur arising from or related
to a claim by the U.S. Government against Buyer for a credit, refund, or other
adjustment to environmental costs allowed to the DS Business
<PAGE> 87
prior to the Closing Date. If the U.S. Government should withhold from Buyer or
its Affiliates any amount arising from environmental costs allocated to the DS
Business prior to the Closing Date by means of contract offset or otherwise,
Seller shall promptly reimburse Buyer for any such withholding. Notwithstanding
anything to the contrary contained in this Agreement, Buyer hereby acknowledges
that Seller retains the sole and exclusive right in perpetuity for proceeding
with any claim, litigation, cost recovery, or action for contribution against
third parties for environmental costs or environmental damages incurred by
Seller with regard to the DS Business regardless of whether such costs are
incurred prior to or after the Closing Date. Buyer shall cooperate with Seller
to provide Seller with any data, documentation records, witnesses or other
relevant information in Buyer's possession after the Closing Date as may be
reasonably requested by Seller in Seller's pursuit or defense of any such
environmental claim, litigation, cost recovery or action for contribution.
(d) Notwithstanding anything to the contrary contained in this
Agreement, from and after the Closing Date, Seller agrees that it shall bear the
expense of, and responsibility for and shall indemnify Buyer against the
consequences of, any and all environmental costs relating in any way to:
(i) Sites formerly operated by the DS Business or by any
of Seller's non-DS businesses, but which are not operated by the DS
Business as of the Closing Date;
(ii) Sites, other than sites operated by the DS Business as
of the Closing Date, at which, prior to
<PAGE> 88
the Closing Date, the DS Business has disposed, or arranged for
the disposal of, hazardous substances;
(iii) Claims of third parties (other than
claims described in Sections 5.10(a) and 5.10(b) of this
Agreement) for environmental matters relating to conditions
existing or events arising on or prior to the Closing Date.
(e) As close to the Closing Date as practicable but in any
event prior thereto, Seller shall arrange for the off-site disposal of any
Hazardous Waste then stored at any DS facility.
(f) The term "site" as used in this Section 5.10 with respect
to any real property or facilities shared by the DS Business and any of Seller's
non-DS businesses, shall mean the portion of such real property or facility used
by the DS Business or such non-DS businesses, as the case may be.
Section 5.11. Privilege and Litigation Matters. (a)
Buyer and Seller each acknowledge that: (i) Seller (including its Affiliates)
has or may obtain information (whether in documents or stored in any other form
or known to employees or agents) that is or may be protected from disclosure
pursuant to the attorney-client privilege, the work product doctrine or other
applicable privileges that Buyer may come into possession of or obtain access to
in anticipation of or as a result of the transfer of the DS Business pursuant to
this Agreement ("Privileged Information"); (ii) there are a number of actual,
threatened or future litigations, investigations, claims or other legal matters
that have been or may be asserted against, or otherwise adversely affect, Seller
and/or Buyer ("Litigation
<PAGE> 89
Matters") including matters that may be asserted against Seller arising out of
its ownership of the DS Business prior to Closing and against Buyer arising out
of its acquisition of the DS Business pursuant to this Agreement; (iii) both
Buyer and Seller have a common legal interest in Litigation Matters relating to
the DS Business, in the Privileged Information, and in the preservation of the
confidential status of the Privileged Information; and (iv) both Buyer and
Seller intend that the Closing pursuant to this Agreement and any transfer of
Privileged Information in anticipation of or as a result of transfer of the DS
Business shall not operate as a waiver of any potentially applicable privilege.
(b) Buyer and Seller (and their Affiliates) agree not to
disclose any Privileged Information, and otherwise not to waive any privilege
that may cause disclosure of Privileged Information, without providing prompt
written notice to and obtaining the prior written consent of the other, which
consent shall not be unreasonably withheld and will not be withheld if the other
party certifies that such disclosure is to be made in response to a likely
threat of suspension or debarment. In the event of a disagreement between Buyer
and Seller concerning the reasonableness of withholding such consent, no
disclosure shall be made prior to a resolution of such disagreement by
arbitration (to which the parties hereby consent) pursuant to the rules of the
American Arbitration Association by a three-person panel with respect to which
the Buyer and Seller shall each appoint one arbitrator and the third arbitrator,
unless mutually agreed upon, shall be appointed by the American Arbitration
Association (the panel shall have no authority to make any monetary award in
<PAGE> 90
favor of or against any party).
(c) Upon Buyer or Seller (or their Affiliates) receiving any
subpoena or other compulsory disclosure notice from a court, other governmental
agency or otherwise which requests disclosure of Privileged Information, the
recipient of the notice shall promptly provide to the other a copy of such
notice, the intended response, and all materials or information that might be
disclosed. In the event of a disagreement as to the intended response or
disclosure, unless and until the disagreement is resolved pursuant to
arbitration as provided in subparagraph (b), Buyer and Seller shall cooperate to
assert all defenses to disclosure claimed by either party, and shall not
disclose any disputed documents or information until all legal defenses and
claims of privilege have been finally determined.
(d) With respect to Litigation Matters in which Seller is or
may be named as a defendant or is otherwise interested, Buyer (and its
Affiliates) agrees to provide Seller access to all documents and witnesses that
are transferred to its possession, custody or control pursuant to this
Agreement, to respond to Seller's requests for information to the same extent as
if Seller continued to own the DS Business, and otherwise to cooperate fully
with Seller.
Section 5.12. Continuing Purchase Rights. Buyer and
Seller acknowledge and agree that, from and after the Closing, Buyer and Seller
shall use their best efforts to permit Seller to purchase from VLSI Technology,
Inc. ("VLSI") or successor vendors, either directly or through the DS Business,
the same Digitac-related circuits and parts and improvements thereto that VLSI
or any such successor vendor makes available from time to time to the DS
Business, at unit prices that are no less
<PAGE> 91
favorable than the incremental unit prices, plus applicable general and
administrative expense, if required by established government cost accounting
practices then applicable to the DS Business.
Section 5.13. Noncompetition. (a) (i) Seller agrees
that, for a period of three years after the Closing Date, neither Seller nor any
of its subsidiaries (or any other company controlled by Seller) will compete
against Buyer or any of its subsidiaries or any other company controlled by
Buyer by manufacturing or selling or engaging in systems integration of products
identical or substantially similar to the following products of the DS Business
as of the Closing Date in the areas of (A) custom defense products for
application to the United States Department of Defense, intelligence agencies or
to any equivalent foreign agencies:
(i) MIL-SPEC and ruggedized equipment;
(ii) combat ship and/or submarine command, control and
navigation systems;
(iii) sonar systems;
(iv) tactical and strategic broad-band communications
systems;
(v) tactical training systems;
(vi) all U.S. Navy and foreign navy computer products
other than COTS;
(vii) airborne mission avionics systems;
<PAGE> 92
(viii) ship fire control systems;
(ix) Global Transportation Network Program and
successor programs; and
(x) landing craft air-cushioned vehicles; or (B)
custom electronics:
(i) U.S. Postal Service material handling systems;
(ii) environmental sensors;
(iii) physical security systems;
(iv) radar systems;
(v) weather radar systems, wind profilers,
NEXRAD-related weather services;
(vi) vessel traffic control systems;
(vii) gyroscopes and magnetic compasses;
(viii) standard electronic module (SEM) manufacture;
(ix) aquatic minehunting systems; and
(x) air traffic control equipment and systems.
(ii) Notwithstanding the foregoing, in no event
will this or any other provision of this Agreement (or any agreement
entered into pursuant to this Agreement) prevent Seller or any of
its Affiliates from engaging in:
(1) the manufacturing, marketing, sale,
<PAGE> 93
installation, systems integration, maintenance or support of any COTS
or commercial item of computers, software, firmware, middleware,
automatic data processing equipment, information processing resources,
microelectronics equipment, communications, networking, or
semiconductor equipment, or components and related supplies thereof.
Commercial items shall include: (A) any item that has been sold, leased
or licensed to the general public in substantial quantities, or has
been or will be offered for sale, lease or license to the general
public, or is of a type customarily used by the general public; (B) any
item that has evolved from an item described in clause (A) through
advances in technology or performance and that is not yet available in
the commercial marketplace; (C) any item that, but for modifications of
a type customarily available in the commercial marketplace or minor
modifications made to meet specific commercial or government customer
requirements, would satisfy the criteria set forth in clauses (A) or
(B); or (D) any combination of items meeting the requirements of
clauses (A), (B), or (C);
(2) providing generally available commercial services
to any customer (including, but not limited to, installation,
maintenance, repair, training, programming, and any other services in
support of any commercial item, but not for any item that Seller is
foreclosed from producing pursuant to Section 5.13(a)(i) whether
manufactured, marketed or sold by Seller or any of its Affiliates);
<PAGE> 94
(3) providing timesharing, outsourcing or
facilities management for any customer; or
(4) engaging in any activity, other than those
prohibited by Section 5.13(a)(i), including, but not limited to,
providing program management, systems integration, consultative or
professional services for any commercial, governmental, civilian,
military or other customer, in support of any product, system, mission
or function.
The restrictions of Section 5.13(a)(i) shall not
prohibit Seller or any of its Affiliates from being a supplier, vendor,
distributor, subcontractor, or teaming partner of, or joint venture
partner with, any person who may be a competitor of Buyer or any of its
Affiliates, if the products or services to be provided or performed by
Seller or any of its Affiliates would be otherwise acceptable under
this Section 5.13(a)(ii) provided that no violation of any
exclusive license or assignment granted or made pursuant to Section 5.8
or of any Intellectual Property Rights conveyed pursuant to this
Agreement is entailed.
(b) Notwithstanding the foregoing, Seller or any of
its Affiliates may acquire (and thereafter own) a company or business
that engages in activities that would otherwise be prohibited by
Section 5.13(a) if (i) at the time of such acquisition the aggregate
sales attributable to such activities as reflected in the most recently
completed fiscal year of the business to be acquired for which
financial statements are then available are less
<PAGE> 95
than the greater of $50,000,000 or 15% of the total sales of such
company or business for such fiscal year, or (ii) if such sales were in
excess of both of such thresholds, Seller shall dispose of some or all
of the portion of such acquired business that engages in such
prohibited activities, thereby causing the sales of the acquired
business attributable to such activities, on an annualized basis, to
fall below the larger of such thresholds within one year after the date
of such acquisition.
(c) For a period of two years after the Closing Date,
without the express written consent of Buyer, Seller shall not solicit,
directly or indirectly (other than through a general solicitation of
employment not specifically directed to employees of the DS Business),
the employment of or employ any DS Employee; provided, however, that
such restrictions shall not apply with respect to any DS Employee who
retires or otherwise loses his status as a DS Employee. In addition,
for a period of two years after the Closing Date, Seller shall not
hire, directly or indirectly, division managers of Buyer or persons who
report directly to such division managers, or such persons' direct
reports; provided, however , that Seller may hire such persons (i) in
the case of involuntary termination by Buyer without cause, (ii) six
months after voluntary termination of employment by such persons and
(iii) upon retirement of such persons.
(d) If any provision contained in this Section shall
for any reason be held invalid, illegal or
<PAGE> 96
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Section,
but this Section shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. It is the
intention of the parties that if any of the restrictions or covenants
contained herein is held to cover a geographic area or to be for a
length of time which is not permitted by applicable law, or in any way
construed to be too broad or to any extent invalid, such provision
shall not be construed to be null, void and of no effect, but to the
extent such provision would be valid or enforceable under applicable
law, a court of competent jurisdiction shall construe and interpret or
reform this Section to provide for a covenant having the maximum
enforceable geographic area, time period and other provisions (not
greater than those contained herein) as shall be valid and enforceable
under such applicable law.
