SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended January 1, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-10791
THERMOTREX CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 52-1711436
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
10455 Pacific Center Court
San Diego, California 92121-4339
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at January 28, 2000
Common Stock, $.01 par value 22,372,861
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMOTREX CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
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January 1, October 2,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Current Assets:
Cash and cash equivalents $ 8,502 $ 11,483
Advance to affiliate 24,733 30,199
Available-for-sale investments, at quoted market value 65,175 64,174
(amortized cost of $65,172 and $64,169)
Accounts receivable, less allowances of $1,204 and $2,444 14,258 15,181
Unbilled contract costs and fees 13,401 14,606
Inventories:
Raw materials and supplies 7,492 7,727
Work in process 4,181 3,826
Finished goods 525 810
Deferred tax asset 4,495 -
Prepaid expenses and other assets 4,860 13,277
Due from parent company and affiliated expenses - 166
Net assets from discontinued operations (Note 10) 91,987 156,579
-------- --------
239,609 318,028
-------- --------
Property, Plant, and Equipment, at Cost 12,256 13,221
Less: Accumulated depreciation and amortization 4,084 4,204
-------- --------
8,172 9,017
-------- --------
Prepaid Income Taxes and Other Assets 16,083 10,703
-------- --------
Cost in Excess of Net Assets of Acquired Companies 21,245 28,233
-------- --------
$285,109 $365,981
======== ========
2
<PAGE>
THERMOTREX CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
January 1, October 2,
(In thousands except share amounts) 2000 1999
- ----------------------------------------------------------------------------------- ---------- ----------
Current Liabilities:
Current maturities of long-term obligations $ 648 $ 1,448
Accounts payable 7,329 7,011
Accrued payroll and employee benefits 3,967 4,294
Accrued restructuring costs (Note 6) 17,317 19,013
Deferred tax liability - 2,908
Payable for acquired company 4,832 5,000
Other accrued expenses 11,798 11,590
Due to parent company and affiliated companies 232 -
-------- --------
46,123 51,264
-------- --------
Deferred Income Taxes 1,972 2,096
-------- --------
Deferred Lease Liability 195 233
-------- --------
Long-term Obligations:
Subordinated convertible debentures (includes $18,225 of 203,948 203,948
related-party debt)
Other 40 45
-------- --------
203,988 203,993
-------- --------
Common Stock of Subsidiary Subject to Redemption 40,500 40,500
-------- --------
Minority Interest - 8,337
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 50,000,000 shares authorized; 233 233
23,305,367 and 23,302,518 shares issued
Capital in excess of par value 109,515 109,043
Accumulated deficit (96,570) (28,844)
Treasury stock at cost, 932,506 and 933,421 shares (20,849) (20,877)
Accumulated other comprehensive items (Note 2) 2 3
-------- --------
(7,669) 59,558
-------- --------
$285,109 $365,981
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THERMOTREX CORPORATION
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
January 1, January 2,
(In thousands except per share amounts) 2000 1999
- ----------------------------------------------------------------------------------- ---------- ----------
Revenues:
Product revenues $ 15,648 $ 13,853
Contract revenues 4,504 4,775
Service revenues 877 4,220
-------- --------
21,029 22,848
-------- --------
Costs and Operating Expenses:
Cost of product revenues 11,366 8,956
Cost of contract revenues 3,831 4,209
Cost of service revenues 587 7,458
Selling, general, and administrative expenses 5,292 8,620
Research and development expenses 1,612 1,894
Restructuring and unusual costs (Note 6) 286 -
-------- --------
22,974 31,137
-------- --------
Operating Loss (1,945) (8,289)
Interest Income 1,396 1,484
Interest Expense (includes $171 and $130 to related party) (2,114) (2,112)
Equity in Loss of Joint Ventures - (200)
-------- --------
Loss from Continuing Operations Before Provision for Income (2,663) (9,117)
Taxes and Minority Interest
Provision for Income Taxes (185) (198)
Minority Interest Income - 21
-------- --------
Loss from Continuing Operations (2,848) (9,294)
Loss from Discontinued Operations (net of income tax benefit of (4,878) (910)
$3,076 and $1,294; Note 10)
Provision for Loss on Disposal of Discontinued Operations (Note 10) (60,000) -
-------- --------
Net Loss $(67,726) $(10,204)
======== ========
Basic and Diluted Loss per Share from Continuing Operations (Note 3) $ (.13) $ (.50)
======== ========
Basic and Diluted Loss per Share (Note 3) $ (3.03) $ (.55)
======== ========
Basic and Diluted Weighted Average Shares (Note 3) 22,372 18,661
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THERMOTREX CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
January 1, January 2,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------- ---------- ----------
Operating Activities:
Net loss $(67,726) $(10,204)
Adjustments to reconcile net loss to loss from continuing
operations:
Loss from discontinued operations (Note 10) 4,878 910
Provision for loss on disposal of discontinued operations (Note 10) 60,000 -
-------- -------
Loss from continuing operations (2,848) (9,294)
Adjustments to reconcile loss from continuing operations to net
cash used in operating activities of continuing operations:
Depreciation and amortization 1,124 2,285
Provision for losses on accounts receivable 102 61
Minority interest income - (22)
Other noncash items (672) 539
Changes in current accounts, excluding the effects of acquisitions,
disposition, and discontinued operations:
Accounts receivable (2,323) 50
Inventories and unbilled contract costs and fees 860 (2,239)
Other current assets 346 (156)
Accounts payable 592 (2,044)
Other current liabilities (4,415) 2,725
-------- -------
Net cash used in continuing operations (7,234) (8,095)
Net cash used in discontinued operations (3,249) (10,721)
-------- -------
Net cash used in operating activities (10,483) (18,816)
-------- -------
Investing Activities:
Advances to affiliate, net 5,466 -
Acquisition, net of cash acquired - (11,101)
Refund of acquisition purchase price 970 -
Purchases of available-for-sale investments (30,535) -
Proceeds from maturities of available-for-sale investments 30,000 8,000
Purchases of property, plant, and equipment (744) (980)
Proceeds from sale of CCS subsidiary (Note 8) 8,000 -
Purchase of Trex Communications common stock (Note 7) (8,610) -
Payment pursuant to notes receivable from related parties - 1,300
Other (500) 321
-------- -------
Net cash provided by (used in) continuing operations 4,047 (2,460)
Net cash provided by (used in) discontinued operations 3,669 (1,089)
-------- -------
Net cash provided by (used in) investing activities $ 7,716 $(3,549)
-------- -------
5
<PAGE>
THERMOTREX CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
January 1, January 2,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------- ---------- ----------
Financing Activities:
Net proceeds from issuance of Company and subsidiary common $ 58 $ 82
stock
Purchases of Company and subsidiary common stock - (1,465)
Other (133) (21)
-------- --------
Net cash used in continuing operations (75) (1,404)
Net cash provided by (used in) discontinued operations 201 (16,977)
-------- --------
Net cash provided by (used in) financing activities 126 (18,381)
-------- --------
Exchange Rate Effect on Cash 230 161
-------- --------
Decrease in Cash and Cash Equivalents (2,411) (40,585)
Cash and Cash Equivalents at Beginning of Period 19,558 157,107
-------- --------
17,147 116,522
Cash of Discontinued Operations at End of Period (8,645) (13,983)
-------- --------
Cash and Cash Equivalents at End of Period $ 8,502 $102,539
======== ========
Noncash Activities:
Fair value of assets of acquired companies $ - $35,196
Cash paid for acquired companies - (19,615)
Amount payable for acquired company - (7,715)
Issuance of subsidiary common stock for acquired company - (5,000)
-------- -------
Liabilities assumed of acquired companies $ - $ 2,866
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
THERMOTREX CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by ThermoTrex Corporation (the Company) without audit and, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair statement of the financial position at January 1, 2000, and the results of
operations and cash flows for the three-month periods ended January 1, 2000, and
January 2, 1999. Interim results are not necessarily indicative of results for a
full year.
Historical financial results have been restated to reflect a decision to
sell the Company's majority-owned Trex Medical Corporation subsidiary, which has
been presented as discontinued operations in the accompanying financial
statements (Note 10). The consolidated financial statements and notes are
presented as permitted by Form 10-Q and do not contain certain information
included in the annual financial statements and notes of the Company. The
consolidated financial statements and notes included herein should be read in
conjunction with the financial statements and notes included in the Company's
Annual Report on Form 10-K, for the fiscal year ended October 2, 1999, filed
with the Securities and Exchange Commission.
2. Comprehensive Income
Comprehensive income combines net income and "other comprehensive items,"
which represents certain amounts that are reported as components of
shareholders' investment in the accompanying balance sheet, including foreign
currency translation adjustments and unrealized net-of-tax gains and losses on
available-for-sale investments. During the first quarter of fiscal 2000 and
1999, the Company had comprehensive losses of $67.7 million and $10.2 million,
respectively.
3. Loss per Share
Basic loss per share has been computed by dividing the net loss by the
weighted average number of shares outstanding during the period. Diluted loss
per share does not differ from basic loss per share because the effect of
assuming the conversion of $88.9 million principal amount of 3 1/4% subordinated
convertible debentures, convertible at $27.00 per share and the elimination of
the related interest expense and the exercise of stock options would be
antidilutive, due to the Company's net loss in the periods presented. Options to
purchase 1,712,000 and 1,089,000 shares of Company common stock were not
included in the computation of diluted loss per share for fiscal 2000 and 1999,
respectively.
Basic and diluted loss per share from discontinued operations was $2.90
and $.05 for the first quarter of fiscal 2000 and 1999, respectively.
7
<PAGE>
4. Business Segment Information
Three Months Ended
January 1, January 2,
(In thousands) 2000 1999
- ---------------------------------------------------------------------------------- ---------- ----------
Revenues:
Personal-care Products and Services $ 4,926 $ 9,546
Advanced Technology Research 16,103 13,302
-------- -------
$ 21,029 $22,848
======== =======
Loss from Continuing Operations Before Provision for Income
Taxes and Minority Interest:
Personal-care Products and Services (a) $ (1,427) $(6,873)
Advanced Technology Research (25) (296)
Corporate (b) (493) (1,120)
-------- -------
Total operating loss (1,945) (8,289)
Interest and other expense, net (718) (828)
-------- -------
$ (2,663) $(9,117)
======== =======
(a) Reflects restructuring and unusual costs of $0.3 million in fiscal 2000.
