<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): July 8, 1999
IFR SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-14224 48-1197645
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
10200 West York, Wichita, Kansas 67215
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (316) 522-4981
<PAGE>
ITEM 2. Acquisition or Disposition of Assets.
On July 8, 1999, Registrant completed the sale to GN Nettest A/S, GN
Nettest (New York) Inc. and GN Great Britain Limited of all of Registrant's
capital stock of PK Technology, Inc. and PK Technology Limited which together
comprised Registrant's Optical Test & Measurement Division, for a cash sales
price of approximately $43,000,000.
The sales price was determined in arms'-length negotiations. There is
no material relationship between the purchasers and the Registrant or any of its
affiliates, directors or officers or any of their associates.
A copy of the Stock Purchase Agreement is filed as Exhibit 1 to this
Form 8-K and is hereby incorporated herein by reference.
Registrant realized an after-tax gain on the sale of approximately
$12,000,000. The proceeds of the sale have been used by Registrant to reduce
its bank debt with $31,740,000 being used to reduce long-term debt and
$11,260,000 to reduce short-term debt.
The financial effects of such sale and other information concerning
such sale are reflected in the financial statements and other information
contained in Registrant's Form 10-K for the year ended March 31, 1999.
1
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
Not applicable.
(b) Pro Forma Financial Information.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
------------------------------------------------------
The following unaudited pro forma consolidated financial information of the
Company has been prepared to reflect the sale as if the sale had been
consummated at earlier dates as discussed herein.
The unaudited pro forma consolidated statement of operations and related
earnings per share data for the nine month period ending March 31,1999 are based
on the Company's historical results from continuing operations adjusted to
reflect the impact of the sale as if it had occurred on July 1, 1998.
The unaudited pro forma consolidated balance sheet at March 31, 1999 reflects
the impact of (i) exclusion of the respective OTM Division balances; (ii)
recognition of the estimated net gain from the disposition of the OTM Division;
and (iii) the receipt of the cash proceeds from the sale.
The unaudited pro forma consolidated financial information is not necessarily
indicative of the Company's consolidated financial position or consolidated
results of operations had the sale reflected therein actually been consummated
on the assumed dates, nor is it necessarily indicative of the Company's
consolidated financial position or consolidated results of operations for any
future period.
<PAGE>
IFR Systems, Inc.
Pro Forma Consolidated Statement of Operations
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,1999
------------------------------------------------------------------
HISTORICAL ADJUSTMENTS (1) PRO FORMA
------------------------------------------------------------------
<S> <C> <C> <C>
SALES $ 106,159 $ - $ 106,159
COST OF PRODUCTS SOLD 58,858 - 58,858
------------------------------------------------------------------
GROSS PROFIT 47,301 - 47,301
OPERATING EXPENSES:
Selling 18,329 - 18,329
Administrative 11,799 - 11,799
Engineering 13,705 - 13,705
------------------------------------------------------------------
43,833 - 43,833
------------------------------------------------------------------
OPERATING INCOME 3,468 - 3,468
OTHER INCOME (EXPENSE):
Interest income 578 - 578
Interest expense (7,685) - (7,685)
Other, net (22) - (22)
------------------------------------------------------------------
(7,129) - (7,129)
------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAX BENEFIT (3,661) - (3,661)
INCOME TAX BENEFIT (1,512) - (1,512)
------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS $ (2,149) $ - $ (2,149)
------------------------------------------------------------------
------------------------------------------------------------------
LOSS PER SHARE - BASIC:
Loss from continuing operations $ (0.26) $ - $ (0.26)
LOSS PER SHARE - DILUTED:
Loss from continuing operations $ (0.26) $ - $ (0.26)
AVERAGE COMMON SHARES OUTSTANDING 8,207 8,207
------------------------------------------------------------------
------------------------------------------------------------------
DILUTIVE COMMON SHARES OUTSTANDING 8,207 8,207
------------------------------------------------------------------
------------------------------------------------------------------
</TABLE>
See notes to unaudited pro forma consolidated financial information.
<PAGE>
IFR Systems, Inc.
Pro Forma Consolidated Balance Sheet
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------------------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
--------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,086 $ 43,000 (3) $ 48,086
Accounts receivable - Net 27,306 - 27,306
Inventories:
Finished products 15,568 - 15,568
Work in process 8,811 - 8,811
Materials 13,650 - 13,650
-------------------------------------------------------------------------
38,029 - 38,029
Prepaid expenses and sundry 6,042 - 6,042
Deferred income taxes 2,492 - 2,492
Current assets of discontinued operations 17,460 (17,460) (2) -
--------------------------------------------------------------------------
TOTAL CURRENT ASSETS 96,415 25,540 121,955
PROPERTY AND EQUIPMENT:
Land 4,670 - 4,670
Buildings 8,183 - 8,183
Machinery 23,226 - 23,226
Allowances for depreciation (deduction) (13,835) - (13,835)
--------------------------------------------------------------------------
22,244 - 22,244
PROPERTY UNDER CAPITAL LEASE:
Building 2,757 - 2,757
Machinery 2,444 - 2,444
Allowances for depreciation (deduction) (1,962) - (1,962)
--------------------------------------------------------------------------
3,239 - 3,239
PROPERTY AND EQUIPMENT PENDING DISPOSITION, NET OF
ALLOWANCES FOR DEPRECIATION 3,058 (3,058) (2) -
OTHER ASSETS:
Cost in excess of net assets acquired, less
accumulated amortization 21,485 - 21,485
Developed technology, less accumulated amortization 17,708 - 17,708
Other intangibles, less accumulated amortization 13,172 - 13,172
Other 2,090 - 2,090
Other assets related to discontinued operations - net 7,632 (7,632) (2) -
--------------------------------------------------------------------------
62,087 (7,632) 54,455
--------------------------------------------------------------------------
TOTAL ASSETS 187,043 14,850 201,893
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
See notes to unaudited pro forma consolidated financial information.
<PAGE>
IFR Systems, Inc.
Pro Forma Consolidated Balance Sheet
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
--------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank borrowings $ 17,700 $ - $ 17,700
Accounts payable 9,883 - 9,883
Accrued compensation and payroll taxes 4,401 - 4,401
Other liabilities and accrued expenses 8,890 - 8,890
State and local taxes 564 - 564
Federal income taxes 556 6,900 (4) 7,456
Current maturity of capital lease obligations 185 - 185
Current maturity of long-term debt 4,250 - 4,250
Current liabilities of discontinued operations 3,823 (3,823) (2) -
--------------------------------------------------------------
TOTAL CURRENT LIABILITIES 50,252 3,077 53,329
CAPITAL LEASE OBLIGATIONS 3,442 - 3,442
LONG-TERM DEBT 93,125 - 93,125
DEFERRED INCOME TAXES 11,828 - 11,828
DEFERRED INCOME TAXES OF DISCONTINUED OPERATIONS 168 (168) (2) -
SHAREHOLDERS' EQUITY:
Common Stock 93 - 93
Additional paid-in capital 7,368 - 7,368
Treasury Stock (8,611) - (8,611)
Accumulated other comprehensive loss (1,187) - (1,187)
Retained earnings 30,565 11,941 (4) 42,506
--------------------------------------------------------------
Total shareholders' equity 28,228 11,941 40,169
--------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 187,043 $ 14,850 $ 201,893
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>
See notes to unaudited pro forma consolidated financial information.
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(1) No pro forma adjustments are necessary since the historical loss from
continuing operations excludes the operating results of the OTM Division. The
estimated interest earned during the nine month period ending March 31, 1999,
assuming the excess cash from the sale was invested on July 1, 1998, is
$967,000. This assumes a 5 percent interest rate and is net of applicable income
taxes. The interest income is not reflected in the pro forma adjustments. The
estimated gain from the sale is discussed in (4) below.
(2) Reflects adjustments to remove OTM Division historical balance sheet
amounts.
(3) Reflects the increase in cash received from the sale.
(4) Retained earnings are adjusted by the anticipated net gain resulting from
the sale. The income tax effect is shown under federal income taxes. The before
tax gain on the sale is anticipated to be approximately $18,841,000.
(c) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
1 Stock Purchase Agreement, dated as of June 28,
1999, between GN Nettest A/S, GN Nettest (New
York) Inc, and GN Great Britain Limited and IFR
Systems, Inc.
2 Press release dated June 29, 1999 issued by
Registrant announcing the sale of its Optical
Test & Measurement Division
</TABLE>
<PAGE>
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 thereunto duly authorized.
IFR SYSTEMS, INC.
By /s/ Jeffrey A Bloomer
---------------------
Jeffrey A. Bloomer
Executive Vice President Treasurer and Chief
Financial Officer (Principal Financial and
Accounting Officer)
Date: July 22, 1999
<PAGE>
STOCK PURCHASE AGREEMENT
dated as of
June 28, 1999
between
GN NETTEST A/S
GN NETTEST (NEW YORK) INC.
GN GREAT BRITAIN LIMITED
and
IFR SYSTEMS, INC.
relating to the purchase and sale
of
100% OF THE CAPITAL STOCK
of
PK TECHNOLOGY, INC.
and
100% OF THE ISSUED SHARE CAPITAL
of
PK TECHNOLOGY LIMITED
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
Definitions
Section 1.01. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2
Purchase and Sale
Section 2.01. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . 8
Section 2.02. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.03. CLOSING BALANCE SHEET . . . . . . . . . . . . . . . . . . 11
Section 2.04. ADJUSTMENT OF PURCHASE PRICE. . . . . . . . . . . . . . . 13
ARTICLE 3
Representations and Warranties of Seller
Section 3.01. CORPORATE EXISTENCE AND POWER . . . . . . . . . . . . . . 14
Section 3.02. CORPORATE AUTHORIZATION . . . . . . . . . . . . . . . . . 14
Section 3.03. GOVERNMENTAL AUTHORIZATION. . . . . . . . . . . . . . . . 14
Section 3.04. NONCONTRAVENTION. . . . . . . . . . . . . . . . . . . . . 15
Section 3.05. CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . 15
Section 3.06. OWNERSHIP OF SHARES . . . . . . . . . . . . . . . . . . . 15
Section 3.07. SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.08. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . 16
Section 3.09. ABSENCE OF CERTAIN CHANGES. . . . . . . . . . . . . . . . 16
Section 3.10. NO UNDISCLOSED MATERIAL LIABILITIES . . . . . . . . . . . 17
Section 3.11. INTERCOMPANY ACCOUNTS . . . . . . . . . . . . . . . . . . 18
Section 3.12. MATERIAL CONTRACTS. . . . . . . . . . . . . . . . . . . . 18
Section 3.13. LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.14. COMPLIANCE WITH LAWS AND COURT ORDERS . . . . . . . . . . 20
Section 3.15. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.16. INTELLECTUAL PROPERTY . . . . . . . . . . . . . . . . . . 21
Section 3.17. INSURANCE COVERAGE. . . . . . . . . . . . . . . . . . . . 23
Section 3.18. LICENSES AND PERMITS. . . . . . . . . . . . . . . . . . . 23
Section 3.19. RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.20. ORDERS AND BACKLOG. . . . . . . . . . . . . . . . . . . . 23
Section 3.21. PRODUCT LIABILITY; PRODUCT WARRANTY . . . . . . . . . . . 24
Section 3.22. FINDERS' FEES . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.23. EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . 25
<PAGE>
Section 3.24. LABOR MATTERS . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.25. EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.26. ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . 29
Section 3.27. CUSTOMERS . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 3.28. SUFFICIENCY OF ASSETS . . . . . . . . . . . . . . . . . . 31
ARTICLE 4
Representations and Warranties of GN Nettest and Buyers
Section 4.01. CORPORATE EXISTENCE AND POWER . . . . . . . . . . . . . . 31
Section 4.02. CORPORATE AUTHORIZATION . . . . . . . . . . . . . . . . . 31
Section 4.03. GOVERNMENTAL AUTHORIZATION. . . . . . . . . . . . . . . . 32
Section 4.04. NONCONTRAVENTION. . . . . . . . . . . . . . . . . . . . . 32
Section 4.05. FINANCING . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.06. PURCHASE FOR INVESTMENT . . . . . . . . . . . . . . . . . 32
Section 4.07. LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.08. FINDERS' FEES . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 5
Covenants of Seller
Section 5.01. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . 33
Section 5.02. REQUIRED CONSENTS . . . . . . . . . . . . . . . . . . . . 34
Section 5.03. NOTICES OF CERTAIN EVENTS . . . . . . . . . . . . . . . . 34
Section 5.04. NONCOMPETITION. . . . . . . . . . . . . . . . . . . . . . 34
Section 5.05. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 5.06. CONDUCT OF THE BUSINESS . . . . . . . . . . . . . . . . . 36
ARTICLE 6
Covenants of GN Nettest and Buyers
Section 6.01. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . 36
Section 6.02. ACCESS. . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 6.03. PERFORMANCE OF OBLIGATIONS OF BUYERS. . . . . . . . . . . 37
Section 6.04. NOTICES OF CERTAIN EVENTS . . . . . . . . . . . . . . . . 37
Section 6.05. NONCOMPETITION. . . . . . . . . . . . . . . . . . . . . . 37
Section 6.06. IMPERMISSIBLE INTEGRATION . . . . . . . . . . . . . . . . 37
ARTICLE 7
Covenants of GN Nettest, Buyers and Seller
Section 7.01. CERTAIN FILINGS . . . . . . . . . . . . . . . . . . . . . 37
Section 7.02. PUBLIC ANNOUNCEMENTS. . . . . . . . . . . . . . . . . . . 38
Section 7.03. INTERCOMPANY ACCOUNTS . . . . . . . . . . . . . . . . . . 38
<PAGE>
Section 7.04. INCENTIVE PAYMENTS. . . . . . . . . . . . . . . . . . . . 38
ARTICLE 8
U.S. Tax Matters
Section 8.01. TAX DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 39
Section 8.02. TAX REPRESENTATIONS . . . . . . . . . . . . . . . . . . . 40
Section 8.03. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 8.04. TAX SHARING . . . . . . . . . . . . . . . . . . . . . . . 44
Section 8.05. COOPERATION ON TAX MATTERS. . . . . . . . . . . . . . . . 44
ARTICLE 9
UK Taxation Warranties
Section 9.01. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.02. TAX REPRESENTATIONS . . . . . . . . . . . . . . . . . . . 45
ARTICLE 10
Employee Benefits
Section 10.01. 401(k) PLAN. . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.02. NON-U.S. PLANS . . . . . . . . . . . . . . . . . . . . . 53
Section 10.03. WARN OBLIGATIONS . . . . . . . . . . . . . . . . . . . . 53
ARTICLE 11
Survival; Indemnification
Section 11.01. SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 11.02. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . 54
Section 11.03. GENERAL PROCEDURES FOR INDEMNIFICATION . . . . . . . . . 60
Section 11.04. SPECIAL PROCEDURES FOR TAX INDEMNIFICATION CLAIMS. . . . 62
Section 11.05. PURCHASE PRICE ADJUSTMENT AND INTEREST . . . . . . . . . 63
Section 11.06. NO RIGHTS OF RESCISSION. . . . . . . . . . . . . . . . . 64
ARTICLE 12
Termination
Section 12.01. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE 13
Miscellaneous
Section 13.01. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 13.02. AMENDMENTS AND WAIVERS . . . . . . . . . . . . . . . . . 65
<PAGE>
Section 13.03. EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 13.04. CURRENCIES . . . . . . . . . . . . . . . . . . . . . . . 66
Section 13.05. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . 66
Section 13.06. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . 66
Section 13.07. DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . 66
Section 13.08. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . 67
Section 13.09. COUNTERPARTS; THIRD PARTY BENEFICIARIES. . . . . . . . . 67
Section 13.10. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . 67
Section 13.11. CAPTIONS . . . . . . . . . . . . . . . . . . . . . . . . 67
<PAGE>
EXHIBIT A. TAX DEED
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT dated as of June 28, 1999 between GN NETTEST A/S, a Danish
corporation ("GN NETTEST"), GN NETTEST (NEW YORK) INC., a New York
corporation ("GN-US"), GN GREAT BRITAIN LIMITED, a UK company ("GN-UK" and,
together with GN-US, the "BUYERS") and IFR SYSTEMS, INC., a Delaware
corporation ("SELLER").
W I T N E S S E T H :
WHEREAS, Seller conducts a fiber optics test equipment business through
its direct subsidiary PK Technology, Inc., an Oregon corporation ("PK-US"),
and its indirect subsidiary PK Technology Limited, a UK company ("PK-UK" and,
together with PK-US, the "COMPANIES" and each a "COMPANY");
WHEREAS, Seller (or one or more of its direct or indirect subsidiaries)
is the record or legal and beneficial owner of all of the outstanding shares
of capital stock or issued shares of the Companies and desires to sell the
shares of PK-US to GN-US and the shares of PK-UK to GN-UK, and GN-US and
GN-UK desire to purchase the shares of PK-US and PK-UK, respectively, from
Seller (or one or more of its direct or indirect subsidiaries), upon the
terms and subject to the conditions hereinafter set forth; and
WHEREAS, Buyers and Seller desire that this Agreement, the Shares (as
defined herein) and the Purchase Price (as defined herein) be placed in
escrow until the HSR waiting period applicable to the sale of the Shares
pursuant to this Agreement shall have expired or been terminated, as more
fully described in the Escrow Agreement between Buyers, Seller and The First
National Bank of Chicago, as escrow agent (the "ESCROW AGREEMENT").
NOW THEREFORE for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
Definitions
Section 1.1. DEFINITIONS. (a) The following terms, as used herein,
have the following meanings:
7
<PAGE>
"AFFILIATE" means, with respect to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with such
Person; PROVIDED that neither Company nor any Subsidiary shall be considered
an Affiliate of Seller.
"BALANCE SHEET" means the unaudited consolidated balance sheet of the
Companies and the Subsidiaries as of November 30, 1998.
"BALANCE SHEET DATE" means November 30, 1998.
"BUSINESS" means the fiber optic test equipment business conducted
worldwide by the Companies and the Subsidiaries as it exists on the Closing
Date.
"BUSINESS DAY" means any day other than a Saturday, Sunday or one on
which banks are required by law to close in New York, New York, Wichita,
Kansas or in Copenhagen, Denmark.
"BUYERS INDEMNITEE" means GN Nettest, each Buyer, any of their
respective Affiliates and, effective upon the Closing, without duplication,
the Companies and the Subsidiaries.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, and any rules or regulations
promulgated thereunder.
"CLOSING DATE" means the date of the Closing.
"ENVIRONMENTAL LAWS" means any federal, state, local or United Kingdom
(including, without limitation, common law), treaty, judicial decision,
regulation, rule, judgment, order, decree, injunction, permit or governmental
restriction or requirement or any agreement with any governmental authority
or other third party, whether now or hereafter in effect, relating to human
health and safety, the environment, the work place or to pollutants,
contaminants, wastes or chemicals or any toxic, radioactive, ignitable,
corrosive, reactive or otherwise hazardous substances, wastes or materials.
"ENVIRONMENTAL PERMITS" means all permits, consents, licenses,
franchises, certificates, approvals and other similar authorizations of
governmental authorities relating to or required by Environmental Laws and
affecting, or relating in any way to, the business of the Companies or any
Subsidiary as currently conducted or as conducted in the past.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and the rules and regulations promulgated thereunder.
8
<PAGE>
"ERISA AFFILIATE" of any entity means any other entity which, together
with such entity, would be treated as a single employer under Section 414 of
the Code.
"ESCROW AGENT" means The First National Bank of Chicago.
"GAAP" means generally accepted accounting principles in the United
States with respect to PK-US and in the United Kingdom with respect to the UK
Companies.
"HAZARDOUS SUBSTANCES" means any pollutant, contaminant, waste or
chemical or any toxic, radioactive, ignitable, corrosive, reactive or
otherwise hazardous substance, waste or material, or any substance, waste or
material having any constituent elements displaying any of the foregoing
characteristics, including, without limitation, petroleum, its derivatives,
by-products and other hydrocarbons, and any substance, waste or material
regulated under any Environmental Law.
"HCE" means a highly compensated employee (i) in the case of an employee
of PK-US, earning $75,000 per annum or more or (ii) in the case of an
employee of either of the UK Companies, earning L30,000 per annum or more or
the UK pound equivalent on exchange.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvement Act of 1976,
as amended, and the rules and regulations of the Federal Trade Commission
promulgated thereunder.
"INDEBTEDNESS" of any Person means (i) all indebtedness of such Person
for borrowed money, (ii) all indebtedness of such Person evidenced by notes,
bonds, debentures or other similar instruments, (iii) all obligations of such
Person under interest rate swap agreements, hedge agreements or similar
agreements, (iv) all Indebtedness of others referred to in clauses (i)
through (iii) above guaranteed directly or indirectly by such Person, and (v)
all Indebtedness referred to in clauses (i) through (iii) above secured by
(or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on property (including,
without limitation, accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness; PROVIDED that letters of credit, accounts payable, and similar
unsecured current liabilities are not Indebtedness.
"INTELLECTUAL PROPERTY RIGHT" and "INTELLECTUAL PROPERTY RIGHTS" shall
mean (i) inventions, whether or not patentable, whether or not reduced to
practice, and whether or not yet made the subject of a pending patent
application or applications, (ii) national and multinational statutory
invention registrations, patents and patent applications (including all
reissues, divisions, continuations, continuations-in-part, extensions and
reexaminations), all improvements to the inventions disclosed in each
9
<PAGE>
such registration, patent or application registered or applied for in the
United States and all other nations throughout the world, and all rights
therein provided by bilateral or international treaties or conventions, (iii)
trademarks, service marks, trade dress, logos, domain names, trade names and
corporate names, whether or not registered, including all common law rights,
and registrations and applications for registration thereof, in any product
category, including, without limitation, all marks registered or applied for
in the United States and all other nations throughout the world, and all
rights therein provided by bilateral or international treaties or
conventions, (iv) copyrights (registered or common law) and registrations and
applications for registration thereof in the United States and all other
nations throughout the world, including, but not limited to, all renewals,
extensions, reversions or restorations of copyrights, now or hereafter
provided by law, regardless of the medium of fixation or means of expression,
and all rights therein provided by bilateral or international treaties or
conventions, (v) computer software, including, without limitation, source
code, object code, firmware, operating systems and specifications, data, data
bases, files, and documentation and other materials related thereto, (vi)
trade secrets and confidential, technical and business information (including
inventions, whether patentable or unpatentable and whether or not reduced to
practice), (vii) whether or not confidential, technology (including
know-how), manufacturing and production processes and techniques, research
and development information, formulae, formulations, recipes, drawings,
specifications, designs, plans, proposals, technical data, copyrightable
works, financial, marketing and business data, pricing and cost information,
business and marketing plans and customer and supplier lists and information,
(viii) copies and tangible embodiments of all of the foregoing, in whatever
form or medium, (ix) all rights to obtain and rights to apply for patents,
and to register trademarks and copyrights, and (x) all rights to sue or
recover and retain damages and costs and attorneys' fees for past, present
and future infringement of any of the foregoing.