Section 5.14. Certain Contracts and Bids. Seller and
Buyer agree that, in connection with the DS Contracts, Government Bids
and Bids in which the DS Business acts as a supplier to, or purchaser
from, other business units of Seller, Seller and Buyer at the Closing
will enter into contractual arrangements substantially similar in
price, terms and conditions to the corresponding intracompany
arrangements of Seller existing on the date hereof, which intracompany
arrangements are economically equivalent to and consistent with
allocations reflected in the DS Financial Statements. Between the date
hereof and the Closing Date, Seller shall consult with Buyer before the
DS Business enters into any new interdivisional work orders or similar
arrangements with other business units of
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Seller.
Section 5.15. DS Lease "Put" Obligations and Shared
Facilities. In the case of any DS Lease which contains an obligation on
the part of the tenant to purchase the Leased Real Property, such
obligation shall be retained by Seller and shall not be assumed by
Buyer pursuant to any assignment or sublease of such DS Lease provided
that Buyer performs in full all of the obligations of the tenant under
such DS Lease. In the case of all Leased Real Property or Owned Real
Property, the occupancy of which is presently shared by both the DS
Business and other business of Seller, such shared use shall be
continued under a Facilities Sharing Agreement between Buyer and
Seller.
Section 5.16. Title and Survey Matters. (a) Promptly
after the date of this Agreement, Buyer intends to obtain (at Buyer's
cost) a title commitment (each a "Title Commitment" and collectively,
the "Title Commitments") issued by a title company satisfactory to
Buyer (the "Title Company") for each of the Owned Real Properties and
the Leased Real Properties as Buyer shall deem necessary or desirable
and shall furnish a copy of same to Seller.
(b) Promptly after the date of this Agreement, Buyer
intends to obtain (at Buyer's cost) a current survey (each, a "Survey"
and collectively, the "Surveys") of each of the Owned Real Properties
and the Leased Real Properties as Buyer shall deem necessary or
desirable and shall furnish a copy of same to Seller.
<PAGE> 98
Section 5.17. Other Covenants. (a) At or prior to the
Closing, Buyer and Seller shall enter into the Facilities Sharing
Agreement and the Transitional Services Agreement.
(b) Seller shall deliver to Buyer, at or prior to
Closing, a list of each DS Employee as of the date hereof broken down
as (i) active, (ii) inactive on leave of absence with reemployment
rights and (iii) DS Employees who are not on the division payroll.
(c) Seller will obtain, at or prior to the Closing
Date, a cancellation, effective as of the Closing Date, of the
assignment of the receivables of the DS Business under the Morgan
Agreement.
(d) Notwithstanding that the Remaining Canadian
Termination Claims are Excluded Liabilities, Buyer hereby assumes them
as if they were DS Liabilities.
(e) Buyer and Seller agree to enter into a joint
defense agreement (the "Joint Defense Agreement") pursuant to which
Seller will defend all of the cases arising out of the DS Business
relating to postal equipment repetitive stress injury (the "Postal RSI
Cases") on behalf of itself and Buyer. Buyer agrees to cooperate in
defending such cases, including, without limitation, making Transferred
DS Employees available for discovery and trial and providing access to
and/or copies of transferred files and records, including, without
limitation, DS Books and Records. Buyer agrees to bear all of its own
direct and indirect costs associated with the aforementioned
cooperation. With respect to the Postal RSI Cases that were pending
against
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Seller as of March 20, 1995, to the extent Seller is not reimbursed
therefor by insurance in respect of such costs, Seller agrees to bear
75% of the costs of any settlement or judgment and Buyer agrees to bear
25% of the costs of any settlement or judgment and 100% of the defense
costs. Defense costs attributable to individual cases will be recorded
directly to such cases and other defense costs shall be allocated to
the cases on a pro rata basis. With respect to Postal RSI Cases that
are brought after March 20, 1995, Buyer agrees to bear 100% of defense
costs and the costs of any settlement or judgment. Buyer and Seller
agree that if the number of cases relating to repetitive stress injury
but not to postal equipment sold by the DS Business (the "Non-Postal
RSI Cases") that Seller is defending becomes fewer than the number of
Postal RSI Cases, Seller shall have the option to terminate the Joint
Defense Agreement, following which Buyer will be directly responsible
for the defense of those Postal RSI Cases, provided that Seller shall
cooperate to afford Buyer the benefit of its network of outside counsel
and experts. Buyer and Seller further agree that the costs of
settlement, judgment, or defense of Postal RSI Cases shall not be
considered Damages to which Section 11.2 applies and shall not be
counted toward the $10 million threshold referred to in Section 11.5.
(f) Buyer and Seller agree that with respect to
discrimination or wrongful termination claims by employees other than
Transferred DS Employees (the "Terminated Employee Cases"), Seller will
continue to direct the
<PAGE> 100
defense and settlement of the Terminated Employee Cases in its sole
discretion and bear all fees and other costs of such defense; provided,
however that if Buyer fails to cooperate as set forth in the following
sentence then Buyer shall reimburse Seller for any fees and other costs
resulting from such failure to cooperate. Buyer and Seller agree that
(i) Buyer will cooperate in defending such Terminated Employee Cases,
including, without limitation, making Transferred DS Employees
available for discovery and trial and providing access, records and
personnel files, and (ii) Buyer will bear all of its own expenses
incurred in such cooperation. Buyer shall reimburse Seller for 25% of
the amount of any settlement or judgment with respect to any single
Terminated Employee Case in excess of $50,000; provided, however, that
Buyer's reimbursement obligation shall not exceed $87,500 for any
single Terminated Employee Case.
(g) Buyer and Seller agree that, with respect to
bargaining unit grievances and arbitration cases arising out of or
relating to the DS Business ("Union Cases"): (i) the provisions of
paragraph (f) above shall apply to Union Cases involving an employee of
the DS Business who was terminated prior to the Closing Date and (ii)
Buyer will assume the defense of and pay all costs, fees, judgments and
settlements associated with all other Union Cases.
(h) The parties' respective obligations under this
Agreement to make payments to one another following the Closing are
separate and independent obligations, not subject to any right of set
off, which is hereby expressly waived.
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6.
ARTICLE VI
DS Employees
Section 6.1. U.S. Employee Benefit Plans. (a) Schedule
6.1(a) lists all "employee benefit plans" within the meaning of Section 3(3) of
ERISA, all formal written plans and all other material compensation and benefit
plans, contracts, policies, programs and arrangements of Seller or any of its
subsidiaries (other than routine administrative procedures) maintained in the
United States in effect as of the date hereof including, without limitation, all
pension, profit sharing, savings and thrift, bonus, stock bonus, stock option or
other cash or equity-based incentive or deferred compensation, severance pay and
medical and life insurance plans in which any of the DS Employees, terminated
vested employees of the DS Business or retired employees of the DS Business or
their respective dependents (collectively, "DS Plan Participants") participate
(collectively, "DS Employee Benefit Plans"). True, correct and complete copies
of the following documents with respect to each of the DS Employee Benefit
Plans, to the extent applicable, have been delivered or made available to Buyer
by Seller: (i) the plan and its related trust document, including all amendments
thereto, (ii) the most recent IRS Forms 5500 filed with the IRS, including all
schedules and actuarial reports, (iii) summary plan descriptions provided to
participants in the plans, (iv) material written communications to employees
relating to the plans, (v) copies of all material correspondence relating to
<PAGE> 102
audits or investigations initiated by any governmental authority (other than
with respect to audits or investigations that have been concluded) and (vi)
copies of all prohibited transaction exemption requests to the Department of
Labor and of exemptions granted and opinions of counsel relating to exempt
prohibited transactions under Section 408 of ERISA.
(b) All DS Employee Benefit Plans in all material respects are
in compliance with and have been administered in compliance with all applicable
requirements of law, including but not limited to the Code and ERISA, and all
contributions required to be made to each such plan under the terms of such
plan, any contract, any collective bargaining agreement, ERISA or the Code for
all periods of time prior to the date hereof and the Closing Date have been or
will be, as the case may be, made or accrued.
(c) Neither Seller nor any of its Affiliates is required to
contribute to, or during the five-year period ending on the Closing Date will
have been required to contribute to, any "multiemployer plan," as such term is
defined in Section 4001(a)(3) of ERISA, with respect to the DS Plan Participants
and neither Seller nor any of its Affiliates is subject to any withdrawal or
partial withdrawal liability within the contemplation of Section 4201 of ERISA
and will not become subject thereto as a result of the transactions contemplated
by this Agreement.
(d) Except for premiums paid to the PBGC, no employee benefit
plan maintained by Seller or its Affiliates, or to which Seller or its
Affiliates has or has had an obligation to contribute, and which is subject to
Title IV of ERISA has or reasonably expects to incur any material liability
prior to the
<PAGE> 103
Closing Date under Section 4062 or 4063 of ERISA to the PBGC, or any trustee
appointed under Section 4042 of ERISA. Neither the Seller nor any Affiliate has
been involved in any transaction that could reasonably result in Seller or any
of its Affiliates being subject to any material liability under Section 4069 of
ERISA with respect to any employee benefit plan to which Seller or any of its
Affiliates contributed or has or has had an obligation to make contributions
during the five-year period ending on the Closing Date.
(e) Except as otherwise set forth in Schedule 3.12 hereto and
subject to Buyer's fulfillment of its obligations under Section 6.2, 6.4 and 6.5
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any material payment
(including, without limitation, severance, unemployment compensation, golden
parachute or otherwise) becoming due under any DS Employee Benefit Plan, (ii)
materially increase any benefits otherwise payable under any DS Employee Benefit
Plan, (iii) result in the acceleration of the time of payment or vesting of any
such benefits to any material extent, or (iv) result in a "prohibited
transaction", as defined in Section 4975 of the Code or Section 406 of ERISA,
involving any DS Employee Benefit Plan.
Section 6.2. Buyer's Obligations. Effective as of the
Closing Date, Buyer shall offer employment to all DS Employees in the same
geographic location at at least 85% of their base rate of pay (as defined in the
Unisys Income Assistance Plan) in effect immediately prior to the Closing Date.
Con-
<PAGE> 104
sistent with the terms of Seller's short-term disability program, Buyer shall
also offer employment upon similar terms to DS Employees on short-term
disability as of the Closing Date when they are able to return to active
employment. DS Employees who accept such offers of employment from Buyer
including individuals who commence active employment within the period of time
during which their reemployment rights are guaranteed under federal or state
law, or under any applicable collective bargaining agreements or under Seller's
leave of absence policy or upon return from short-term disability, are referred
to herein as "Transferred DS Employees" and: (i) such employment by Buyer shall
commence immediately upon the Closing Date and shall be deemed, for all purposes
consistent with applicable law, to have occurred with no interruption or break
in service, (ii) such Transferred DS Employees shall receive credit for all
periods of employment with Seller and its Affiliates prior to the Closing Date
for purposes of eligibility and vesting (but not for benefit accrual, except as
provided in Section 6.3), including for purposes of satisfying any service
requirements for early retirement under any pension plan adopted by Buyer or its
Affiliates with respect to Transferred DS Employees, (iii) Buyer shall waive any
pre-existing condition of any Transferred DS Employee for purposes of
determining eligibility for, and the terms upon which they participate in, any
welfare plan adopted by Buyer or its Affiliates with respect to the Transferred
DS Employees (other than conditions that are already in effect with respect to
such employees under Seller's welfare plans that have not been satisfied as of
the Closing Date), and (iv) Buyer shall provide the Transferred DS Employees
with employee benefit programs that are no less favorable in the aggregate than
those provided to Buyer's similarly situated employees immediately
<PAGE> 105
prior to the Closing Date. Except as otherwise provided herein, Seller shall
bear the expense of and responsibility for all Covered Liabilities arising from
claims by the Transferred DS Employees for benefits attributable to periods
before the Closing Date under the DS Employee Benefit Plans maintained by Seller
and its Affiliates. Buyer shall bear the expense of and responsibility for all
Covered Liabilities arising from claims by the Transferred DS Employees for
benefits attributable to periods after the Closing Date under the benefit plans
maintained by Buyer and its Affiliates, including, without limitation, any
claims under such plans relating to severance from employment on or after the
Closing. Except as may be specifically required by applicable law or any
agreement assumed by Buyer, Buyer shall not be obligated to continue any
employment relationship with or continue to provide any employee benefits to any
Transferred DS Employee for any specific period of time.