(b) Primarily general and administrative expenses.
The results of operations of the Medical Products segment have been
classified as discontinued operations as a result of a plan to sell this
business (Note 10).
5. Accrued Acquisition Expenses
The Company has undertaken restructuring activities at certain acquired
businesses. The Company's restructuring activities, which were accounted for in
accordance with the requirements of Emerging Issues Task Force Pronouncement
(EITF) No. 95-3, primarily have included reductions in staffing levels and the
abandonment of excess facilities. In connection with these restructuring
activities, as part of the cost of the acquisitions, the Company established
reserves, primarily for severance at LNR Communications, Inc. In accordance with
the requirements of EITF 95-3, the Company finalizes its restructuring plans no
later than one year from the date of acquisition.
A summary of the changes in accrued acquisition expenses for severance,
which are included in other accrued expenses in the accompanying balance sheet,
is as follows:
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(In thousands) LNR
- ------------------------------------------------------------------------- ---------- ----------- ---------
Balance at October 2, 1999 $179
Usage (54)
----
Balance at January 1, 2000 $125
====
The Company expects to pay the severance costs during the second quarter
of fiscal 2000.
8
<PAGE>
6. Restructuring and Unusual Costs
ThermoLase
During fiscal 1999 and 1998, ThermoLase recorded restructuring and unusual
costs, primarily in connection with ThermoLase's decision to exit the spa
business and, to a lesser extent, to terminate certain obligations related to
the hair-removal business. The restructuring and unusual costs at ThermoLase
were primarily for the sale and closure of ThermoLase's spas; the write-off of
leasehold improvements and equipment; costs for ongoing lease obligations, net
of assumed sublease income; and payments to licensees and joint venture partners
to sever relationships and terminate arrangements. The fiscal 1999 restructuring
costs included severance for 26 employees across all functions, 23 of whom were
terminated during fiscal 1999. No additional employees were terminated during
the first quarter of fiscal 2000.
During the first quarter of fiscal 2000, in connection with ThermoLase's
proposed reorganization (Note 9), ThermoLase incurred and recorded costs of $0.3
million, primarily for investment banker and legal fees.
A summary of activity in ThermoLase's accrued restructuring costs is as
follows:
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Abandonment Other Exit
of Excess Obligations
(In thousands) Severance Facilities Total
- ----------------------------------------------- -------------- -------------- -------------- -------------
Fiscal 1998 Restructuring Plan
Balance at October 2, 1999 $ - $ - $ 50 $ 50
Fiscal 2000 usage - - (50) (50)
------- ------- ------- -------
Balance at January 1, 2000 $ - $ - $ - $ -
======= ======= ======= =======
Fiscal 1999 Restructuring Plan
Balance at October 2, 1999 $ 99 $10,999 $ 7,693 $18,791
Provision charged to expense in fiscal - - 286 286
2000
Fiscal 2000 usage (49) (144) (1,739) (1,932)
------- ------- ------- -------
Balance at January 1, 2000 $ 50 $10,855 $ 6,240 $17,145
======= ======= ======= =======
Of the total restructuring costs accrued as of January 1, 2000, ThermoLase
expects to pay $8.3 million in calendar 2000 and $8.8 million in calendar 2001
and thereafter through the expiration of various leases in fiscal 2014. The
timing of these cash payments will be affected by the terms of any subleases or
settlement arrangements with landlords.
Trex Medical
Trex Medical has been treated as a discontinued operation in the
accompanying financial statements (Note 10).
During fiscal 1999, Trex Medical recorded restructuring costs, primarily
in connection with the consolidation of Trex Medical's Bennett X-Ray Corporation
and Continental X-Ray Corporation facilities into Trex Medical's Danbury,
Connecticut, and Littleton, Massachusetts, sites and, to a lesser extent,
actions to reduce costs in other operations. Restructuring costs at Trex Medical
included severance for 348 employees across all functions, 169 of whom were
terminated in fiscal 1999, and 146 of whom were terminated in fiscal 2000.
9
<PAGE>
6. Restructuring and Unusual Costs (continued)
During the first quarter of fiscal 2000, Trex Medical recorded
restructuring costs of $2.0 million for costs related to the consolidation and
relocation of facilities and retention bonuses that were earned, which could not
be accrued previously under EITF 94-3.
In November 1999, Trex Medical sold the operating facility of its
Continental X-Ray subsidiary for $3.1 million in cash, resulting in a gain of
$0.9 million, which is included in the loss from discontinued operations, in the
accompanying statement of operations.
In connection with these actions, Trex Medical expects to record
approximately $0.6 million of additional costs as they are incurred in the
second quarter of fiscal 2000 for costs not permitted as charges currently,
pursuant to EITF 94-3. These additional costs primarily include costs for
certain employee and business relocation and related costs.
A summary of activity in Trex Medical's accrued restructuring costs is as
follows:
Severance Facility- Other (a) Total
(In thousands) closing
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Balance at October 2, 1999 $ 973 $ 2,250 $ 479 $ 3,702
Provision charged to expense 204 - 1,770 1,974
Usage (505) - (1,770) (2,275)
Currency translation (22) - - (22)
------ ------- ------ -------
Balance at January 1, 2000 $ 650 $ 2,250 $ 479 $ 3,379
====== ======= ====== =======
(a) Includes provisions in fiscal 2000 of $1.0 million for
facility-consolidation costs incurred during the period and $0.8 million for
retention bonuses.
The aggregate future cash expenditures for restructuring will include
amounts accrued at January 1, 2000, as well as $0.6 million of future costs that
are expected to be incurred in the second quarter of fiscal 2000. These amounts
total $4.0 million, of which $2.5 million is expected to be paid during the
remainder of calendar 2000, and the balance will be paid over the term of
facility leases expiring through 2005.
7. Purchase of Minority Interest
In November 1999, the Company agreed to purchase the outstanding shares of
its Trex Communications Corporation subsidiary that it did not already own for
$4.00 per share. The Company expects that the total cash outlay for purchasing
the minority interest in Trex Communications as well as settling an obligation
to deliver cash or shares of Trex Communications in connection with a fiscal
1999 acquisition will be approximately $18.0 million. During the first quarter
of fiscal 2000, the Company expended $8.6 million of cash for purchasing the
minority interest of Trex Communications. The Company expects the remaining
balance of $9.4 million will be paid over the next two fiscal quarters. Of this
amount, $4.8 million is included in payable for acquired company and the balance
is included in other accrued expenses in the accompanying balance sheet.
8. Dispositions
In December 1999, the Company sold the Computer Communications
Specialists, Inc. (CCS) subsidiary of Trex Communications for $8.0 million in
cash and a $2.0 million note receivable due in December 2004, with an interest
rate equal to the prime lending rate, payable quarterly. CCS was sold for
approximately book value. The sale is subject to a post-closing adjustment based
on a determination of net working capital of CCS at the date of sale.
10
<PAGE>
8. Dispositions (continued)
In February 2000, the Company sold all of the stock of Trex Communications
for $48.7 million, subject to a post-closing adjustment based upon a
determination of the net book value of Trex Communications at the date of sale.
Unaudited revenues and operating income of Trex Communications were $11,599,000
and $242,000, respectively, in the first quarter of fiscal 2000, and $49,574,000
and $1,550,000, respectively, in fiscal 1999.
9. Proposed Reorganization
Thermo Electron Corporation has announced a proposed reorganization
involving certain of Thermo Electron's subsidiaries, including the Company and
ThermoLase. Under this plan, the Company and ThermoLase would be merged into
Thermo Electron. As a result, the Company and ThermoLase would become wholly
owned subsidiaries of Thermo Electron. The public shareholders of the Company
and ThermoLase would receive common stock in Thermo Electron in exchange for
their shares. In December 1999, the board of directors of the Company and Thermo
Electron approved a definitive agreement and plan of merger with Thermo Electron
under which Thermo Electron would acquire all of the outstanding shares of
Company common stock held by shareholders other than Thermo Electron in exchange
for Thermo Electron common stock at a ratio of one share of Company common stock
for .5503 shares of Thermo Electron common stock. In addition, the board of
directors of ThermoLase and Thermo Electron approved a definitive agreement and
plan of merger with Thermo Electron under which Thermo Electron would acquire
all of the outstanding shares of ThermoLase held by shareholders other than the
Company and Thermo Electron for not less than .132, and not more than .198,
shares of Thermo Electron common stock. The exchanges of common stock under both
mergers will be taxable transactions to the shareholders. These proposals are
subject to certain conditions, including filing with and review by the
Securities and Exchange Commission of certain required filings regarding the
proposed transactions and listing on the New York Stock Exchange of the shares
of Thermo Electron common stock to be issued in connection with the mergers.
In October 1999, the American Stock Exchange (the Exchange) notified
ThermoLase that if ThermoLase did not have a definitive agreement to merge with
Thermo Electron by December 15, 1999, the Exchange would request a meeting to
discuss its intent to proceed with delisting ThermoLase's shares from the
Exchange due to a possible failure to meet listing requirements. Holders of
ThermoLase's subordinated convertible debentures would be entitled to have their
debentures redeemed by ThermoLase if ThermoLase's shares are neither listed for
trading on a United States national securities exchange nor approved for trading
on an established automated over-the-counter trading market in the United
States. As a result of the agreement to merge with Thermo Electron, ThermoLase
expects that its shares will continue to be listed through the completion of the
merger transaction. Accordingly, the Company has classified the debentures as
long-term in the accompanying balance sheet.
10. Discontinued Operations
In January 2000, Thermo Electron announced a plan under which the Company
will sell its Trex Medical subsidiary, which represents its Medical Products
segment. In accordance with the provisions of APB No. 30 concerning reporting
the effect of disposal of a segment of a business, the Company classified the
fiscal 2000 and 1999 results of operations of the Medical Products segment as
discontinued in the accompanying statement of operations.