"ISRA" means the New Jersey Industrial Site Recovery Act, as amended,
and any rules or regulations promulgated thereunder.
"KNOWLEDGE" - an individual will be deemed to have "knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other
matter; or
(b) a prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of
performing his normal duties or upon reasonable investigation of the
existence of such fact or other matter.
A person (other than an individual) will be deemed to have "knowledge"
of a
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particular fact or other matter if an individual identified to have knowledge
for such person has, or at any time had, knowledge of such fact or other
matter. For purposes of this Agreement, "Seller's knowledge," "knowledge of
Seller" or words of similar import or meaning is limited as to the knowledge
of Jeff Bloomer, Iain Robertson, David Blaskowsky, David Coates, Garland
Shinn, Casey Shaar, Josh Kramer, Warren Hill, Francis Sladen and Bob Peavey.
"LICENSED INTELLECTUAL PROPERTY RIGHTS" shall mean all patents,
trademarks, trade names, service marks, copyrights, or computer software
owned by a third Person and licensed or sublicensed for use by either Company
or the Subsidiary if more than $20,000 has been paid or invested to obtain
said rights.
"LIEN" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest, easement, encumbrance or other adverse
claim of any kind in respect of such property or asset. For the purposes of
this Agreement, a Person shall be deemed to own subject to a Lien any
property or asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such property or asset.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
condition (financial or otherwise), business, assets, or results of
operations of the Companies and the Subsidiaries, taken as a whole. Without
limiting the generality of the foregoing, for purposes of this Agreement, a
claim against either Company or any Subsidiary or a liability of either
Company or any Subsidiary (singly or in the aggregate with other claims or
liabilities) for $2,500,000 or more, which claim or liability has a
reasonable likelihood of success on the merits or reasonable probability of
fruition, will be deemed to be materially adverse to the Companies and the
Subsidiaries, taken as a whole.
"1934 ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"OWNED INTELLECTUAL PROPERTY RIGHT" and "OWNED INTELLECTUAL PROPERTY
RIGHTS" shall mean (i) US and foreign patents and applications filed by
either of the Company or by the Subsidiary, (ii) trademarks, trade names and
service marks as to which US or foreign applications have been filed by
either of the Companies or by the Subsidiary, (iii) copyrights as to which US
registrations or foreign copyright applications have been filed by either of
the Companies or by the Subsidiary, and (iv) computer software owned by
either of the Companies or by the Subsidiary for which more than $20,000 has
been paid by either of the Companies or by the Subsidiary to a third-Person
vendor.
"PBGC" means the Pension Benefit Guaranty Corporation.
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<PAGE>
"PERSON" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
"SHARES" means 1,000 shares of common stock, no par value per share, of
PK-US (the "US SHARES"), and 875,000 ordinary shares, nominal value L1 per
share, of PK-UK (the "UK SHARES").
"SUBSIDIARY" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time
directly or indirectly owned by one of the Companies.
"TAX DEED" means the Tax Deed in the form attached hereto as Exhibit A.
"TITLE IV PLAN" means an Employee Plan subject to Title IV of ERISA
other than any Multiemployer Plan as defined in Section 414(f) of the Code.
"UK COMPANIES" means PK-UK and its Subsidiaries.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Accounting Referee 8.01
Allocation Statement 8.03(a)
Base Stockholder's Equity 2.04
Buyer DC Plan 10.01(b)
Buyers Preamble
Claim Notice 11.03
Closing 2.02
Closing Balance Sheet 2.03
Closing Stockholder's Equity 2.03
Code 8.01
Companies Recitals
Company 3.26(e)
Company Products 3.21(a)
Company Products and Services 3.27
Company Securities 3.05(b)
Damages 11.02(a)
Employee Plans 3.25(a)
Escrow Agreement Recitals
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Federal Tax 8.01
Final Determination 11.05
Final Stockholder's Equity 2.04
GN Nettest Preamble
GN-UK Preamble
GN-US Preamble
ICTA 3.25(i)
Indemnified Party 11.03
Indemnifying Party 11.03
International Plan 3.25(i)
Loss 11.02(b)
Modified Aggregate Deemed Sales Price 8.03(a)
Nexus Position 11.02(k)
Other Combined Tax 8.01
Permits 3.18
Permitted Liens 3.15(iv)
PK-UK Recitals
PK-US Recitals
PWC 2.03(c)
Pre-Closing Tax Period 8.01
Prime Rate 2.04(b)
Purchase Price 2.01
Restricted Activities 5.04(a)(i)
Returns 8.02(a)
Scheme 3.25(j)
Section 338 Tax 8.01
Section 338(h)(10) Election 8.03(a)
Seller Preamble
Seller Group 8.01
Seller's DC Plans 10.01(a)
Subsidiary 3.26(e)
Subsidiary Securities 3.07(b)
Tax 8.01
Tax Asset 8.01
Tax Benefit 11.02(n)
Tax Decision 8.03(b)
Tax Sharing Agreements 8.01
Tax Statement 11.02(k)
Taxes Act 1988 9.01
Taxing Authority 8.01
TCGA 1992 9.01
UK Noncompete Consideration 5.04(c)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
US Employee 10.01(b)
US Noncompete Consideration 5.04(c)
VATA 1994 9.01
VCR Compliance Statement 3.25(c)
WARN 10.03
Warranties 11.01
YSL 3.07
</TABLE>
ARTICLE 2
Purchase and Sale
Section 2.1. PURCHASE AND SALE. Upon the terms and subject to the
conditions of this Agreement, Seller agrees to sell to Buyers, and, in
reliance upon (inter alia) the representations, warranties and undertakings
set out in this agreement, GN Nettest agrees to cause GN-US to purchase the
US Shares and GN-UK to purchase the UK Shares from Seller at the Closing.
The purchase price for the Shares (the "PURCHASE PRICE") is $43,000,000 in
cash. The Purchase Price shall be paid as provided in Section 2.02 and shall
be subject to adjustment as provided in Section 2.04.
Section 2.2. CLOSING. The closing (the "CLOSING") of the purchase and
sale of the Shares hereunder is taking place at the offices of Davis Wright
Tremaine LLP, 1300 S.W. 5th Ave., Suite 2300, Portland, OR 97201. At the
Closing (or at the time specified below):
(a) The applicable Buyer is delivering to Seller on completion of all
the matters set out in clause 2.02(b) below:
(i) in respect of the US Shares, $30,975,000 in immediately
available funds by wire transfer from an account of GN-US to an account of
the Escrow Agent on June 29, 1999;
(ii) in respect of the UK Shares, $10,025,000 in immediately
available funds by wire transfer from an account of GN-UK to an account of
the Escrow Agent on June 29, 1999;
(iii) the US Noncompete Consideration in immediately available
funds by the same method of payment as made under clause 2.02(a)(i) above;
(iv) the UK Noncompete Consideration in immediately available
funds by the same method of payment as made under clause 2.02(a)(ii) above;
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<PAGE>
(v) an opinion of Davis Polk & Wardwell, counsel to Buyers,
dated the Closing Date to the effect specified in Sections 4.01, 4.02, 4.03
and 4.04; PROVIDED that in rendering such opinion, such counsel may rely as
to matters of Danish or UK law upon the opinions of Danish and UK counsel,
respectively, and;
(vi) a signed Form 8023 which has been signed by Seller; PROVIDED
that such Form 8023 will not be filed with the Internal Revenue Service
until Section 8.03(a) has been complied with.
(b) Seller is delivering:
(i) to the Escrow Agent for release to GN-US upon satisfaction
of the conditions set forth in the Escrow Agreement, certificates for all
the US Shares duly endorsed or accompanied by stock powers duly endorsed in
blank, with any required transfer stamps affixed thereto;
(ii) to the Escrow Agent for release upon satisfaction of the
conditions set forth in the Escrow Agreement duly executed transfers in
favor of GN-UK or its nominee(s) of all the UK Shares and the share
certificate(s) representing the UK Shares;
(iii) evidence satisfactory to Buyers that all outstanding
Indebtedness (and any related fees, expenses or other amounts) of either
Company or any Subsidiary has been repaid in full, released, or, as to the
intercompany accounts, capitalized, prior to or concurrently with the
Closing;
(iv) a certificate signed by the Chief Financial Officer of
Seller to the effect that the representations and warranties of Seller
contained in this Agreement, disregarding all qualifications relating to
materiality or Material Adverse Effects, are true with only such exceptions
or qualifications as would not result in a Material Adverse Effect;
(v) an opinion of Foulston & Siefkin L.L.P., counsel to Seller,
dated the Closing Date to the effect specified in Sections 3.01 (but only
with respect to Seller), 3.02, 3.03 and 3.04 (but only with respect to
clauses (i) and (ii) thereof);
(vi) in respect of any operations conducted in, and in respect of
each facility or real property owned, leased or operated by any Company or
Subsidiary which is located in the State of New Jersey, evidence of full
compliance by the Company with the requirements of ISRA. Such evidence
15
<PAGE>
shall be in a form satisfactory to Buyers in their sole discretion and
shall not impose upon Buyers, the Companies or any Subsidiary any
obligations or liabilities to which Buyers shall not have consented in
writing prior to the Closing Date;
(vii) a certification for PK-US signed by the appropriate officer
of PK-US to the effect that PK-US is not nor has it been within five years
of the date hereof a "United States real property holding corporation" as
defined in Section 897 of the Code;
(viii) a signed Form 8023 which has been signed by Buyers; PROVIDED
that such Form 8023 will not be filed with the Internal Revenue Service
until Section 8.03(a) has been complied with; and
(ix) resignation letters of all members of the boards of
directors of any Company or Subsidiary who will remain employees of Seller
or its Affiliates after the Closing.
(ci Buyers, Seller and the Escrow Agent are entering into the Escrow
Agreement and GN-UK, Seller and PK-UK are entering into the Tax Deed.
Section 2.3. CLOSING BALANCE SHEET. (ai As promptly as practicable,
but no later than 60 days, after the Closing Date, Buyers will cause to be
prepared and delivered to Seller the Closing Balance Sheet, together with an
unqualified report of KPMG LLP thereon, and a certificate based on such
Closing Balance Sheet setting forth Buyers' calculation of Closing
Stockholder's Equity. The Closing Balance Sheet (the "CLOSING BALANCE
SHEET") shall (x) fairly present the consolidated financial position of the
Companies and the Subsidiaries as at the close of business on June 30, 1999
in accordance with GAAP, (y) include line items substantially consistent with
those in the Balance Sheet and (z) include a restructuring charge of $991,000
less the portion thereof expensed between April 1, 1999 and June 30, 1999.
"CLOSING STOCKHOLDER'S EQUITY" means the consolidated stockholder's equity
of the Companies and the Subsidiaries as shown on the Closing Balance Sheet,
with the following adjustments: (i) less all assets that in accordance with
GAAP would be classified as intangible assets, including, without limitation,
goodwill, patents, trademarks, deferred expenses and unamortized debt
discount, (ii) plus $820,000, and (iii) excluding (A) the effect (including
the Tax effect) of the Section 338(h)(10) Election and any act, event or
transaction occurring after June 30, 1999 and not in the ordinary course of
business of the Companies or any Subsidiary, (B) any provision for assets or
liabilities attributable to UK corporate taxes, Federal Taxes or Other
Combined Taxes, (C) any provision for contingent Tax liabilities, (D) any
provision for deferred income taxes reflecting either differences between the
treatment of items or amounts for accounting and income tax purposes or
carryforwards and (E) 50% of any
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<PAGE>
currency translation adjustment. For purposes of illustration only, Schedule
2.03(a)(i) demonstrates the manner in which Closing Stockholder's Equity
would have been calculated if the effective date of the Closing Balance Sheet
had been April 30, 1999.
In making such examination, KPMG shall solely review the numbers
reflected on the Closing Balance Sheet to arrive at the Closing Balance
Sheet. It shall make no adjustment to the Closing Balance Sheet of the
Companies based on a difference of opinion with Seller or the Companies
regarding the collectibility of bad debts, the condition or useful life of
any asset, the collectibility of any accounts receivable, the age or
obsolescence of inventory, or any accounting method or accounting convention
used by Seller to prepare the Balance Sheet, a few of which accounting
methods and conventions are listed on Schedule 2.03(a)(ii). Notwithstanding
the previous two sentences, KPMG and Buyers shall be entitled to adjust any
of the foregoing items if (i) Seller's accounting practices and procedures
used to prepare the Balance Sheet have not been correctly or consistently
applied with respect to any particular item or (ii) the KPMG audit identifies
an error or omission with respect to any particular item (e.g., a particular
asset cannot be identified or located). Any positive or negative adjustments
that the Buyer or Seller determines need to be made hereunder shall only be
determined on a consolidated basis net of any positive or negative
adjustments, and shall be determined on a balance sheet line item basis
(using the Seller's method of reporting) with all inventory in the aggregate
consisting of a single line item.
(bi If Seller disagrees with Buyers' calculation of Closing
Stockholder's Equity delivered pursuant to Section 2.03(a), Seller may,
within 20 days after delivery of the documents referred to in Section
2.03(a), deliver a notice to Buyers disagreeing with such calculation and
setting forth Seller's calculation of such amount. Any such notice of
disagreement shall specify in detail those items or amounts as to which
Seller disagrees, and Seller shall be deemed to have agreed with all other
items and amounts contained in the Closing Balance Sheet and the calculation
of Closing Stockholder's Equity delivered pursuant to Section 2.03(a).
(ci If a notice of disagreement is duly delivered pursuant to Section
2.03(b), Buyers and Seller shall, during the 15 days following such delivery,
use their best efforts to reach agreement on the disputed items or amounts in
order to determine, as may be required, the amount of Closing Stockholder's
Equity, which amount shall not be less than the amount thereof shown in
Buyers' calculations delivered pursuant to Section 2.03(a) nor more than the
amount thereof shown in Seller's calculation delivered pursuant to Section
2.03(b). If, during such period, Buyers and Seller are unable to reach such
agreement, they shall promptly thereafter cause PricewaterhouseCoopers
("PWC") promptly to review this Agreement and the disputed items or amounts
for the purpose of calculating Closing Stockholder's Equity. In making such
calculation, PWC shall consider only those items or amounts in the Closing
Balance Sheet or Buyers' calculation of Closing Stockholder's Equity as to
17
<PAGE>
which Seller has disagreed. PWC shall deliver to Buyers and Seller, as
promptly as practicable, a report setting forth such calculation. Such
report shall be final and binding upon Buyers and Seller. The cost of such
review and report shall be borne (i) by Buyers if the difference between
Final Stockholder's Equity and Buyers' calculation of Closing Stockholder's
Equity delivered pursuant to Section 2.03(a) is greater than the difference
between Final Stockholder's Equity and Seller's calculation of Closing
Stockholder's Equity delivered pursuant to Section 2.03(b), (ii) by Seller
if the first such difference is less than the second such difference and
(iii) otherwise equally by Buyers and Seller.
(di Buyers and Seller agree that they will, and agree to cause their
respective independent accountants and the Companies and each Subsidiary to,
cooperate and assist in the preparation of the Closing Balance Sheet and the
calculation of Closing Stockholder's Equity and in the conduct of the audits and
reviews referred to in this Section 2.03, including without limitation, the
making available to the extent necessary of books, records and personnel. If
the Closing Balance Sheet prepared by Buyers indicates that an adjustment to the
Purchase Price in favor of Buyers would be required, Buyers will supply Seller
with appropriately detailed documentation relating to the Closing Balance Sheet.
Section 2.4. ADJUSTMENT OF PURCHASE PRICE. (ai If Base Stockholder's
Equity exceeds Final Stockholder's Equity by at least $100,000, Seller shall
pay to Buyers, as an adjustment to the Purchase Price, in the manner and with
interest as provided in Section 2.04(b), the amount of such excess above
Final Stockholder's Equity. If Final Stockholder's Equity exceeds Base
Stockholder's Equity by at least $100,000, Buyer shall pay to Seller, in the
manner and with interest as provided in Section 2.04(b), the amount of such
excess above Final Stockholder's Equity. "BASE STOCKHOLDER'S EQUITY" means
$17,756,000. "FINAL STOCKHOLDER'S EQUITY" means the Closing Stockholder's
Equity (i) as shown in Buyer's calculation delivered pursuant to Section
2.03(a), if no notice of disagreement with respect thereto is duly delivered
pursuant to Section 2.03(b); or (iiA if such a notice of disagreement is
delivered, (A) as agreed by Buyers and Seller pursuant to Section 2.03(c) or
(B) in the absence of such agreement, as shown in the independent
accountant's calculation delivered pursuant to Section 2.03(c); PROVIDED that
in no event shall Final Stockholder's Equity be less than Buyers' calculation
of Closing Stockholder's Equity delivered pursuant to Section 2.03(a) or more
than Seller's calculation of Closing Stockholder's Equity delivered pursuant
to Section 2.03(b).
(bi Any payment pursuant to Section 2.04(a) shall be made at a mutually
convenient time and place within 10 days after the Final Stockholder's Equity
has been determined by delivery by Buyers or Seller, as the case may be, of a
certified or official bank check payable in immediately available funds to the
other party or by causing such payments to be credited to such account of such
other party as may be designated
18
<PAGE>
by such other party. The amount of any payment to be made pursuant to this
Section 2.04 shall bear interest from and including the Closing Date to but
excluding the date of payment at a rate per annum equal to the Prime Rate as
published in the WALL STREET JOURNAL, Eastern Edition in effect from time to
time during the period from the Closing Date to the date of payment (the
"PRIME RATE"). Such interest shall be payable at the same time as the
payment to which it relates and shall be calculated daily on the basis of a
year of 365 days and the actual number of days elapsed
(ci Any amount paid by Buyers or Seller as an adjustment to the
Purchase Price shall be allocated as an adjustment to the purchase price of
the US Shares equal to the change (if any) in stockholder's equity of PK-US
from the Balance Sheet to the Closing Balance Sheet and as an adjustment to
the purchase price of the UK Shares equal to the change (if any) in
stockholder's equity of the UK Companies from the Balance Sheet to the
Closing Balance Sheet.
ARTICLE 3
Representations and Warranties of Seller
Seller represents and warrants to Buyers as of the Closing Date that:
Section 3.1. CORPORATE EXISTENCE AND POWER. Each of Seller and each
Company is a corporation duly incorporated and validly existing and each of
Seller and PK-US are in good standing under the laws of its jurisdiction of
incorporation and has all corporate powers and all material governmental
licenses, authorizations, permits, consents and approvals required to carry
on its business as now conducted. Each of the Companies is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction where such qualification is necessary, except for those
jurisdictions where failure to be so qualified would not have a Material
Adverse Effect. Seller has heretofore delivered to Buyers true and complete
copies of the certificate of incorporation, bylaws or other organizational
documents of Seller and the Companies as currently in effect.
Section 3.2. CORPORATE AUTHORIZATION. The execution, delivery and
performance by Seller of this Agreement and the Escrow Agreement and the
consummation of the transactions contemplated hereby and thereby are within
Seller's corporate powers and have been duly authorized by all necessary
corporate action on the part of Seller. This Agreement constitutes, and when
executed and delivered in accordance with its terms by all parties thereto
the Escrow Agreement and Tax Deed will each constitute, a valid and binding
agreement of Seller.
Section 3.3. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
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<PAGE>
performance by Seller of this Agreement and the Escrow Agreement and the
consummation of the transactions contemplated hereby and thereby require no
action by or in respect of, or filing with, any governmental body, agency or
official other than (i) compliance with any applicable requirements of the
HSR Act and approval of the German Cartel Office; and (ii) compliance with
any applicable requirements of the 1934 Act.
Section 3.4. NONCONTRAVENTION. The execution, delivery and performance
by Seller of this Agreement and the Escrow Agreement and the consummation of
the transactions contemplated hereby and thereby do not and will not (i)
violate the certificate of incorporation, bylaws or other organizational
documents of Seller or the Companies or any Subsidiary, (ii) assuming
compliance with the matters referred to in Section 3.03, violate any
applicable law, rule, regulation, judgment, injunction, order or decree,
(iii) except as disclosed in Schedule 3.04, require any consent or other
action by any Person under, constitute a default under, or give rise to any
right of termination, cancellation or acceleration of any right or obligation
of Seller, any Company or any Subsidiary or to a loss of any benefit to which
Seller, any Company or any Subsidiary is entitled under any provision of any
agreement or other instrument binding upon Seller or the Companies or any
Subsidiary or (iv) result in the creation or imposition of any Lien on any
asset of the Companies or any Subsidiaries and which, with respect to (ii),
(iii), or (iv) would not reasonably be expected to have a Material Adverse
Effect.
Section 3.5. CAPITALIZATION. (ai The authorized capital stock of the
Companies consists of 1,000 shares of common stock, no par value per share of
PK-US and 875,000 ordinary shares, nominal value L1 per share, of PK-UK.
(bi All outstanding shares of capital stock or shares of any Company have
been duly authorized and validly issued and are fully paid and, in respect of
the US Shares, non-assessable. There are no outstanding (i) shares of capital
stock, shares or voting securities of any Company other than the Shares, (ii)
securities of any Company convertible into or exchangeable for shares of capital
stock, shares or voting securities of any Company or (iii) options or other
rights to acquire from any Company, or other obligation of any Company to issue,
any capital stock, shares, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of any Company (the items in
clauses 3.05(b)(i), 3.05(b)(ii) and 3.05(b)(iii) being referred to collectively
as the "COMPANY SECURITIES"). There are no outstanding obligations of any
Company or any Subsidiary to repurchase, redeem or otherwise acquire any Company
Securities.
Section 3.6. OWNERSHIP OF SHARES. Seller (or one of its direct or
indirect, wholly owned subsidiaries) is the record or legal and beneficial
owner of the Shares, free and clear of any Lien which is not being released
at the Closing and any other limitation or restriction (including any
restriction on the right to vote, sell or otherwise
20
<PAGE>
dispose of the Shares), and will transfer and deliver to Buyers at the
Closing valid title to the Shares free and clear of any Lien and any such
limitation or restriction.
Section 3.7. SUBSIDIARIES. (ai PK-US has no Subsidiaries, and York
Sensors Limited ("YSL") is the only Subsidiary of PK-UK. YSL is a duly
organized company and has all corporate powers and all material governmental
licenses, authorizations, permits, consents and approvals required to carry
on its business as now conducted.