Section 6.3. U.S. Defined Benefit Pension Plans. As described
herein, Seller shall transfer certain pension plan assets and obligations
associated with the Transferred DS Employees other than Canadian Employees
("U.S. Transferred DS Employees") to pension plans sponsored by Buyer.
(a) Seller's U.S. Pension Plans. Prior to the Closing Date, DS
Plan Participants were covered by the Unisys Pension Plan, the Great Neck
Bargaining Unit Pension Plan and the Unisys Noncontributory Bargaining Unit
Pension Plan ("Seller's Pension Plans"). With respect to each of Seller's
Pension Plans, a favorable determination letter as to qualification
<PAGE> 106
under Section 401(a) of the Code has been issued and the related trust has been
determined to be exempt from taxation under Section 501(a) of the Code and, to
Seller's knowledge, any amendment made to any of Seller's Pension Plans
subsequent to the date of such determination letter has not adversely affected
the qualified status of any such plan. Each of Seller's Pension Plans has been
or will be submitted by Seller or its representatives within the remedial
amendment period established pursuant to Section 401(b) of the Code for
obtaining a determination letter from the IRS regarding the qualified status of
each of Seller's Pension Plans after the Tax Reform Act of 1986, and Seller will
adopt any amendments required by any such determination letter within the time
specified by the determination letter.
Seller shall take all necessary and appropriate action required
by Section 204(h) of ERISA to ensure that the U.S. Transferred DS Employees
shall cease to accrue benefits under the Seller's Pension Plans as of the
Closing Date.
(b) Buyer's Pension Plans. Effective as of the Closing
Date, Buyer shall establish or designate one or more defined benefit pension
plans ("Buyer's Pension Plans") for the benefit of the U.S. Transferred DS
Employees who were covered by Seller's Pension Plans prior to the Closing Date.
Buyer shall take all actions necessary to ensure that Buyer's Pension Plans are
qualified under Section 401(a) of the Code and that the related trusts are
exempt from taxation under Section 501(a) of the Code.
Upon receipt of the Total Transferred Pension Assets as
described in this Section 6.3, Buyer's Pension Plans shall immediately assume
all liabilities accrued under Seller's Pen-
<PAGE> 107
sion Plans with regard to the U.S. Transferred DS Employees, and Buyer shall
bear the expense of and responsibility for any and all costs, damages, losses,
expenses, or other liabilities arising out of or related to the Buyer's Pension
Plans, including benefits accrued by U.S. Transferred DS Employees prior to the
Closing Date. Notwithstanding the foregoing, Seller shall indemnify and hold
harmless Buyer, its Affiliates, Buyer's Pension Plans, and the fiduciaries of
Buyer's Pension Plan against any and all Covered Liabilities relating to any
claim (i) that the administration of Seller's Pension Plans prior to the date of
segregation of assets undertaken pursuant to Section 6.3(c)(vii), or that the
transactions contemplated by this Agreement as they affect the benefits of any
Transferred DS Employee under Seller's Pension Plans violate the rights of any
such employee or the fiduciary duties of any fiduciary under Seller's Pension
Plans, (ii) arising from an error in the calculation of any U.S. Transferred DS
Employee's accrued benefit under Seller's Pension Plans and (iii) regarding the
operation or qualification of Seller's Pension Plans in accordance with the
applicable provisions of the Code and ERISA. Buyer's Pension Plans shall include
provisions providing that the accrued benefits as of the Closing Date of U.S.
Transferred DS Employees under Buyer's Pension Plans may not be decreased by
amendment or otherwise, except as required by law.
Seller shall provide Buyer with true, correct and complete
copies of all plan documents, amendments, instruments, employee communications
and records required to establish and administer Buyer's Pension Plans with
respect to each U.S. Transferred DS Employee's benefits, compensation and
service
<PAGE> 108
prior to the Closing Date.
(c) Pension Asset Transfer. Assets shall be transferred
from the trusts that form a part of Seller's Pension Plans to the trusts that
form a part of Buyer's Pension Plans in the manner described below:
(i) Allocation of Pension Assets. As of January 1,
1995, Seller has determined the fair market value of pension assets
attributable to the DS Business under Seller's Pension Plans, such
attributable amount having been determined in accordance with Federal
procurement requirements and established cost accounting practices of
Seller (as shown on Schedule 6.3(d)) to be $1,073.6 million
(the "Pension Assets").
(ii) U.S. Transferred DS Employees. Pension Assets shall be
allocated to the U.S. Transferred DS Employees in an amount equal to
the actuarial liability as of January 1, 1995 (determined in accordance
with Section 6.3(d)) of the U.S. Transferred DS Employees under
Seller's Pension Plans (The parties have initially determined such
amount to be $238.1 million and such amount shall hereafter be adjusted
only to reflect the specific individuals who shall qualify as U.S.
Transferred DS Employees on the Closing Date and to reflect the
revaluation of the liability based on actual participant data as of
January 1, 1995).
(iii) DS Plan Participants who are not U.S. Transferred DS
Employees. Pension Assets shall be allocated to DS Plan Participants
who are not U.S. Transferred DS Employees in an amount equal to the
actuarial liability as of January 1, 1995 (determined in accordance
with Section 6.3(d)) of the
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DS Plan Participants who are not U.S. Transferred DS Employees under
Seller's Pension Plans (The parties have initially determined such
amount to be $760.8 million and such amount shall hereafter be adjusted
only to reflect the specific individuals who do not qualify as U.S.
Transferred DS Employees on the Closing Date and to reflect the
revaluation of the liability based on actual participant data as of
January 1, 1995).
(iv) Nonqualified Pension Benefits Associated with DS Plan
Participants who are not U.S. Transferred DS Employees . As of January
1, 1995, Seller shall determine the actuarial liability (determined in
accordance with Section 6.3(d)) of DS Plan Participants who are not
U.S. Transferred DS Employees under Seller's nonqualified pension plans
(as described on Schedule 6.1(a)) (The parties have initially
determined such amount to be $4.0 million and such amount shall
hereafter be adjusted only to reflect the specific individuals who do
not qualify as U.S. Transferred DS Employees on the Closing Date and to
reflect the revaluation of the liability based on actual participant
data as of January 1, 1995).
(v) Postretirement Medical Benefits Associated with DS Plan
Participants who are not U.S. Transferred DS Employees . As of January
1, 1995, Seller shall determine the actuarial liability (determined in
accordance with Section 6.3(d)) of DS Plan Participants who are not
U.S. Transferred DS Employees under Seller's postretirement medical
benefit programs (as disclosed on Schedule 6.1(a));
<PAGE> 110
reduced, however, by the market value of the assets held under the
Sperry Employees' Welfare Benefit Trust on January 1, 1995. (The
parties have initially determined such adjusted liability to be $50.6
million and such amount shall hereafter be adjusted only to reflect the
specific individuals who do not qualify as U.S. Transferred DS
Employees on the Closing Date and to reflect the revaluation of the
liability based on actual participation data as of January 1, 1995).
(vi) Total Transferred Pension Assets. The assets to be
transferred to the pension plans sponsored by the Buyer as of the
Closing Date shall be equal to the amount determined under clause (ii)
above, plus the excess, if any, between the value of the Pension Assets
determined under clause (i) above over the sum of the amounts
determined under clauses (ii), (iii), (iv) and (v) above. The parties
initially determined such amount to be $258.2 million (hereinafter
referred to as the "Target Transfer Amount") and such amount, except as
provided below, shall only be adjusted to reflect the specific
individuals who qualify or who do not qualify as U.S. Transferred DS
Employees on the Closing Date, as the case may be and to reflect the
revaluation of the amounts under clauses (ii), (iii), (iv) and (v)
above based on actual participant data as of January 1, 1995. The
Target Transfer Amount shall be increased by the actual rate of return
on assets held in the Unisys Master Trust for the period from January
1, 1995 through March 21, 1995, plus the rate of return on a one year
treasury note purchased on March 22, 1995 for the period from March 22,
1995 through the Closing Date.
<PAGE> 111
Notwithstanding the foregoing, the amount of assets to be
transferred as of the Closing Date shall be determined in a manner that
complies with Sections 401(a)(12) and 414(l) of the Code. To comply
with these requirements, Seller shall determine, in its sole
discretion, the extent to which assets will be drawn from each of
Seller's Pension Plans in order to transfer the Target Transfer Amount.
If the Target Transfer Amount cannot be transferred from the
Seller's Pension Plans to the Buyer's Pension Plans due to constraints
imposed by Sections 401(a)(12) and 414(l) of the Code, Seller shall
cause the trustee of Seller's Pension Plans to transfer assets in an
amount that complies with such Code Sections and most closely
approximates the Target Transfer Amount. If the amount of pension
assets so transferred exceeds the Target Transfer Amount, Buyer shall
pay Seller the amount of such excess in cash, after adjustment for tax
benefits and investment earnings/interest as discussed in subparagraph
(vii) below. Conversely, if the amount of pension assets so transferred
is less than the Target Transfer Amount, Seller shall pay Buyer the
amount of such shortfall in cash, after adjustment for tax benefits and
investment earnings/interest as discussed in subparagraph (vii) below.
The amount of assets to be transferred from the Seller's
Pension Plans to the Buyer's Pension Plans as of the Closing Date is
referred to as the "Total Transferred Pension Assets."
(vii) Procedures. Pending completion of the asset
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transfer described in this section, Seller and Buyer shall make
arrangements for any required benefit payments to the Transferred DS
Employees. Seller and Buyer shall provide each other with access to
information reasonably necessary to carry out such obligations.
The transfer of the Total Transferred Pension Assets will occur
as soon as administratively feasible following (A) the earlier of
Seller's receipt of copies of favorable determination letters issued by
the IRS confirming compliance with the provisions of the Tax Reform Act
of 1986 and regulations promulgated thereunder, to Buyer with respect
to the Buyer's Pension Plans or receipt of an opinion of Buyer's
counsel reasonably satisfactory to Seller that the form of Buyer's
Pension Plans are qualified under Section 401(a) of the Code, (B)
Seller's and Buyer's obtaining other regulatory approvals necessary or
desirable to effect such transfer and (C) the earlier of Buyer's
receipt of copies of favorable determination letters issued by the IRS
confirming compliance with the provisions of the Tax Reform Act of 1986
and regulations promulgated thereunder to Seller with respect to
Seller's Pension Plans or receipt of an opinion of Seller's counsel
reasonably satisfactory to Buyer that the form of Seller's Pension
Plans are qualified under Section 401(a) of the Code. Seller and Buyer
shall make any and all filings and submissions to the appropriate
Governmental agencies required to be made in connection with the
transfer of assets described herein.
As soon as practicable after the amount of the Total
Transferred Pension Assets has been determined by Seller
<PAGE> 113
and agreed to by Buyer, but in no event earlier than the Closing Date,
Seller shall cause the trustee of the Unisys Master Trust to segregate
specific assets held in such trust equal in value to the amount of the
Total Transferred Pension Assets, increased by the rate of return on a
one year treasury note purchased on March 22, 1995 for the period from
the Closing Date through the date of segregation. Seller and Buyer
shall mutually agree to the specific assets to be segregated by the
trustee of the Unisys Master Trust pending the transfer of such
segregated assets, as adjusted hereunder, to Buyer's Pension Plans. As
of the date that the trustee of the Unisys Master Trust has segregated
the Total Transferred Pension Assets as provided herein, Seller shall
appoint a fiduciary designated by Buyer and acceptable to Seller to
invest the segregated Total Transferred Pension Assets held in the
Unisys Master Pension Trust until the date such segregated assets are
transferred to Buyer's Pension Plans; provided that the segregated
assets transferred to Buyer's Pension Plans shall be reduced to reflect
any benefit payments made to the Transferred DS Employees from Seller's
Pension Plans and any allocable administrative expenses incurred by
Seller's Pension Plans in the normal course of business after the
Closing Date. Buyer shall indemnify and hold harmless Seller, its
Affiliates, Seller's Pension Plans, and the fiduciaries of Seller's
Pension Plans against any and all Covered Liabilities relating to the
investment of the segregated assets.