11
<PAGE>
10. Discontinued Operations (continued)
Summary operating results of the Medical Products segment were as follows:
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Three Months Ended
January 1, January 2,
(In thousands except per share amounts) 2000 1999
- --------------------------------------------------------------------- --- --------- ---------- ----------
Revenues $ 43,860 $64,929
Costs and Expenses 53,794 67,552
-------- -------
Loss from Discontinued Operations Before Income Tax (9,934) (2,623)
Benefit and Minority Interest
Income Tax Benefit 3,076 1,294
Minority Interest Income 1,980 419
-------- -------
Loss from Discontinued Operations $ (4,878) $ (910)
======== =======
In addition, the net assets of the Medical Products segment were
classified as net assets of discontinued operations in the accompanying balance
sheet, and primarily consisted of inventories, accounts receivable, machinery
and equipment, and cost in excess of net assets of acquired companies, net of
certain current liabilities, principally accounts payable. The net assets of the
Medical Products segment at January 1, 2000, totaled $92.0 million. In fiscal
2000, the Company provided $60.0 million for the estimated loss on disposal of
Trex Medical. The Company expects to complete the sale of Trex Medical during
calendar 2000.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K, for the
fiscal year ended October 2, 1999, filed with the Securities and Exchange
Commission.
Overview
The Company's continuing operations are divided into two business
segments: Personal-care Products and Services offered by the Company's
ThermoLase Corporation subsidiary and Advanced Technology Research, including
the Company's Trex Communications Corporation subsidiary.
ThermoLase developed a laser-based system called SoftLight(R) for the
removal of unwanted hair. The SoftLight system uses a low-energy, dermatology
laser in combination with a lotion that absorbs the laser's energy to disable
hair follicles. In April 1995, ThermoLase received clearance from the U.S. Food
and Drug Administration (FDA) to commercially market hair-removal services using
the SoftLight system, and in May 1998, ThermoLase received clearance from the
FDA to market its SoftLight Laser Peel for skin resurfacing. To provide the
laser-based hair-removal and skin-resurfacing services, ThermoLase developed a
network of 14 high-end day spas, originally called Spa Thira.
12
<PAGE>
Overview (continued)
In June 1996, ThermoLase commenced a program to license to physicians and
others the right to perform ThermoLase's patented SoftLight hair-removal and
skin-resurfacing procedures. Through these arrangements, ThermoLase received a
per-procedure or minimum royalty and/or flat periodic fee. ThermoLase also
entered into joint venture and other licensing agreements to bring the
technology to international markets. In fiscal 1999, ThermoLase began offering
licensees the opportunity to purchase or lease SoftLight lasers in lieu of
paying ongoing license fees.
In connection with its June 1998 acquisition of The Greenhouse Spa, Inc.,
a full-service, luxury, destination spa, ThermoLase converted 11 domestic Spa
Thiras to Greenhouse day spas. In addition to hair-removal and skin-resurfacing
services, these facilities offered more traditional day-spa services, such as
massages and facials. Following conversion of the facilities to Greenhouse day
spas, significant losses continued and, during fiscal 1998, ThermoLase initiated
certain restructuring actions, including the announced closure of three of its
domestic day spas and the termination of a joint venture that operated its spa
in France. ThermoLase closed two of the domestic day spas in November 1998 and
the third spa, as well as two additional spas, were closed in the third quarter
of fiscal 1999. In May 1999, ThermoLase announced additional plans to undertake
a broad-scale restructuring of its business. As part of the restructuring plan,
ThermoLase decided to exit the spa business and, as a result, sold The
Greenhouse Spa, Inc., located in Arlington, Texas, and the remaining nine
Greenhouse day spas. In addition, ThermoLase has terminated the
physician-licensing program and has terminated or renegotiated the terms of its
international joint ventures arrangements as well as discontinued certain
branded product lines at ThermoLase's Creative Beauty Innovations, Inc. (CBI)
subsidiary. ThermoLase expects to complete its restructuring plan by the middle
of calendar 2000.
ThermoLase manufactures and markets skin-care, bath, and body products and
markets dietary supplements through CBI. This business represents ThermoLase's
principal operations following the sale of the spas and the termination of
various licensing agreements.
The Company's Advanced Technology Research segment performs research
primarily in the fields of avionics, X-ray detection, signal processing, and
lasers. The Company has developed its expertise in these core technologies in
connection with government-sponsored research and development. The Advanced
Technology Research segment includes the Company's Trex Communications
subsidiary. As part of the restructuring plans announced in May 1999, the
Company decided to hold its Trex Communications subsidiary for sale. In November
1999, the Company agreed to purchase the outstanding shares of Trex
Communications minority shareholders (Note 7). In December 1999, the Company
sold the CCS subsidiary of Trex Communications and in February 2000, sold the
stock of Trex Communications (Note 8).
Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Company and ThermoLase. Under
this plan, the Company and ThermoLase would be merged into and become wholly
owned subsidiaries of Thermo Electron. In addition, Thermo Electron has
announced that the Company will sell its Trex Medical Corporation subsidiary,
which represents the Medical Products segment.
Results of Operations
First Quarter Fiscal 2000 Compared With First Quarter Fiscal 1999
Total revenues decreased to $21.0 million in the first quarter of fiscal
2000 from $22.8 million in the first quarter of fiscal 1999. Personal-care
Products and Services segment revenues were $4.9 million and $9.5 million in the
first quarter of fiscal 2000 and 1999, respectively. ThermoLase earned product
revenues of $4.9 million in fiscal 2000, compared with $6.8 million in fiscal
1999. Product revenues include beauty product sales, and in the fiscal 1999
period, lasers sold in international and domestic markets and beauty product
sales at ThermoLase's spas. Product revenues decreased due to the
discontinuation of certain branded product lines. ThermoLase's service revenues
decreased to $19,000 in the first quarter of fiscal 2000 from $2.8 million in
the first quarter of fiscal 1999. This
13
<PAGE>
First Quarter Fiscal 2000 Compared With First Quarter Fiscal 1999 (continued)
decrease is due to a $2.2 million decrease in revenues due to the sale and
closure of ThermoLase's Greenhouse day spas and, to a lesser extent, the
termination of its physician-licensing program and certain international
licensing arrangements (Note 6). ThermoLase's service revenues for the fiscal
2000 period represent licensing fees from the remaining physician-licensing
agreements, which have been substantially terminated as of January 1, 2000.
Advanced Technology Research segment revenues, excluding intersegment
sales, increased to $16.1 million in the first quarter of fiscal 2000 from $13.3
million in the first quarter of fiscal 1999. Revenues increased $3.1 million due
to the inclusion for the full period of revenues from LNR Communications Inc.,
which was acquired in November 1998. This increase in revenues was offset in
part by a $0.9 million decrease in revenues as a result of the sale of the
Company's Computer Communications Specialists, Inc. (CCS) subsidiary (Note 8).
The gross profit margin increased to 25% in the first quarter of fiscal
2000 from 10% in the first quarter of fiscal 1999. The Personal-care Products
and Services segment gross profit margin, excluding intersegment sales, was 14%
in fiscal 2000, compared with negative 16% in fiscal 1999. ThermoLase's gross
profit margin was $0.7 million in the first quarter of fiscal 2000, compared
with a negative gross profit margin of $1.5 million in the first quarter of
fiscal 1999. This increase in gross profit was primarily due to the sale of the
spa business, offset in part by a decrease in gross profit margin for beauty
product sales due to changes in product mix, as well as the discontinuation of
certain branded product lines, which had higher gross margins. The gross profit
margin from sales of beauty products was 18% in fiscal 2000, compared with 26%
in fiscal 1999. The gross profit margin from the Advanced Technology Research
segment, excluding intersegment sales, remained unchanged at 28% in fiscal 2000
and 1999.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 25% in the first quarter of fiscal 2000 from 38% in the first
quarter of fiscal 1999, primarily due to lower expenses in the Personal-care
Products and Services segment. In the Personal-care Products and Services
segment, selling, general, and administrative expenses decreased to $1.7 million
in fiscal 2000 from $4.9 million in fiscal 1999, primarily due to $1.9 million
of lower costs following the sale of the spa business and the termination of
various licensing agreements and, to a lesser extent, a decrease in advertising
costs of $0.7 million due to the discontinuation of certain branded product
lines as well as reductions in personnel.
Research and development expenses decreased to $1.6 million in the first
quarter of fiscal 2000 from $1.9 million in the first quarter of fiscal 1999.
Research and development expenses decreased by $0.4 million in the Personal-care
Products and Services segment primarily due to ThermoLase's decision to
substantially exit the SoftLight business.
During fiscal 1999, the Company undertook broad-scale restructuring
actions. The Company recorded restructuring and unusual costs of $0.3 million in
the first quarter of fiscal 2000 (Note 6).
Interest income decreased slightly to $1.4 million in the first quarter of
fiscal 2000 from $1.5 million in fiscal 1999, primarily as a result of lower
average invested balances due in part to the funding of losses in the
Personal-care Products and Services segment. Interest expense remained unchanged
at $2.1 million in fiscal 2000 and 1999.
Equity in loss of joint ventures in the fiscal 1999 period represents
ThermoLase's proportionate share of losses from its international joint
ventures, which have been substantially terminated with the exception of
ThermoLase's continued ownership of a 46% equity interest in ThermoLase England
LLC, which continues to pursue the SoftLight business in the United Kingdom,
Ireland, Spain, and South Africa.
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First Quarter Fiscal 2000 Compared With First Quarter Fiscal 1999 (continued)
The effective tax rates reflect the effect of nondeductible amortization
of cost in excess of net assets of acquired companies and the establishment of a
valuation allowance for the tax benefit associated with losses arising primarily
in the Personal-care Products and Services segment during fiscal 2000 as
ThermoLase has been unable to realize a tax benefit from such losses on a
stand-alone basis. The Company establishes valuation allowances in accordance
with the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
The Company does not record minority interest income in the Personal-care
Products and Services segment's net loss because the Company's minority interest
related to ThermoLase has been reduced to zero.
Trex Medical is a defendant in two patent infringement lawsuits and a
lawsuit alleging the Company misappropriated certain other technology owned by a
third party. An unsuccessful resolution of one or more of these matters could
have a material adverse effect on the Company's future results of discontinued
operations and financial position.