(bi Except as disclosed in Schedule 3.07, all of the outstanding
capital stock, shares or other voting securities of YSL is owned by PK-UK,
directly or indirectly, free and clear of any Lien which is not being
released at the Closing and free of any other limitation or restriction
(including any restriction on the right to vote, sell or otherwise dispose of
such capital stock, shares or other voting securities). There are no
outstanding (i) securities of any Company or any Subsidiary convertible into
or exchangeable for shares of capital stock, shares or voting securities of
any Subsidiary or (ii) options or other rights to acquire from any Company or
any Subsidiary, or other obligation of any Company or any Subsidiary to
issue, any capital stock, shares, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of any Subsidiary
(the items in clauses 3.07(b)(i) and 3.07(b)(ii) being referred to
collectively as the "SUBSIDIARY SECURITIES"). There are no outstanding
obligations of any Company or any Subsidiary to repurchase, redeem or
otherwise acquire any outstanding Subsidiary Securities.
Section 3.8. FINANCIAL STATEMENTS. Except as set forth in Schedule
3.08, the consolidated balance sheets of the Companies and YSL as of March
31, 1999 and June 30, 1998 and the Companies as of June 30, 1997 and the
related consolidated statements of income and cash flows for the nine months
ended March 31, 1999 and each of the years ended June 30, 1998 and 1997 of
the Companies and, except for June 30, 1997, of YSL, fairly present, in
conformity with GAAP (except for the absence of notes thereto which would be
required by GAAP) applied on a consistent basis (except as may be indicated
in the notes thereto), the consolidated financial position of the Companies
and the Subsidiaries as of the dates thereof and their consolidated results
of operations and cash flows for the periods then ended (subject to normal
year-end adjustments in the case of any unaudited interim financial
statements).
Section 3.9. ABSENCE OF CERTAIN CHANGES. Except as disclosed in
Schedule 3.09, since March 31, 1999, the Business has been conducted in the
ordinary course consistent with past practices and there has not been:
(ai any event, occurrence, development or state of circumstances or
facts which has had or could reasonably be expected to have a Material
Adverse Effect;
21
<PAGE>
(bi except as contemplated by this Agreement with respect to cash
distributions and capitalization of intercompany accounts at Closing, any
declaration, setting aside or payment of any dividend or other distribution
with respect to any shares of capital stock or shares of any Company, or
any repurchase, redemption or other acquisition by any Company or any
Subsidiary of any outstanding shares of capital stock, shares or other
securities of any Company or any Subsidiary;
(ci any incurrence, assumption or guarantee by any Company or any
Subsidiary of any Indebtedness;
(di any creation or other incurrence by any Company or any Subsidiary
of any Lien on any asset other than in the ordinary course of business
consistent with past practices;
(ei any making of any loan, advance or capital contribution to or
investment in any Person by the Companies or YSL other than loans, advances
or capital contributions to or investments in wholly-owned Subsidiaries or
intercompany commercial transactions made in the ordinary course of
business consistent with past practices;
(fi any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of any Company or
any Subsidiary which has had or could reasonably be expected to have a
Material Adverse Effect;
(gi any change in any method of accounting or accounting practice by
the Companies or any Subsidiary except for any such change required by
reason of a concurrent change in GAAP;
(hi any capital expenditure, or commitment for a capital expenditure,
for additions or improvements to property, plant and equipment other than
as contemplated by the OTM Division FY2000 capital budget.
Section 3.10. NO UNDISCLOSED MATERIAL LIABILITIES. As of the Closing
Date, neither of the Companies nor any Subsidiary has any Indebtedness, and
there are no other liabilities of the Companies or the Subsidiaries of any
kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, and there is no existing condition, situation or
set of circumstances which could reasonably be expected to result in such a
liability, other than:
(ai liabilities provided for in the Balance Sheet or disclosed in the
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notes thereto;
(bi liabilities, including without limitation any acceptances,
letters of credit or similar facilities, disclosed on Schedule 3.10 or the
other schedules hereto;
(ci other current liabilities incurred in the ordinary course of
business since the Balance Sheet Date; and
(di other undisclosed liabilities which, would not reasonably be
expected to have a Material Adverse Effect after taking into account any
insurance available to satisfy any such claims.
Subject to Section 3.21 but notwithstanding any other provisions of
Article 3, Seller makes no representations regarding whether its computer
systems, products or services shall be able accurately to process (including,
without limitation, calculate, compare and sequence) date and time data from,
into, and between the years 1999 and 2000 and any other years in the 20th and
21st centuries and to recognize the year 2000 as a leap year.
Section 3.11. INTERCOMPANY ACCOUNTS. All intercompany balances between
Seller and its Affiliates, on the one hand, and the Companies and the
Subsidiaries, on the other hand have been settled or capitalized at or prior
to the Closing.
Section 3.12. MATERIAL CONTRACTS. (ai Except as disclosed in Schedule
3.12 and Schedule 3.20, neither Company nor any Subsidiary is a party to or
bound by:
(iA any lease (whether of real or personal property) providing
for annual rentals of $50,000 or more;
(iiA any agreement for the purchase of materials, supplies,
goods, services, equipment or other assets providing for either (A) annual
payments by a Company or Subsidiary of $200,000 or more or (B) aggregate
payments by a Company or a Subsidiary of $500,000 or more;
(iiiA any sales, distribution or other similar agreement providing
for the sale by a Company or any Subsidiary of materials, supplies, goods,
services, equipment or other assets that provides for either (A) annual
payments to a Company or a Subsidiary of $200,000 or more or (B) aggregate
payments to a Company or a Subsidiary of $500,000 or more;
(ivA any partnership, joint venture or other similar agreement or
arrangement;
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(vA any agreement relating to the acquisition or disposition of
any business (whether by merger, sale of stock, sale of assets or
otherwise);
(viA any agreement relating to Indebtedness which will survive
the Closing;
(viiA any option, license, franchise or similar agreement that
involves annual payments of $200,000 or more;
(viiiA any agency, dealer, sales representative, marketing or other
similar agreement that involves annual payments of $200,000 or more;
(ixA any agreement that limits the freedom of any Company or any
Subsidiary to compete in any line of business or with any Person or in any
area or which would so limit the freedom of any Company or any Subsidiary
after the Closing Date;
(xA any agreement which will not terminate at Closing (but
excluding agreements wholly by and between the Companies and Subsidiaries)
with (A) Seller or any of its Affiliates, (B) any Person directly or
indirectly owning, controlling or holding with power to vote, 5% or more of
the outstanding voting securities or shares of Seller or any of its
Affiliates, (C) any Person 5% or more of whose outstanding voting
securities or shares are directly or indirectly owned, controlled or held
with power to vote by Seller or any of its Affiliates or (D) any director
or officer of Seller or any of its Affiliates or any "associates" or
members of the "immediate family" (as such terms are respectively defined
in Rule 12b-2 and Rule 16a-1 of the 1934 Act) of any such director or
officer;
(xiA any agreement with any director or officer of any Company or
any Subsidiary or with any "associate" or any member of the "immediate
family" (as such terms are respectively defined in Rules 12b-2 and 16a-1 of
the 1934 Act) of any such director or officer;
(xiiA any transaction, commitment, contact or agreement
relinquishing any contract or right material to the Companies and the
Subsidiaries; or
(xiiiA any other agreement, commitment, arrangement or plan not
made in the ordinary course of business that is material to the Companies
and the Subsidiaries, taken as a whole.
(bi Each agreement, contract, plan, lease, arrangement or commitment
disclosed in any Schedule to this Agreement is a valid and binding agreement of
the
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one of the Companies or a Subsidiary, as the case may be, which is a party
thereto and is in full force and effect, and neither Company, nor any
Subsidiary nor, to the knowledge of Seller, any other party thereto is in
default or breach in any material respect under the terms of any such
agreement, contract, plan, lease, arrangement or commitment, and, to the
knowledge of Seller, no event or circumstance has occurred that, with notice
or lapse of time or both, would constitute any event of default thereunder.
To Seller's knowledge, true and complete copies of each such agreement,
contract, plan, lease, arrangement or commitment have been delivered to
Buyers.
Section 3.13. LITIGATION. Except as set forth on Schedule 3.03, there
is no action, suit, investigation or proceeding (or any basis therefor)
pending against, or to the knowledge of Seller, threatened against or
affecting, Seller, any Company or any Subsidiary or any of their respective
properties before any court or arbitrator or any governmental body, agency or
official which, individually or in the aggregate, if determined or resolved
adversely in accordance with the plaintiff's demands, could reasonably be
expected to have a Material Adverse Effect or which in any manner challenges
or seeks to prevent, enjoin, alter or materially delay the transactions
contemplated by this Agreement.
Section 3.14. COMPLIANCE WITH LAWS AND COURT ORDERS. Neither Company
nor any Subsidiary is in violation of, and has not since January 1, 1998
violated, and to the knowledge of Seller is not under investigation with
respect to and has not been threatened to be charged with or given notice of
any violation of, any applicable law, rule, regulation, judgment, injunction,
order or decree, except for violations that would not reasonably be expected
to have a Material Adverse Effect.
Section 3.15. PROPERTIES. Except as set forth in Schedule 3.15, PK-US
has good and marketable, indefeasible, fee simple title to, or the UK
Companies have legal and beneficial ownership of, and are in exclusive
possession and occupation of, and have good and marketable title to, or in
the case of leased property and assets a Company or Subsidiary has valid
leasehold interests in, all property and assets (whether real, personal,
tangible or intangible) reflected on the Balance Sheet or acquired after the
Balance Sheet Date, except for properties and assets sold since the Balance
Sheet Date in the ordinary course of business consistent with past practices.
None of such property or assets is subject to any Lien which is not being
released at Closing, except:
(i) Liens disclosed on the Balance Sheet;
(ii) Liens for taxes not yet due or being contested in good faith
(and for which adequate accruals or reserves have been established on the
Balance Sheet);
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(iii) Liens which do not materially detract from the value or
materially interfere with any present or intended use of such property or
assets; or
(iv) vendor liens, including without limitation reservation of
title liens, arising in the ordinary course of business of PK-UK (clauses
(i)-(iv) of this Section 3.15 are, collectively, the "PERMITTED LIENS").
Section 3.16. INTELLECTUAL PROPERTY. (ai (i) Schedule 3.16(a)(i)
contains a true, complete and correct list of each of the Owned Intellectual
Property Rights, specifying as to each, as applicable: the nature of such
Intellectual Property Right; the registered owner of such Intellectual
Property Right; the jurisdictions by or in which such Intellectual Property
Right has been issued or registered or in which an application for such
issuance or registration has been filed; the registration or application
number(s); and the filing date and issuance date.
(ii) Schedule 3.16(a)(ii) contains a true, complete and correct
list of all licenses involving Licensed Intellectual Property Rights.
(b) (i) Except as otherwise described in Schedule 3.16(b)(i), in each case
where a patent or patent application, trademark registration or trademark
application, service mark registration or service mark application, or copyright
registration or copyright application listed in Schedule 3.16(a)(i) is held by
assignment, the assignment has been duly recorded with the governmental
authority from which the patent or registration issued or before which the
application or application for registration is pending. Except as set forth in
Schedule 3.16(a)(i), otherwise disclosed in any other schedule, or noted on any
financial statements described in Section 3.08, all of the Owned Intellectual
Property Rights are exclusively owned by either Company or a Subsidiary free and
clear of any Lien.
(ii) Except as set forth in Schedule 3.16(b)(ii), otherwise
disclosed in any other schedule or noted on any financial statements
described in Section 3.08, no proceedings have been made or asserted or are
pending, nor, to the knowledge of the Seller, has any such proceeding been
threatened, against either Company or any Subsidiary (x) based upon or
challenging or seeking to deny or restrict the used by the Companies or any
Subsidiary of any of the Owned Intellectual Property Rights or the Licensed
Intellectual Property Rights, (y) alleging that the use of the Owned
Intellectual Property Rights or the Licensed Intellectual Property Rights
or that any services provided by, processes, trade secrets or know-how used
by, or products manufactured or sold by the Companies or any Subsidiary
conflict with, misappropriate or infringe upon any Intellectual Property
Right or other proprietary right of any third Person or (z) alleging that
the rights of the Companies or any Subsidiary in or to the Owned
Intellectual Property Rights or the Licensed Intellectual Property
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Rights, trade secrets or know-how conflict with, misappropriate, or
infringe upon any Intellectual Property Right or other proprietary
right of any third Person.
(c) To the knowledge of Seller, no Person is engaging in any activity
or using any Intellectual Property Right that materially infringes upon the
Owned Intellectual Property Rights, the Licensed Intellectual Property
Rights, or upon the rights of either Company or any Subsidiary therein to the
extent enforceable. To the knowledge of the Seller, there has been no
misappropriation of any material trade secrets or other material confidential
Intellectual Property Rights of either Company of any Subsidiary by any
Person.
(d) With respect to pending applications and applications for
registration of the Owned Intellectual Property Rights that are material to
the business or operation of the Companies or any Subsidiary, the Companies
and the Subsidiaries are not aware of any reason that could reasonably be
expected to prevent any such application or application for registration from
being granted with coverage substantially equivalent to the latest amended
version of the pending application or application for registration. None of
the Owned Intellectual Property Rights material to the operation of the
business of the Companies and the Subsidiaries has been adjudged invalid or
unenforceable in whole or part, and to the knowledge of the Seller and except
as noted with respect to the lapsed rights noted on Schedule 3.16(a)(i), (x)
all Owned Intellectual Property Rights currently used in the Business are
valid and enforceable and (y) all renewal fees and steps relating to the
maintenance and protection of such rights due to date have been paid for and
taken; provided that solely for purposes of the foregoing clause (x),
"Seller's knowledge" shall be limited to the actual knowledge of Iain
Robertson and David Blaskowsky, it being understood that such persons have
not conducted an investigation or reviewed their files or records for the
special purpose of this representation.
Section 3.17. INSURANCE COVERAGE. Seller has furnished to Buyers true
and complete copies of all insurance policies and fidelity bonds relating to
the assets, business, operations, employees, officers or directors of the
Companies and the Subsidiaries currently in force. Attached hereto as
Schedule 3.17 is a complete list of each such insurance policy and fidelity
bond. There is no claim by any Companies or Subsidiary pending under any of
such policies or bonds as to which to Seller's knowledge coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds
or in respect of which such underwriters have reserved their rights. All
premiums payable under all such policies and bonds have been timely paid and
the Companies and the Subsidiaries have otherwise complied fully with the
material terms and conditions of all such policies and bonds. Such policies
of insurance and bonds (or other policies and bonds providing substantially
similar insurance coverage) have been in effect or renewed since April 30,
1999 and remain in
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full force and effect. Seller does not know of any threatened termination
of, premium increase with respect to, or material alteration of coverage
under, any of such policies or bonds.
Section 3.18. LICENSES AND PERMITS. Schedule 3.18 correctly describes
each material license, franchise, permit, certificate, approval or other
similar authorization affecting, or relating in any way to, the assets or
business of the Companies and the Subsidiaries (the "PERMITS") together with
the name of the government agency or entity issuing such Permit. Except as
set forth on the Schedule 3.18, (i) the Permits are valid and in full force
and effect, (ii) neither Company nor any Subsidiary is in default under, and
to Seller's knowledge no condition exists that with notice or lapse of time
or both would constitute a default under, the Permits and (iii) none of the
Permits will be terminated or impaired or become terminable, in whole or in
part, as a result of the transactions contemplated hereby.
Section 3.19. RECEIVABLES. Excluding intercompany accounts, all
accounts, notes receivable and other receivables (other than receivables
collected since the Balance Sheet Date) reflected on the Balance Sheet are,
and all accounts and notes receivable arising from or otherwise relating to
the business of the Companies and its Subsidiaries as of the Closing Date
will be, valid, genuine and fully collectible in the aggregate amount
thereof, subject to normal and customary trade discounts, less any reserves
for doubtful accounts recorded on the Balance Sheet. For purposes of this
Section 3.19, the financial condition or financial ability to pay of any
obligor of any account or note receivable is limited to Seller's knowledge.
Section 3.20. ORDERS AND BACKLOG. (a) Schedule 3.20 sets forth
information, accurate and complete in all material respects, relating to the
Companies' and the Subsidiary's currently outstanding customer orders and
backlog with respect to product sales, including product description,
customer identity, quantity ordered, delivery date, and price and payment
information (including progress payment terms) as of May 31, 1999.
(b) Except as set forth on Schedule 3.20, Seller is not aware of any
circumstance that is reasonably likely to result in any customer (x) being
incapable of performing under any order included in such backlog or (y)
delaying payment for or delaying taking delivery under any such order in
accordance with its terms, in either case, in any material respect.
Section 3.21. PRODUCT LIABILITY; PRODUCT WARRANTY. (a) Except for
normal and routine product defect claims for workmanship or repair with
respect to products sold to government agencies (which are described in
Section 3.21(c)), and except as set forth in Schedule 3.21(a), there are no
claims, actions, suits, inquiries or proceedings by or before any court or
governmental or other regulatory or administrative authority,
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agency or commission asserted, pending or, to the knowledge of Seller,
threatened against, or to the knowledge of Seller any investigations,
involving Seller (to the extent related to the business of the Companies), or
any Company or Subsidiary that (i) relate to the ownership, possession or use
of any product alleged to have been manufactured, assembled, configured,
distributed or sold by Seller (to the extent related to the business of the
Companies) or any Company or Subsidiary (the "COMPANY PRODUCTS") and alleged
to have been defective or improperly designed or manufactured, (ii) state a
claim under any warranty, guarantee or indemnification made by Seller or any
Company or Subsidiary or (iii) arise from or are alleged to arise from actual
or alleged injury to Persons or property as a result of the conduct of Seller
(to the extent related to the business of the Companies), or any Company or
Subsidiary.
(b) To the knowledge of Seller, there are no recalls pending or
threatened with respect to any of the Company Products. No filing has been
made by Seller (to the extent related to the business of the Companies), or
any Company or Subsidiary under any applicable rule, regulation or statute
with respect to any product defects or hazards in connection with any of the
Company Products and there have been, to the knowledge of Seller, no material
recurring defects therein which create such a defect or hazard.
(c) Schedule 3.21(c) sets forth the standard forms of product
warranties issued by Seller (to the extent related to the business of the
Companies), or any Company or Subsidiary and copies of all other material
product warranties issued by Seller (to the extent related to the business of
the Companies), or any Company or Subsidiary. Except as set forth in
Schedule 3.21(c) or reflected or reserved for in the Balance Sheet, since
April 30, 1999, no product warranty or similar claims have been made against
Seller (to the extent related to the business of the Companies), or any
Company or Subsidiary, except claims as to which in the aggregate losses and
expenses in respect of repair or replacement of products have not exceeded
$50,000 in any 12 month period.
Section 3.22. FINDERS' FEES. There is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to
act on behalf of Seller or the Companies or any Subsidiary who might be
entitled to any fee or commission in connection with the transactions
contemplated by this Agreement.
Section 3.23. EMPLOYEES. Schedule 3.23 sets forth a true and complete
list of (a) the names, titles, annual salaries and other compensation of all
officers of any Company or Subsidiary and all other HCEs and (b) the wage
rates for non-salaried employees of the Companies and the Subsidiaries (by
classification). To the knowledge of Seller or any Company none of the HCEs
of PK-US has indicated to Seller, the Companies and or Subsidiaries (other
than as a result of the delivery by the Companies or Subsidiaries of a notice
of possible redundancy to such employee) that he intends to resign or retire
as a result of the transactions contemplated by this
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Agreement or otherwise within one year after the Closing Date. There are no
claims pending or, to the knowledge of the Seller, threatened against any of
the UK Companies by any employee or former employee of the UK Companies under
the UK employment protection legislation including (but not restricted to)
the Employment Rights Act 1996, the Sex Discrimination Act 1975, the Race
Relations Act 1976 or the Disability Discrimination Act 1995.
Section 3.24. LABOR MATTERS. (a) No Company or Subsidiary is a party
to or subject to, or is currently negotiating in connection with entering
into, any collective bargaining agreement, collective agreement, dismissal
procedures agreement, membership agreement or other contract or understanding
with a labor union or labor organization. To the knowledge of Seller, there
is no organizing effort or representation question at issue with respect to
any employee of any Company or Subsidiary. Except as set forth on Schedule
3.24, there is no labor dispute, other than routine individual grievances, or
any lockouts, strikes, slowdowns, work stoppages or threats thereof by or
with respect to any employees of any Company or any Subsidiary.
(b) PK-US is, and the UK Companies are, in compliance with all
currently applicable laws respecting employment and employment practices,
terms and conditions of employment and wages and hours, and to Seller's
knowledge are not engaged in any unfair labor practice, failure to comply
with which or engagement in which, as the case may be, would reasonably be
expected to have a Material Adverse Effect. There is no unfair labor
practice complaint pending or, to the knowledge of Seller, threatened against
PK-US before the US National Labor Relations Board. There are no disputes or
proceedings pending or, to the knowledge of Seller, threatened against any of
the UK Companies under or by virtue of the provisions of the UK Trade Union
and Labour Relations (Consolidation) Act 1992.
Section 3.25. EMPLOYEES. (a) Schedule 3.25(a) contains a correct and
complete list identifying each "employee benefit plan", as defined in Section
3(3) of ERISA, each employment, deferred compensation, severance, retirement
or similar contract, plan, arrangement or policy and each other plan or
arrangement (written or oral) providing for compensation, bonuses,
profit-sharing, stock option or other stock related rights or other forms of
incentive or deferred compensation, vacation benefits, insurance (including
any self-insured arrangements), health or medical benefits, employee
assistance program, disability or sick leave benefits, workers' compensation,
supplemental unemployment benefits, severance benefits or termination pay and
post-employment or retirement benefits (including compensation, pension,
health, medical or life insurance benefits) which is maintained, administered
or contributed to by PK-US and covers any employee or former employee of
PK-US, or with respect to which any Company has any liability. Copies of
such plans (and, if applicable, related trust or funding agreements or
insurance policies) and all amendments thereto have been furnished to Buyers
together with the most recent annual report (Form 5500 including,
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if applicable, Schedule B thereto) and tax return (Form 990) prepared in
connection with any such plan or trust. Such plans are referred to
collectively herein as the "EMPLOYEE PLANS".
(b) None of PK-US, any ERISA Affiliate or any predecessor thereof
sponsors, maintains or contributes to, or has in the past sponsored,
maintained or contributed to, any Employee Plan subject to Title IV of ERISA
or any "defined benefit plan" as defined in Section 3(35) of ERISA for which
Buyer or any of its ERISA Affiliates might incur any liability on or after
Closing.