(d) Actuarial Matters. Actuarial assumptions and
<PAGE> 114
methodology used for computations under this Section 6.3 shall be those
adopted by Seller for Federal procurement purposes as shown on Schedule
6.3(d), as augmented to reflect the calculation of nonqualified pension
benefit and postretirement medical benefit obligations.
All actuarial calculations required under this Section 6.3 shall
be made by one or more actuaries designated by the Seller; such
actuaries shall certify, in writing, that such computations have been
made in accordance with this Agreement within 120 days following the
Closing Date. Seller shall provide one or more actuaries designated by
Buyer with all information necessary to review such calculations in all
material respects and to verify that such calculations have been
performed in a manner consistent with the terms of this Agreement. The
calculations made by Seller's actuaries shall be final and binding upon
all parties unless Buyer's actuaries certify, in writing, that such
calculations are materially incorrect within 60 days after receiving a
copy of the actuarial certification and all supporting detail on data,
assumptions, and methodologies prepared by Seller's actuary regarding
the actuarial computations required under this Section 6.3; in the
event of such a disagreement, Seller and Buyer shall agree upon and
engage an impartial actuary, who shall be entitled to the privileges
and immunities of an arbitrator, to resolve any disagreement and whose
determination as to any disagreement shall be conclusive, final and
binding and have the force and effect of an arbitral award unless
contrary to ERISA or the Code. The parties shall share equally all
costs and fees of such impartial actuary.
(e) Except as provided herein, Seller represents and warrants
that the allocation of Seller's Pension Plan assets as
<PAGE> 115
set forth above complies with applicable law, regulations and
government or other contracts to which Seller or any of its
subsidiaries are parties and Seller will indemnify and hold harmless
Buyer and its Affiliates from and against any Covered Liabilities Buyer
and its Affiliates may incur by reason of the retention of surplus
pension assets contemplated by this Section 6.3. If the U.S. Government
should withhold any amount from Buyer or its Affiliates by means of
contract offset or otherwise arising from matters relating to Seller's
Pension Plan, Seller shall promptly reimburse Buyer for any such
withholding. In the event that as a result of any suit against Seller
relating to the Total Transferred Pension Assets, Seller shall cause
assets in excess of the Total Transferred Pension Assets to be
transferred to Buyer's Pension Plans, Buyer shall pay Seller 15% of the
excess transferred. Buyer agrees to cause Buyer's Pension Plans to
accept any such transfer. Buyer will indemnify and hold harmless Seller
and its Affiliates from and against any Covered Liabilities (other than
Seller's obligation to transfer the Total Transferred Pension Assets)
Seller and its Affiliates may incur by reason of the rate of return
specified in Section 6.3(c)(vi), and Section 6.3(c)(vii) differing from
the actual rate of return for Seller's Pension Plans during the
applicable period.
Section 6.4. U.S. Defined Contribution Plans. (i) As soon as
practicable following the Closing Date, Seller shall offer to each U.S.
Transferred DS Employee who has an account balance in the Unisys
Savings Plan or the Unisys Retirement Investment Plan ("Seller's
Savings Plans") (x) the opportunity to receive a lump sum distribution
from Seller's Savings Plans
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of the employee's entire account value, or (y) the opportunity to have
that account value (to the extent it constitutes an eligible rollover
distribution under Section 402(c) of the Code) transferred in a direct
rollover to an eligible retirement plan pursuant to Code Section
401(a)(31), or (z) the right to retain a frozen account in Seller's
Savings Plans. Effective as of the Closing Date, Seller shall take all
necessary and appropriate actions to: (i) fully vest U.S. Transferred
DS Employees in their account balances under Seller's Savings Plans and
(ii) ensure that any outstanding loans to a U.S. Transferred DS
Employee under Seller's Savings Plans will not be in default as a
result of the employee's ceasing to be employed by Seller after the
Closing Date unless and until a complete distribution has been elected
under Seller's Savings Plans or there has been a failure to make timely
loan repayments by such employee. Buyer agrees to permit U.S.
Transferred DS Employees to make loan repayments through payroll
deductions with Buyer and to transfer such withheld amounts on a
monthly basis to the Seller's Savings Plans' Trustees.
(ii) Buyer agrees to have in effect on the day after the Closing
Date a defined contribution plan with a salary reduction arrangement
that covers U.S. Transferred DS Employees, the terms of which meet the
requirements of Sections 401(a) and 401(k) of the Code (the "Buyer DC
Plan"). Subject to the requirements of subparagraph (iv), Buyer shall
offer to each U.S. Transferred DS Employee the opportunity to have the
direct rollover described in paragraph (i) above (to the extent
eligible), transferred to the Buyer DC Plan. Each U.S. Transferred DS
Employee who is eligible to contribute to Seller's Savings Plans on the
Closing Date shall be eligible to contribute to the Buyer DC Plan
commencing on the day after the Closing Date.
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(iii) Notwithstanding the foregoing, account balances of U.S.
Transferred DS Employees that are invested in guaranteed investment
contracts issued by the Executive Life Insurance Company or the Mutual
Benefit Life Insurance Company (the "Frozen Accounts") shall not be
transferred or distributed. Seller's Savings Plans shall continue to
maintain the Frozen Accounts on behalf of the U.S. Transferred DS
Employees and, as future amounts are allocated to the Frozen Accounts,
such amounts shall be transferred or distributed in accordance with the
U.S. Transferred DS Employee's election in a manner deemed reasonable
and appropriate by the trustees of the Seller's Savings Plan.
(iv) Any direct rollover to Buyer DC Plan pursuant to
subparagraph (ii) will be in cash and will occur as soon as
administratively feasible following (A) the earlier of Seller's receipt
of copies of favorable determination letters issued by the IRS to Buyer
confirming compliance with the provisions of the Tax Reform Act of 1986
and applicable regulations with respect to Buyer DC Plan or the receipt
of an opinion by Buyer's counsel reasonably acceptable to Seller that
the form of the Buyer DC Plan is qualified under Sections 401(a) and
401(k) of the Code, (B) the earlier of Buyer's receipt of copies of
favorable determination letters issued by the IRS to Seller confirming
compliance with the provisions of the Tax Reform Act of 1986 and
applicable regulations with respect to Seller's Savings Plans or
receipt of an opinion of Seller's counsel reasonably satisfactory to
Buyer that the form of Seller's Savings Plans are qualified under
Sections 401(a) and 401(k) of the Code and (C) receipt of an opinion of
Seller's counsel
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reasonably satisfactory to Buyer that the direct rollover amount
satisfies the distribution requirements of Section 401(k) of the Code.
Section 6.5. U.S. Nonqualified Retirement Plans and Welfare
Plans. (a) Except as otherwise provided herein, Seller will be
responsible for all medical and dental claims and costs incurred by DS
Employees and their dependents prior to the Closing Date pursuant to
the terms of the DS Employee Benefit Plans. Buyer shall assume
responsibility for all health care benefits for Transferred DS
Employees and their dependents after the Closing Date in accordance
with such benefit programs as may be adopted by Buyer. Seller shall
retain all assets and liabilities relating to the trusts qualified
under Section 501(c)(9) of the Code set forth on Schedule 6.5(a).
(b) Except as otherwise provided herein, Seller will be
responsible for all disability income benefits for DS Employees who
become disabled prior to the Closing Date pursuant to the terms of the
DS Employee Benefit Plans. Eligibility for such benefits will be
determined in accordance with procedures established by Seller as in
effect immediately prior to the Closing Date. Disability income
benefits for Transferred DS Employees whose disability commences on or
after the Closing Date will be the responsibility of Buyer in
accordance with such benefit programs as may be adopted by Buyer.
(c) Except as otherwise provided herein, Seller will be
responsible for all life insurance and survivor benefit claims of DS
Employees for losses incurred by such employees prior to the Closing
Date pursuant to the terms of the DS Employee Benefit Plans. All life
insurance and survivor benefit claims incurred on or after the Closing
Date with respect to
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U.S. Transferred DS Employees will be the responsibility of Buyer in
accordance with such insurance programs as may be adopted by Buyer.
(d) Seller agrees that it shall retain responsibility for
"continuation coverage" benefits to all "qualified beneficiaries" of "covered
employees" for whom a "qualifying event" occurs prior to the Closing. Buyer
agrees that it shall assume such responsibility with respect to all "qualified
beneficiaries" of "covered employees" for whom a "qualifying event" occurs on or
after the Closing. The phrase "continuation coverage," "qualified
beneficiaries," "covered employees" and "qualifying event" shall have the
meaning ascribed to them in Section 4980B of the Code and Sections 601-608 of
ERISA.
(e) Each Transferred DS Employee will be credited by Buyer with
any unused vacation earned as of the Closing Date under the vacation policy of
Seller applicable to such Transferred DS Employee, provided such benefits are
reserved on Seller's financial statements and Seller is not obligated under
applicable law to pay such benefits to the Transferred DS Employees at the
Closing. Buyer shall recognize service by each Transferred DS Employee with
Seller and its Affiliates for purposes of determining entitlement to vacation
following the Closing Date under the applicable vacation policy of Buyer,
provided that this subparagraph (e) shall not entitle any Transferred DS
Employee to be credited with vacation entitlement under Buyer's vacation policy
for any period of employment prior to the Closing Date.
(f) U.S. Nonqualified Retirement Benefits and Post-
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Retirement Medical. Buyer shall bear the expense of and responsibility for all
nonqualified retirement benefits accrued through the Closing Date by U.S.
Transferred DS Employees and all post-retirement welfare benefits payable to
U.S. Transferred DS Employees; provided that Seller shall be liable for such
amounts to the extent that the liabilities as determined under SFAS 87 and SFAS
106, respectively, using the assumptions set forth on Schedule 6.3(d), as of the
Closing Date exceed $3.5 million.
Section 6.6. Canadian Employee Benefit Plans. (a) Schedule
6.6(a) lists all material benefit plans and all other employee benefit
arrangements, policies or payroll practices, including, without limitation,
severance pay, sick leave, vacation pay, salary continuation for disability,
retirement, deferred compensation, bonus, incentive, stock purchase, stock
option, hospitalization, medical, disability, accident, fringe benefit, medical
and live insurance plans, of Seller or any of its subsidiaries maintained in
Canada in which any of the DS Employees or former employees employed by Unisys
GSG Canada Inc. or Unisys Systems Limited (the "Canadian Employees") or their
respective eligible dependents (collectively, "Covered Members") participate
(collectively, the "DS Canadian Employee Benefit Plans"). True, correct and
complete copies of the following documents with respect to each of the DS
Canadian Employee Benefit Plans, to the extent applicable, have been delivered
or made available to Buyer by Seller: (i) the plan and its related trust
document, including all amendments thereto, (ii) the most recent reports filed
with any governmental authority, including all schedules and actuarial reports,
(iii) summary plan descriptions provided to participants in the plans, (iv)
material written communications to employees relating to the
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plans, and (v) copies of all material correspondence relating to audits or
investigations initiated by any governmental authority (other than with respect
to audits or investigations that have been concluded). All DS Canadian Employee
Benefit Plans in all material respects are in compliance with and have been
administered in compliance with all applicable requirements of law, and all
contributions required to be made to each such plan under the terms of the plan
or any contract or collective bargaining agreement or applicable law for all
periods of time prior to the date hereof and the Closing Date have been or will
be, as the case may be, made or accrued.