In accordance with the provisions of Accounting Principles Board Opinion
No. 30 concerning reporting the effect of disposal of a segment of a business,
the results of operations of the Medical Products segment have been classified
as discontinued in the accompanying statement of operations (Note 10). The loss
from discontinued operations was $4.9 million and $0.9 million in the first
quarter of fiscal 2000 and 1999, respectively. The provision for loss on
disposal of discontinued operations was $60.0 million in fiscal 2000. The
Company expects to complete the sale of Trex Medical during calendar 2000.
Liquidity and Capital Resources
Consolidated working capital was $194.5 million at January 1, 2000,
compared with $266.8 million at October 2, 1999. Included in working capital are
cash, cash equivalents, and available-for-sale investments of $73.7 million at
January 1, 2000, compared with $75.7 million at October 2, 1999. Of the $73.7
million balance at January 1, 2000, $1.3 million was held by a majority-owned
subsidiary, and the remainder was held by the Company and its wholly owned
subsidiaries. In addition, as of January 1, 2000, the Company had $24.7 million
invested in an advance to Thermo Electron. Of the $24.7 million balance, $13.1
million was advanced by a majority-owned subsidiary and the remainder by the
Company and its wholly owned subsidiaries.
Net cash used in operating activities during the first quarter of fiscal
2000 was $10.5 million, which consisted of $7.2 million used by continuing
operations and $3.3 million used by discontinued operations. Cash was primarily
used to fund the Company's loss, excluding noncash items. The Company used $4.4
million to reduce other current liabilities, including restructuring reserves,
accrued payroll and employee benefits, due to parent and affiliated companies,
and accrued commissions. Of the total restructuring costs accrued as of January
1, 2000, as well as future costs that will be incurred in fiscal 2000, the
Company expects to pay $11.0 million in fiscal 2000 and $10.3 million in fiscal
2001 and thereafter through the expiration of various leases in fiscal 2014. The
timing of these cash payments will be affected by the terms of any subleases or
settlement arrangements with landlords.
Excluding available-for-sale investments and advance to affiliate
activity, the Company's primary investing activities consisted of the purchase
of Trex Communications stock, the sale of CCS, the sale of a building, and
capital expenditures. The Company expended $8.6 million of cash for the purchase
of minority shares of Trex Communications. During the next two fiscal quarters,
the Company expects to expend an additional $9.4 million for the purchase of the
minority shares of Trex Communications as well as settling an obligation to
deliver cash or shares of Trex Communications in connection with a fiscal 1999
acquisition (Note 7). The Company sold the CCS subsidiary of Trex Communications
for $8.0 million in cash and a $2.0 million note receivable due in December 2004
(Note 8). Trex Communications received a refund of $1.0 million of the
acquisition cost of a 1999 acquisition, which was recorded as a reduction in
cost in excess of net assets of acquired companies. Trex Medical received $3.3
million of
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Liquidity and Capital Resources (continued)
cash for the sale of a building. The Company expended $0.7 million for property,
plant, and equipment during the first quarter of fiscal 2000. The Company
expects to make capital expenditures of approximately $1.0 million during the
remainder of fiscal 2000.
In February 2000, the Company sold the stock of its Trex Communications
subsidiary for $48.7 million in cash, subject to a post closing adjustment based
upon a determination of the net book value of Trex Communications at the date of
sale.
In October 1999, the American Stock Exchange (the Exchange) notified
ThermoLase that if ThermoLase did not have a definitive agreement to merge with
Thermo Electron by December 15, 1999, the Exchange would request a meeting to
discuss its intent to proceed with delisting ThermoLase's shares from the
Exchange due to a possible failure to meet listing requirements. Holders of
ThermoLase's subordinated convertible debentures would be entitled to have their
debentures redeemed by ThermoLase if ThermoLase's shares are neither listed for
trading on a United States national securities exchange nor approved for trading
on an established automated over-the-counter trading market in the United
States. As a result of the agreement to merge with Thermo Electron, the Company
expects that its shares will continue to be listed through the completion of the
merger transaction. Accordingly, ThermoLase has classified the debentures as
long-term in the accompanying balance sheet.
The Company believes its existing resources are sufficient to meet the
capital requirements of its existing operations for the foreseeable future.
Thermo Electron has expressed its willingness to lend Trex Medical up to $10
million for short-term liquidity should the need arise. ThermoLase has an
obligation to pay $40.5 million, in the aggregate, to the holders of redemption
rights if all of the holders thereof exercise their redemption rights in April
2001 when such rights become exercisable. ThermoLase does not have sufficient
funds to satisfy these obligations. The Company has agreed to reimburse Thermo
Electron, the guarantor of this obligation, in the event that Thermo Electron
needs to make a payment on such guaranty. The exercise of the redemption rights
would adversely affect the Company's liquidity in fiscal 2001.
Year 2000
As of the date of this report, the Company has completed its year 2000
initiatives, which included: (i) testing and upgrading significant information
technology systems and facilities; (ii) testing and developing upgrades, where
necessary, for the Company's current products and certain discontinued products;
(iii) assessing the year 2000 readiness of its key suppliers, vendors, and
customers; and (iv) developing contingency plans.
As a result of completing these initiatives, the Company believes that all
of its material information technology systems and critical non-information
technology systems are year 2000 compliant. The Company believes that all of the
material products that it currently manufactures and sells are year 2000
compliant or are not date sensitive. In addition, the Company is not aware of
any significant supplier or vendor that has experienced material disruption due
to year 2000 issues. The Company has also developed a contingency plan to allow
its primary business operations to continue despite disruptions due to year 2000
problems, if any, that might yet arise in the future. The costs incurred to date
by the Company in connection with the year 2000 issue have not been material.
While the Company to date has been successful in minimizing negative
consequences arising from year 2000 issues, there can be no assurance that in
the future the Company's business operations or financial condition may not be
impacted by year 2000 problems, such as increased warranty claims, vendor and
supplier disruptions, or litigation relating to year 2000 issues.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk from changes in foreign currency
exchange rates, interest rates, and equity prices has not changed materially
from its exposure at fiscal year-end 1999.
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PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
On December 17, 1999, the Company filed a Current Report on Form 8-K dated
December 17, 1999, with respect to the execution of an Agreement and Plan of
Merger.
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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 as of the 15th day of February 2000.
THERMOTREX CORPORATION
/s/ Paul F. Kelleher
Paul F. Kelleher
Chief Accounting Officer
/s/ Theo Melas-Kyriazi
Theo Melas-Kyriazi
Chief Financial Officer
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</TABLE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
2.1 Agreement and Plan of Merger dated as of December 14, 1999 among
the Registrant, Thermo Electron Corporation, and ThermoTrex
Acquisition Corporation (filed as Exhibit 2.1 to the Registrant's
Current Report on Form 8-K filed December 17, 1999 [File No.
1-10791] and incorporated herein by reference).
2.2 Stock Purchase Agreement dated as of February 11, 2000 between
the Registrant and MCK Communications Statutory Trust.
27.1 Financial Data Schedule for the period ended January 1, 2000.
27.2 Restated Financial Data Schedule for the period ended January 2,
1999.
STOCK PURCHASE AGREEMENT
between
MCK COMMUNICATIONS STATUTORY TRUST
and
THERMOTREX CORPORATION
Dated as of February 11, 2000
<PAGE>
STOCK PURCHASE AGREEMENT dated as of February 11, 2000, by and between
MCK Communications Statutory Trust, a Connecticut statutory trust ("MCK"), and
ThermoTrex Corporation, a Delaware corporation ("Seller").
R E C I T A L S :
A. MCK wishes to purchase or acquire from Seller, and Seller wishes to
sell to MCK, all of the issued and outstanding shares of capital stock of Trex
Communications Corporation ("Trex"), all for the purchase price and upon the
terms and subject to the conditions hereinafter set forth.
B. Capitalized terms used herein without separate definition have the
meanings given to such terms in SECTION 1.1.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties made herein and other good and valuable
consideration, the receipt and sufficiency of which hereby are acknowledged, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. DEFINITION OF CERTAIN TERMS. The terms defined in this SECTION 1.1,
whenever used in this Agreement, shall have the respective meanings indicated
below for all purposes of this Agreement.
"ACCOUNTS RECEIVABLE": means all accounts receivable due to each of
TrexCom (Asia), LNR, EMP and Trex.
"AFFILIATE": of a specified Person means a Person that directly or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such specified Person. "CONTROL" (including the terms
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
policies of a Person, whether through the ownership of voting securities, by
contract or credit arrangement, as trustee or executor, or otherwise.
"AGREEMENT": means this Stock Purchase Agreement (including the
Schedules hereto), as the same from time to time may be amended, supplemented or
waived.
"APPLICABLE LAW": means, with respect to any Person, any and all
provisions of any and all (i) constitutions, treaties, statutes, laws (including
the common law), rules, regulations, ordinances or codes of any Governmental
Authority applicable to such Person, (ii) Governmental Approvals applicable to
such Person, and (iii) orders, decisions, injunctions, judgments, awards and
decrees of or agreements with any Governmental Authority, in each case in this
clause (iii) specifically naming or applicable to such Person.
"BACKLOG": has the meaning set forth in SECTION 4.23.
"BASELINE BALANCE SHEET": shall mean the combined unaudited balance
sheet of the Business at and as of July 3, 1999, a copy of which is attached
hereto as SCHEDULE 1.1.
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<PAGE>
"BASELINE FINANCIAL STATEMENTS": has the meaning set forth in SECTION
4.4.
"BOOKS AND RECORDS": means all books and records, including manuals,
price lists, mailing lists, lists of customers, production data, sales and
promotional materials, purchasing materials, personnel records, manufacturing
and quality control records and procedures, research and development files,
financial and accounting records, tax records and litigation files (regardless
of the media in which stored), in each case relating to or used by the Business.
"BUSINESS": means the businesses of Trex, exclusive of the CCS Business
but inclusive of the businesses of TrexCom (Asia), EMP and LNR, consisting of
designing, developing, manufacturing, producing, marketing and selling range
telemetry systems and satellite and antenna ground stations.
"BUYER'S ASSIGNMENT AND ASSUMPTION AGREEMENT": has the meaning set
forth in SECTION 6.1(R).
"CCS": shall mean CCS TrexCom, Inc., a Georgia corporation.