(c) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the
period from its adoption to date, and each trust forming a part thereof is
exempt from tax pursuant to Section 501(a) of the Code. PK-US has furnished
to the Buyers copies of the most recent Internal Revenue Service
determination letters with respect to each such Plan. Each Employee Plan has
been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and
regulations, including but not limited to ERISA and the Code, which are
applicable to such Plan. Except as described on Schedule 3.25(c), no events
have occurred prior to the Closing Date with respect to any Employee Plan
that could result in payment or assessment of any material excise tax
liability by PK-US or Buyers under Sections 4972, 4975, 4976, 4977, 4979,
4980B, 4980D, 4980E or 5000 of the Code. Seller and its Affiliates thereof
has agreed to comply with the terms of the Internal Revenue Service Voluntary
Compliance Resolution Program Compliance Statement dated June 16, 1999 ("VCR
COMPLIANCE STATEMENT").
(d) Except as provided in Section 10.01, the consummation of the
transactions contemplated by this Agreement will not (either alone or
together with any other event) entitle any employee or independent contractor
of PK-US to severance pay or accelerate the time of payment or vesting or
trigger any payment of funding (through a grantor trust or otherwise) of
compensation or benefits under, increase the amount payable or trigger any
other material obligation pursuant to, any Employee Plan. There is no
contract, agreement, plan or arrangement covering any employee or former
employee of PK-US or any of its Affiliates that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible by PK-US pursuant to the terms of Sections 162m or 280G of the
Code.
(e) PK-US has no liability in respect of post-retirement health,
medical or life insurance benefits for retired, former or current employees
of PK-US except as required to avoid excise tax under Section 4980B of the
Code.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by PK-US or any of its Affiliates
relating to, or change in
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employee participation or coverage which would affect any PK-US employee
under, an Employee Plan which would increase materially the expense to PK-US
of maintaining such Employee Plan above the level of the expense incurred in
respect thereof for the fiscal year ended December 31, 1998 (on an annualized
basis).
(g) All contributions and payments accrued under each Employee Plan,
determined in accordance with prior funding and accrual practices, as
adjusted to include proportional accruals for the period ending as of the
date hereof, have been discharged and paid on or prior to the date hereof
except to the extent reflected as a liability on the Balance Sheet.
(h) There is no action, suit, investigation, audit or proceeding
pending against or involving or, to the knowledge of Seller or PK-US,
threatened against or involving, any Employee Plan before any court or
arbitrator or any state, federal or local governmental body, agency or
official.
(i) Seller has previously furnished GN-UK the following information in
relation to each employee of a UK Company namely:
(A) name;
(B) age;
(C) job description;
(D) emoluments (including any bonus or commission arrangements and
any non-cash benefits);
(E) date of commencement of employment or of any previous employment
with which such employment is continuous;
(F) notice period required to be given by the UK Company and the
employee; and
(G) whether or not a member of a UK Company pension scheme
and such information is complete and correct in all respects.
A list of all contracts of employment between a UK Company and each of its
employees (other than any employees employed on the UK Company's standard terms
of employment) and other than employees whose employment can be determined by
one months' notice or less) and any other documents currently in force relating
to the employment of the employees are contained in Schedule 3.25(i).
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Schedule 3.25(i) lists any share incentive scheme, share option scheme
or profit sharing bonus or other incentive scheme for any director, officer
or employee of a UK Company.
Apart from pursuant to the scheme referred to in Schedule 3.25(i)
("INTERNATIONAL PLAN") no UK Company is under any current legal liability or
voluntary or moral obligation to provide any Relevant Benefits (whether on a
funded or unfunded basis) or to contribute to any scheme or arrangement
providing Relevant Benefits (including any personal pension scheme approved
under Chapter IV, Part XIV of the Income and Corporation Taxes Act 1988
("ICTA")). "Relevant Benefits" for these purposes means pensions,
allowances, lump sums or other like benefits in respect of retirement, death,
disability, termination of employment, ill-health, injury or medical and
dental treatment provided for in respect of any employee or ex-employee of
any UK Company.
(j) Seller has furnished Buyer with a true and complete copy of the
International Plan. The International Plan has been maintained in
substantial compliance with its terms and has been administered in accordance
with the requirements prescribed by any and all applicable statutes, orders,
rules and regulations.
Without limiting the foregoing, the Scheme is an exempt approved scheme
for the purposes of Chapter I of Part XIV of ICTA and Seller is not aware of
any reason why such approval might be withdrawn.
The Scheme is a defined contribution scheme.
Section 3.26. ENVIRONMENTAL MATTERS. (a) To Seller's knowledge, except
as disclosed on Schedule 3.26 or in any report obtained by Buyers as part of
their due diligence investigations of the Companies or the Subsidiary:
(i) no notice, notification, demand, request for information,
citation, summons or order has been received, no complaint has been filed,
no penalty has been assessed and no investigation, action, claim, suit,
proceeding or review is pending, or to Seller's knowledge, threatened by
any governmental entity, environmental regulator or other Person with
respect to any matters relating to any Company or Subsidiary and relating
to or arising out of any Environmental Law;
(ii) there are no liabilities of or relating to any Company or
Subsidiary of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, arising under or relating to any
Environmental Law, and there are no facts, conditions, situations or set of
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circumstances which could reasonably be expected to result in or be the
basis for any such liability;
(iii) no material expenditure or plant and machinery upgrade is
required at any property owned, leased or operated by any Company or
Subsidiary in order to conduct the Business in compliance with
Environmental Law or any Environmental Permits;
(iv) no polychlorinated biphenyls, radioactive material, lead,
asbestos-containing material, incinerator, sump, surface impoundment,
lagoon, landfill, septic, wastewater treatment or other disposal system or
underground storage tank (active or inactive) is or has been present at, on
or under any property now or previously owned, leased or operated by any
Company or Subsidiary;
(v) no Hazardous Substance has been discharged, disposed of,
dumped, injected, pumped, deposited, spilled, leaked, emitted or released
at, on or under any property now or previously owned, leased or operated by
any Company or Subsidiary;
(vi) no property now or previously owned, leased or operated by
any Company or Subsidiary or any property to which any Company or
Subsidiary has, directly or indirectly, transported or arranged for the
transportation of any Hazardous Substances is listed or, to Seller's
knowledge, proposed for listing, on the National Priorities List
promulgated pursuant to CERCLA, on CERCLIS (as defined in CERCLA) or on any
similar federal, state or UK list of sites requiring investigation or
clean-up; and
(vii) the Companies and Subsidiaries are and have been in
compliance with all Environmental Laws and have obtained and have been and
are in compliance with all Environmental Permits; such Environmental
Permits are valid and in full force and effect and will not be terminated
or impaired or become terminable, in whole or in part, as a result of the
transactions contemplated hereby;
with only such exceptions in the case of clauses (i) through (vii) as
would not be reasonably expected to have a Material Adverse Effect.
(b) Except such investigation as may be conducted by Buyers, there has
been no environmental investigation, study, audit, test, review or other
analysis conducted of which Seller has knowledge in relation to the current or
prior business of any Company or Subsidiary or any property or facility now or
previously owned, leased or operated by any Company or Subsidiary which
indicates the presence of a serious environmental problem that has not been
delivered to Buyers at least 20 days prior to the date hereof.
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(c) No Company or Subsidiary owns, leases or operates or has owned,
leased or operated any property or has conducted any operations in
Connecticut.
(d) Except for PK-US's office space at 139 Wall Street, Research Park,
NJ, no property owned, leased or operated by any Company or Subsidiary is
subject to the requirements of ISRA as a result of the transactions
contemplated hereby.
(e) For purposes of this Section, the terms "COMPANY" and "SUBSIDIARY"
shall include any entity which is, in whole or in part, a predecessor of such
Company or Subsidiary.
Section 3.27. CUSTOMERS. Listed on Schedule 3.27 are the names of the
ten largest customers that ordered products, goods or services from either
Company or a Subsidiary (the "COMPANY PRODUCTS AND SERVICES") during the 12
months ended March 31, 1999. Except as set forth on Schedule 3.27, as of the
date hereof to the knowledge of Seller, Seller and the Companies have not
received any notice from any such customer that it has (i) ceased or is
planning to cease using the Company Products and Services or (ii) within the
past 30 days substantially reduced, or will substantially reduce, the amount
of the Company Products and Services to be purchased in the future.
Section 3.28. SUFFICIENCY OF ASSETS. Except as described in Section
3.09, immediately after the Closing, the property, assets and contract
rights, permits and licenses of the Companies and the Subsidiaries will
constitute, in the aggregate, all of the property and rights used to conduct
the Business in the manner in which it is currently being conducted,
excluding cash, the intercompany accounts and tax assets.
For purposes of Article 3 hereof and any other schedule which is a part
of this Agreement, any item disclosed on any schedule which is also
responsive to any other schedule, shall be deemed properly and appropriately
disclosed on any other schedule for which it is or may be relevant.
Notwithstanding the foregoing provisions of Article 3, nothing contained in
Article 3 (except Section 3.25) shall be deemed to include any representation
or warranty regarding any tax or tax matter which shall be exclusively
reflected in Articles 8 and 9 hereof.
ARTICLE 4
Representations and Warranties of GN Nettest And Buyers
Each of GN Nettest and each Buyer represents and warrants to Seller as
of the Closing Date that:
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Section 4.1. CORPORATE EXISTENCE AND POWER. Each of GN Nettest and
each Buyer is a duly organized and validly existing company and has all
corporate powers and all material governmental licenses, authorizations,
permits, consents and approvals required to carry on their respective
businesses as now conducted. GN-US is in good standing under the laws of its
jurisdiction of incorporation.
Section 4.2. CORPORATE AUTHORIZATION. The execution, delivery and
performance by each of GN Nettest and each Buyer of this Agreement and, to
the extent each is a party thereto, the Escrow Agreement and the consummation
of the transactions contemplated hereby and thereby are within the corporate
powers of each of GN Nettest and each Buyer and have been duly authorized by
all necessary corporate action on the part of each of GN Nettest and each
Buyer. This Agreement and the Escrow Agreement constitute valid and binding
agreements of each of GN Nettest and each Buyer which is a party thereto.
Section 4.3. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by each of GN Nettest and each Buyer of this Agreement and, to
the extent each is a party thereto, the Escrow Agreement and the consummation
of the transactions contemplated hereby and thereby require no material
action by or in respect of, or material filing with, any governmental body,
agency or official other than compliance with any applicable requirements of
the HSR Act and approval of the German Cartel Office.
Section 4.4. NONCONTRAVENTION. The execution, delivery and performance
by each of GN Nettest and each Buyer of this Agreement and, to the extent
each is a party thereto, the Escrow Agreement and the consummation of the
transactions contemplated hereby do not and will not (i) violate the
organizational documents of each of GN Nettest and each Buyer or (ii)
assuming compliance with the matters referred to in Section 4.03, violate any
applicable material law, rule, regulation, judgment, injunction, order or
decree.
Section 4.5. FINANCING. Buyers have sufficient cash, available lines
of credit or other sources of immediately available funds to enable it to
make payment of the Purchase Price and any other amounts to be paid by it
hereunder.
Section 4.6. PURCHASE FOR INVESTMENT. Buyers are purchasing the Shares
for investment for their own accounts and not with a view to, or for sale in
connection with, any distribution thereof. Buyers (either alone or together
with their advisors) have sufficient knowledge and experience in financial
and business matters so as to be capable of evaluating the merits and risks
of its investment in the Shares and are capable of bearing the economic risks
of such investment.
Section 4.7. LITIGATION. There is no action, suit, investigation or
proceeding
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pending against, or to the knowledge of GN Nettest or Buyers threatened
against or affecting, GN Nettest or either Buyer before any court or
arbitrator or any governmental body, agency or official which in any manner
challenges or seeks to prevent, enjoin, alter or materially delay the
transactions contemplated by this Agreement.
Section 4.8. FINDERS' FEES. Except for Banc Boston Robertson Stephens
whose fees will be paid by GN Nettest and/or Buyers, there is no investment
banker, broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of GN Nettest or Buyers who might be entitled to
any fee or commission from Seller or any of its Affiliates upon consummation
of the transactions contemplated by this Agreement.
ARTICLE 5
Covenants of Seller
Seller agrees that:
Section 5.1. CONFIDENTIALITY. (a) After the Closing and for a period
of five years thereafter, Seller will hold, and will use its best efforts to
cause its Affiliates and their respective officers, directors, employees,
accountants, counsel, consultants, advisors and agents to hold, in
confidence, unless compelled to disclose by judicial or administrative
process or by other requirements of law, all confidential documents and
information concerning the Companies and the Subsidiaries, except to the
extent that such information can be shown to have been (i) previously known
on a nonconfidential basis by Seller, (ii) in the public domain through no
fault of Seller or its Affiliates or (iii) later lawfully acquired by Seller
or its Affiliates from a source other than those related to Seller's prior
ownership of the Companies and the Subsidiaries if such source is not
prohibited from disclosing such information to Seller or its Affiliates. The
obligation of Seller and its Affiliates to hold any such information in
confidence shall be satisfied if they exercise the same care with respect to
such information as they would take to preserve the confidentiality of their
own similar information.
(b) On and after the Closing Date, Seller will afford promptly to
Buyers, at Buyers sole cost and expense (including reasonable reimbursement
to parties for time spent and services furnished) and its agents reasonable
access to its books of account, financial and other records (including,
without limitation, internal work papers but excluding the work papers of
Ernst & Young), information, employees and auditors related solely to the
Companies and Subsidiaries to the extent necessary or useful for
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Buyers in connection with any audit, investigation, dispute or litigation
involving the Companies or any Subsidiary or any other reasonable business
purpose relating to the Companies or any Subsidiary; PROVIDED that any such
access by Buyers shall not unreasonably interfere with the conduct of the
business of Seller. With respect to work papers and other documents of Ernst
& Young which are segregatable from Seller's work papers, Seller will use its
best efforts to obtain the cooperation of Ernst & Young to make them
available to Buyer, at Buyer's sole cost and expense. Notwithstanding the
foregoing, nothing herein (except as provided in Section 8.05(a)) shall
obligate Seller to maintain any such records beyond the time of Seller's
normal records destruction practice. If Seller desires to destroy records
which are the subject of this section, it shall use its best efforts to give
Buyer not less than 30 days prior notice thereof. Buyer may then, at its
sole cost, elect to take possession of and continue to store such records.
Section 5.2. REQUIRED CONSENTS. With respect to each agreement listed
or required to be listed on Schedule 3.04 (other than the Cooperation and
Development Agreement between PK-US and Micron Optics, Inc. dated October 1,
1996), Seller agrees to use its best efforts to obtain the consent of the
counterparty thereto to the transactions contemplated hereby or assist GN
Nettest or Buyers in obtaining an agreement between the counterparty thereto
and GN Nettest, either Buyer or one of their respective Affiliates
(including, after the Closing, the Companies and the Subsidiaries) with terms
and conditions at least as favorable to GN Nettest, such Buyer or such
Affiliate as the terms and conditions in such agreement are to Seller, the
Company or Subsidiary which is a party thereto.
Section 5.3. NOTICES OF CERTAIN EVENTS. Seller shall promptly notify
GN Nettest and Buyers of:
(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement or the Escrow Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement or the Escrow Agreement; and
(c) any actions, suits, claims, investigations or proceedings commenced
or, to its knowledge threatened against, relating to or involving or
otherwise affecting Seller, any of the Companies or any Subsidiary that, if
pending on the date of this Agreement, would have been required to have been
disclosed pursuant to Section 3.13 or that relate to the consummation of the
transactions contemplated by this Agreement or the Escrow Agreement.
Section 5.4. NONCOMPETITION. (a) Seller agrees that for a period of
three full years from the Closing Date, it shall not, and shall cause its
Affiliates not to:
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(i) engage in, either directly or indirectly, as a principal or
for its own account or solely or jointly with others, or as an equity
holder in any Person, manage, operate, participate in or lend money or
render financial assistance to, any business that competes with the fiber
optics test equipment business conducted worldwide by the Companies and the
Subsidiaries as it exists on the Closing Date addressing the measureands
listed on Schedule 5.04(a)(i) in the following markets: Production and Lab
Measurement for Optical Fiber and Optical Fiber Cable Manufacturing,
Optical Time Domain Reflectometers, Optical Spectrum Analysis, Fiber
Preparation Tools, and Distributed Temperature Sensing Systems (the
"RESTRICTED ACTIVITIES"); PROVIDED that the foregoing restriction (x) shall
bind only Seller and its Subsidiaries in the event that more than 50% of
Seller's common stock is acquired by any Person and (y) shall not prohibit
Seller or any of its Affiliates from becoming an equity holder of any
Person whose total revenue from all Restricted Activities in its most
recent fiscal year did not exceed 50% of such Person's consolidated revenue
for such period; or
(ii) employ or solicit, or receive or accept the performance of
services by any current employee of any of GN Nettest, its Affiliates, the
Companies or any Subsidiary (excluding employees who have been laid off or
terminated by such employer).
(b) If any provision contained in this Section shall for any reason be
held invalid, illegal or 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. Seller acknowledges that GN Nettest
and Buyers would be irreparably harmed by any breach of this Section and that
there would be no adequate remedy at law or in damages to compensate GN
Nettest and Buyers for any such breach. Seller agrees that GN Nettest and
Buyers shall be entitled to injunctive relief requiring specific performance
by Seller of this Section, and Seller consents to the entry thereof.
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(c) In consideration of Seller agreeing to the provisions of this
Section, at the Closing, GN-US is paying to Seller the sum of $1,900,000 in
respect of Seller's undertakings in relation to the United States (the "US
NONCOMPETE CONSIDERATION") and GN-UK is paying to Seller the sum of $100,000
in respect of Seller's undertakings in relation to Europe (the "UK NONCOMPETE
CONSIDERATION") in the manner provided in Section 2.02.
Section 5.5. INSURANCE. If, between the date hereof and the time at
which this Agreement, the Purchase Price and the Shares shall be released
from escrow pursuant to the Escrow Agreement, the Companies or the Subsidiary
shall suffer any Damages all or any portion of which may be recoverable under
any insurance policy of Seller, either Company or the Subsidiary, Seller
agrees upon the request of Buyers to use commercially reasonable efforts to
attempt to obtain such recovery under such insurance policy and will promptly
remit the proceeds from any such recovery to the appropriate Buyer.
Section 5.6. CONDUCT OF THE BUSINESS. During the period between the
date hereof and the time at which this Agreement, the Purchase Price and the
Shares shall be released from escrow pursuant to the Escrow Agreement, Seller
agrees to cause the Companies and the Subsidiary to operate the Business in
the ordinary course consistent with past practice and shall not transfer any
asset from any Company or the Subsidiary to Seller or any of its Affiliates
without the prior approval of GN Nettest.
ARTICLE 6
Covenants of GN Nettest and Buyers
Buyers agrees that:
Section 6.1. CONFIDENTIALITY. The Non-Disclosure Agreement dated as
of December 4, 1998 between GN Nettest and Seller shall remain in effect, and
GN Nettest and Buyers and their respective Affiliates shall comply with the
provisions thereof.
Section 6.2. ACCESS. Buyers will cause the Companies and each
Subsidiary, on and after the Closing Date, to afford promptly to Seller and
its agents reasonable access to their properties, books, records, employees
and auditors to the extent necessary to permit Seller to determine any matter
relating to its rights and obligations hereunder or to any period ending on
or before the Closing Date; PROVIDED that any such access by Seller shall not
unreasonably interfere with the conduct of the business of Buyers, the
Companies or any Subsidiary. Seller will hold, and will use its best efforts
to cause its officers, directors, employees, accountants, counsel,
consultants, advisors and agents to hold, in confidence, unless compelled to
disclose by judicial or
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administrative process or by other requirements of law, all confidential
documents and information concerning the Companies or any Subsidiary provided
to it pursuant to this Section.
Section 6.3. PERFORMANCE OF OBLIGATIONS OF BUYERS. GN Nettest will
take all action necessary to cause Buyers to perform their respective
obligations under this Agreement and, to the extent that Buyers are parties
thereto, the Escrow Agreement, as if it were a party to such obligations and
were directly responsible therefor.
Section 6.4. NOTICES OF CERTAIN EVENTS. Buyers shall promptly notify
Seller of:
(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement or the Escrow Agreement; or
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement or the Escrow Agreement.
Section 6.5. NONCOMPETITION. During the period of time which the
non-competition covenant contained in Section 5.04 shall continue, GN Nettest
and Buyers shall not seek to employ or employ any employee of Seller under
circumstances in which Seller could not have employed a similar employee of
GN Nettest, its Affiliates, the Company or a Subsidiary.
Section 6.6. IMPERMISSIBLE INTEGRATION. Prior to the expiration or
termination of the waiting period under the HSR Act applicable to the
transactions contemplated by this agreement, GN Nettest and Buyers will not
undertake any action or conduct which will result in any liability or penalty
against Seller under the HSR Act.
ARTICLE 7
Covenants of GN Nettest, Buyers and Seller
GN Nettest, Buyers and Seller agree that:
Section 7.1. CERTAIN FILINGS. Seller, GN Nettest and Buyers shall
cooperate with one another (i) in determining whether any action by or in
respect of, or filing with, any governmental body, agency, official or
authority is required, or any actions, consents, approvals or waivers are
required to be obtained from parties to any
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contracts, in connection with the consummation of the transactions
contemplated by this Agreement and (ii) in taking such actions or making any
such filings, furnishing information required in connection therewith and
seeking timely to obtain any such actions, consents, approvals or waivers.
Section 7.2. PUBLIC ANNOUNCEMENTS. The parties shall make no
announcement or issue any press release relating to the transactions
contemplated by this Agreement until they shall agree on the form and content
of a joint press release relating thereto. No party shall issue any such
press release until Seller and GN Nettest consent in writing to such press
release. Thereafter, the parties agree to consult with each other before
issuing any press release or making any public statement with respect to this
Agreement or the transactions contemplated hereby and, except as may be
required by applicable law or any listing agreement with any national
securities exchange, will not issue any such press release or make any such
public statement prior to such consultation. The parties recognize that each
of GN Nettest and Seller has a legal duty to promptly issue a press release
following Closing, and the parties will cooperate in making such release in a
timely manner.
Section 7.3. INTERCOMPANY ACCOUNTS. All intercompany accounts between
Seller or its Affiliates, on the one hand, and either of the Companies or any
Subsidiary, on the other hand, as of the Closing have been settled or
capitalized (irrespective of the terms of payment of such intercompany
accounts). All cash of the Companies and Subsidiaries on the Closing Date
will be applied to the intercompany accounts, and all such intercompany
account balances have been paid in full in cash or capitalized prior to the
Closing.
Section 7.4. INCENTIVE PAYMENTS. At the request of Seller, the
appropriate Buyer will pay the following amounts to each person listed on
Schedule 7.04 who shall remain in the employ of a Company or Subsidiary at
the time indicated: 25% of such employee's base salary after the Closing
Date, 12.5% of such employee's base salary 90 days after the Closing Date and
12.5% of such employee's base salary 180 days after the Closing Date. For
purposes of this Section, an employee's base salary shall equal such
employee's base salary during the period July 1, 1998 through June 30, 1999,
exclusive of any commissions and bonuses. Seller agrees to reimburse the
appropriate Buyer promptly for each such payment.