(b) Canadian Retirement Plans. Effective as of the Closing
Date, the Seller shall cause Unisys GSG Canada Inc. and Unisys Systems Limited
(together, the "Canadian Subsidiaries") to cease to be participating employers
in those DS Canadian Employee Benefit Plans listed on Schedule 6.6(a) as
Canadian Retirement/Savings Plans (the "Canadian Retirement Plans") and all
Canadian Employees shall immediately be vested in all accrued benefits and cease
to actively participate in and accrue benefits under the Canadian Retirement
Plans. Seller shall assume from the Canadian Subsidiaries and the Canadian
Subsidiaries shall transfer and assign to Seller all of the rights, interests,
duties, liabilities and obligations of the Canadian Subsidiaries under the
Canadian Retirement Plans effective as of the Closing Date.
(c) Canadian Welfare Plans.
(i) Covered Members shall continue to participate in and
be eligible for benefits under those DS Canadian Em-
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ployee Benefit Plans listed on Schedule 6.6(a) as Canadian welfare
plans (the "Canadian Welfare Plans") until the Closing Date. Buyer
shall establish non-pension benefit plans (the "Buyer's Canadian
Benefit Plans") to provide welfare benefits to Covered Members from and
after the Closing Date. Effective as of the Closing Date, the Covered
Members shall cease to participate in the Canadian Welfare Plans and
shall commence participating in Buyer's Canadian Plans.
(ii) Seller shall retain responsibility for all amounts payable
by reason of or in connection with any and all claims incurred under
the Canadian Welfare Plans by the Covered Members prior to the Closing
Date; provided that Seller shall retain responsibility for retiree
health and other welfare benefits to Canadian Employees who retired and
terminated employment with vested welfare benefits prior to the Closing
Date. Except as otherwise provided herein, Buyer shall be responsible
for all amounts payable by reason of or in connection with any and all
claims incurred under Buyer's Canadian Benefit Plans by the Covered
Members from and after the Closing Date.
For the purposes of this Section 6.6(c), claims shall be deemed to have been
incurred:
(A) with respect to all death or dismemberment
claims, on the actual date of death or dismemberment;
(B) with respect to all disability claims, other
than short-term disability or salary continuance benefits, on
the date the employee became disabled and was unable to perform
his/her regular duties of
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employment or to report for work;
(C) with respect to short-term disability or
salary continuance claims, on each day for which income
benefits are payable to the claimant;
(D) with respect to all hospital, medical, drug or
dental claims, on the date the service or supply was purchased
or received by the Covered Member.
Where a hospital, medical, drug or dental claim includes more than one service
or supply, each of which occurs at a single point in time, each such service or
supply shall result in a separate claim incurred as of the date in which the
service or supply was purchase or received. If sufficient information is not
available to identify charges associated with each claim, the total charges
shall be pro rated over the number of claims before and after the Closing Date.
(d) Seller will indemnify and hold harmless Buyer and its
Affiliates from and against any Covered Liabilities Buyer and its Affiliates may
incur by reason of the allocation of assets or retention of surplus assets by
Seller or its Affiliates under the Unisys Canada, Inc. Pension Plan as
contemplated by this Agreement failing to comply with the applicable law,
government regulations or government or other contracts to which Seller, Unisys
GSG Canada Inc., Unisys Systems Limited or any of their Affiliates are parties.
If the Canadian Government should withhold any amount from Buyer or its
Affiliates by means of contract offset or otherwise arising from matters
relating to such plan, Seller shall promptly reimburse Buyer for
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any such withholding.
Section 6.7. No Third Party Beneficiaries. Nothing herein
expressed or implied by this Agreement shall confer upon any DS Employee, or
legal representative thereof, any rights or remedies, including, without
limitation, any right to employment or benefits for any specified period, of any
nature or kind whatsoever, under or by reason of this Agreement.
7.
ARTICLE VII
Tax Matters
Section 7.1. Tax Returns of the DS Business. Seller represents
and warrants that all material Tax Returns required to be filed for taxable
periods ending on or prior to the Closing Date with respect to any activities of
the DS Business have been or will be filed in accordance with all applicable
laws, and all Taxes shown to be due on such Tax Returns have been or will be
paid, and in case of the DS Subsidiaries, the Tax Returns were true, complete
and accurate in all material respects.
Section 7.2. Allocation. Buyer and Seller agree that they shall
use their best efforts to enter into an agreement (the "Allocation Agreement")
in order to allocate the consideration paid for the DS Business for purposes of
Section 1060 of the Code among all the assets of the DS Business and the
covenant not to compete entered into pursuant to Section 5.13 no later than
sixty days before the last date on which a Form 8594 may be filed by Buyer or
Seller, whichever first occurs, with respect to the acquisition of the DS Assets
(such date being the "Filing Date"). If, sixty days before the Filing Date,
Buyer and Seller have not adopted the Allocation Agreement as
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described above, any disputed aspects of the Allocation Agreement shall be
resolved by the Neutral Auditors before the Filing Date. The costs, expenses and
fees of the Neutral Auditors shall be borne equally by Buyer and Seller. Buyer
and Seller agree to act in accordance with the allocations contained in the
Allocation Agreement in any relevant Tax Returns or similar filings. Buyer and
Seller shall each be responsible for the preparation of their own Code Section
1060 Statements and Forms in accordance with applicable Tax Laws. Buyer and
Seller shall each execute and deliver to each other such statements and forms as
are reasonably requested, which statements and forms shall be consistent with
such Allocation Agreement.
Section 7.3. Tax Obligations of Seller. Seller shall be liable
for, and shall promptly pay when due any and all Taxes for any taxable period
ending on or before the Closing Date due or payable by Seller with respect to
the DS Business, including Taxes payable by any DS Subsidiary other than New
York State Real Property Transfer Gains Tax.
Section 7.4. Tax Obligations of Buyer. Buyer shall be liable
for, and shall promptly pay when due, the following Taxes with respect to the DS
Business: (i) any and all Taxes for any taxable period beginning after the
Closing Date (whether or not reflected on the DS December 1994 Statement as
deferred tax assets, deferred tax liabilities or estimated income taxes), due or
payable by Buyer or any DS Subsidiary, and (ii) as an adjustment to the Adjusted
Cash Consideration set forth in Section 2.3 any increase in Seller's Taxes
(including any loss of tax benefits, e.g., recharacterization of gain from
capital
<PAGE> 126
to ordinary) resulting from Buyer making an election under Section 338 of the
Code or any comparable provision of state, local or foreign law ("Section 338
Election") with respect to acquisition of the shares of any DS Subsidiary,
including an additional amount that, when added to the increase in Taxes as a
result of the Section 338 Election, will result in an amount to Seller, after
Taxes, that will equal the additional cost to Seller of the Section 338
Election.
Section 7.5. Allocation of Certain Taxes. (a) Buyer and Seller
shall each be responsible for 50% of any sales, transfer, documentary, use,
filing and similar Taxes and fees, whether levied on Buyer, Seller or any of
their respective Affiliates, resulting from the transactions contemplated by
this Agreement (including, without limitation, the Transitional Services
Agreement); provided, however, that Buyer shall pay and hold Seller harmless
from any such penalties and additions that would not have arisen but for the
negligence of Buyer, and Seller shall pay and hold Seller harmless from any such
penalties and additions that would not have arisen but for the negligence of
Seller.
(b) Any Taxes of any DS Subsidiary based on income, gain or
similar items ("Income Taxes") for a taxable period beginning before the Closing
Date and ending after the Closing Date (a "Straddle Period") and reflected in a
Tax Return covering the Straddle Period shall be apportioned between Seller and
Buyer based on the actual operations of any DS Subsidiary, as the case may be,
during the portion of such period ending on the Closing Date and the portion of
such period beginning on the day following the Closing Date, and for purposes of
the provisions of Sections 7.3, 7.4 and 7.6, each portion of such
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period shall be deemed to be a taxable period (whether or not it is in fact a
taxable period). Any Taxes other than Income Taxes relating to a Straddle Period
shall be apportioned between Buyer and Seller based on the number of days during
the portion of the assessment period occurring on and before the Closing Date,
and the number of days during such period occurring after the Closing Date and
for purposes of Sections 7.3, 7.4 and 7.6 each portion of such period shall be
deemed to be a taxable period (whether or not it is, in fact, a taxable period).
To the extent estimated Taxes have been paid prior to the Closing Date with
respect to a Straddle Period, Seller's liability with respect thereto shall be
reduced by that amount; provided, further, that if such payment or accrual of
Taxes exceeds Seller's liability as calculated pursuant to this Section 7.5,
Buyer shall promptly pay Seller the amount of such excess. Prior to 30 days from
the due date of the return for the Straddle Period, Buyer shall allow Seller to
review the Straddle Period return and related work papers for the purpose of
determining the accuracy of the amount of Taxes determined to be due from, or
due to, Seller. Seller shall pay Buyer at least 10 days prior to the date any
payment for Taxes described in this Section 7.5 is due. Any dispute between
Buyer and Seller with respect to this Section 7.5 shall be resolved by the
Neutral Auditors. Buyer agrees to file all Tax Returns in an accurate and timely
manner for tax periods ending after the Closing Date, whether or not such tax
periods include periods before the Closing Date. Buyer and Seller agree not to
change any accounting methods or take any filing position with respect to the DS
Subsidiaries inconsistent with Tax Returns filed for prior
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periods to the extent that taking such position could result in an increase in
any Taxes of Seller for any tax periods ending on or prior to the Closing Date,
or of Buyer with respect to any Tax periods ending after the Closing Date.
Section 7.6. Refunds and Credits. (a) Seller shall be entitled
to any refunds or credits of Taxes with respect to the DS Business attributable
to or arising in taxable periods ending on or before the Closing Date reduced by
any portion of such refund or credit payable to any third party pursuant to any
DS Contract and further reduced by any Tax imposed on such credit or refund.
(b) Buyer shall be entitled to any refunds or credits of Taxes
with respect to the DS Business attributable to or arising in taxable periods
beginning after the Closing Date.
(c) Buyer shall promptly forward to Seller or reimburse Seller
for any refunds or credits due Seller (pursuant to the terms of this Article
VII) within 15 days after receipt thereof, and Seller shall promptly forward to
Buyer (pursuant to the terms of this Article VII) or reimburse Buyer for any
refunds or credits due Buyer within 15 days after receipt thereof.
Section 7.7. Gains Tax. Prior to Closing, and in sufficient
time to make required filings in a timely manner, Seller shall obtain any
required appraisal of the fair market value of the DS Assets that are subject to
the New York State Real Property Transfer Gains Tax. The expense of such
appraisal shall be borne equally by Seller and Buyer. Seller shall prepare and
timely file, or cause to be prepared and timely filed, with the appropriate
authorities all Tax returns, reports
<PAGE> 129
and forms with respect to, and shall pay, or cause to be paid, the Tax with
respect to, the New York State Real Property Transfer Gains Tax. Buyer and
Seller shall cooperate in good faith with each other to take all necessary and
appropriate actions to accomplish the completion and timely filing of the
applicable reports, returns and forms.
Section 7.8. Section 338 Election. Buyer agrees that it will
give Seller notice of any election it makes under Section 338 of the Code with
respect to its acquisition of the shares of any DS Subsidiary. If Buyer decides
that an election under Section 338(h)(10) would benefit it, then, upon notice to
Seller not later than 180 days after Closing, (i) Buyer shall timely make an
election under Section 338(g) of the Code (and any comparable election under
state, local or foreign Tax law in such jurisdiction that also provide for an
election comparable to a Code Section 338(h)(10) election); (ii) if requested by
Buyer, Seller shall join Buyer in timely making the election under Section
338(h)(10) of the Code (and any comparable election under state, local or
foreign Tax law in such jurisdiction that also provide for an election
comparable to Code Section 338(h)(10) election) with respect thereto; and (iii)
Buyer and Seller shall cooperate in good faith with each other to take all
necessary and appropriate actions to accomplish the completion and timely filing
of such elections in accordance with the provisions of Treasury Regulation
Section 1.338(h)(10)-1. Seller will furnish such information to Buyer as Buyer
may reasonably request to enable Buyer to decide whether an election under
Section 338(h)(10) would be beneficial to it, including, without limitation, its
basis in the shares of each DS
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Subsidiary, detailed descriptions of the assets held by each DS Subsidiary, the
separate tax basis of the various assets of each DS Subsidiary, the tax
accounting treatment of such assets, and depreciation and amortization
information schedules for such assets.