"CCS BUSINESS": means the business of CCS, which includes developing,
marketing, selling and servicing interactive voice and information response
systems and products as conducted by CCS.
"CHARLES DUNN CLAIM": means that disputed invoice dated April 12, 1999
from Charles Dunn Company, Inc., to EMP in the amount of $105,000, and any
claim, suit, action or proceeding to the extent based in whole or in part on
such disputed invoice.
"CLOSING": has the meaning set forth in SECTION 3.1.
"CLOSING DATE": has the meaning set forth in SECTION 3.1.
"CLOSING DATE NET BOOK VALUE": has the meaning set forth in SECTION
3.3(A).
"CODE": means the Internal Revenue Code of 1986, as amended.
"CONSENT": means any consent, approval, authorization, waiver, permit,
grant, franchise, concession, agreement, license, exemption or order of,
registration, certificate, declaration or filing with, or report or notice to,
any Person, including any Governmental Authority.
"CONTRACTS": has the meaning set forth in SECTION 4.11(A).
"CONVEYANCE DOCUMENTS": has the meaning set forth in SECTION 3.6(A).
"COVENANT OF PERFORMANCE": has the meaning set forth in the definition
of "Special Indemnity Items" below.
"DISCLOSING PARTY": has the meaning set forth in SECTION 6.1(J).
"$" or "DOLLARS": means lawful money of the United States of America.
"$20 MILLION CONVERTIBLE NOTE": has the meaning set forth in the
definition of "Special Indemnity Items" below.
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"EACS": has the meaning set forth in SECTION 3.3(B).
"EMP": means EMP TrexCom, Inc., a Delaware corporation.
"EMP ACQUISITION AGREEMENT": has the meaning set forth in SECTION 4.36.
"EMP FACILITY": means all real property, buildings, facilities and
improvements thereon presently utilized by EMP in Simi Valley, California under
the EMP Lease.
"EMP LEASE": means the lease, dated December 31, 1998, between Hillside
III LLC and EMP, relating to the land and improvements thereon commonly known as
900 Enchanted Way, Simi Valley, located in the County of Ventura, State of
California, as more particularly described in such lease, as such lease may be
modified or amended in accordance with this Agreement.
"EMPLOYEE BENEFIT PLANS": has the meaning set forth in SECTION 4.20(A).
"ENVIRONMENTAL ACTIONS": has the meaning set forth in SECTION 10.3(C).
"ENVIRONMENTAL LAWS": means any and all Applicable Laws relating to the
protection of the environment, to human health and safety, or to any emission,
discharge, generation, processing, storage, abatement, Release, threatened
Release, arranging for the disposal or transportation of any Hazardous
Substances.
"ENVIRONMENTAL LIABILITIES AND COSTS": means any and all Losses: (a)
relating to, or resulting from, the presence (including any allegation by a
third party of the presence) of Hazardous Substances in the environment in
quantities or concentrations exceeding those allowed pursuant to any
Environmental Law, including claims for diminution of property value, personal
injury or property damages; and/or (b) imposed by, under or pursuant to
Environmental Laws, based on, arising out of or otherwise in respect of (i) any
real property owned, leased or operated by Trex, EMP, LNR, TrexCom (Asia) or the
Business, or (ii) the environmental conditions existing on the Closing Date on,
under or above any real property owned, leased or operated by Trex, EMP, LNR,
TrexCom (Asia) or the Business.
"ERISA": means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE": means any entity which is a member of (i) a
controlled group of corporations (as defined in Section 414(b) of the Code),
(ii) a group of trades or businesses under common control (as defined in Section
414(c) of the Code), or (iii) any affiliated service group (as defined in
Section 414(m) of the Code), any of which includes Seller, Trex, TrexCom (Asia),
LNR or EMP.
"ETCS": has the meaning set forth in SECTION 3.3(B).
"EXCLUSIONS": has the meaning set forth in SECTION 2.2.
"EXPENSES": has the meaning set forth in SECTION 11.1.
"FINAL CLOSING STATEMENT OF NET BOOK VALUE": has the meaning set forth
in SECTION 3.3(D).
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"GAAP": means United States generally accepted accounting principles.
"GOVERNMENTAL APPROVAL": means any Consent of, with or to any
Governmental Authority.
"GOVERNMENTAL AUTHORITY": means any nation or government, any state or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government (including any government authority, agency, department, board,
commission or instrumentality of the United States, any State of the United
States or any political subdivision thereof), or any tribunal or arbitrator(s)
of competent jurisdiction, or any self-regulatory organization.
"GOVERNMENT BID": means any offer to sell made by Trex, TrexCom (Asia),
LNR or EMP prior to the Closing Date which, if accepted, would result in a
Government Contract.
"GOVERNMENT CONTRACT": means any prime contract, subcontract, teaming
agreement or arrangement, joint venture, basic ordering agreement, pricing
agreement, letter contract, purchase order, delivery order, change order or
other similar arrangement of any kind, between Trex, TrexCom (Asia), LNR or EMP
and (i) any Governmental Authority, (ii) any prime contractor of a Governmental
Authority in its capacity as a prime contractor, or (iii) any subcontractor with
respect to any contract of a type described in clauses (i) or (ii) above.
"GOVERNMENT DISCLOSURE": means any written certification,
representation, warranty or statement by Seller, TrexCom (Asia), LNR, EMP, Trex
or any of their respective Affiliates to a Governmental Authority in that
capacity, or any agent or instrumentality thereof, which in any such case
relates to the operation of the Business or to TrexCom (Asia), LNR, EMP or Trex.
"HAZARDOUS SUBSTANCE": means any substance that: (i) requires
investigation, removal or remediation under any Environmental Law, or is
defined, listed or identified as a "hazardous waste", "hazardous material",
"toxic substance", "contaminant", "pollutant", "oil" or "hazardous substance"
thereunder; or (ii) is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is regulated as
such under any Environmental Law.
"HOUSTON FACILITY": means all real property, buildings, facilities and
improvements thereon presently utilized by Trex in Houston, Texas under the
Houston Lease.
"HOUSTON LEASE": means the lease, dated July 8, 1998, between Edgewood
Development, Inc., as lessor, and Trex, as lessee.
"HSR ACT": means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"INCLUDE", "INCLUDES", "INCLUDED" and "INCLUDING": shall be construed
as if followed by the phrase "without being limited to"
"INDEMNIFIED PARTY": has the meaning set forth in SECTION 10.3.
"INDEMNIFYING PARTY": has the meaning set forth in SECTION 10.3.
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<PAGE>
"INFORMATION": has the meaning set forth in SECTION 6.1(C).
"INITIAL CLOSING STATEMENT OF NET BOOK VALUE": has the meaning set
forth in SECTION 3.3(B).
"INTELLECTUAL PROPERTY": means: (i) any and all trademarks, service
marks, brand names, certification marks, trade dress, assumed names, domain
names, trade names, logos and other indications of origin, sponsorship or
affiliation, together with the goodwill associated therewith (whether the
foregoing are registered or unregistered), registrations thereof in any
jurisdiction and applications to register any of the foregoing in any
jurisdiction, and any extension, modification or renewal of any such
registration or application; (ii) any and all inventions, developments,
improvements, discoveries, know how, concepts and ideas, whether patentable or
not in any jurisdiction; (iii) any and all patents, revalidations, industrial
designs, industrial models and utility models, patent applications (including
reissues, continuations, divisions, continuations-in-part and extensions) and
patent disclosures; (iv) any and all mask works and other semiconductor chip
rights and registrations thereof; (v) any and all non-public information, trade
secrets and proprietary or confidential information and rights in any
jurisdiction to limit the use or disclosure thereof by any Person; (vi) any and
all writings and other works, whether copyrighted, copyrightable or not in any
jurisdiction, such works including computer programs and software (including
source code, object code, data and databases); (vii) any and all copyrights,
copyright registrations and applications for registration of copyrights in any
jurisdiction, and any renewals or extensions thereof; (viii) any and all other
intellectual property or proprietary rights; (ix) any and all agreements,
licenses, immunities, covenants not to sue and the like relating to any of the
foregoing; and (x) any and all claims or causes of action arising out of or
related to any infringement or misappropriation of any of the foregoing.
"INTERCOMPANY AGREEMENTS": has the meaning set forth in SECTION 6.1(G).
"INVENTORIES": means all inventories of raw materials, work in process,
finished products, goods, spare parts and replacement and component parts.
"IRS": means the Internal Revenue Service.
"JOEL BROWN CLAIM": means that New York EEOC claim filed on behalf of
Joel Brown against LNR and any other claim, suit, action or proceeding to the
extent based in whole or in part on the allegations made in such New York EEOC
claim.
"KNOWLEDGE OF SELLER, TREX, TREXCOM (ASIA), LNR OR EMP" and words or
phrases of similar import, means the actual knowledge of, or the actual
knowledge that would be present after reasonable inquiry of, Ashok Rao, Todd
Liebman, Avi Bentov (a/k/a Alberto Bueno), Donald Turner, Vikas Sharma, Bhaskar
Panchal, Rick Sarpolus, Larry Huffman, Robert Rashkin, Jerome Bayol, Larry
Fodrowski or John Mruz.
"LASER TECHNOLOGY LICENSE": has the meaning set forth in the definition
of "Special Indemnity Items" below.
"LIEN": means any mortgage, pledge, hypothecation, security interest,
encumbrance, adverse claim or interest, easement, encroachment, title defect,
title retention agreement, lien, charge or other similar restriction or
limitation.
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"LNR": means LNR TrexCom Inc., a Delaware corporation.
"LNR ACQUISITION AGREEMENT": has the meaning set forth in SECTION 4.7.
"LNR FACILITY": means all real property, buildings, facilities and
improvements thereon as well as the unimproved land, described in SCHEDULE 1.2
hereto and shown in the Survey.
"LOGO": means any symbol or logo incorporating a Name.
"LOSSES": has the meaning set forth in SECTION 10.1.