ARTICLE 8
U. S. Tax Matters
Section 8.1. TAX DEFINITIONS. The following terms, as used in this
Agreement,
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have the following meanings:
"ACCOUNTING REFEREE" means an internationally recognized accounting firm
mutually acceptable to Buyers and Seller with no material relationship with
Buyers and Seller, chosen within five days of the date on which the need to
choose arises.
"CODE" means the Internal Revenue Code of 1986, as amended.
"FEDERAL TAX" means any Tax imposed under Subtitle A of the Code with
respect to which PK-US has filed or will file a Return with a member of the
Seller Group on a consolidated basis.
"OTHER COMBINED TAX" means any income or franchise Tax payable to any
state, local or foreign taxing jurisdiction in which PK-US has filed or will
file a Return with a member of the Seller Group on an affiliated,
consolidated, combined or unitary basis.
"PRE-CLOSING TAX PERIOD" means any Tax period ending on or before the
Closing Date; and, with respect to a Tax period that begins on or before the
Closing Date and ends thereafter, the portion of such Tax period ending on
the Closing Date.
"Section 338 TAX" means any Tax resulting directly or indirectly from
the Section 338(h)(10) Election or as a consequence of Section 338 as applied
by any state or local or foreign jurisdiction.
"Section 338(h)(10) ELECTION" is defined in Section 8.03(a).
"SELLER GROUP" means, with respect to Federal Taxes, the affiliated
group of corporations (as defined in Section 1504(a) of the Code) of which
Seller is a member, and with respect to Taxes other than Federal Taxes, any
affiliated, consolidated, combined or unitary group of which Seller or any of
its Affiliates is a member.
"TAX" means (i) any tax, governmental fee or other like assessment or
charge of any kind whatsoever (including, but not limited to, withholding on
amounts paid to or by any Person), together with any interest, penalty,
addition to tax or additional amount imposed by any governmental authority (a
"TAXING AUTHORITY") responsible for the imposition of any such tax (domestic
or foreign), (ii) in the case of PK-US, liability for the payment of any
amount of the type described in clause (i) as a result of being or having
been before the Closing Date a member of an affiliated, consolidated,
combined or unitary group, or a party to any agreement or arrangement,
whereby liability of PK-US to a Taxing Authority is determined or taken into
account with reference to the liability of any other Person, and (iii)
liability of PK-US for the payment of any amount as a result of being party
to any Tax Sharing Agreement or
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with respect to the payment of any amounts of the type described in clause
(i) or (ii) as a result of any existing express or implied agreement or
arrangement (including, but not limited to, an indemnification agreement or
arrangement).
"TAX ASSET" means any net operating loss, net capital loss, investment
tax credit, foreign tax credit, charitable deduction or any other credit or
tax attribute that could be carried forward or back to reduce Taxes
(including without limitation deductions and credits related to alternative
minimum Taxes).
"TAX SHARING AGREEMENTS" means all existing agreements or arrangements
(whether or not written) binding PK-US that provide for the allocation,
apportionment, sharing or assignment of any Tax liability or benefit, or the
transfer or assignment of income, revenues, receipts, or gains for the
principal purpose of determining any person's Tax liability.
Section 8.2. TAX REPRESENTATIONS. Seller represents and warrants to
Buyers as of the Closing Date that:
(a) FILING AND PAYMENT. Except as set forth on Schedule 8.02(a), (i)
all Tax returns, statements, reports and forms (including estimated tax or
information returns and reports) required to be filed with any Taxing
Authority with respect to any Pre-Closing Tax Period by or on behalf of PK-US
(collectively, the "RETURNS"), have, to the extent required to be filed on or
before the date hereof, been filed in a timely manner; (ii) as of the time of
filing, the Returns were true and complete to the best of Seller's Knowledge;
and (iii) all Taxes shown as due and payable on the Returns that have been
filed have been timely paid, or withheld and remitted to the appropriate
Taxing Authority.
(b) FINANCIAL RECORDS. Except as set forth on Schedule 8.02(b), (i)
all information set forth in the Balance Sheet (including the notes thereto)
relating to Tax matters is true and complete; and (ii) the charges, accruals
and reserves for Taxes with respect to PK-US for any Pre-Closing Tax Period
reflected on the books of PK-US reasonably estimate the Tax liabilities
accruing through the end of the last period for which PK-US ordinarily
records items on its respective books.
(c) PROCEDURE AND COMPLIANCE. Except as set forth on Schedule 8.02(c),
(i) all Returns filed with respect to Tax years of PK-US through the Tax year
ended June 30, 1995 have been examined and closed or are Returns with respect
to which the applicable period for assessment under applicable law, after
giving effect to extensions or waivers, has expired; (ii) PK-US is not
delinquent in the payment of any Tax which has been assessed as of Closing or
the non-timely payment of which would result in penalties or has requested
any extension of time within which to file any Return and has not yet filed
such Return; (iii) neither PK-US (nor any member of any affiliated,
consolidated, combined or unitary group of which PK-US is or has been a
member) has granted any extension or waiver of the statute of limitations
period applicable to any
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Return, which period (after giving effect to such extension or waiver) has
not yet expired; (iv) there is no claim, audit, action, suit, proceeding, or
investigation now pending or threatened in writing against or with respect to
PK-US or any member of the Seller Group in respect of any Tax or Tax Asset;
(v) there are no requests for rulings or determinations in respect of any Tax
or Tax Asset pending between PK-US and any Taxing Authority; (vi) during the
five-year period ending on the date hereof, none of Seller, PK-US or any
Affiliate of Seller has made or changed any tax election, changed any annual
tax accounting period, or adopted or changed any method of tax accounting (to
the extent that any such action may materially affect PK-US), nor has it, to
the extent it may materially affect or relate to PK-US, filed any amended
Return, entered into any closing agreement, settled any Tax claim or
assessment, or surrendered any right to claim a Tax refund; and (vii) there
are no Liens for Taxes upon the assets of PK-US except Liens for current
Taxes not yet due.
(d) TAXING JURISDICTIONS. Schedule 8.02(d) contains a list of all
jurisdictions (whether foreign or domestic) in which PK-US currently files
any Tax Return.
(e) TAX SHARING, CONSOLIDATION AND SIMILAR ARRANGEMENTS. Except as set
forth on Schedule 8.02(e), (i) PK-US has not been a member of an affiliated,
consolidated, combined or unitary group other than one of which Seller was
the common parent, or made any election or participated in any arrangement
whereby any Tax liability or any Tax Asset of PK-US was determined or taken
into account for Tax purposes with reference to or in conjunction with any
Tax liability or any Tax Asset of any other Person; (ii) PK-US is not a party
to any Tax Sharing Agreement or to any other agreement or arrangement
referred to in clause (ii) or (iii) of the definition of "Tax"; (iii) PK-US
is not currently under any obligation to pay any amounts of the type
described in clause (ii) or (iii) of the definition of "Tax," regardless of
whether such Tax is imposed on PK-US; and (iv) PK-US has not entered into any
agreement or arrangement with any Taxing Authority with regard to a Tax
liability of PK-US for any Tax period for which the applicable statute of
limitations, after giving effect to extensions or waivers, has not expired.
(f) CERTAIN AGREEMENTS AND ARRANGEMENTS. Except as set forth on
Schedule 8.02(f), (i) none of the Seller, PK-US or any Affiliate of Seller is
a direct or indirect beneficiary of a guarantee of tax benefits or any other
arrangement that has the same economic effect (including tax opinion or other
insurance) with respect to any transaction or tax opinion that may materially
affect or relate to PK-US; (ii) PK-US is not a party to any understanding or
arrangement described in Section 6111(d) or Section 6662(d)(2)(C)(iii) of the
Code; and (iii) PK-US has not participated in or cooperated with an
international boycott within the meaning of Section 999 of the Code.
(g) POST-CLOSING ATTRIBUTES. Except as set forth on Schedule 8.02(g),
(i) PK-
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US will not be required to include any adjustment in taxable income for any
Post-Closing Tax Period under Section 481(c) of the Code (or any similar
provision of the Tax laws of any jurisdiction) as a result of a change in
method of accounting for a Pre-Closing Tax Period; (ii) no Tax Asset of the
Seller Group is currently subject to a limitation under Section 382 or
Section 383 of the Code; (iii) there is no "consolidated overall foreign
loss" within the meaning of Treasury Regulation Section 1.1502-9 that could
be allocated, in whole or in part, to PK-US and (iv) PK-US will not be
required to include for a Post-Closing Tax Period taxable income attributable
to income economically realized in a Pre-Closing Tax Period, including any
income that would be includible in a Post-Closing Tax Period as a result of
the installment method or the look-back method (as defined in Section 460(b)
of the Code).
(h) PROPERTY AND LEASES. Except as set forth on Schedule 8.02(h), (i)
PK-US does not own an interest in real property in any jurisdiction in which
a Tax is imposed on the transfer of an interest in real property and which
treats the transfer of an interest in an entity that owns an interest in real
property as a transfer of the interest in real property; (ii) none of the
property owned or used by PK-US is subject to a tax benefit transfer lease
executed in accordance with Section 168(f)(8) of the Internal Revenue Code of
1954, as amended; (iii) neither PK-US nor any of its Affiliates is party to a
lease, other than a lease that is, for federal income tax purposes, a "true"
lease under which PK-US or its Affiliates own or use the property subject to
the lease; (iv) neither PK-US nor any of its Affiliates is party to a lease
involving a defeasance; and (v) none of the property owned by PK-US is
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(i) CERTAIN ELECTIONS. (i) No election has been made under Treasury
Regulation Section 1.7701-3 or any similar provision of Tax law to treat
PK-US as an association, corporation or partnership or for PK-US to be
disregarded as an entity for Tax purposes; (ii) a protective carryover
election has been filed in connection with each transaction consummated by
PK-US prior to January 20, 1994 that constituted a "qualified stock purchase"
within the meaning of Section 338 of the Code; (iii) none of Seller, PK-US or
any other person on behalf of PK-US has entered into any agreement or consent
pursuant to Section 341(f) of the Code; and (iv) Seller is qualified to make
the Section 338(h)(10) Election.
Section 8.3. COVENANTS. (a) Buyer and Seller agree to make a timely,
effective and irrevocable election under Section 338(h)(10) of the Code and
under any comparable statutes in any other jurisdiction with respect to the
purchase of the Shares of PK-US (the "SECTION 338(h)(10) ELECTION"), and to
file such election in accordance with applicable regulations. The Section
338(h)(10) Election shall properly reflect the Price Allocation (as
hereinafter defined). Within 120 days after the Closing Date, Buyers shall
deliver to Seller a draft statement (the "ALLOCATION STATEMENT") proposing to
allocate the modified ADSP (as such term is defined in Treasury
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Regulations Section 1.338(h)(10)-1) (the "MODIFIED AGGREGATE DEEMED SALES
PRICE") of the assets of PK-US in accordance with the Treasury regulations
promulgated under Section 338(h)(10). Seller shall have the right to approve
the Allocation Statement. If within 30 days after receipt of the Allocation
Statement Seller notifies Buyers in writing that Seller disagrees with such
allocation, Buyers and Seller will negotiate in good faith to resolve such
dispute. If Buyers and Seller fail to resolve such dispute within 30 days,
the Accounting Referee shall determine whether the allocation was reasonable
and, if not reasonable, shall appropriately revise the Allocation Statement.
Seller shall have the right to submit a proposed allocation to the Accounting
Referee which the Accounting Referee may consider in revising the Allocation
Statement. If Seller does not respond within 30 days, or upon resolution of
the disputed items, the allocation reflected on the Allocation Statement (as
such may have been revised) shall be the "Price Allocation" and shall be
binding on the parties hereto. Seller and Buyers agree to (i) act in
accordance with the Price Allocation in the preparation, filing and audit of
any Tax return and (ii) cooperate fully, as and to the extent reasonably
requested by the other party, in connection with making the Section
338(h)(10) Election.
(b) Except as provided in Section 8.03(a), without the prior written
consent of Buyers, none of Seller, PK-US or any Affiliate of Seller shall, to
the extent it may affect or relate to PK-US, make or change any tax election,
change an annual tax accounting period, adopt or change any method of tax
accounting, file any amended Return, enter into any closing agreement, settle
any Tax claim or assessment, surrender any right to claim a Tax refund,
consent to any extension or waiver of the limitations period applicable to
any Tax claim or assessment or take or omit to take any other action (a "TAX
DECISION"), if any such action or omission would have the effect of
increasing the Tax liability or reducing any Tax Asset of PK-US, Buyers or
any Affiliate of Buyers.
(c) All Returns not required to be filed on or before the date hereof
(i) will be filed when due in accordance with all applicable laws and (ii) as
of the time of filing, will be true and complete in all material respects.
(d) Seller shall include PK-US in its consolidated Federal Tax return
and in any Other Combined Tax Return through the close of business on the
Closing Date.
(e) All transfer, documentary, sales, use, stamp, registration, value
added and other such Taxes and similar fees (including any penalties and
interest) incurred in connection with transactions contemplated by this
Agreement (including any real property transfer tax and any similar Tax)
shall be paid by Buyers when due, and Buyers will, at its own expense, file
all necessary Tax returns and other documentation with respect to all such
Taxes and fees, and, if required by applicable law, Seller will,
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and will cause its Affiliates to, join in the execution of any such Tax
returns and other documentation.
(f) Seller shall promptly pay or cause to be paid promptly to Buyers
the amount of any Tax refund attributable to a Pre-Closing Tax Period, and
interest thereon, with respect to PK-US upon receipt by Seller or any of its
Affiliates (or any successor of Seller or any of its Affiliates) of such
refund to the extent reflected in the calculation of Final Stockholder's
Equity.
Section 8.4. TAX SHARING. (a) Any and all existing Tax Sharing
Agreements shall be terminated as of the date hereof. After the date hereof,
PK-US shall not have any further rights or liabilities thereunder. This
Agreement shall be the sole Tax sharing agreement relating to PK-US for all
Pre-Closing Tax Periods.
Section 8.5. COOPERATION ON TAX MATTERS. (a) Buyers and Seller shall
cooperate fully, as and to the extent reasonably requested by the other
party, in connection with the preparation and filing of any Tax return,
statement, report or form (including any report required pursuant to Section
6043 of the Code and all Treasury Regulations promulgated thereunder), any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to any
such audit, litigation or other proceeding and making employees available on
a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. Buyers and Seller agree (i) to retain all
books and records with respect to Tax matters pertinent to PK-US relating to
any Pre-Closing Tax Period, until the expiration of the applicable statute of
limitations (after giving effect to extensions or waivers), and to abide by
all record retention agreements entered into with any Taxing Authority, and
(ii) to give the other party reasonable written notice prior to destroying or
discarding any such books and records and, if the other party so requests,
Buyers or Seller, as the case may be, shall allow the other party to take
possession of such books and records.
(b) Buyers and Seller further agree, upon request, to use all
reasonable efforts to obtain any certificate or other document from any
governmental authority or customer of PK-US or any other person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including but not limited to with respect to the transactions contemplated
hereby).
ARTICLE 9
UK Taxation Warranties
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Section 9.1. DEFINITIONS. The following terms, as used in this Article
9, have the following meanings:
"TAXES ACT 1988" means the Income and Corporation Taxes Act 1988;
"TCGA 1992" means the Taxation of Chargeable Gains Act 1992; and
"VATA 1994" means the Value Added Tax Act 1994.
Section 9.2. TAX REPRESENTATIONS. Seller represents and warrants
solely in respect of each of the UK Companies to Buyers as of the Closing
Date that:
(a) TAX RETURNS. During the period of the Seller's ownership, all
necessary information, notices, accounts, statements, reports, computations
and returns which ought properly to have been made have been properly and
duly submitted by each UK Company to the Inland Revenue, and any other
relevant taxation or excise authorities whether of the United Kingdom or
elsewhere and all information, notices, computations and returns submitted to
the Inland Revenue, and such other authorities are true and accurate in all
material respects and are not the subject of any material dispute nor so far
as the Seller is aware are likely to become the subject of any material
dispute with such authorities.
(b) TAXATION LIABILITIES. During the period of the Seller's ownership,
all taxation of any nature whatsoever whether of the United Kingdom or
elsewhere for which any UK Company is liable or for which any UK Company is
liable to account has been duly paid (insofar as such taxation ought to have
been paid) and without prejudice to the generality of the foregoing each UK
Company has made all such deductions and retentions as it was obliged or
entitled to make and all such payments as should have been made.
(c) PENALTIES AND INTEREST. No UK Company has during the period of the
Seller's ownership within the past six years paid or become liable to pay,
nor so far as the Seller is aware are there any circumstances by reason of
which any UK Company is likely to become liable to pay, any penalty, fine,
surcharge or interest whether charged by virtue of the provisions of the
Taxes Management Act 1970 or VATA 1994 or otherwise
(d) INVESTIGATIONS. No UK Company has within the past twelve months
suffered any investigation audit or visit by the Inland Revenue, Customs and
Excise, Department of Social Security, or any other taxation or excise
authority, and neither any Seller nor any UK Company is aware of any such
investigation audit or visit planned for the next twelve months.
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(e) SECURITIES. No securities (within the meaning of Part VI of the
Taxes Act 1988) issued by any UK Company and remaining in issue at the date
of this agreement were issued in such circumstances that any interest or
other distribution out of assets in respect thereof falls to be treated as a
distribution under s.209(2)(d) or (e) Taxes Act 1988, nor has any of the
Companies agreed to issue securities (within that meaning) in such
circumstances.
(f) DEDUCTIONS. All rents, interest, annual payments and other sums of
an income nature paid or payable by any UK Company since the Balance Sheet
Date and before Closing or which any UK Company is under an obligation to pay
in the future under a legally binding contract entered into before Closing
other than in the ordinary course of business are wholly allowable as
deductions or charges in computing income for the purposes of corporation
tax, except to the extent that such amounts are of a similar type and quantum
revealed in the corporation tax computations of the Company attached as
Schedule 9.02(f).
(g) SHARE CAPITAL. No UK Company has issued any share capital which is
of a relevant class as defined in s.249(2) Taxes Act 1988 nor does any UK
Company own any such share capital.
(h) Except as set forth in Schedule 9.02(h), no balancing charge under
the Capital Allowances Act 1990 (or other legislation relating to any capital
allowances) would be made on any UK Company on the disposal of any pool of
assets (that is to say all those assets expenditure relating to which would
be taken into account in computing whether a balancing charge would arise on
a disposal of any other of those assets) or of any asset not in such a pool,
on the assumption that the disposals are made for a consideration equal to
the book value shown in or adopted for the purpose of the Balance Sheet for
the assets in the pool or (as the case may be) for the asset.
(i) No event has occurred since the Balance Sheet Date otherwise than
in the ordinary course of business by reason of which any balancing charge
may fall to be made against or any disposal value may fall to be brought into
account by any UK Company under the Capital Allowances Act 1990 (or other
legislation relating to any capital allowances).
(j) CAPITAL GAINS TAX ACQUISITION COSTS. The book value shown in or
adopted for the purpose of the Balance Sheet as the value of each of the
assets of any UK Company on the disposal of which a chargeable gain or
allowable loss could arise does not exceed the amount which on a disposal of
such asset at the date of this agreement would be deductible under s.38 TCGA
1992.
(k) CLAIMS FOR ROLL-OVER AND HOLD-OVER OF GAINS. Schedule 9.02(k) sets
out full particulars of all claims and elections made (or assumed in the
Balance Sheet
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to be made) insofar as they could affect the chargeable gain or allowable
loss which would arise in the event of a disposal after the Balance Sheet
Date by any UK Company of any of its assets, and indicates which assets (if
any) so affected would not on disposal give rise to relief under Schedule 4
TCGA 1992.
(l) TRANSACTIONS NOT AT ARM'S LENGTH. Except as set forth in Schedule
9.02(l), none of the UK Companies has disposed of or acquired any asset in
circumstances such that the provisions of s.17 TCGA 1992 could apply to such
disposal or acquisition nor given or agreed to give any consideration to
which s.128(2)(b) TCGA 1992 could apply.
(m) DISPOSAL OF DEBTS. No chargeable gain will accrue to any UK
Company on the disposal of any debt owed to it.
(n) COMPENSATION FOR LOSS OF OFFICE. No UK Company is under an
obligation to pay nor has it since the Balance Sheet Date paid or agreed to
pay any compensation or other gratuitous payment for loss of office which is
not deductible in computing its income for the purposes of Corporation Tax,
assuming that the business of the Company is carried on in all material
respects in the same manner after Closing as it was before Closing.
(o) GIVE-AS-YOU-EARN. No UK Company participates in a scheme under
s.202 Taxes Act 1988.
(p) PROFIT-RELATED PAY. No scheme registered under Chapter III of Part
V Taxes Act 1988 applies to any UK Company or any of its employees and no
application for registration of a scheme so applying has been made.
(q) PENSION CONTRIBUTIONS. Since the Balance Sheet Date no UK Company
has made any payment which may be wholly or partially disallowed as an
expense or expense of management under s.112 Finance Act 1993 nor did any
circumstances exist at the Balance Sheet Date which could result in any
payment made after that date being so disallowed, assuming that the business
of the Company is carried on in all material respects in the same manner
after Closing as it was before Closing.
(r) CLOSE COMPANY. No UK Company is or has at any time within the
period of the Seller's ownership been a close company as defined in s.414
Taxes Act 1988.
(s) SURRENDER OF GROUP RELIEF. No UK Company has during the period of
the Seller's ownership surrendered or claimed or agreed to surrender or claim
any amount by way of group relief under the provisions of s.402
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to s.413 (inclusive) Taxes Act 1988 or any amount of Advance Corporation Tax
under the provisions of s.240 Taxes Act 1988 nor made or received or agreed
to make or receive any payment in respect of any such surrender.
(t) Except as provided in the Balance Sheet no UK Company is or will be
under any obligation to make or have any entitlement to receive in respect of
any period ending on or before the Balance Sheet Date any payment for group
relief as defined in s.402(6) Taxes Act 1988 or any payment for the surrender
of the benefit of an amount of Advance Corporation Tax.
(u) ACQUISITIONS FROM GROUP MEMBERS. No asset of any UK Company shall
be deemed under s.178 and s.179 TCGA 1992 to have been disposed of and
reacquired by virtue of or in consequence of the entering into or performance
of this agreement or any other event since the Balance Sheet Date.