Section 7.9. Cooperation and Exchange of Information. (a) As
soon as practicable, but in any event within 30 days after Seller's request,
from and after the Closing Date, Buyer shall provide Seller with such
cooperation as requested by Seller pertaining to any Taxes relating to any
period prior to the Closing and shall deliver to Seller such information and
data concerning the pre-Closing operations of the DS Business and make available
such knowledgeable DS Employees as Seller may request, including providing the
information and data required by Seller's customary tax and accounting
questionnaires, in order to enable Seller to complete and file all Tax Returns
which it may be required to file with respect to the DS Business through the
Closing Date or to respond to audits by any domestic or foreign taxing
authorities with respect to such operations and to otherwise enable Seller to
satisfy its internal accounting, tax and other legitimate requirements. Such
cooperation and information shall include, without limitation, provision of
powers of attorney for the purpose of signing Tax Returns and defending audits
and providing copies of all relevant Tax Returns, together with accompanying
schedules and related workpapers, documents relating to rulings or other
determinations by any domestic or foreign taxing authority and records
concerning the ownership and tax basis of property, which Buyer may possess.
Buyer shall make its employees and facilities reasonably available on a mutually
convenient basis not to interfere with normal business operations to provide
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explanation of any documents or information provided hereunder.
(b) For a period of seven (7) years after the Closing Date or
such longer period as may be required by law, Buyer shall retain, maintain in an
orderly fashion and not destroy or dispose of all Tax Returns for all taxable
periods ending on or prior to the Closing Date. Buyer shall retain all, and not
knowingly dispose of any, books and records (including computer files) that
pertain to the DS Business and that are directly related to such Tax Returns.
Thereafter, Buyer shall not knowingly destroy or dispose of any such Tax
Returns, books or records unless it first offers such Tax Returns, books and
records to Seller in writing and Seller fails to accept such offer within sixty
(60) days of its being made. If Seller accepts such offer, it shall remove the
material from Buyer's premises at its own expense.
(c) Buyer and Seller and their respective Affiliates shall
cooperate in the preparation of all Tax Returns relating in whole or in part to
taxable periods ending on or before or including the Closing Date that are
required to be filed after such date. Such cooperation shall include, but not be
limited to, furnishing prior years' Tax Returns or return preparation packages
illustrating previous reporting practices or containing historical information
relevant to the preparation of such Tax Returns, and furnishing such other
information within such party's possession requested by the party filing such
Tax Returns as is relevant to their preparation. In the case of any state, local
or foreign joint, consolidated, combined or unitary Tax Returns, such
cooperation shall also relate to any other
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taxable periods in which one party could reasonably require the assistance of
the other party in obtaining any necessary information.
(d) If Buyer fails to provide any information requested by
Seller or Seller fails to provide any information requested by Buyer in the time
specified herein, or if no time is specified pursuant to this Section 7.9,
within a reasonable period, or otherwise fails to do any act required of it
under this Section 7.9, then Buyer or Seller, as the case may be, shall be
obligated, notwithstanding any other provision of this Agreement, to indemnify
Seller or Buyer, as the case may be, and Buyer shall so indemnify Seller and
hold Seller harmless, or Seller shall so indemnify Buyer and hold Buyer
harmless, as the case may be, from and against any and all costs, claims or
damages, including, without limitation, all Taxes or deficiencies thereof,
payable as a result of such failure.
(e) Buyer and Seller, upon request, shall use their respective
commercially reasonable efforts to obtain any certificate or other document from
any taxing authority or other person as may be necessary to mitigate, reduce or
eliminate any Taxes that would otherwise be imposed with respect to the DS
Business. The party requesting such information and assistance pursuant to this
Section 7.9 shall reimburse the other party for all reasonable out-of-pocket
costs and expenses incurred by such party in providing such information and in
rendering such assistance.
Section 7.10. Tax Contests. If a claim shall be made by any
taxing authority which, if successful, would result in the indemnification of
Buyer pursuant to Section 11.2 as a result of a breach of Section 7.3, or if an
audit is commenced by
<PAGE> 133
any taxing authority with respect to any tax that could give rise to such a tax
claim (a "Tax Claim"), Buyer shall promptly notify Seller in writing of such
claim or such audit, as the case may be. If notice of the Tax Claim is not given
to Seller within a sufficient period of time or in reasonable detail to apprise
Seller of the nature of the tax (in each instance taking into account the facts
and circumstances with respect to such Tax Claim), Seller shall not be liable to
Buyer to the extent that Seller's position is actually prejudiced as a result
thereof. To the extent legally permitted, Seller shall control all proceedings,
including any audit with any contest (including, without limitation, selection
of counsel) with respect to a Tax Claim; provided, however, that, prior to
assuming control of such proceedings, Seller shall agree that it is liable to
indemnify Buyer in the amount of the Taxes at issue in such proceeding. Seller
agrees to promptly inform Buyer as to the progress of any such proceeding and
will provide Buyer with sufficient notice of any meetings or conferences with an
applicable taxing authority. Buyer shall have the right to participate in any
such meeting, conference, or proceeding solely at its expense. Seller, in its
sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority with respect to
such Tax Claim and may, in its sole option, either pay the tax claimed and sue
for a refund where applicable law permits such refund suits or may contest the
Tax Claim in any permissible manner, and shall prosecute such contest to a
determination in a court of initial jurisdiction, and if Seller shall have
furnished Buyer with an opinion of Seller's tax counsel to the
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effect that there is a reasonable basis to appeal such Tax Claim, Seller shall
prosecute such contest to a determination in an appellate court. Buyer agrees to
provide Seller with any authorizations, powers of attorney, etc., as may be
necessary to allow Seller to pursue all such actions permitted by this Section
7.10.
Section 7.11. Tax Sharing Agreements. Seller hereby covenants
and agrees that, at Closing, all tax sharing agreements (other than as provided
by this Agreement), between the DS Subsidiaries and Seller or any Affiliate
thereof (other than DS Subsidiaries) will be terminated and that any liabilities
of the DS Subsidiaries to Seller or any Affiliate thereof have been discharged.
Section 7.12. Buyer's Option to Acquire Canadian Cash
Balances. Notwithstanding anything to the contrary contained elsewhere in this
Agreement:
(i) Solely for purposes of Section 2.2, all Canadian Cash
Balances shall be included in DS Assets, and shall not be Excluded Assets;
(ii) The Adjusted Cash Consideration shall be increased by an
amount equal to the Net Canadian Cash Balances, such increase to be payable by
Buyer to Seller on the Closing Audit Payment Date, or such earlier date as Buyer
shall elect, with interest on any such adjustment at the Prime Rate from the
Closing Date to the date of such payment.
On the distribution, directly or indirectly, of a portion or
all of the Canadian Cash Balance by a Canadian Subsidiary to Buyer, Buyer shall
pay to Seller a cumulative amount
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equal to ten (10) percent of the cumulative excess of the (x) Effective Canadian
Withholding Tax Rate multiplied by the amount of such distributions before
deduction of any Canadian withholding Tax over (y) the cumulative Canadian
withholding Taxes actually imposed on such distributions. For purposes of this
computation, distributions which are not subject to Canadian withholding Tax
because they are treated for purposes of that Tax as a reduction of capital
shall be deemed to be first paid with Canadian Cash Balances and other
distributions shall be deemed to be first paid from earnings subsequent to the
Closing Date and capital contributions, if any, subsequent to the Closing Date.
If requested by Seller, Buyer shall obtain a certification from Buyer's
Accountant as to the correctness of the amount of the payment and such
certification shall be conclusively binding on the parties as to the correctness
of the amount of the payment.
8.
ARTICLE VIII
Conditions of Buyer's Obligation to Close
Buyer's obligation to consummate the transactions contemplated
hereby shall be subject to the satisfaction on or prior to the Closing Date, or
waiver by Buyer, of all of the following conditions:
Section 8.1. Representations, Warranties and Covenants of
Seller. The representations and warranties of Seller contained in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had been made
on and as of such date except for representations and
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warranties that speak as of a specific date or time other than the Closing Date
(which need only be true and correct in all material respects as of such date or
time) (provided that no breaches of representations and warranties shall be
deemed to excuse Buyer's obligation to consummate the transactions contemplated
hereby unless, individually or in the aggregate, such breaches would result in a
Material Adverse Effect), and the covenants and agreements of Seller to be
performed on or before the Closing Date in accordance with this Agreement shall
have been duly performed in all material respects.
Section 8.2. Filings; Consents; Waiting Periods. All
registrations, filings, applications, notices, consents, approvals, orders,
qualifications and waivers identified in Section 4.2 as being a condition to the
Closing for Buyer shall have been filed, made or obtained, and all waiting
periods applicable under the HSR Act and the Competition Act shall have expired
or been terminated; provided, however, that Buyer shall not be entitled to claim
the benefit of any such condition if the failure of such condition to be
satisfied is a result of a breach by Buyer of any provision of this Agreement.
Section 8.3. No Injunction. At the Closing Date, there shall be
no injunction, restraining order or decree of any nature of any court or
governmental agency or body of competent jurisdiction that is in effect that
restrains or prohibits the consummation of the transactions contemplated by this
Agreement.
Section 8.4. Opinion of Counsel. Buyer shall have received a
favorable opinion, dated as of the Closing Date, from the General Counsel to
Seller, in form and substance reasonably satisfactory to Buyer and its counsel
that:
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(a) Seller is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation, and
Seller has all requisite corporate power to own its properties and assets and to
conduct its business as now conducted. Seller is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction in which
the nature of the property owned or leased by it or the conduct of its business
requires it to be so qualified, except where the failure to be so qualified
would not have a material adverse effect on the business, assets or financial
condition of Seller.
(b) Seller has the corporate power to enter into this Agreement
and to carry out its obligations hereunder. The execution and delivery of this
Agreement and the performance of the obligations of Seller hereunder have been
duly authorized by the Board of Directors of Seller, and no other corporate
proceedings on the part of Seller are necessary to authorize such execution,
delivery and performance. This Agreement has been duly executed by Seller and
constitutes the valid and binding obligation of Seller, enforceable against
Seller in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other laws relating to or affecting
the enforceability of creditors' rights generally and except that the remedy of
specific performance or similar equitable relief may be subject to equitable
defenses and to the discretion of the court before which enforcement is sought.
(c) The execution, delivery and performance by Seller of this
Agreement do not violate any provision of the
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certificate of incorporation or by-laws of Seller; and assuming compliance with
the Anti-Assignment Laws, will not violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Seller or any of the DS Assets, nor
result in a breach of or a default under any material lease, loan agreement,
mortgage, security agreement, trust indenture or other finance agreement or
instrument known to such counsel after due inquiry, to which Seller is a party
or by which it is bound or to which its properties or assets is subject, in each
case the effect of which could have a material adverse effect on the business,
assets or financial condition of Seller; nor, to the best of its knowledge after
due inquiry, will result in the creation or imposition of any material lien,
charge or encumbrance upon any of the DS Assets or the DS Business.
Section 8.5. Material DS Leases. There shall not exist as of
the Closing Date any circumstances preventing Buyer from using the Leased Real
Properties that are the subject to the Material DS Leases (or comparable
facilities) in substantially the same manner as such properties were used by
Seller prior to the Closing Date.