"MATERIAL ADVERSE EFFECT": means any event, circumstance, occurrence,
fact, condition, change or effect that is materially adverse to the business,
operations, results of operations, financial condition, properties, assets or
liabilities of the Business taken as a whole; provided, however, that a
"Material Adverse Effect" shall not include any event, circumstance, occurrence,
fact, condition, change or effect arising out of, resulting from or attributable
to (i) economic factors affecting the economy as a whole, or (ii) factors
generally affecting the industry or specific markets in which the Business or
any of Trex, TrexCom (Asia), LNR or EMP competes.
"MCK": has the meaning set forth in the first paragraph of this
Agreement.
"MCK INDEMNITEES": has the meaning set forth in SECTION 10.1.
"MCK'S AUDITORS": has the meaning set forth in SECTION 3.3(C).
"MCK'S CERTIFICATE": has the meaning set forth in SECTION 3.5(E).
"NAME": means any name, mark, trade name, trademark, service name or
service mark.
"NEUTRAL AUDITOR": has the meaning set forth in SECTION 3.3(D).
"NON-COMPETITION AGREEMENT": has the meaning set forth in SECTION
3.6(L).
"NON-CONTINUING EMPLOYEES": has the meaning set forth in SECTION 8.1.
"NOTICE": has the meaning set forth in SECTION 11.3.
"OWNED REAL PROPERTY": means fee title to the land, building, and
improvements comprising the LNR Facility.
"PENSION PLAN": has the meaning set forth in SECTION 4.20(E).
"PERMITTED LIENS": means (i) Liens reserved against in the Baseline
Balance Sheet, to the extent so reserved, and Liens incurred since the date of
the Baseline Balance Sheet in the ordinary course of business consistent in all
material respects with past practice, to the extent reserved against in the
Initial Closing Statement of Net Book Value, (ii) Liens for Taxes not yet due
and payable, (iii) Liens for Taxes which are being contested in good faith and
by appropriate proceedings if adequate reserves with respect thereto are
maintained on the books relating to the Business in accordance with GAAP and are
reflected on the Final Closing Statement of Net Book Value, (iv) landlords',
mechanics', workmen's, materialmen's or similar liens, in each case that are not
delinquent or which are being actively contested in good faith by appropriate
proceedings if
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adequate reserves with respect thereto are maintained on the books relating to
the Business to the extent required by GAAP, (v) Liens relating to capitalized
lease financings or purchase money financings that have been entered into in the
ordinary course of business consistent in all material respects with past
practice and not in anticipation of the transactions contemplated by this
Agreement, (vi) Liens arising solely by action of MCK, and (vii) Liens that,
individually and in the aggregate, are not material in character, amount or
extent and do not materially detract from the value or marketability of, or
interfere with the present use of, any of the assets used in the Business.
"PERSON": means any natural person, firm, partnership, association,
corporation, company, limited liability company, trust, business trust,
Governmental Authority or other entity.
"PRE-CLOSING INFORMATION": has the meaning set forth in SECTION 6.2(D).
"PRE-CLOSING TAXES": has the meaning set forth in SECTION 6.1(P).
"PURCHASE PRICE": has the meaning set forth in SECTION 3.2.
"QUALIFIED PURCHASER": means any entity which is affirmatively accepted
in writing by Seller in its reasonable discretion as such or which meets both of
the following economic criteria: GAAP shareholders' equity of at least $200
million and trailing 12-month revenues as reported in 1934 Act filings of at
least $500 million.
"REAL ESTATE ASSETS": means the EMP Facility, the LNR Facility and the
Houston Facility.
"RELEASE": means any releasing, disposing, discharging, injecting,
spilling, leaking, leaching, pumping, dumping, emitting, escaping, emptying,
seeping, dispersal, migration, transporting, placing and the like, including the
moving of any materials through, into or upon, any land, soil, surface water,
ground water or air, or otherwise entering into the environment.
"RESOLUTION PERIOD": has the meaning set forth in SECTION 3.3(C).
"SEC": has the meaning set forth in SECTION 6.1(S).
"SELLER": has the meaning set forth in the first paragraph of this
Agreement.
"SELLER INDEMNITEES": has the meaning set forth in SECTION 10.2.
"SELLER'S ASSIGNMENT AND ASSUMPTION AGREEMENT": has the meaning set
forth in SECTION 6.1(R).
"SELLER'S AUDITORS": has the meaning set forth in SECTION 3.3(B).
"SELLER'S OFFICER'S CERTIFICATE": has the meaning set forth in SECTION
3.6(I).
"SHARES" means all of the issued and outstanding shares of capital
stock of Trex.
"SPECIAL INDEMNITY ITEMS" mean:
(i) any debt, liabilities, commitments, payables or other
obligations of Trex, TrexCom (Asia), LNR or EMP to any of their respective
pre-Closing Affiliates (including any
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agreement, commitment, contract, arrangement, understanding, etc., between or
among Thermo Electron Corporation, Seller, Trex, TrexCom (Asia), LNR, EMP, any
of their respective Affiliates or any current or former holder of any security
(or of any right or obligation to redeem, purchase or otherwise acquire any
security) of any of the foregoing Persons), except (A) to the extent accrued for
on the Final Closing Statement of Net Book Value, (B) pursuant to the terms of
the Amended and Restated License Agreement effective as of February 11, 2000,
between Trex and Seller relating to laser communications technologies, a copy of
which is attached hereto as EXHIBIT F (the "Laser Technology License"), and (C)
pursuant to the terms of the Mutual Covenant of Performance, dated February 11,
2000 between Trex and Seller relating to certain Government Contracts (the
"COVENANT OF PERFORMANCE");
(ii) any debt, liability, obligation or commitment relating to
or arising out of (A) any severance obligations to Non-Continuing Employees
arising pursuant to any severance agreements or arrangements with such
Non-Continuing Employees in existence prior to the Closing, (B) the termination
of employment, on or prior to the Closing, of any employee of Trex, TrexCom
(Asia), LNR or EMP or the Business, (C) any transaction, retention or similar
bonus or bonuses to any employee, officer or consultant of Trex, TrexCom (Asia),
LNR or EMP arising pursuant to agreements or arrangements with such individuals
in existence prior to the Closing, or (D) any employment, retention or severance
agreement or arrangement with Ashok Rao in existence prior to the Closing;
(iii) the principal, interest or other amounts owing in
respect of the $20,000,000 loan from Seller to Trex evidenced by that certain
4.0% Subordinated Convertible Note Due 2003, dated as of November 30, 1998 (the
"$20 MILLION CONVERTIBLE NOTE"), and that certain Subordinated Convertible Note
Purchase Agreement, of even date therewith, between Trex and Seller;
(iv) any and all obligations of Seller, Trex, TrexCom (Asia),
LNR, EMP or any of their respective Affiliates to offer, issue, redeem, purchase
or otherwise acquire shares of capital stock or other securities of Trex,
TrexCom (Asia), LNR or EMP or to make any payment in lieu of shares of capital
stock or other securities (including options, warrants, rights and convertible
securities), or any payment in lieu of an obligation to redeem, purchase or
otherwise acquire any shares of capital stock or other securities of Trex,
TrexCom (Asia), LNR or EMP, pursuant to any contract, any stock option plan or
agreement, any Employee Benefit Plan or otherwise, and any claim, litigation,
action or proceeding in connection with the foregoing, in each case arising out
of arrangements in effect prior to the Closing;
(v) any debt, claim, commitment, liability or obligation
relating to CCS (including the CCS Business), or the sale of the CCS Business;
(vi) any claims, liabilities or obligations arising from or
relating to any claims, liabilities or obligations affecting the rates or rate
schedules submitted to the U.S. Government with respect to the Government
Contracts included in the Assets, for any period prior to the Closing;
(vii) any liability or obligation in respect of the Joel Brown
Claim in excess of the reserve therefor on the Final Closing Statement of Net
Book Value;
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(viii) any liability or obligation in respect of the Charles
Dunn Claim;
(ix) any claims, liabilities or obligations (other than those
arising out of the non-performance by Trex under the Covenant of Performance)
arising from or relating to the following Government Contracts:
(A) DASG60-93-C-0016 (Free Space Laser
Communications);
(B) F33-615-96-C-1835 (RILC); and
(C) DASG60-97-C-0074 (Free Space Laser Network Demo);
or
(x) any Losses incurred by MCK or its permitted assignee
hereunder relating to any assertion or claim of patent infringement under any of
the patents identified on SCHEDULE 4.8(A)(3) attached hereto based upon (1) the
manufacture, use, or sale of products by Trex, LNR, EMP or TrexCom (Asia) prior
to the Closing, (2) the performance by Trex, LNR, EMP or TrexCom (Asia) of any
method prior to the Closing, and/or (3) the continuation by MCK or its permitted
assignee hereunder of the manufacture, use, or sale of products as manufactured,
used or sold by Trex, LNR, EMP or TrexCom (Asia) prior to the Closing, or the
performance of any method, as performed by Trex, LNR, EMP or TrexCom (Asia)
prior to the Closing, provided, in any such case, that (A) subject to SECTION
10.3, Seller controls any negotiations and any litigation or other dispute
resolutions with respect to any matter for which indemnification may be sought
pursuant to this clause (x), and (B) that MCK or its permitted assignee agrees
to take such steps to alter its methods of manufacture, use, and/or sale of such
products as Seller shall request in order to eliminate or reduce the amount of
Losses resulting from the matters referred to in this clause (x); PROVIDED that
there is no unreasonably interference with the business of MCK or its permitted
assignee (in which case Seller shall be responsible for all direct out-of-pocket
costs and expenses reasonably incurred by MCK or its permitted assignee in order
to effect such alterations).
"SUBSEQUENT OWNER": has the meaning set forth in SECTION 6.2(F)(I).
"SUBSIDIARY": means each corporation or other Person in which a Person
owns or controls, directly or indirectly, capital stock or other equity
interests representing at least 50% of the outstanding voting stock or other
equity interests.
"SURVEY": means the survey of the real property situated in Hauppauge,
Town of Smithtown, Suffolk County, New York prepared by Barrett, Bonacci and Van
Town Wiele, P.C., dated October 6, 1999, referencing Tax Map No. District 0800,
Section 181, Block 1, Lot No. 192.
"TARGET NET BOOK VALUE": has the meaning set forth in SECTION 3.3(A).