(v) INTRA-GROUP TRANSACTIONS. Except as produced in Schedule 9.02(v),
no tax has been or so far as the Seller is aware may be assessed on any UK
Company pursuant to s.190 TCGA 1992 in respect of any chargeable gain accrued
prior to the date of this agreement since acquired by the Seller and no UK
Company has transferred any asset other than trading stock (including without
limitation any transfer by way of share exchange within s.135 TCGA 1992) to
any company which at the time of disposal was a member of the same group (as
defined in s.170 TCGA 1992).
(w) UK RESIDENCE. Each UK Company is and has throughout the period of
the Seller's ownership been resident in the United Kingdom for corporation
tax purposes and if any of the Companies is not so resident it is not a
company incorporated in the United Kingdom.
(x) DUAL RESIDENCE (GROUP RELIEF). No UK Company is or has within the
period of the Seller's ownership been a dual resident company within the
meaning of s.404(4) Taxes Act 1988 and no UK Company has been involved in any
transaction to which s.404 Taxes Act 1988 or any other provision (including
any exclusion from a provision) relating to dual resident investing companies
as there defined could apply.
(y) DUAL RESIDENCE (CAPITAL GAINS). No UK Company has since the
Accounts Date disposed of an asset or acquired an asset in circumstances such
that the reliefs contained in sections 139, 171 or 175 TCGA 1992 are not
available as a result of the acquiring company being regarded for the purpose
of any double taxation arrangements having effect by virtue of s.788 Taxes
Act 1988 as resident in a territory outside the UK and as not liable in the
UK to tax on a gain arising on a disposal of the relevant asset occurring
immediately after its acquisition.
(z) CONTROLLED FOREIGN COMPANIES AND OFFSHORE FUNDS. No UK Company
has during the period of the Seller's ownership had any interest in a
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controlled foreign company as defined in Chapter IV Part XVII Taxes Act 1988
nor any material interest in an offshore fund as defined in s.759 Taxes Act
1988.
(aa) TAX AVOIDANCE. (i) no UK Company has during the period of the
Seller's ownership been a party to or otherwise involved in any transaction
to which any of the following provisions could apply: s.29 to s.34 TCGA 1992;
s.116 or s.118 Taxes Act 1988; s.399 Taxes Act 1988; s.729 to s.746 or s.774
to s.787 in Part XVII Taxes Act 1988; and (ii) no UK Company has been a party
to any transaction to which any of the following provisions have been or
could be applied other than transactions in respect of which all Inland
Revenue clearances have been obtained after disclosure of all material facts:
s.139 TCGA 1992; s.135 or s.136 TCGA 1992; s.140C TCGA 1992; s.213 to s.218
Taxes Act 1988 and s.192 TCGA 1992; s.219 Taxes Act 1988; s.703 Taxes Act
1988; s.776 Taxes Act 1988.
(bb) TRANSACTIONS BETWEEN PERSONS UNDER COMMON CONTROL. Except as
provided in Schedule 9.02(bb), no transactions or arrangements involving any
UK Company have taken place which are such that any of the provisions of
s.770 to s.773 Taxes Act 1988 or Schedule 28AA Taxes Act 1988 have been
applied to them; provided further that no representation is made regarding
the proposed transfer of PK-UK manufacturing operations to PK-US following
the Closing.
(cc) RECONSTRUCTION OF TRANSACTIONS. During the period of the Seller's
ownership, no UK Company has been involved in any transaction or series of
transactions which, or any part of which, may for any tax purposes be
disregarded or reconstructed by reason of any motive to avoid a possible
liability to tax, or, where there is no other commercial purpose for the
transaction or series of transactions, by reason of any motive to reduce or
delay a possible liability to tax.
(dd) STAMP DUTY. All documents in the enforcement of which any UK
Company may reasonably be interested have been duly stamped.
(ee) STAMP DUTY RESERVE TAX. No UK Company has since the Balance Sheet
Date incurred any liability to or been accountable for any stamp duty reserve
tax and there has been no agreement within s.87(1) Finance Act 1986 which
could lead to any UK Company incurring such a liability or becoming so
accountable.
(ff) VALUE-ADDED TAX - REGISTRATION. Each UK Company is duly registered
for the purposes of Value Added Tax with monthly prescribed accounting
periods and no such registration is pursuant to paragraph 2 of Schedule 1 to
VATA 1994 or subject to any conditions imposed by or agreed with HM Customs
and Excise and no UK Company is (nor are there any circumstances by virtue of
which it may become) under a duty to make monthly payments on account under
the Value Added Tax (Payments on Account) Order 1993.
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(gg) VAT GROUP. During the period of the Seller's ownership, no UK
Company is or has been treated for Value Added Tax purposes as a member of
any group of companies (other than a group comprising the Companies alone).
(hh) SECONDARY LIABILITY. No act or transaction has been effected in
consequence of which any UK Company is or so far as the Seller is aware may
be held liable for any Value Added Tax under s.47, s.48 or s.55 VATA 1994
(agents, etc., tax representatives and customer accounting) or s.29 VATA 1994
(self-billing) and no direction affecting any of the Companies has been given
under paragraph 2 of Schedule 6 to VATA 1994. No direction has been given
under paragraph 1 of Schedule 9A to VATA 1994 either to a UK Company or in
circumstances where a UK Company may be liable for and Value Added Tax
assessed by that direction.
(ii) COMPLIANCE. During the Seller's period of ownership, each UK
Company has complied with all statutory provisions, rules, regulations,
orders and directions concerning Value Added Tax including the making on time
of accurate returns and payments and the proper maintenance and preservation
of records and no UK Company has been given any penalty liability notice
within s.64 VATA 1994, any surcharge liability notice within s.59 of that
Act, or any written warning within s.76(2) of that Act.
(jj) EXEMPTION. No UK Company is or was partially exempt in its current
or preceding value added tax year and so far as the Seller is aware there are
no circumstances by reason of which any UK Company might not be entitled to
credit for all Value Added Tax chargeable on supplies received and imports
and acquisitions made (or agreed or deemed to be received or made) by it
since the Accounts Date and there are no circumstances by reason of which
Regulation 107 Value Added Tax Regulations 1995 might apply (or has since the
Accounts Date applied) to any UK Company.
(kk) VALUATION. No direction has been or could so far as the Seller is
aware have been made to any UK Company under paragraph 1 of Schedule 6 or
paragraph 1 of Schedule 7 to VATA 1994.
(ll) SECURITY. During the period of the Seller's ownership, no UK
Company has been required to give security under paragraph 4 of Schedule 11
to VATA 1994.
(mm) OPTION TO CHARGE VAT ON SUPPLIES BY THE COMPANIES. No election to
waive exemption has been made or agreed to be made under Schedule 10 to VATA
1994 by (i) a UK Company or (ii) any person in relation to which a UK Company
is a relevant associate as defined in paragraph 3(7) of that Schedule.
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(nn) CAPITAL GOODS SCHEME. No UK Company owns capital items falling
within the meaning of Part XV of the Value Added Tax Regulations 1995.
(oo) BAD DEBT RELIEF. Schedule 9.02(oo) sets out full particulars of
all claims which have been or could have been made under s.36 VATA 1994 and
there are no existing circumstances by virtue of which any refund of tax
obtained or claimed may be required to be repaid.
ARTICLE 10
Employee Benefits
Section 10.1. 401(k) PLAN. (a) Effective as of the Closing Date,
Seller shall take all steps necessary to cause all employees of PK-US who are
actively employed on the Closing Date to be fully vested in their benefits
under Seller's Employees' Savings and Investment Plan and Seller's Profit
Sharing Plan (collectively, "SELLER'S DC PLANS").
(b) (i) As soon as administratively practicable after the Closing Date
and following the completion of Seller's current change to self-directed
accounts, Seller shall spinoff to a defined contribution plan maintained or
designated by GN-US ("BUYER DC PLAN") the accounts of each PK-US employee
actively employed on the Closing Date ("US EMPLOYEE") in Seller's DC Plans
and as soon as practicable following the Closing Date, Seller shall cause to
be transferred to the Buyer DC Plan cash, or other assets, including
participant notes held in such transferred accounts, as Buyers and Seller may
agree, having a fair market value equal to the aggregate value of the account
balances in Seller's DC Plans as of the date of the plan asset transfer for
each US Employee. Such transfer of assets shall be made only after (A)
Seller has supplied to GN-US either (x) a copy of an IRS determination letter
finding Seller's DC Plans to be qualified plans meeting the requirements of
Sections 401(a) and 401(k) of the Code or (y) a written representation from
Seller (with appropriate indemnities), in either case, to the effect that
Seller's DC Plans have been established and maintained in accordance with the
Code and ERISA, and an agreement that Seller will cooperate with GN-US in
obtaining Buyer's determination letters from the IRS and (B) GN-US has
supplied to Seller either (x) a copy of an IRS determination letter finding
the Buyer DC Plan to be a qualified plan meeting the requirements of Sections
401(a) and 401(k) of the Code or (y) a written representation from GN-US
(with appropriate indemnities), in either case, to the effect that the Buyer
DC Plan has been established and maintained in accordance with the Code and
ERISA, and an agreement that GN-US will cooperate with Seller in obtaining
Seller's obtaining a determination letter from the IRS. Prior to the actual
transfer of such assets, the US Employees shall not be permitted to make
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withdrawals or loans from the spunoff accounts. After the Closing Date but
prior to the actual transfer of assets, GN-US shall (A) cause to be withheld
from the paychecks of PK-US employees and amount equal to any loan repayment
and (B) immediately transmit said amount to Seller's DC plans.
(ii) Seller and GN-US shall cooperate with each other during the
period beginning on the date hereof and ending on the date the assets are
transferred to the trust maintained under the Buyer DC Plan to ensure the
ongoing operation and administration of Seller's DC Plans and Buyer DC Plan
with respect to such US Employees. Following such transfer of assets, Buyers
shall assume all of the Seller's liabilities under Seller's DC Plans with
respect to such US Employees and Seller shall have no further liability to
such US Employees under the Seller's DC Plans other than liability arising
out of any breach of fiduciary duties or any non-exempt prohibited
transaction occurring prior to such transfer of assets and liabilities.
Section 10.2. NON-U.S. PLANS. Seller shall provide to GN-UK full
details on request in relation to the International Plan and shall guarantee
the payment of and indemnify GN-UK for any contributions payable prior to the
Closing Date to the International Plan.
Section 10.3. WARN OBLIGATIONS. With respect to the employees of
PK-US, GN-US will timely give all notices required to be given under the
Worker Adjustment and Retraining Notification Act of 1988 ("WARN") or other
statutes or regulations of any jurisdiction relating to any plan closing or
mass layoff, in each case effective on or after the Closing Date.
ARTICLE 11
Survival; Indemnification
Section 11.1. SURVIVAL. The covenants, agreements, representations and
warranties of the parties hereto contained in this Agreement (excluding
Articles 8 and 9, Section 3.25 (to the extent relating to any ERISA
liability), or in any certificate or other writing delivered pursuant hereto
or in connection herewith other than the Tax Deed (the "WARRANTIES") shall
survive the Closing until December 31, 2000; PROVIDED that (i) the covenants
and agreements contained in Sections 5.01(a), 5.01(b), 5.04, 6.01 and 6.05
shall survive for the period set forth therein, (ii) the covenants and
agreements contained in Section 6.02 and Article 13 shall survive
indefinitely, (iii) the covenants, agreements, representations and warranties
contained in Article 8 and Section 3.25 (to the extent relating to any ERISA
liability) shall survive until the later
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of (x) December 31, 2000 and (y) the expiration of the statute of limitations
applicable to the matters covered thereby (giving effect to any waiver,
mitigation or extension thereof) and (iv) the representations and warranties
contained in Article 9 and the covenants and agreements contained in the Tax
Deed shall survive seven (7) years from the Closing Date except in the case
of fraud, dishonesty or willful concealment on the part of Covenantor (as
defined in the Tax Deed) or its agents or advisers. Notwithstanding the
preceding sentence, any covenant, agreement, representation or warranty in
respect of which indemnity may be sought under this Agreement shall survive
the time at which it would otherwise terminate pursuant to the preceding
sentence, if notice of the inaccuracy or breach thereof giving rise to such
right of indemnity, containing reasonable detail and sufficient specificity
to give the Indemnifying Party fair notice of the Damages claimed (if known),
the nature of the claimed breach, and the details of the matter for which
indemnification is sought, shall have been given to the party against whom
such indemnity may be sought prior to such time, and thereafter the
Indemnified Party shall promptly seek to resolve the claim.
Section 11.2. INDEMNIFICATION. (a) Seller hereby indemnifies each
Buyers Indemnitee against and agrees to hold each of them harmless from any
and all damage, loss, liability and expense (including, without limitation,
reasonable expenses of investigation and reasonable attorneys' fees and
expenses in connection with any action, suit or proceeding) ("DAMAGES")
incurred or suffered by any Buyers Indemnitee arising out of (i) any
misrepresentation or breach of warranty made by Seller pursuant to this
Agreement (other than pursuant to Article 8 or 9 or the Tax Deed ) or (ii)
any breach of any covenant or agreement to be performed by Seller pursuant to
this Agreement (other than pursuant to Article 8 or 9 or the Tax Deed);
PROVIDED that (x) Seller shall not be liable under clause (i) of this Section
11.02(a) for any subject matter where the amount involved is less than
$50,000, and unless the aggregate amount of Damages with respect to all
matters referred to in clause (i) of Section 11.02(a) (determined without
regard to any materiality qualification contained in any representation or
warranty giving rise to the claim for indemnity hereunder) exceeds
$1,325,000, in which case Buyers Indemnitee shall be entitled to indemnity
for the full amount of all claims.
(b) Seller hereby indemnifies each Buyers Indemnitee against and agrees
to hold each Buyers Indemnitee harmless from any (v) Tax of PK-US described
in clause (i) of the definition of Tax related to a Pre-Closing Tax Period,
(w) Tax described in clause (ii) or (iii) of the definition of Tax, (x) Tax
of PK-US resulting from a breach of the provisions of Section 8.02 or Section
8.03, (y) Section 338 Tax, and (z) Damages arising out of or incident to the
imposition, assessment or assertion of any Tax described in (v), (w), (x) or
(y), and any liability as transferee (the sum of (v), (w), (x), (y), and (z)
being referred to herein as a "LOSS"); PROVIDED, that Seller shall have no
obligation to make any payment to Buyers Indemnitees pursuant to this Section
11.02(b) until the aggregate amount of all claims arising pursuant hereto and
pursuant
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to the Tax Deed exceeds twenty-five thousand dollars ($25,000), in which case
Buyers Indemnitees shall be entitled to indemnity for the full amount of all
claims. For the avoidance of doubt, Buyers shall be entitled to
indemnification in respect of a breach of warranty made pursuant to Article 9
of this Agreement under the provisions of the Tax Deed and shall not be
entitled to pursue a separate claim for breach of such warranty under the
terms of this Agreement. References to claims or liabilities under the
Warranties in this section 11.02 shall therefore exclude claims in respect of
a breach of warranty made pursuant to Article 9 of this Agreement and
references to claims or liabilities under the Tax Deed shall include
indemnification in respect of a breach of warranty made pursuant to Article
9 of this Agreement.
(c) For purposes of Section 11.02(b), in the case of any Taxes that are
imposed on a periodic basis and are payable for a Tax period that includes
(but does not end on) the Closing Date, the portion of such Tax related to
the portion of such Tax period ending on and including the Closing Date shall
(x) in the case of any Taxes other than gross receipts, sales or use Taxes
and Taxes based upon or related to income, be deemed to be the amount of such
Tax for the entire Tax period multiplied by a fraction the numerator of which
is the number of days in the Tax period ending on and including the Closing
Date and the denominator of which is the number of days in the entire Tax
period, and (y) in the case of any Tax based upon or related to income and
gross receipts, sales or use Tax be deemed equal to the amount which would be
payable if the relevant Tax period ended on and included the Closing Date.
All determinations necessary to give effect to the foregoing allocations
shall be made in a manner consistent with prior practice of PK-US. In the
case of an interest in an entity that is fiscally transparent for Tax
purposes, items shall be deemed to flow through on a daily basis rather than
at the close of the entity's Tax year.
(d) Buyers shall have no rights or remedy whatsoever in respect of any
fact, matter or circumstance constituting a breach of the Warranties or in
respect of any claim under Section 11.02(b) or the Tax Deed except pursuant
to a claim under this Agreement or the Tax Deed and all of them hereby
irrevocably waive, release, discharge and acquit Seller and its Affiliates
from any other causes of action, known or unknown, and whether based on
statute, regulation or common law, in respect of such fact, matter or
circumstance, and from any claims, demands, debt, controversies, damages,
costs, losses and expenses in respect thereof except as provided in this
Agreement or the Tax Deed and other than in the case of fraud or wilful
misconduct.
(e) If GN Nettest, Buyers and/or any of their Affiliates and/or any of
the Companies or the Subsidiaries at any time are, or are likely to be,
entitled to recover from some other person any sum in respect of any matter
giving rise to a claim for breach of the Warranties under Section 11.02(a)
hereof, then GN Nettest and Buyers shall, and shall cause such Affiliates,
Company and/or Subsidiary to undertake all reasonable steps to enforce such
recovery, and no further action shall be taken against Seller (other than to
notify Seller of the claim against Seller) in respect of that claim
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until resolution of the third-party claim. If any sum is so recovered then
either:
(i) the amount payable by Seller in respect of that claim shall
be reduced by an amount equal to the sum so recovered (less the reasonable
costs and expenses of recovering it and any Tax payable by Buyer, such
Affiliate, Company and/or Subsidiary as a result of its receipt) or, if
that sum is greater, the claim shall be extinguished; or
(ii) if an amount shall already have been paid by Seller in
respect of that claim, there shall be repaid to Seller an amount equal to
the amount so recovered (less the reasonable costs and expenses of its
recovery and any Tax payable by Buyer, such Affiliate, Company and/or
Subsidiary as a result of its receipt) or (if less) the amount of such
payment and any excess shall be treated in the same manner as in paragraph
(f) below.
If any amount is repaid to Seller by Buyer or such Affiliate, Company
and/or Subsidiary pursuant to 11.02(e)(ii) above, an amount equal to the
amount so repaid shall be deemed never to have been paid by Seller to Buyer
for the purposes hereof.
Without prejudice to the generality of the section, this section shall
apply where GN Nettest, Buyer, such Affiliate, Company and/or Subsidiary is
entitled to recover from its insurers (in respect of insurance held by the
Companies or Subsidiaries effected on or before the Closing Date) any sum in
respect of any matter giving rise to a claim under Section 11.02(a) hereof.
(f) Seller shall have no liability (or such liability shall be reduced)
in respect of any claim under Section 11.02(a) or Section 11.02(b):
(i) if and to the extent that allowance, provision or reserve
for or in respect of the liability or other matter giving rise to such
claim has been taken into account, in the case of a claim under Section
11.02(a), in the calculation of Final Stockholders Equity and, in the case
of a claim under Section 11.02(b), in the calculation of Final
Stockholder's Equity solely with respect to PK-US;
(ii) if and to the extent any liability of any Company or
Subsidiary taken into account, in the case of a claim under Section
11.02(a), in the calculation of Final Stockholders Equity and, in the case
of a claim under Section 11.02(b), in the calculation of Final
Stockholder's Equity solely with respect to PK-US, has been discharged or
satisfied for less than the amount so taken into account;
(iii) if and to the extent any contingency or other matters taken
into account, in the case of a claim under Section 11.02(a), in the
calculation of
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Final Stockholders Equity and, in the case of a claim under
Section 11.02(b), in the calculation of Final Stockholder's Equity solely
with respect to PK-US, has in the event been over-provided for;
(iv) if and to the extent that such claim occurs or is increased
as a result of any change in legislation (other than any change in Tax law)
after the date of this Agreement (or any legislation other than any Tax law
not in force at the date of this Agreement) which takes effect
retroactively or the change or withdrawal after the date of this Agreement
of any standard of accountancy practice or principle;
(v) if and to the extent such claim would not have arisen but
for a change of financial accounting policies, practices, methods or bases
of any Company or Subsidiary after the Closing Date; PROVIDED, HOWEVER,
that nothing herein shall preclude Buyers from changing such financial
accounting policies, practices, methods or bases if such change is in
accordance with GAAP principles in existence at the relevant time;
(vi) if and to the extent that any income, profits or gains,
determined in accordance with GAAP principles to which that claim is
attributable were actually earned or received by or actually accrued to the
relevant Company or Subsidiary but were not taken into account in the
calculation of Final Stockholders Equity; and
(vii) except as provided in Section 11.02(k), if and to the extent
such claim arises under Section 11.02(b) hereof and such claim would not
have arisen but for either Buyer or PK-US making a Tax Decision following
Closing without the advance written consent of Seller (which shall not be
unreasonably withheld) that results in any increased Tax liability or
reduction of any Tax Asset of Seller or the Seller Group that is
attributable to any Pre-Closing Tax Period.
(g) Nothing in this Section shall derogate from the Buyer's obligation
to mitigate any loss which it suffers in consequence of a breach of the
Warranties.
(h) If in respect of any claim under the Warranties or under Section
11.02(b) the liability of Buyers Indemnitee is at the time such claim is
notified to Seller contingent only or otherwise not capable of being
quantified, then Seller shall not be under any obligation to make any payment
to such Buyers Indemnitee in respect of such claim unless and until such time
as the contingent liability ceases to be contingent and becomes actual or
becomes capable of being quantified (as the case may be).
(i) No claim whatever on the part of Buyers Indemnitee shall lie in
respect of any breach of the Warranties or under Section 11.02(b) if and to
the extent that such
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breach has arisen in respect of any act or omission or transaction or
arrangement stipulated to be carried out or omitted pursuant to the terms of
this Agreement or carried out at the request of or with the written consent
of Buyers before Closing.
(j) Buyers Indemnitees shall not be entitled to recover damages in
respect of any claim for breach of the Warranties or any claim under Section
11.02(b) where to do so would involve recovery for the same amount more than
once in respect of the same loss or damage.