9.
ARTICLE IX
Conditions to Seller's Obligation to Close
Seller's obligation to consummate the transactions contemplated
by this Agreement is subject to the satisfaction on or prior to the Closing
Date, or waiver by Seller, of all of the following conditions:
Section 9.1. Representations, Warranties and Covenants of
Buyer. The representations and warranties of Buyer
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contained in this Agreement shall be true and correct in all material respects
on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date except for
representations and warranties that speak as of a specific date or time other
than the Closing Date (which need only be true and correct in all material
respects as of such date or time) and the covenants and agreements of Buyer to
be performed on or before the Closing Date in accordance with this Agreement
shall have been duly performed in all material respects.
Section 9.2. Filings; Consents; Waiting Periods. All
registrations, filings, applications, notices, consents, approvals, orders,
qualifications and waivers identified in Section 3.3 or listed in Schedule 3.3
hereto as being a condition to the Closing for Seller shall have been filed,
made or obtained, and all applicable waiting periods under the HSR Act and the
Competition Act shall have expired or been terminated; provided, however, that
Seller shall not be entitled to claim the benefit of any such condition if the
failure of such condition to be satisfied is a result of a breach by Seller of
any provision of this Agreement.
Section 9.3. No Injunction. At the Closing Date, there shall be
no injunction, restraining order or decree of any nature of any court or
governmental agency or body of competent jurisdiction that is in effect that
restrains or prohibits the consummation of the transactions contemplated by this
Agreement.
Section 9.4. Opinion of Counsel. Seller shall have received a
favorable opinion, dated as of the Closing Date, from
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Buyer's Senior Vice President and Secretary, in form and substance reasonably
satisfactory to Seller and its counsel that:
(a) Buyer is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York, has all requisite
corporate power and authority to own and lease all of its properties and assets
and to conduct its business as now conducted, and to the best of such counsel's
knowledge, is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the property owned or
leased by it or the conduct of its business requires it to be so qualified,
except where the failure to be so qualified would not have a material adverse
effect on the business, assets or financial condition of Buyer.
(b) Buyer has the requisite corporate power and authority to
enter into this Agreement and to incur and perform its obligations hereunder.
The execution, delivery and performance by Buyer of this Agreement has been duly
authorized by all necessary corporate action on the part of Buyer, and this
Agreement constitutes a valid, legal and binding obligation of Buyer,
enforceable in accordance with its terms except as the same may be limited by
bankruptcy, insolvency, reorganization or other laws relating to or affecting
the enforceability of creditors' rights generally and except that the remedy of
specific performance or similar equitable relief may be subject to equitable
defenses and to the discretion of the court before which enforcement is sought.
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10.
ARTICLE X
Termination
Section 10.1. Termination. Subject to the terms of Section 10.2 this
Agreement may be terminated at any time prior to the Closing by:
(a) The mutual consent of Seller and Buyer; or
(b) Either Seller or Buyer if the Closing has not occurred by
the close of business on or prior to December 31, 1995 and if the failure to
consummate the transactions contemplated by this Agreement on or before such
date did not result from the failure by the party seeking termination of this
Agreement to fulfill any covenant provided for herein that is required to be
fulfilled prior to Closing.
Section 10.2. Option to Close. Notwithstanding the provisions
of Section 10.1(b), if the Closing shall not have theretofore occurred and such
failure to close is due solely to the failure to obtain any consent or approval
required pursuant to Antitrust Laws, then Buyer shall have the option,
exercisable on or before December 1, 1995, to direct Seller to effect the
Closing on or prior to December 31, 1995 in accordance with the terms of this
Agreement, with transfers of assets made to such entities and in accordance with
such protections and procedures as Buyer and Seller shall mutually agree upon in
order to effectuate the Closing without causing Seller or Buyer to violate any
statute, rule, regulation or other applicable law or the terms of any
injunction, restraining order or decree of any nature of any court or
governmental agency or body of competent jurisdiction, provided, however, that
Buyer shall indemnify and hold harmless the Seller Indemnified Parties (as
defined in
<PAGE> 142
Section 11.3 hereof), from and against any and all Damages incurred by the
Seller Indemnified Parties as a result of Seller effecting the Closing in
accordance with the terms of this Section 10.2.
Section 10.3. Procedure and Effect of Termination. In the event
of termination of this Agreement by either or both of Seller and Buyer pursuant
to Section 10.1(b) or Section 10.2, written notice thereof shall forthwith be
given by the terminating party to the other party hereto, and this Agreement
shall thereupon terminate and become void and have no effect, the transactions
contemplated hereby shall be abandoned without further action by the parties
hereto, and the parties hereto waive and release any claim or Action with
respect thereto, except that the provisions of Sections 5.1(b), 5.1(e), 5.11(a),
5.11(b), 5.11(c) and 12.5 shall survive the termination of this Agreement;
provided, however, that such termination shall not relieve any party hereto of
any liability for any willful, material breach of Section 5.2 of this Agreement,
which breach is not cured within fifteen business days following written notice
from the other party specifying the nature of such breach in reasonable detail.
If this Agreement is terminated as provided herein, all filings, applications
and other submissions made pursuant to Sections 3.3 and 4.2 shall, to the extent
practicable, be withdrawn from the agency or other persons to which they were
made.
11.
ARTICLE XI
Survival; Indemnification
Section 11.1. Survival of Representations, Warranties,
Covenants and Agreements. (a) Except as otherwise pro-
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vided in Section 11.1(b), the representations and warranties and the covenants
and agreements contained in this Agreement, or in any certificate or other
instrument delivered by or on behalf of Buyer or Seller at the Closing, shall
survive the Closing until the later of (i) the first anniversary of the Closing
Date or (ii) one month after the date of completion of the audit of the first
annual financial statements of Buyer that includes at least six months of
consolidated post-Closing operations, and there shall be no liability or
obligation whatsoever in respect thereof on the part of any of Seller, Buyer or
any of their Affiliates unless written notice of a claim or of facts that would
constitute a claim in respect thereof shall have been delivered to the other
party prior to such date whether such liability has accrued prior to or will
accrue after the Closing Date.
(b) (i) The representations and warranties and the covenants
and agreements of the parties made pursuant to this Agreement and set forth in
Article VII (relating to tax matters) shall survive the Closing Date and remain
operative and in full force and effect until six months after the expiration of
the applicable statutory period of limitations (giving effect to any waiver or
extension thereof).
(ii) The covenants and agreements of the parties
made pursuant to this Agreement and set forth in this Article XI (relating to
survival and indemnification) or Article XII (relating to miscellaneous) or in
any of Sections 2.3 (relating to consideration for the DS Assets), 2.6 (relating
to purchase price adjustment), 2.7 (relating to assignment of contracts and
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rights), 4.6 (relating to inspections and limitations of Seller's
warranties), 5.1(c) (relating to DS Books and Records), 5.1(d) (relating to
certain other books and records), 5.1(e) (relating to confidentiality of Seller
Proprietary Information), 5.4 (relating to further assurances, novation and
contract audits), 5.7 (relating to guaranties), 5.8 (relating to intellectual
property), 5.9 (relating to Excluded Liabilities and DS Liabilities), 5.10
(relating to environmental matters), 5.11 (relating to privilege and litigation
matters), 5.12 (relating to continuing purchase rights), 5.13 (relating to
noncompetition), 5.14 (relating to certain contracts and bids), 5.15 (relating
to DS Lease "put" obligations and shared facilities), 5.16 (relating to title
and survey matters), 5.17 (relating to certain other covenants), 6.2 (relating
to Buyer's obligations), 6.3 (relating to U.S. defined benefit pension plans),
6.4 (relating to U.S. defined contribution plans), 6.5 (relating to U.S.
nonqualified retirement plans and welfare plans) and 6.6 (relating to Canadian
employee benefit plans), and Section 7.12 (relating to Net Canadian Cash
Balances) shall survive until all obligations set forth therein shall have been
performed and satisfied.
(c) The representations and warranties referred to in this
Section 11.1 are, to the extent and so long as they survive the Closing as
provided in this Section 11.1, referred to as the "Surviving Representations."
The covenants and agreements referred to in this Section 11.1 are, to the extent
and so long as they survive the Closing as provided in this Section 11.1,
referred to as the "Surviving Covenants."
Section 11.2. Seller's Indemnification Obligations. If the
Closing is consummated, Seller shall indemnify and hold
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harmless to the fullest extent permitted by law Buyer and Buyer's Affiliates,
and their respective directors, officers, employees and agents, and each of the
heirs, executors, successors and assigns of any of the foregoing (collectively,
the "Buyer Indemnified Parties"), from and against any and all Damages incurred
by the Buyer Indemnified Parties as a result of any breach by Seller of any of
the Surviving Representations or Surviving Covenants made by Seller and from and
against each and every Excluded Liability and all Damages related thereto.
Section 11.3. Buyer's Indemnification Obligations. If the
Closing is consummated, Buyer shall indemnify and hold harmless to the fullest
extent permitted by law Seller and Seller's Affiliates, and each of their
respective directors, officers, employees and agents, and each of the heirs,
executors, successors and assigns of any of the foregoing (collectively, the
"Seller Indemnified Parties"), from and against any and all Damages incurred by
the Seller Indemnified Parties as a result of any breach by Buyer of any of the
Surviving Representations or Surviving Covenants made by Buyer and from and
against the DS Liabilities and any Damages arising out of or related to any of
the DS Liabilities or in connection with any Action that may relate to or arise
from the DS Liabilities.
Section 11.4. Procedures for Indemnification Claims. Except as
otherwise provided in Section 7.10 (relating to tax contests), the respective
indemnification obligations of Seller and Buyer pursuant to Sections 11.2 and
11.3 shall be conditioned upon compliance by the Buyer Indemnified Parties (in
respect of the obligations of Seller) or the Seller Indemnified
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Parties (in respect of the obligations of Buyer) with the following procedures
for indemnification claims arising out of this Agreement:
(a) If at any time a claim shall be made or threatened, or an
action or proceeding shall be commenced or threatened, against a person
(the "Aggrieved Party") which could result in liability of Buyer or
Seller pursuant to its indemnification obligations hereunder (as such,
the "Indemnifying Party"), the Aggrieved Party shall give to the
Indemnifying Party prompt notice of such claim, action or proceeding;
provided, however, that a failure to provide prompt notice by the
Aggrieved Party shall not be deemed a failure to comply with these
procedures unless the Indemnifying Party is damaged thereby and
provided, further, that the Indemnifying Party shall have no obligation
in respect of any claim unless such notice shall have been delivered to
the Indemnifying Party prior to the expiration of the Surviving
Representations and Surviving Covenants upon which such claim is based.
Such notice shall state the basis for the claim, action or proceeding
and the amount thereof (to the extent such amount is determinable at
the time when such notice is given) and shall permit the Indemnifying
Party to assume the defense of such claim, action or proceeding
(including any action or proceeding resulting from any such claim).
Failure by the Indemnifying Party to notify the Aggrieved Party of its
election to defend any such claim, action or proceeding within a
reasonable time, but in no event more than 30 days after notice thereof
shall have been given to the Indemnifying Party, shall be deemed a
waiver by the Indemnifying Party of its right to defend such claim,
action
<PAGE> 147
or proceeding; provided, however, that the Indemnifying Party shall not
be deemed to have waived its right to contest and defend against any
claim of the Aggrieved Party for indemnification hereunder based upon
or arising out of such claim, action or proceeding.