"TAXES": means any federal, state, provincial, local or foreign income,
alternative, minimum, accumulated earnings, personal holding company, franchise,
capital stock, net worth, capital, profits, windfall profits, gross receipts,
value added, sales, use, goods and services, excise, customs duties, transfer,
conveyance, mortgage, registration, stamp, documentary, recording, premium,
severance, environmental (including taxes under Section 59A of the Code), real
property, personal property, ad valorem, intangibles, rent, occupancy, license,
occupational, employment, unemployment insurance, social security, disability,
workers' compensation, payroll, health care, withholding, estimated or other
similar tax, duty or other similar
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governmental charge or assessment or deficiencies thereof, and including any
interest, penalties or additions to tax attributable to the foregoing.
"TERMINATION AGREEMENT": has the meaning set forth in SECTION 3.6(N).
"THERMO ELECTRON GUARANTY": has the meaning set forth in SECTION
3.6(I).
"TITLE COMPANY": means First American Title Insurance Company of New
York.
"TRANSACTION DOCUMENTS": means this Agreement, the Conveyance
Documents, the Non-Competition Agreement and the Thermo Electron Guaranty.
"TRANSFER TAXES": has the meaning set forth in SECTION 11.5.
"TREASURY REGULATIONS": means the regulations prescribed pursuant to
the Code.
"TREX" means Trex Communications Corporation, a Delaware corporation,
and the sole shareholder of TrexCom (Asia), EMP and LNR as of the date hereof.
"TREXCOM (ASIA)": means TrexCom (Asia) PTE Ltd., a Singapore
corporation.
"YEAR 2000": has the meaning set forth in SECTION 4.26.
Section 1.2. CONSTRUCTION.
(a) All references herein to a Section, Article, Exhibit or Schedule
are to a Section, Article, Exhibit or Schedule of or to this Agreement, unless
otherwise indicated.
(b) Unless the context of this Agreement clearly requires otherwise,
references to any gender includes all genders.
ARTICLE II
SALE AND PURCHASE OF THE SHARES
Section 2.1. SHARES. Subject to and upon the terms and conditions set forth in
this Agreement, at the Closing, Seller shall sell, transfer, set over, convey,
assign and deliver to MCK, and MCK shall purchase, acquire and accept from
Seller, all right, title and interest of Seller in and to the Shares as set
forth in SCHEDULE 2.1 to this Agreement. Subject to the terms and conditions
hereof, at the Closing, the Shares shall be transferred or otherwise conveyed to
MCK free and clear of all Liens excepting only Permitted Liens and restrictions
on the subsequent transfer of the Shares by MCK imposed under applicable
securities laws.
Section 2.2. EXCLUSIONS. Seller shall retain and not transfer, and MCK shall not
purchase or acquire, or have any ownership claim or right (except as otherwise
set forth in this Agreement), in respect of the following (collectively, the
"EXCLUSIONS"):
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(a) all Books and Records which are Seller's corporate records, such as
minute books, seals and similar items;
(b) all rights to causes of action, lawsuits, claims and demands of any
nature available to or being pursued by any of TrexCom (Asia), LNR, EMP, Trex or
Seller with respect to the Exclusions; and
(c) any stock or other equity interest in any Person other than LNR,
EMP and TrexCom (Asia).
ARTICLE III
THE CLOSING
Section 3.1. PLACE AND DATE. Subject to satisfaction or waiver of the conditions
to Closing set forth herein, the closing of the sale and purchase of the Shares
(the "CLOSING") shall take place at 10:00 A.M. local time on the date hereof
(the "Closing Date"). The Closing shall be effective as of 11:59 p.m. on the
Closing Date.
Section 3.2. PURCHASE PRICE. On the terms and subject to the conditions set
forth in this Agreement, MCK shall pay to Seller at the Closing, by wire
transfer of immediately available funds, a purchase price of Forty Eight Million
Seven Hundred Thousand and 00/100 Dollars (US$48,700,000), subject to adjustment
as provided in SECTION 3.3 (such purchase price as adjusted pursuant to SECTION
3.3 hereof is hereby referred to as the "PURCHASE PRICE"). The Purchase Price
shall be paid at the Closing to Seller by wire transfer to a United States bank
account designated by Seller in writing at least three (3) days prior to the
scheduled date of payment in immediately available U.S. funds.
Section 3.3. CLOSING DATE BALANCE SHEET ADJUSTMENT.
(a) CALCULATION OF ADJUSTMENT. The Purchase Price shall be: (i)
increased dollar-for-dollar by the amount that the Closing Date Net Book Value
is greater than $38,355,264 (the "TARGET NET BOOK VALUE"); or (ii) decreased
dollar-for-dollar by the amount that the Closing Date Net Book Value is less
than the Target Net Book Value. The term "CLOSING DATE NET BOOK VALUE" means the
excess of the combined assets set forth on the Final Closing Statement of Net
Book Value over the combined liabilities set forth on the Final Closing
Statement of Net Book Value, determined in accordance with the procedures set
forth in SECTION 3.3(B). The amount of any decrease or increase to the Purchase
Price pursuant to this SECTION 3.3(A), plus simple interest thereon from and
including the Closing Date to but excluding the date of payment at the rate of
8.5% per annum, shall be paid by MCK to Seller (in the case of an increase in
the Purchase Price), or by Seller to MCK (in the case of a decrease in the
Purchase Price), in either case by wire transfer in immediately available funds
within five business days after the Final Closing Statement of Net Book Value is
agreed to by Seller and MCK or is determined by the Neutral Auditor in
accordance with this SECTION 3.3.
(b) PREPARATION OF INITIAL CLOSING STATEMENT OF NET BOOK VALUE. As soon
as practicable, and in any event within 90 days after the Closing Date, Seller
shall prepare and deliver to MCK a statement of net assets, including each
component thereof, for the Business as of the close of
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business on the Closing Date determined on a PRO FORMA basis as if the parties
hereto had not consummated the transactions contemplated by this Agreement (the
"INITIAL CLOSING STATEMENT OF NET BOOK VALUE"), to be prepared as set forth in
this SECTION 3.3(B). The Initial Closing Statement of Net Book Value shall be
prepared applying GAAP on a basis consistent with the Baseline Financial
Statements (including the Baseline Balance Sheet) through full application of
the accounting methods, treatments, policies and procedures used by Trex in
preparing the Baseline Financial Statements (including the Baseline Balance
Sheet), and with changes in contract estimates at completion ("EACS") and
estimates to complete ("ETCS") determined on a basis consistent with the method
used for the determination of such amounts in the Baseline Financial Statements
(including the Baseline Balance Sheet), except as modified or set forth in
subparagraphs (i) through (ix) below in this SECTION 3.3(B).
(i) ADJUSTMENT OF RESERVES AND VALUATION ACCOUNTS. The amount
of any reserve or valuation accounts shall be determined by applying methods,
practices, assumptions, policies, and procedures consistent with those used in
determining the reserves or valuation accounts included in the Baseline Balance
Sheet, and there shall be no changes made to any reserves or valuation accounts
(including contract reserves, purchase accounting reserves, deferred tax asset
valuation accounts, allowances for bad debts, inventory reserves of any kind,
warranty reserves and other reserves), except to the extent that such changes
are required by changes in facts and events occurring after July 3, 1999 and on
or before the Closing Date and except as disclosed on SCHEDULE 3.3. It is
further understood and agreed that there shall be no increase in the Closing
Date Net Book Value as a result of reversal, reduction or other usage of
reserves unless such reversal, reduction or usage arises out of facts or events
that occur after July 3, 1999 and on or before the Closing Date and except as
disclosed on SCHEDULE 3.3. For avoidance of any doubt, nothing in this Agreement
shall prevent the creation, reversal, reduction or usage of any reserve or
valuation account for the purpose for which it was intended in accordance with
GAAP applied on a basis consistent with the accounting methods, treatments,
policies and procedures used by Trex in preparing the Baseline Financial
Statements (including the Baseline Balance Sheet). In connection with
subparagraph (viii) below in this SECTION 3.3(B), it is further understood and
agreed that there should be no increase in reserves and valuation amounts or
write-down of assets of the Business during the period between the Baseline
Balance Sheet Date and the Closing Date which are recorded by the Business as
purchase accounting adjustments with corresponding adjustments to goodwill,
except with respect to the capitalization of G&A costs and work in process in
the amount of $1,294,125 and the reclassification of certain deferred tax asset
amounts in connection with acquisitions by Trex.
(ii) CONTRACT ESTIMATES AT COMPLETION. There shall be no
changes to the contract EACs from those contract EACs used in the preparation of
the Baseline Balance Sheet, except to the extent that such changes are required
by changes in facts and events occurring after July 3, 1999 and on or before the
Closing Date. Notwithstanding subparagraph (vii) below in this SECTION 3.3(B)
(except with respect to the capitalization of G&A costs and work in process in
the amount of $1,294,125 and the reclassification of certain deferred tax asset
amounts in connection with acquisitions by Trex), it is further understood that
if the contract EACs used in preparation of the Baseline Balance Sheet are
discovered to be incorrect because certain costs were omitted from or included
in those contract EACs, for whatever reason(s), including misallocation of
direct or indirect costs to such contract EACs, then such costs that were
omitted from or included in the contract EACs used in the preparation of the
Baseline Balance Sheet, as the case may be, shall be corrected in the contract
EACs used in the preparation of the Initial Closing Statement of Net
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Book Value.
(iii) LOSS CONTRACTS. There shall be no changes made to the
provisions for loss contracts from those used in the preparation of the Baseline
Balance Sheet, except to the extent that such changes are required by changes in
facts and events occurring after July 3, 1999 and on or before the Closing Date.
(iv) ADJUSTMENT OF LIABILITY AND ACCRUAL ACCOUNTS. The amount
of all liability and accrual accounts shall be determined by applying methods,
practices, assumptions, policies and procedures consistent with those used in
determining the liability and accrual accounts included in the Baseline Balance
Sheet, and there shall be no changes made to any liability and accrual accounts,
except to the extent that such changes are required by changes in facts and
events occurring after July 3, 1999 and on or before the Closing Date and except
as disclosed on SCHEDULE 3.3. It is further understood that there shall be no
increase in the Closing Date Net Book Value as a result of reversals or
reductions of liability and accrual accounts, unless such reversal or reduction
arises out of facts or events that occur after July 3, 1999 and on or before the
Closing Date and except as disclosed on SCHEDULE 3.3. For avoidance of any
doubt, nothing in this Agreement shall prevent the creation, reversal, reduction
or usage of any liability or accrual account for the purpose for which it was
intended in accordance with GAAP applied on a basis consistent with the
accounting methods, treatments, policies and procedures used by Trex in
preparing the Baseline Financial Statements (including the Baseline Balance
Sheet).