(k) Notwithstanding anything to the contrary in this Agreement, nothing
shall preclude Buyers or PK-US from taking any action required by law with
respect to any Post-Closing Tax Period, including but not limited to the
filing or submission of any Tax return, statement, form or report, nexus
questionnaire, business questionnaire or application for qualification to do
business a ("TAX STATEMENT") or the payment of any Tax; PROVIDED, HOWEVER,
that with respect to each jurisdiction listed on the Jurisdiction Notice (as
defined below), Buyers shall notify Seller of the first filing or submission
with a Taxing Authority or Secretary of State in such jurisdiction by PK-US
or any Affiliate thereof of any Tax Statement that includes an affirmative
statement, admission or response that PK-US or the Seller Group either (i)
had a taxable nexus with such jurisdiction attributable to a Pre-Closing Tax
Period or (ii) otherwise was engaged in or doing business in such
jurisdiction in any Pre-Closing Tax Period (a "NEXUS POSITION"). Such notice
shall be provided by Buyers to Seller at least 45 days prior to due date of
the relevant Tax Statement and such Tax Statement shall not be filed or
submitted prior to completion of the dispute resolution procedures set forth
in this Section 11.02(k). If Seller, within 10 days after receipt of such
notification, notifies Buyers in writing that it disagrees with the Nexus
Position and proposes a modification of such Nexus Position, Seller and
Buyers shall negotiate in good faith to resolve such dispute. If Buyers and
Seller fail to resolve such dispute within 10 days after receipt of Seller's
notification, a mutually acceptable tax counsel will determine, at Seller's
expense and prior to the due date of the relevant Tax Statement, whether
Seller's proposed modification of the Nexus Position is supported by
"substantial authority" (within the meaning of Treasury Regulation Section
1.6662-4(d)). If tax counsel determines that Seller's modification is
supported by "substantial authority," such Tax Statement shall reflect the
modification and Seller shall indemnify and hold Buyers and PK-US harmless
from any and all penalties, fines and surcharges (other than interest)
incurred as a consequence of the modification to the Tax Statement. For
purposes of this Section 11.02(k), "Jurisdiction Notice" shall mean a written
notice which shall be provided by Seller to Buyers within 60 days after the
Closing Date and which shall set forth the list of states into which PK-US
had gross sales in excess of $300,000 for any Tax year ending after March 31,
1992. For purposes of the preceding sentence, gross sales shall be
calculated in the same manner as they were calculated in preparing Schedule
11.02(k).
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(l) Seller's maximum liability under Sections 11.02(a) or 11.02(b) or
the Tax Deed shall not (x) with respect to environmental matters exceed
$6,600,000 and (y) in the aggregate exceed 60% of the purchase price, as
adjusted pursuant to Section 2.04. "Environmental matters" shall, for
purposes of this paragraph, include any claim arising under Section 3.26 and
any other section based on an alleged breach of an Environmental Law.
(m) GN Nettest and Buyers hereby indemnify Seller and its Affiliates
against and agrees to hold each of them harmless from any and all Damages
incurred or suffered by Seller or any of its Affiliates arising out of (i)
any misrepresentation or breach of warranty made by GN Nettest or Buyers
pursuant to this Agreement (other than pursuant to Article 8, 9 or the Tax
Deed) or (ii) any breach of any covenant or agreement to be performed by GN
Nettest or Buyers pursuant to this Agreement (other than pursuant to Article
9 or the Tax Deed); PROVIDED that (x) GN Nettest and Buyers shall not be
liable under clause (i) of this Section 11.02(m) for any subject matter where
the amount involved is less than $50,000, and unless the aggregate amount of
Damages with respect to all matters referred to in clause (i) of Section
11.02(m) (determined without regard to any materiality qualification
contained in any representation or warranty giving rise to the claim for
indemnity hereunder) exceeds $1,325,000 and (y) GN Nettest and Buyers'
maximum liability under this Section 11.02(m) shall not exceed 60% of the
purchase price, as adjusted pursuant to Section 2.04.
(n) If an indemnification obligation under Section 11.02(a), Section
11.02(b) or Section 11.02(m) arises in respect of an adjustment which makes
allowable to any Indemnified Party any deduction, amortization, exclusion
from income or other allowance (a "TAX BENEFIT") which would not, but for
such adjustment, be allowable, then such the Indemnified Party shall pay to
the Indemnifying Party an amount equal to the actual Tax saving produced by
such Tax Benefit at the time such Tax saving is realized by such the
indemnified party. The amount of any such Tax saving for a Taxable period
shall be the amount of the reduction in Taxes payable to a Taxing Authority
with respect to such Tax period as compared to the Taxes that would have been
payable to a Taxing Authority by such Indemnified Party in the absence of
such Tax Benefit, taking into account the effect, if any, of the receipt of
the indemnity payment on the MADSP.
Section 11.3. GENERAL PROCEDURES FOR INDEMNIFICATION. Except as
provided in Section 11.04, the party seeking indemnification for Damages
under Section 11.02 (the "INDEMNIFIED PARTY") agrees to give notice to the
party against whom indemnity is sought (the "INDEMNIFYING PARTY") within 30
days of the payment of any Loss, the assertion of any claim, or the
commencement of any suit, action or proceeding (including any Tax audit) in
respect of which indemnity may be sought under this Section (a "CLAIM
NOTICE"). The failure to provide such Claim Notice to the
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Indemnifying Party shall not relieve the Indemnifying Party of its
obligations hereunder, except to the extent such failure shall have
materially and adversely prejudiced as to the indemnified claim the
Indemnifying Party; PROVIDED that after six months have passed since the date
notice should have been given, the Indemnifying Party shall have been deemed
materially and adversely prejudiced. In the absence of a timely Claim
Notice, the Indemnifying Party shall have no obligation to pay any costs of
defense. The Indemnifying Party may, at its option, participate in and,
except as otherwise provided below, control the defense of any such suit,
action or proceeding at its own expense with counsel reasonably satisfactory
to the Indemnified Party. The Indemnified Party shall be entitled to
participate in the defense of any claim, litigation or proceeding in respect
of which indemnification may be sought under this Section and to employ
counsel of its choice for such purpose. The fees and expenses of such
separate counsel shall be borne by the Indemnified Party. The Indemnifying
Party shall not be liable under this Section for any settlement or admission
of liability effected without its consent of any claim, litigation or
proceeding in respect of which indemnity may be sought hereunder; PROVIDED
that (i) consent of the Indemnifying Party shall not be required with respect
to any such settlement or admission of liability unless the Indemnifying
Party agrees not to assert that the Damages with respect to which
indemnification is sought under this Section is not within the ambit of this
Section, and (ii) in any case in which the Indemnifying Party provides such
written consent, the Indemnifying Party shall be deemed to have agreed that
it will not assert that any Damages with respect to which indemnification is
sought under this Section is not within the ambit of this Section. The
Indemnifying Party shall not enter into or consent to any settlement with
respect to which indemnification is sought under this Section without the
prior written consent of the Indemnified Party, unless (i) such settlement
involves only the payment of money damages concurrently with such settlement,
(ii) such settlement would not adversely affect the Tax liability of the
Indemnified Party or any of its Affiliates, (iii) such settlement does not
impose any injunction or other equitable relief upon the Indemnified Party,
(iv) such settlement does not require any admission or acknowledgment of
liability or fact of the Indemnified Party and (v) such settlement contains
an unconditional release of the Indemnified Party in respect of such claim.
On any matter in which consent is required hereunder, such consent shall not
be unreasonably withheld or delayed, and except to the extent such settlement
materially interferes with the operation of the Business, materially reduces
the value of any owned real property or materially adversely affects the Tax
liability of the Indemnified Party or any of its Affiliates, if the
Indemnified Party refuses to consent to a settlement of a claim which the
Indemnifying Party has acknowledged and agreed to pay, any Damages suffered
by the Indemnifying Party in excess of the settlement amount shall be the
sole responsibility of the Indemnified Party. Notwithstanding anything in
this Agreement to the contary, the Indemnifying Party shall not be entitled
to assume or maintain control of the defense of any claim, litigation or
proceeding in respect of which indemnification may be sought under this
Section if (i) such claim, litigation or proceeding relates to or arises in
connection with any criminal proceeding, action, indictment, allegation or
investigation, (ii) such claim,
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litigation or proceeding seeks an injunction or equitable relief against the
Indemnified Party, (iii) the Indemnifying Party has failed or is failing to
prosecute or defend vigorously such claim, litigation or proceeding or (iv)
the Indemnifying Party (x) makes a general assignment for the benefit of
creditors, (y) commences any case, proceeding or other action seeking to have
an order for relief entered on its behalf as a debtor or to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts or seeking
appointment of a receiver, trustee, custodian or other similar official for
it or for all of any substantial part of its property, or (z) become the
subject of any proceeding referred to in clause (x) or (y) which is not
dismissed within 60 days of its filing or entry.
Buyers shall provide and shall cause each Company or Subsidiary to
provide to Seller and Seller's professional advisers such information and
reasonable access upon reasonable notice to premises and personnel and to any
relevant assets, documents and records within their power, possession or
control (other than any such documents or records which are privileged or
confidential) for the purpose of investigating the indemnity claim and
enabling Seller to take such action as referred to below as Seller may
reasonably require and shall allow Seller and any advisers to take copies of
any relevant documents or records. In respect of any indemnity claim, Buyers
and Seller shall in good faith consider entering into a joint defense
agreement where appropriate. Buyer shall and shall cause the relevant
Company, Subsidiary and/or Affiliate of Buyer to use any reasonable best
efforts to take such action and give such information and assistance in order
to avoid, dispute, resist, settle, compromise, defend or appeal any indemnity
claim in respect thereof or adjudication with respect thereto as Seller may
reasonably require.
Buyers shall give or cause to be given to Seller all such assistance as
Seller may reasonably require so that Seller may dispute, resist, appeal,
compromise, defend or remedy the indemnity claim or to enforce against any
third party the rights of any Company or Subsidiary in relation to the
indemnity claim. Seller shall:
(a) in response to reasonable requests from Buyers from time to time,
keep Buyers informed of the progress of the indemnity claim;
(b) provide Buyers with copies of such documentation relating to the
indemnity claim as it may reasonably request, other than documentation which
is privileged or confidential; and
(c) give Buyers such opportunities as it may reasonably request to make
representations regarding the conduct of the indemnity claim.
Notwithstanding the preceding sentence, after assuming the defense of
any
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claim, suit, action or proceeding (including any Tax audit) in respect of
which indemnity may be sought under Section 11.02(b), Seller shall thereafter
keep Buyers reasonably informed from time to time with respect to such claim,
suit, action or proceeding.
Section 11.4. SPECIAL PROCEDURES FOR TAX INDEMNIFICATION CLAIMS .
Section 11.03 shall govern indemnification procedures for claims made under
Section 11.02(b), Section 11.02(n) and Section 11.02(m)(ii) except to the
extent provided in the Tax Deed or this Section 11.04.
(a) Upon payment by any Indemnified Party of any Loss (which, solely
for purposes of this Section 11.04, includes Damages incurred or suffered by
Seller to the extent attributable to a breach of any covenant or agreement
pursuant to Article 8), the Indemnifying Party shall discharge its obligation
to indemnify the Indemnified Party against such Loss by paying to the
Indemnified Party an amount equal to the amount of such Loss; PROVIDED,
HOWEVER, that if the Indemnified Party provides the Indemnifying Party with
written notice of a Loss at least 15 days prior to the date on which the
relevant Loss is required to be paid by any Indemnified Party, the
Indemnifying Party shall discharge its obligation to indemnify the
Indemnified Party against such Loss by making payments to the relevant Taxing
Authority or the Indemnified Party, as directed by the Indemnified Party, in
an aggregate amount equal to the amount of such Loss. Any payment pursuant
to Section 11.02(b) or Section 11.02(m)(ii) (except to the extent otherwise
provided in the Tax Deed) shall be made not later than 15 days after receipt
by the Indemnifying Party of written notice from the Indemnified Party
stating that any Loss has been incurred by an Indemnified Party and the
amount thereof and of the indemnity payment requested. The payment by an
Indemnified Party of any Loss shall not relieve the Indemnifying Party of its
obligation under Section 11.02(b) or Section 11.02(m)(ii) (except to the
extent otherwise provided in the Tax Deed).
(b) If the Indemnifying Party does not notify the Indemnified Party in
writing that it elects to assume the defense of a suit, action or proceeding
(including a Tax audit) that it is entitled to assume pursuant to Section
11.03 and Section 11.04(c) within 15 days of receiving written notice from
the Indemnified Party, the Indemnified Party may, in its absolute discretion,
assume the defense of such suit, action or proceeding (including a Tax audit)
and, if so, will conduct such defense in accordance with Section 11.03 and
11.04(a).
(c) With respect to claims that relate to Taxes described in Section
11.02(c), the party entitled to assume the defense of such claim shall be the
party that would bear the greater portion of the Tax liability asserted by
any Taxing Authority, determined pursuant to the allocation method proscribed
under Section 11.02(c).
(d) Any claim of any Buyers Indemnitee (other than Buyers) under this
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Section may be made and enforced by Buyers on behalf of such Buyers
Indemnitee.
Section 11.5. PURCHASE PRICE ADJUSTMENT AND INTEREST. Any amount paid
by Seller or Buyers under Article 11 will be treated as an adjustment to the
Modified Aggregate Deemed Sales Price unless a Final Determination causes any
such amount not to constitute an adjustment to the Modified Aggregate Deemed
Sales Price for Federal Tax purposes. In the event of such a Final
Determination, Buyers or Seller, as the case may be, shall pay a gross-up
amount that reflects the hypothetical Tax consequences of the receipt or
accrual of such payment, using the maximum statutory rate (or rates, in the
case of an item that affects more than one Tax) applicable to the recipient
of such payment for the relevant year, reflecting for example, the effect of
deductions available for interest paid or accrued and for Taxes such as state
and local income Taxes; PROVIDED, that Buyers shall be required to pay to
Seller only the excess of the amount so calculated over the additional Tax or
Taxes that would have been imposed on any member of the Seller Group if such
payment had been treated as an adjustment to the Purchase Price. Any payment
required to be made by Buyers or Seller under Article 11 that is not made
when due shall bear interest at Prime Rate for each day until paid. "FINAL
DETERMINATION" shall mean (i) with respect to Federal Taxes, a
"determination" as defined in Section 1313(a) of the Code or execution of an
Internal Revenue Service Form 870AD and, with respect to Taxes other than
Federal Taxes, any final determination of liability in respect of a Tax that,
under applicable law, is not subject to further appeal, review or
modification through proceedings or otherwise (including the expiration of a
statute of limitations or a period for the filing of claims for refunds,
amended returns or appeals from adverse determinations) or (ii) the payment
of Tax by such Buyers Indemnitee with respect to any item disallowed or
adjusted by a Taxing Authority.
Section 11.6. NO RIGHTS OF RESCISSION. No rights of rescission shall
be available to Buyers after Closing whether by reason of any breach of the
Warranties or otherwise.
ARTICLE 12
Termination
Section 12.1. TERMINATION. This Agreement shall terminate immediately
if the expiration or termination of the HSR waiting period applicable to the
sale of the Shares pursuant to this Agreement shall not have occurred on or
before July 18, 1999. If this Agreement is so terminated, such termination
shall be without liability of any party hereto (or any stockholder, director,
officer, employee, agent, consultant or representative of such party). The
provisions of Sections 6.01, 13.03, 13.06, 13.07 and 13.08 shall survive the
termination of this Agreement pursuant to this Section.
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ARTICLE 13
Miscellaneous
Section 13.1. NOTICES. All notices, requests and other communications
to any party hereunder shall be in writing (including facsimile transmission)
and shall be given, if to GN Nettest or Buyers, to:
GN Nettest A/S
Kirkebjerg Alle 90
DK-2605 Brondby, Denmark
Attention: Jens Maaloe
Fax: 45-72-112-250
with a copy to:
GN Great Nordic A/S
Kongens Nytorv 26
DK-1016 Copenhagen K
Attention: General Counsel
Fax: 45-72-111-849
and
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: John A. Bick
Fax: (212) 450-4800
if to Seller, to:
IFR Systems, Inc.
10200 West York Street
Wichita, Kansas 67215
Attention: Jeff Bloomer
Fax: (316) 522-3022
with a copy to:
Foulston & Siefkin L.L.P.
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100 N. Broadway
Suite 700
Wichita, Kansas 67202
Attention: Harvey R. Sorensen
Fax: (316) 267-6345
All such notices, requests and other communications shall be deemed received
on the date of receipt by the recipient thereof if received prior to 5 p.m.
in the place of receipt and such day is a business day in the place of
receipt. Otherwise, any such notice, request or communication shall be deemed
not to have been received until the next succeeding business day in the place
of receipt.
Section 13.2. AMENDMENTS AND WAIVERS. (a) Any provision of this
Agreement may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed, in the case of an amendment, by each party to
this Agreement, or in the case of a waiver, by the party against whom the
waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
Section 13.3. EXPENSES. All costs and expenses incurred in connection
with this Agreement shall be paid by the party incurring such cost or expense.
Section 13.4. CURRENCIES. For the purpose of this Agreement, $1 shall
equal L0.62 with respect to contracts, claims and other matters in respect of
the UK Companies.
Section 13.5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns; PROVIDED that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of each other party hereto, except that Buyers
may transfer or assign, in whole or from time to time in part, to one or more
of its Affiliates, the right to purchase all or a portion of the Shares, but
no such transfer or assignment will relieve any Buyer of its obligations
hereunder.
Section 13.6. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the law of the State of Delaware, without regard
to the
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conflicts of law rules of such state.
Section 13.7. DISPUTE RESOLUTION. The parties hereto agree that any
dispute between the parties arising out of or in connection with this
Agreement or the Escrow Agreement or the transactions contemplated hereby or
thereby (other than a dispute referred to PWC relating to Buyers' calculation
of Closing Stockholder's Equity pursuant to Section 2.03(c)) shall be
submitted to arbitration. The parties shall negotiate in good faith and use
all reasonable efforts to agree upon a resolution of any dispute after
receipt of written notice of such dispute from a party. If the parties
cannot agree on an amicable settlement within 30 days from written submission
of the matter by one party to the other party, the matter shall be submitted
to arbitration. The party invoking arbitration shall select one arbitrator,
the other party shall appoint one arbitrator, and the two arbitrators so
appointed shall select a third arbitrator. In the event such arbitrators
cannot agree upon a third arbitrator, a third arbitrator shall be selected in
accordance with the rules as then in effect of the American Arbitration
Association. The decision of two of the three arbitrators so appointed as to
the validity of any claim shall be conclusive and binding upon the parties to
this Agreement; PROVIDED that the final report of PWC on any disputed items
of Closing Stockholder's Equity pursuant to Section 2.03(c) shall be binding
upon such arbitrators. Any such arbitration shall be held in Chicago,
Illinois under the rules to be mutually agreed upon by the arbitrators
selected by the parties or, if no such agreement can be reached, under the
rules as then in effect of the American Arbitration Association. The
official language of any such arbitration will be English. Each party to any
such arbitration shall pay its own expenses; PROVIDED that the fees, costs
and expenses of the third arbitrator shall be borne equally by the parties.
Judgement upon the award of such arbitration may be entered by any court
having jurisdiction. Notwithstanding the foregoing, any party shall be free
to seek equitable relief in any court having jurisdiction to enjoin an
anticipated or continuing breach of this Agreement or the Escrow Agreement,
on a temporary or preliminary basis pending a determination of the relevant
dispute by the arbitrators, or on a permanent basis following the
determination by the arbitrators that a breach has been committed.
Notwithstanding anything to the contrary in this Section 13.07, any
arbitration involving a disputes arising under Article 8 and not resolved by
mutual agreement as stated therein shall be resolved by the Accounting
Referee within 30 days of having the dispute referred to it pursuant to such
procedures as it may require.
Section 13.8. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
Section 13.9. COUNTERPARTS; THIRD PARTY BENEFICIARIES. This Agreement
may
69
<PAGE>
be signed in counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have
received a counterpart hereof signed by the other party hereto. No provision
of this Agreement is intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder.
Section 13.10. ENTIRE AGREEMENT. This Agreement and the Escrow
Agreement constitute the entire agreement between the parties with respect to
the subject matter hereof and thereof and, except to the extent incorporated
herein in Section 6.01, supersedes all prior agreements and understandings,
both oral and written, between the parties with respect to the subject matter
hereof and thereof. The representations and warranties of the parties
contained herein supercede and exclude any and all other warranties or
representations expressed or implied during the course of negotiations and
dealings of the parties.
Section 13.11. CAPTIONS. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
70
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized signatories as of the day and
year first above written.
IFR SYSTEMS, INC.
By:
Name:
Title:
By:
Name:
Title:
GN NETTEST (NEW YORK) INC.
By:
Name:
Title:
GN GREAT BRITAIN LIMITED
By:
Name:
Title:
71
<PAGE>
GN NETTEST A/S
By:
Name:
Title:
72
<PAGE>
EXHIBIT A
TAX DEED
<PAGE>
SCHEDULE 2.03(a)(i)
PURCHASE PRICE ADJUSTMENT EXAMPLE
<TABLE>
<CAPTION>
USD 1,000 End Nov-98 End Apr-99 Delta
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets 30,476 28,816 (1,660)
Costs in excess of net assets (8,250) (7,541) 709
Deferred US income taxes -- PK-US (954) (960) (6)
Deferred UK income taxes -- PK-UK 0 0 0
Deferred UK income taxes -- YSL 0 0 0
Total adjusted assets (A) 21,272 20,315 (957)
Total current liabilities 14,379 13,535 (844)
Advances due to affiliates (5,761) (9,666) (3,905)
Accounts payable - interco (5,097) 0 5,097
Accounts receivable - interco 348 242 (106)
Deferred US income taxes -- PK-US (26) (59) (33)
Deferred UK income taxes -- PK-UK (114) (138) (24)
Deferred UK income taxes -- YSL 0 0 0
Federal US income taxes -- PK-US (337) (310) 27
Federal UK income taxes -- PK-UK (40) 20 60
Federal UK income taxes -- YSL 164 0 (164)
--------------------------------------------
Adjusted current liabilities (B) 3,516 3,642 108
50% of translation adjustment (C) 148
Adjustment in respect of 11/30/98 cash (D) -- 820
- --------------------------------------------------------------------------------------------
Base Stockholder's Equity (A-B+C) 17,756 17,659
Closing Stockholder's Equity (A-B+C+D)
Purchase Price Adjustment (97)(1)
- --------------------------------------------------------------------------------------------
</TABLE>
NOTES:
1. A negative delta results in a reduction of the purchase price.
A positive delta results in an increase of the purchase price.
<PAGE>
SCHEDULE 2.03(a)(ii)
OTM DIVISION ACCOUNTING METHODS AND CONVENTIONS
<TABLE>
<CAPTION>
ACCOUNT AREA PK-US ACCOUNTING METHODS PK-UK AND YSL
AND CONVENTIONS ACCOUNTING METHODS
AND CONVENTIONS
<S> <C> <C>
Revenue recognition Product revenue is Product revenue is
recognized at the time of recognized at the time
shipment. Revenue for of shipment. Revenue
service contracts is for service contracts
recognized over the life of is recognized over the
the contract. No provision life of the contract.
of installation costs is A provision amounting
recorded to 6% of sales is
recorded for
installation costs at
PK-UK. No provision is
recorded at York
Accounts receivable General reserve based on General reserve based
reserve management estimate on management estimate
Inventory Inventory is recorded at Inventory is recorded
the lower of cost or market at the lower of cost or
according to FIFO price. market according to
WIP is accounted for at FIFO price. WIP is
standard cost accounted for at
standard cost
Inventory reserve 100% reserve for obsolete Materials that have not
(discontinued) parts and been used in the last 9
products. No reserve for months are fully
excess or slow moving reserved with specific
inventory reserves established
for obsolete products,
which have been used in
the last 9 months.