(b) If the Indemnifying Party assumes the defense of any such
claim, action or proceeding, the obligation of the Indemnifying Party
as to such claim, action or proceeding shall be limited to taking all
steps necessary in the defense or settlement thereof and, provided the
Indemnifying Party is held to be liable for indemnification hereunder,
to holding the Aggrieved Party harmless from and against any and all
Damages caused by or arising out of any settlement approved by the
Indemnifying Party or any judgment or award rendered in connection with
such claim, action or proceeding. The Aggrieved Party may participate,
at its expense, in the defense of such claim, action or proceeding,
provided that the Indemnifying Party shall direct and control the
defense of such claim, action or proceeding. Without limiting any other
obligation under this Agreement, the Aggrieved Party agrees to
cooperate and make available to the Indemnifying Party all books and
records and such officers, employees and agents as are reasonably
necessary and useful in connection with the defense. The Indemnifying
Party shall not, in the defense of such claim, action or proceeding,
consent to the entry of any judgment or award, or enter into any
settlement, except in either event with the prior consent of the
Aggrieved Party (such consent not to be unreasonably
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withheld), unless such judgment, award or settlement includes as an
unconditional term thereof the giving by the claimant or the plaintiff
to the Aggrieved Party of a release from all liability in respect of
such claim, action or proceeding and such settlement entails no
substantial adverse effects upon the Aggrieved Party, either directly
or indirectly.
(c) If the Indemnifying Party does not assume the defense of
any such claim, action or proceeding, the Aggrieved Party may defend
against, or settle, such claim, action or proceeding in such manner as
it may deem appropriate. Without limiting any other obligation under
this Agreement, the Indemnifying Party agrees to cooperate and make
available to the Aggrieved Party all books and records and such
officers, employees and agents as are reasonably necessary and useful
in connection with the defense or settlement of such claim, action or
proceeding.
(d) If an Aggrieved Party or Indemnifying Party shall cooperate
in the defense or make available books, records, officers, employees or
agents, as required by the terms of Section 11.4(b) or (c), the party
to which such cooperation is provided shall pay the out-of-pocket costs
and expenses (including legal fees and disbursements) of the party
providing such cooperation and of its officers, employees and agents
reasonably incurred in connection with providing such cooperation, but
shall not be responsible to reimburse the party providing such
cooperation for such party's time or the salaries or costs of fringe
benefits or other similar expenses paid by the party providing such
cooperation to its officers and employees in connection
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therewith.
Section 11.5. No Consequential Damages for Seller Indemnified
Parties or Buyer Indemnified Parties; Indemnification Limits; Exclusive Remedy.
(a) None of the Seller Indemnified Parties or Buyer Indemnified Parties shall be
entitled to any recovery under this Agreement for its own special or
consequential damages. Nothing in this Section 11.5(a) shall prevent any of the
Seller Indemnified Parties or Buyer Indemnified Parties from being indemnified
for all components of awards against them in Actions by third parties,
including, without limitation, special and consequential damage components.
(b) Notwithstanding any provision to the contrary contained in
this Agreement, Seller shall not be liable to any of the Buyer Indemnified
Parties in respect of any claim for indemnification for breach of
representations or warranties made hereunder without actual knowledge of falsity
at the time such representation or warranty was made or repeated unless and
until the aggregate Damages for which the Buyer Indemnified Parties otherwise
would be entitled to indemnification under this Article XI after giving effect
to the preceding limitations exceeds the amount of $10,000,000 and, if such
amount is exceeded, Seller shall be obligated to pay only the amount by which
such aggregate Damages exceed $10,000,000; provided that in no event shall
Seller be obligated to pay under this Article XI, in the aggregate, an amount
greater than the Closing Cash Consideration.
(c) Buyer and Seller acknowledge and agree that, after the
Closing Date, the sole and exclusive legal remedy of
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each party with respect to any and all claims relating to or arising out of
misrepresentation or breach of any representation, warranty, covenant or
agreement made by the other party in this Agreement shall be pursuant to the
indemnification provisions set forth in this Article XI. Nothing set forth in
this Article XI shall be deemed to prohibit or limit either party's right at any
time, on or after the Closing Date, to seek injunctive or equitable relief for
the failure of the other party to perform any covenant or agreement contained
herein.
Section 11.6. Treatment of Indemnification Payments. Any
payments made pursuant to Section 11.2 or 11.3 shall be treated by Seller and
Buyer as an adjustment to the purchase price provided for herein, and Seller and
Buyer agree not to take any position inconsistent therewith for any purpose.
12.
ARTICLE XII
Miscellaneous
Section 12.1. Corporate Name. Buyer acknowledges that, from and
after the Closing Date, Seller and their Affiliates have the absolute and
exclusive proprietary right to all names, marks, trade names and trademarks
(collectively "Names") incorporating "Unisys," "Sperry," "Burroughs," or "System
Development Corp." by itself or in combination with any other Name, and that
none of the rights thereto or goodwill represented thereby or pertaining thereto
are being transferred hereby or in connection herewith. Buyer agrees that from
and after the Closing Date it will not, nor will it permit any of its Affiliates
to, use any name, phrase or logo incorporating "Unisys," "Sperry," "Burroughs,"
or "System Development Corp." in or on any of its literature, sales materials or
products or otherwise in connection with the sale of any products or ser-
<PAGE> 151
vices; provided, however, that Buyer may continue to use any printed literature,
sales materials, purchase orders and sales, maintenance or license agreements,
and sell any products, that are included in the inventories of the DS Business
on the Closing Date and that bear a name, phrase or logo incorporating "Unisys,"
"Sperry," "Burroughs," or "System Development Corp." until the supplies thereof
existing on the Closing Date have been exhausted, but in any event for not
longer than ninety (90) days from the Closing Date. With respect to the printed
purchase orders and sales, maintenance or license agreements referred to in the
preceding sentence, from and after the Closing Date Buyer shall sticker or
otherwise mark such documents as necessary in order to indicate clearly that
neither Seller nor any of its Affiliates is a party to such documents. From and
after the expiration of such ninety (90) day period, Buyer shall cease to use
any such literature and sales materials; delete or cover (as by stickering) any
such name, phrase or logo from any item included in the inventories of the DS
Business that bears such name, phrase or logo; and take such other actions as
may be necessary or advisable to clearly and prominently indicate that neither
Buyer nor any of its Affiliates is affiliated with Seller or any of its
Affiliates. Within 30 days after the Closing Date, Buyer shall delete all
references to the Names with respect to the DS Business on signs on or near
buildings or offices in which the DS Business is conducted, and shall eliminate
the Names from the name of each of the DS Subsidiaries.
Section 12.2. Counterparts. This Agreement may be executed in
one or more counterparts, all of which shall be
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considered one and the same agreement, and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties. Copies of executed counterparts transmitted by telecopy or other
electronic transmission service shall be considered original executed
counterparts for purposes of this Section 12.2, provided receipt of copies of
such counterparts is confirmed.
Section 12.3. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware without
reference to the choice of law principles thereof.
Section 12.4. Entire Agreement. This Agreement (including
agreements incorporated herein) and the Schedules and Exhibits hereto contain
the entire agreement between the parties with respect to the subject matter
hereof and there are no agreements, understandings, representations or
warranties between the parties other than those set forth or referred to herein
and in the Closing Memorandum. Except for Sections 11.2 and 11.3, this Agreement
is not intended to confer upon any person not a party hereto (and their
successors and assigns permitted by Section 12.7) any rights or remedies
hereunder.
Section 12.5. Expenses. Except as set forth in this Agreement,
whether or not the transactions contemplated by this Agreement are consummated,
all legal and other costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses.
Section 12.6. Notices. All notices and other communications
hereunder shall be sufficiently given for all pur-
<PAGE> 153
poses hereunder if in writing and delivered personally, sent by documented
overnight delivery service or, to the extent receipt is confirmed, facsimile or
other electronic transmission service to the appropriate address or number as
set forth below:
(a) if to Seller, to
Unisys Corporation
Township Line and Union Meeting Roads
P.O. Box 500
Blue Bell, Pennsylvania 19424
Attention: General Counsel
Fax No: (215) 986-3889
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Andrew R. Brownstein, Esq.
Fax No: (212) 403-2000
(b) if to Buyer, to
Loral Corporation
600 Third Avenue
36th Floor
New York, New York 10016
Attention: Vice President and General Counsel
Fax No.: (212) 682-9805
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
Attention: Bruce R. Kraus, Esq.
Fax No.: (212) 821-8111
or at such other address and to the attention of such other person as a party
may designate by written notice to the other party; provided, however, that any
such notice shall be deemed given only upon receipt thereof.
Section 12.7. Successors and Assigns. This Agreement
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shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that except as provided
below no party hereto will assign its rights or delegate its obligations under
this Agreement without the express prior written consent of each other party
hereto; provided that Buyer may assign its rights under this Agreement in whole
or in part to one or more wholly-owned subsidiaries provided that Buyer shall
guarantee the performance of, and shall remain primarily liable to Seller under,
all of its covenants and agreements in this Agreement; and provided, further,
that after the Closing Date Seller shall be entitled to assign all of its
respective rights and obligations hereunder to any successor entity that may
acquire all or substantially all of their respective assets or business, by
merger or otherwise.
Section 12.8. Headings; Definitions. The section and article
headings contained in this Agreement are inserted for convenience of reference
only and will not affect the meaning or interpretation of this Agreement. All
references to Sections or Articles contained herein mean Sections or Articles of
this Agreement unless otherwise stated. All capitalized terms defined herein are
equally applicable to both the singular and plural forms of such terms.
Section 12.9. Amendments and Waivers. This Agreement may not be
modified or amended except by an instrument or instruments in writing signed by
the party against whom enforcement of any such modification or amendment is
sought. Any party hereto may, only by an instrument in writing, waive compliance
by the other parties hereto with any term or provision of this Agreement on the
part of such other party hereto to be
<PAGE> 155
performed or complied with. The waiver by any party hereto of a breach of any
term or provision of this Agreement shall not be construed as a waiver of any
subsequent breach.
Section 12.10. Interpretation. For the purposes of this
Agreement, (i) unless otherwise specified, "dollars" shall mean United States
dollars, (ii) a "subsidiary" of a corporation means any corporation more than
50% of whose outstanding voting securities are directly or indirectly owned by
such other corporation, (iii) "to Seller's knowledge" or words to similar effect
shall mean the actual knowledge of the persons listed on Schedule 12.10 after
due inquiry, which may be satisfied by consultation with the senior management
of the DS Business, and (iv) a "person" shall mean an individual, a partnership,
a joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof. It is understood and agreed that
neither the specification of any dollar amount in the representations and
warranties contained in this Agreement nor the inclusion of any specific item in
the Schedules or Exhibits is intended to imply that such amounts or higher or
lower amounts, or the items so included or other items, are or are not material,
and neither party shall use the fact of the setting of such amounts or the fact
of the inclusion of any such item in the Schedules in any dispute or controversy
between the parties as to whether any obligation, item or matter is or is not
material for purposes of this Agreement.
Section 12.11. Severability. Any provision of this Agreement
which is invalid or unenforceable shall be ineffective to the extent of such
invalidity or unenforceability, without
<PAGE> 156
affecting in any way the remaining provisions hereof.
IN WITNESS WHEREOF, this Agreement has been signed by or on
behalf of each of the parties as of the day first above written.
UNISYS CORPORATION
By: /s/ Harold S. Barron
------------------------------
Name: Harold S. Barron
Title: Senior Vice President,
General Counsel and
Secretary
LORAL CORPORATION
By: /s/ Eric J. Zahler
------------------------------
Name: Eric J. Zahler
Title: Vice President and
General Counsel
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statements
of Loral Corporation and Subsidiaries on Form S-8 (File Nos. 2-78421, 2-91193,
33-7589, 33-14516, 33-23757, 33-37829, 33-55661 and 33-55675) and Form S-3 (File
Nos. 33-50407 and 33-53741) of our report dated January 25, 1995, with respect
to the combined financial statements of Unisys Defense Systems (a unit of Unisys
Corporation), which appears in the Report on Form 8-K of Loral Corporation dated
May 5, 1995.
ERNST & YOUNG LLP
Philadelphia, PA 19103
May 19, 1995