Specific reserves are
established for
finished goods when
considered necessary
Demonstration Demo inventory is recorded Demo inventory is
inventory at cost and is not recorded at cost and is
depreciated not depreciated
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Property, plant & PP&E is stated at cost with PP&E is stated at cost
equipment the straight-line with the straight-line
depreciation method depreciation method
principally used; machines principally used;
are depreciated over 5 machines are
years; computer equipment depreciated over 5
depreciated over 3 years; years computer
leasehold improvements equipment depreciated
amortized over the life of over 3 years, leasehold
the lease improvements amortized
over the life of the
lease
Goodwill Goodwill amortized over 20 Goodwill amortized over
years, Patents and other 10 to 20 years
intangibles amortized over
5 years
Warranty reserve Warranty reserve modified Warranty reserve
by management as deemed modified by management
necessary as deemed necessary
</TABLE>
<PAGE>
SCHEDULE 5.04(a)(i)
PARAMETERS MEASURED BY PKT EQUIPMENT OR EQUIPMENT
UNDER DEVELOPMENT OR UNDER CONSIDERATION
POLARIZATION MEASUREMENTS IN OPTICAL FIBER AND OPTICAL FIBER COMPONENTS,*
INCLUDING:
Birefringence
Polarization Extinction Ratio
Polarization Beat Length
Polarization Dependant Loss
Polarization Mode Coupling
DISPERSION MEASUREMENTS IN OPTICAL FIBER AND OPTICAL FIBER COMPONENTS,
INCLUDING:
Modal Dispersion
Polarization Mode Dispersion
Waveguide Dispersion
Chromatic Dispersion
Non-linear Chromatic Dispersion
Non-Linear Polarization Mode Dispersion
Differential Mode Delay
PHYSICAL AND WAVEGUIDE GEOMETRY MEASUREMENTS AND ESTIMATION+ IN OPTICAL FIBER
AND PREFORMS, INCLUDING:
Fiber Diameter
Core Diameter
Fiber Circularity
Core Circularity
Numerical Aperture
Mode Field Diameter
Effective Area
Core/Cladding Concentricity
Mode Field Non-Circularity
Mode Field/Cladding Concentricity
Primary and Secondary Coating Geometry including diameter, circularity and
concentricity
Fiber Curl
Far Field Distribution Characterization
Near Field Distribution Characterization
Optical Length
BULK TRANSMISSION IN OPTICAL FIBER AND OPTICAL FIBER COMPONENTS, INCLUDING:
Spectral Attenuation (including excess loss, coupling ratios, etc., in couplers)
<PAGE>
Differential Mode Attenuation
Mode Transmission Matrices
Cutoff Wavelength
Time of Flight
DISTRIBUTED++ MEASUREMENTS AND DISTRIBUTED PARAMETER ESTIMATION IN OPTICAL
FIBER, INCLUDING:
Rayleigh Backscatter
Brillouin Backscatter
Raman Backscatter
Spectral Attenuation
Cutoff Wavelength
Chromatic Dispersion
Strain
Temperature
Pressure
REFRACTIVE INDEX MEASUREMENTS IN OPTICAL FIBER AND PREFORMS, INCLUDING:
Refractive Index Profile (including coated optical fiber)
Deflections Functions
ESTIMATION OF OPTICAL PROPERTIES FROM REFRACTIVE INDEX PROFILE OR COMBINATION
OF REFRACTIVE INDEX PROFILES IN OPTICAL FIBER AND PREFORMS, INCLUDING:
Chromatic Dispersion
Birefringence
Spectral Attenuation
Mode Field Diameter
Numerical Aperture
Cutoff Wavelength
Modal Dispersion
Waveguide Dispersion
POINT DEFECT MEASUREMENT IN OPTICAL FIBER FROM REFLECTED SIGNALS, INCLUDING:
Backscatter Loss
Point Defect or Splice Loss
Point Reflectance
Optical Return Loss
MEASUREMENT OF OPTICAL SPECTRUM
Spectrum analysis of DWDM signals in optical fibers and optical communication
equipment in the range 500 nm to 1700 nm.
- -------------------
*Component means any device with optical fiber pigtails, whether or not that
device is made entirely
<PAGE>
of fiber, or fiber and other optical or electronic components.
+Estimation means modeling or prediction from analytical or ad-hoc mathematical
algorithms and formulae.
++Distributed means measurement of a parameter as a function of longitudinal
position within an optical fiber.
<PAGE>
SCHEDULE 7.04
INCENTIVE PAYMENTS
Blaskowsky, David
Smith, Charles
Sladen, Francis
Shinn, Garland
Shaar, Casey
Stowe, Stephanie
Hill, Warren
Miller, Ilene
Kramer, Josh
Coates, David
<PAGE>
SCHEDULE 9.02(ss)
TRANSACTIONS BETWEEN PERSONS UNDER CONTROL
The Revenue asked for details about the company's transfer pricing
policy when the accounts for the year ending 30.6.96 were submitted. The
company explained how the transfer pricing strategy was arrived at and the
company's Inspector of Taxes has since raised no query.
<PAGE>
ESCROW AGREEMENT
ESCROW AGREEMENT, made and entered into as of the 28th day of June
1999, among IFR SYSTEMS, INC., a Delaware corporation (the "SELLER"), GN
NETTEST (NEW YORK) INC., a New York corporation ("GN-US"), GN GREAT BRITAIN
LIMITED, a UK company ("GN-UK" and, together with "GN-US", the "BUYERS"), and
THE FIRST NATIONAL BANK OF CHICAGO, as Escrow Agent ("ESCROW AGENT").
WHEREAS, Seller has entered into a Stock Purchase Agreement dated as of
June 28, 1999 (the "STOCK PURCHASE AGREEMENT") with the Buyers for the sale by
Seller and purchase by the Buyers 1,000 shares of common stock, no par value per
share, of PK Technology, Inc., an Oregon corporation (the "US SHARES"), and
875,000 ordinary shares, nominal value L1 per share, of PK Technology Limited, a
UK company (the "UK SHARES", and collectively with the US Shares, the "SHARES")
upon the terms and subject to the conditions set forth in the Stock Purchase
Agreement; and
WHEREAS, Seller has agreed to place in escrow the Shares to be
purchased by Buyers, and Buyers have agreed to place in escrow the purchase
price for such Shares; and
WHEREAS, the Escrow Agent is willing to act as escrow agent on the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein, and other good and valuation consideration, the
receipt and adequacy of which are hereby acknowledged, Seller, Purchaser and the
Escrow Agent agree as follows:
1. DESIGNATION OF ESCROW AGENT AND AMOUNT OF ESCROW FUND. The
Escrow Agent is hereby appointed escrow agent to hold and dispose of the
escrow funds and escrow shares provided for herein, in accordance with the
terms and conditions set forth in this Agreement, and the Escrow Agent
accepts such designation and agrees to hold and dispose of such escrow funds
and escrow shares in accordance with the provisions of this Agreement.
Contemporaneously with the execution of this Agreement, Seller will deposit
with the Escrow Agent certificates representing the number of Shares
purchased by Buyers pursuant to the Stock Purchase Agreement, together with
an assignment in blank (such certificates and assignment are collectively
referred to herein as the "ESCROW SHARES"); and GN-US will deposit with the
Escrow Agent $32,875,000 in respect of the US Shares and the US Noncompete
Consideration, and GN-UK will deposit with the Escrow Agent $10,125,000 in
respect of the UK Shares and the UK
<PAGE>
Noncompete Consideration, totalling in the aggregate the cash purchase price
of $43,000,000 (the "ESCROW FUND"). The Escrow Agent hereby acknowledges
receipt of the Escrow Shares and Escrow Fund.
2. INVESTMENT AUTHORITY.
(a) Subject to the provisions of this Section 2 and Section 3
of this Agreement, the Escrow Agent shall hold and invest the Escrow
Fund during the term of this Agreement in the One Group U.S. Government
Securities Cash Management Fund, or the One Group Treasury Prime Cash
Management Fund, including any successor or similar fund, to any such
fund. The Escrow Agent shall treat the Escrow Fund as a trust fund in
accordance with the terms hereof.
(b) With respect to the initial investment made hereunder, if
the initial deposit is received by the Escrow Agent by 2:00 p.m., New
York City time, the Escrow Agent shall invest the Escrow Fund in an
overnight repurchase agreement secured by delivered United States
Treasury Securities or such alternate investment as may be selected by
the Seller and the Buyers in writing. If the initial deposit is
received by the Escrow Agent after 2:00 p.m., New York City time, the
Escrow Agent shall have no responsibility to invest the Escrow Fund
until the next business day.
(c) With respect to any subsequent investment of the Escrow
Fund hereunder, upon the maturity of any investment, the Escrow Agent
shall invest the Escrow Fund in overnight repurchase agreements, the
One Group U.S. Government Securities Cash Management Fund, or the One
Group Treasury Prime Cash Management Fund, including any successor or
similar fund or, if it shall have received written directions to the
contrary from the Seller and the Buyers, at least one business day
prior to the maturity of any existing investment, specifying a
different form of investment then in accordance with such written
directions.
(d) Any liquidation of any investment made hereunder prior to
its maturity shall be executed by the Escrow Agent only in accordance
with the written instructions of the Seller and the Buyers.
(e) Any income received by the Escrow Agent in respect of the
Escrow Fund shall be deposited into and become a part of the Escrow
Fund and shall be distributed by the Escrow Agent from the Escrow Fund
in accordance with the terms of this Agreement.
2
<PAGE>
3. ESCROW FUND DISBURSEMENT PROCEDURES.
(a) Upon receipt by the Escrow Agent of the documentation
referred to in paragraph (b) below, the Escrow Agent shall distribute
to Seller in accordance with instructions from Seller that portion of
the Escrow Fund equal to the initial deposit in the Escrow Fund made
pursuant to Section 1 hereof, plus all income generated by investment
of the Escrow Fund pursuant to Section 2 hereof, less any and all fees
and expenses due and payable to Escrow Agent; PROVIDED that if the
expiration or termination of the waiting period referred to in
paragraph (b) below shall not have occurred on or before July 18, 1999,
the Escrow Agent shall promptly return to Buyers the Escrow Fund,
including all income generated by investment thereof pursuant to
Section 2 hereof, less any and all fees and expenses due and payable to
Escrow Agent, and shall promptly return to Seller the Escrow Shares in
accordance with instructions from Buyers and Seller, respectively.
(b) The Escrow Agent shall distribute the Escrow Fund as
provided by paragraph (a) above promptly following receipt by the
Escrow Agent from Seller and Buyers of a certificate (the "HSR
CERTIFICATE") of an officer of each of Seller and Buyers to the effect
that either: (i) the waiting period, and any extension thereof, under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations thereunder, applicable to the sale of the
Escrow Shares pursuant to the Stock Purchase Agreement shall have
expired or shall have been terminated without challenge by the United
States Department of Justice or the Federal Trade Commission, or (ii)
Seller or Buyers has received from the Federal Trade Commission a
letter stating that such waiting period and any extension thereof has
been terminated and attaching to such certificate a true and correct
copy of the letter so received from the Federal Trade Commission.
(c) Upon distribution of the Escrow Fund pursuant to this
Section 3, the escrow created hereunder shall terminate.
4. ESCROW SHARE DISBURSEMENT PROCEDURES
(a) If, together with or prior to delivery to the Escrow Agent
of the HSR Certficate, Buyers deliver a written notice to the Escrow
Agent that Buyers are satisfied that they have received all required
German antitrust approvals from the Federal Cartel Office (the "GERMAN
CERTIFICATE"), the Escrow Agent shall distribute the Escrow Shares to
Buyers promptly following the receipt by the Escrow Agent of each such
3
<PAGE>
certificate. Upon the distribution of the Escrow Shares pursuant to
this Section 4(a), this Agreement and the escrow created hereunder
shall terminate.
(b) If Buyers have not delivered the German Certificate to the
Escrow Agent prior to or together with the delivery of the HSR
Certificate, this Agreement and the escrow created hereunder shall
terminate. Upon such termination, the Escrow Shares shall be placed
into a new and separate escrow (as to which Seller will not be a party)
as determined by Buyers in compliance with applicable German antitrust
law pursuant to a separate escrow agreement between Buyers and The
First National Bank of Chicago, as escrow agent thereunder pursuant to
the terms and conditions in such separate escrow agreement.
5. ESCROW AGENT'S DISCLAIMERS. The obligations of the Escrow Agent
under this Agreement are subject to the following terms and conditions:
(a) The Escrow Agent is not a party to and is not bound by any
agreement among Seller, Buyers and the Escrow Agent, other than as
expressly set forth in this Agreement. The duties and obligations of
the Escrow Agent shall be determined solely by the express provisions
of this Agreement and the Escrow Agent shall not be liable except for
the performance of such duties and obligations as are specifically set
forth in this Agreement.
(b) The Escrow Agent acts hereunder as a depository only and
is not responsible for any liable in any manner whatsoever for the
sufficiency, correctness, genuineness or validity of any funds,
documents or other materials deposited with it. The Escrow Agent shall
be, and hereby is, jointly and severally indemnified and saved harmless
by the parties hereto from all losses, costs, and expenses, including
attorney fees which may be incurred by it as a result of its acceptance
of the Escrow Fund or arising from the performance of its duties
hereunder, unless the Escrow Agent shall have been adjudged to have
acted in bad faith or to have been grossly negligent. To the extent
that the Escrow Agent delivers any shares, funds or documents in
accordance with the instructions contained in this Agreement, the party
requesting such payment or delivery or such action shall indemnify and
hold harmless the Escrow Agent from and against any loss, liability,
claims or demand arising out of or in connection with such delivery,
payment or action. The Escrow Agent shall not be required to defend any
legal proceeding which may be instituted against it with respect to the
subject matter of this Agreement unless it is requested to do so by one
of the parties and is indemnified by
4
<PAGE>
such requesting party to the Escrow Agent's satisfaction against the
cost and expenses including attorney's fees of such defense, unless
arising from the Escrow Agent's bad faith or willful misconduct. The
Escrow Agent shall not be required to institute legal proceedings of
any kind. The Escrow Agent shall not be required to perform any acts
which will violate any law or applicable rules of any governmental
agency. Such indemnification, as described above, shall survive its
resignation or removal, or the termination of this Agreement until
extinguished by any applicable statute of limitations.
The Escrow Agent shall be entitled to refrain from taking any
action contemplated by this Agreement in the event that it becomes
aware of any disagreement between the parties hereto as to any facts
or as to the happening of any contemplated event precedent to such
action. In the event any dispute shall arise between the parties
with respect to the disposition or disbursement of any of the assets
held hereunder, be permitted to interplead all of the assets held
hereunder into a court of competent jurisdiction, and thereafter be
fully relieved from any and all liability or obligation with respect
to such interpleaded assets. The parties further agree to pursue any
redress or recourse in connection with such a dispute, without making
the Escrow Agent a party to same.
(c) The Escrow Agent shall not in any way be bound or affected
by any notice of modification or cancellation of this Agreement unless
in writing signed by Seller and Buyers, nor shall the Escrow Agent be
bound by any modification hereof unless the same shall be reasonably
satisfactory to it. The Escrow Agent shall be entitled to rely upon any
notice, certifications, demand or other writing delivered to it
hereunder by Seller or Buyers without being required to determine the
authenticity or the correctness or any fact stated therein, the
propriety or validity of the service thereof, or the jurisdiction of
the court issuing any judgment.
(d) The Escrow Agent may act in reliance upon any signature
reasonably believed by it to be genuine, and may assume that any person
purporting to give any notice or receipt, or make any statements, in
connection with the provisions hereof has been duly authorized to do
so. Buyers and Seller shall each execute a certificate of incumbency
substantially in the form of Exhibit A for the purpose of establishing
the identity of the representatives of each entitled to issue
instructions or directions to the Escrow Agent on behalf of such.
(e) The Escrow Agent may act relative hereto in reliance upon
advice of counsel in reference to any matter connected herewith, and
shall
5
<PAGE>
not be liable for any mistake of fact or error of judgment, or
for any acts or omissions of any kind, unless caused by its willful
misconduct or gross negligence.
6. RESIGNATION OF ESCROW AGENT. The Escrow Agent may resign and be
discharged of its duties as Escrow Agent hereunder upon thirty days' written
notice to Seller and Buyers. Such resignation shall take effect thirty days
after the giving of such notice, or upon receipt by the Escrow Agent of an
instrument of acceptance executed by a successor escrow agent and upon
delivery by the Escrow Agent to such successor of the Escrow Fund and the
Escrow Shares.
7. ESCROW AGENT'S FEE. The Escrow Agent shall be entitled to
reasonable compensation for its services, hereunder as per Exhibit B, which is
attached hereto and made a part hereof, to be paid 50% by Seller and 50% by
Buyers. The Escrow Agent is hereby granted a lien on the Escrow Fund and the
Escrow Shares to protect, indemnify and reimburse itself for all fees, costs,
expenses and liabilities arising out of this Agreement and the performance of
its duties hereunder.
8. NOTICE. Any notice, direction, request, instruction, legal process
or other instruments to be given or served hereunder by any party to another
shall be in writing, shall be delivered personally or sent by certified mail or
overnight courier, return receipt requested, to the respective party or parties
at the following addresses, and shall be deemed to have been given when
received.
If to Seller:
IFR Systems, Inc.
10200 West York Street
Wichita, Kansas 67215
Attention: Jeff Bloomer
Fax: (316) 522-3022
with a copy to:
Foulston & Siefkin, LLP
100 N. Broadway
Suite 700
Wichita, Kansas 67202
Attention: Harvey R. Sorensen
Fax: (316) 267-6345
If to Buyers:
6
<PAGE>
GN Nettest A/S
Kirkebjerg Alle 90
DK-2605 Brondby, Denmark
Attention: Jens Maaloe
Fax: 45-72-112-250
with a copy to:
GN Great Nordic A/S
Kongens Nytorv 26
DK-1016 Copenhagen K
Attention: General Counsel
Fax: 45-72-111-849
and
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: John A. Bick
Fax: (212) 450-4800
If to the Escrow Agent:
The First National Bank of Chicago
One First National Plaza-Mail Code IL-0126
Chicago, Illinois 60670-0126
Attention: Corporate Trust Administration
Brenda Cosey
Fax: (312) 407-8929
Any party may change its address by written notice to each of the other
parties.
9. GOVERNING LAW. This agreement shall be governed by and interpreted
in accordance with the laws of the State of Delaware and shall be binding on the
successors and assigns of the parties hereto.
7
<PAGE>
IN WITNESS WHEREOF, Seller, Buyers and the Escrow Agent have executed
this Agreement as of the date set forth in the first paragraph.
IFR SYSTEMS, INC.
By: _______________________________
Name:
Title:
By: _______________________________
Name:
Title:
GN NETTEST (NEW YORK) INC.
By: _______________________________
Name:
Title:
GN GREAT BRITAIN LIMITED
By: _______________________________
Name:
Title:
THE FIRST NATIONAL BANK
OF CHICAGO, as Escrow Agent
By: _______________________________
Name:
Title:
8
<PAGE>
AGENCY CONTACT: COMPANY CONTACT:
Neil Berkman Jeff Bloomer
Berkman Associates Executive VP & CFO
(310) 277-5162 (316) 522-4981, ext. 345
[email protected] www.ifrsys.com
-------------------------- ---------------
FOR IMMEDIATE RELEASE
---------------------
IFR SYSTEMS, INC. TO SELL ITS OPTICAL TEST & MEASUREMENT
DIVISION TO A COMPANY IN THE GN GREAT NORDIC GROUP
Wichita, Kansas, June 29, 1999 . . . IFR SYSTEMS, INC.
(NASDAQ/NMS:IFRS) announced today that it has signed an agreement to sell
its Optical Test & Measurement (OTM) Division to GN Nettest, a Company
in the GN Great Nordic Group, Copenhagen, Denmark, for approximately $43
million in cash.
President and Chief Operating Officer Iain Robertson said, "By
significantly reducing the Company's debt, this transaction will allow IFR to
focus on longer-term growth opportunities in the electronic test and
measurement market, primarily in the expanding wireless communications
segment. By helping to restore IFR's financial flexibility, it also positions
the Company to benefit from the opportunities presented by the continuing
change in the test and measurement marketplace."
The Company said that it will record a net of tax gain from the
transaction of approximately $12 million in the quarter ending September 30,
1999.
The agreement to sell the OTM Division is conditioned upon U.S. anti
trust authorities' approval of the acquisition. IFR expects the necessary
approval by mid-July 1999.
IFR recently changed its fiscal year to March 31 from June 30. For
the nine month "stub" fiscal year ended March 31, 1999, IFR reported revenue
of $129.5 million, including revenue from its OTM Division of $23.4 million
and revenue from its Electronic Test & Measurement Division of $106.1 million.
ABOUT IFR SYSTEMS
IFR Systems, Inc. is a leading designer and manufacturer of
electronic test instruments for wireless communications, avionics and
general test and measurement applications.
ABOUT GN NETTEST
GN Nettest is part of the GN Great Nordic Group. GN Nettest develops,
manufactures and markets test equipment and systems for testing and monitoring
tele/datacoms and fiber optic communications networks. The GN Nettest group
comprises the Telecom Division, with headquarters in Bronby, Copenhagen,
Denmark; the Datacom Division with headquarters in Toronto, Canada; and the
Fiber Optic Division with headquarters in Utica, New York.
IN CONJUNCTION WITH THE PROVISIONS OF THE NEW "SAFE HARBOR" SECTION OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, THIS PRESS RELEASE MAY
CONTAIN FORWARD-LOOKING STATEMENTS PERTAINING TO FUTURE ANTICIPATED PROJECTED
PLANS, PERFORMANCE AND DEVELOPMENTS, AS WELL AS OTHER STATEMENTS RELATING TO
FUTURE OPERATIONS. ALL SUCH FORWARD-LOOKING STATEMENTS ARE NECESSARILY ONLY
ESTIMATES OF FUTURE RESULTS AND THERE CAN BE NO ASSURANCE THAT ACTUAL RESULTS
WILL NOT MATERIALLY DIFFER FROM EXPECTATIONS. FURTHER INFORMATION ON POTENTIAL
FACTORS WHICH COULD AFFECT IFR SYSTEMS, INC. IS INCLUDED IN THE COMPANY'S FORM
10Q AND FORM 10K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
* * * * * #2038