(v) CERTAIN ADDITIONAL RESERVES. Appropriate reserves, if
required under GAAP, applied on a basis consistent with the full application of
the accounting methods, practices, assumptions, policies and procedures used by
Trex in preparing the Baseline Balance Sheet, shall be established for the items
disclosed on SCHEDULES 4.5, 4.7(C) ITEMS 1. AND 4., and 4.8(A) hereto. Such
reserves, if any, shall not be recorded as adjustments to goodwill (see
subparagraphs (i) and (viii) in this SECTION 3.3(B)).
(vi) ACCOUNTING FOR CERTAIN LIABILITIES. The Initial Closing
Statement of Net Book Value shall include, to the extent required by GAAP
applied on a basis consistent with the full application of the accounting
methods, practices, assumptions, policies and procedures used by Trex in
preparing the Baseline Balance Sheet, liabilities for obligations not retained
by Seller or for which Seller is not responsible hereunder that accrue from the
date of the Baseline Balance Sheet to the Closing Date either because of the
passage of time or the achievement or reasonably expected achievement of a
performance measurement, even if such liabilities were not included in the
Baseline Balance Sheet. Examples of these types of liabilities include, but are
not limited to, taxes, management incentive bonuses, profit sharing loans,
employer matching contributions for, TrexCom (Asia), LNR, EMP or Trex sponsored
savings plans, and compensated absences (vacation time, sick pay, etc.), in any
event, only to the extent not retained by Seller. Notwithstanding anything in
this Agreement to the contrary, the Initial Closing Statement of Net Book Value
shall not include an accrual or reserve for Trex's, TrexCom (Asia)'s, LNR's or
EMP's management incentive bonuses, if any, for the period from and after
October 3, 1999 through the Closing Date.
(vii) CONSISTENT APPLICATION OF ACCOUNTING POLICIES, METHODS
AND PRACTICES. The accounting policies, methods and practices and their related
applications used by Seller to prepare the Initial Closing Statement of Net Book
Value shall be consistent with those underlying the
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Baseline Balance Sheet. Use of different or alternative accounting policies and
methods that are otherwise in accordance with GAAP is not permitted because such
use violates this consistency requirement. Specifically, "inconsistency"
adjustments recorded by Seller shall not be waived or allowed during the
preparation of the Initial Closing Statement of Net Book Value on the basis of
"materiality".
(viii) GOODWILL AND OTHER INTANGIBLE ASSETS. There shall be no
increases or decreases to goodwill and other intangible assets from those used
in preparation of the Baseline Balance Sheet and included in the Target Net Book
Value except for amortization expense recorded during the period between the
Baseline Balance Sheet Date and the Closing Date based on the amortization
accounting policies and useful lives used in preparing the Baseline Financial
Statements, except with respect to the capitalization of G&A costs and work in
process in the amount of $1,294,125 and the reclassification of certain deferred
tax asset amounts in connection with acquisitions by Trex.
(ix) Notwithstanding anything to the contrary in this
Agreement, neither the Initial nor the Final Closing Statements of Net Book
Value shall include any asset or any liability or reserve for any receivable,
asset, debt, liability, commitment, payable or other obligation of Trex, TrexCom
(Asia), LNR or EMP from or to any of their respective pre-Closing Affiliates
(including, without limitation, obligations for 401(k) contributions, life
insurance, dental insurance, corporate charges, general liability insurance,
interest expense, state and federal taxes, reserves with respect to the subject
matter of the indemnification provided in SECTION 10.1(F), legal fees and other
Thermo Electron corporate services).
The Initial Closing Statement of Net Book Value shall state that the
Initial Closing Statement of Net Book Value presents fairly in all material
respects the combined assets and liabilities presented on such statement as
provided for in this Agreement at the Closing Date in conformity with this
SECTION 3.3(B), except that it may not contain all the notes required by GAAP.
MCK shall provide Seller, Arthur Andersen LLP ("Seller's Auditors") and the
Neutral Auditor such access to the Books and Records and appropriate employees
of Trex, TrexCom (Asia), LNR and EMP as may reasonably be required for the
preparation and/or review of the Initial Closing Statement of Net Book Value.
(c) REVIEW OF INITIAL CLOSING STATEMENT OF NET BOOK VALUE. After
receipt of the Initial Closing Statement of Net Book Value, MCK shall have 45
days to review it. MCK and its authorized nationally recognized independent
accounting firm ("MCK's Auditors") shall have reasonable access during normal
business hours to appropriate employees of Seller and Seller's Auditors and the
work papers used in preparation of the Initial Closing Statement of Net Book
Value, to the extent reasonably required to complete their review of the Initial
Closing Statement of Net Book Value. Unless MCK delivers written notice to
Seller on or prior to the 30th day after receipt of the Initial Closing
Statement of Net Book Value specifying in reasonable detail all disputed items
and the basis therefor, the parties shall be deemed to have accepted and agreed
to the Initial Closing Statement of Net Book Value. If MCK so notifies Seller of
an objection to the Initial Closing Statement of Net Book Value, the parties
shall, within 30 days following the date of such notice (the "RESOLUTION
PERIOD"), attempt to resolve their differences and any resolution by them as to
any disputed amount shall be final, binding, conclusive and nonappealable for
all purposes under this Agreement.
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(d) RESOLUTION. If at the conclusion of the Resolution Period the
parties have not reached an agreement on the objections, then all amounts
remaining in dispute shall be submitted to a mutually acceptable nationally
recognized accounting firm (the "NEUTRAL AUDITOR"). If MCK and Seller are unable
to agree on the choice of a Neutral Auditor, the parties shall select by lot as
the Neutral Auditor a "Big Five" accounting firm other than MCK's Auditors and
Seller's Auditors. A failure by any party to participate in the selection of the
Neutral Auditor shall be deemed acceptance by such party of the Initial Closing
Statement of Net Book Value or the objections submitted by the other party, as
the case may be. Each party agrees to execute, if requested by the Neutral
Auditor, a reasonable engagement letter. All fees and expenses relating to the
work, if any, to be performed by the Neutral Auditor shall be borne equally by
Seller and MCK; provided, however, that if the Neutral Auditor determines that
one party has adopted a position or positions with respect to the Initial
Closing Statement of Net Book Value that is frivolous or clearly without merit,
the Neutral Auditor may in its discretion, assign a greater portion of any such
fees and expenses to such party. The Neutral Auditor will make all decisions in
accordance with this SECTION 3.3. Except as provided above in this SECTION
3.3(D), all other costs and expenses incurred by the parties in connection with
resolving any dispute hereunder before the Neutral Auditor shall be borne by the
party incurring such cost and expense. The Neutral Auditor shall act as an
arbitrator to determine, based solely on the presentations by Seller and MCK and
the terms of this Agreement, and not by independent review, only those issues
still in dispute. The Neutral Auditor's determination shall be made within 30
days of its engagement (which engagement shall be made promptly following the
conclusion of the Resolution Period), or as soon thereafter as possible, shall
be set forth in a written statement delivered to Seller and MCK and shall be
final, binding, conclusive and nonappealable for all purposes hereunder, absent
fraud or manifest error. Nothing herein shall be construed to authorize or
permit the Neutral Auditor to determine (i) any questions or matters whatsoever
under or in connection with this Agreement except the determination of what
adjustments, if any, must be made in one or more of the items reflected in the
Initial Closing Statement of Net Book Value in response to objections thereto
made by the party that submitted the statement of objections, or (ii) an
adjustment to an item on the Initial Closing Statement of Net Book Value that is
outside of the range defined by amounts as finally proposed by Seller and MCK,
respectively. The term "FINAL CLOSING STATEMENT OF NET BOOK VALUE" shall mean
the definitive Closing Statement of Net Book Value agreed to by Seller and MCK
in accordance with SECTION 3.3(C) or the definitive Closing Statement of Net
Book Value resulting from the determination made by the Neutral Auditor in
accordance with this SECTION 3.3(D) (in addition to those items theretofore
agreed to by Seller and MCK).
Section 3.4. [INTENTIONALLY DELETED].
Section 3.5. DELIVERIES TO BE MADE BY MCK AT CLOSING. At the Closing, MCK shall
deliver or cause to be delivered to Seller:
(a) The Purchase Price payable to Seller in accordance with the
provisions of SECTION 3.2;
(b) Evidence of the authority of MCK to execute and deliver this
Agreement and to perform its obligations hereunder;
(c) Documents evidencing the office and authority of the officer of the
trustee of MCK executing on behalf of MCK this Agreement and the other documents
delivered by MCK at the Closing;
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(d) A certified Certificate of Trust for MCK issued by the Secretary of
State of Connecticut.
(e) A Certificate of Legal Existence for MCK issued by the Secretary of
State of Connecticut.
(f) A certificate of MCK ("MCK's Certificate"), dated the Closing Date
and signed by its trustee on behalf of MCK, with respect to the following: Each
of the representations and warranties of MCK contained in this Agreement that is
qualified as to materiality is true and correct and each such representation and
warranty that is not so qualified is true in all material respects, in each case
on the date hereof, except those representations and warranties made as of a
specified date, which shall be true and correct or true and correct in all
material respects, as the case may be, as of such specified date.
Section 3.6. DELIVERIES TO BE MADE BY SELLER AT CLOSING. At the Closing, Seller
shall deliver or cause to be delivered to MCK:
(a) Certificates representing the Shares duly endorsed by Seller for
transfer to MCK or accompanied by stock powers for the Shares duly executed by
Seller, in proper form for transfer (the "Conveyance Documents"), together with
new certificates representing the Shares, each registered in the name of MCK;
(b) A certified copy of the resolutions of Seller's Board of Directors
authorizing the execution and delivery of this Agreement and the performance by
Seller of its obligations hereunder;
(c) A certificate of incumbency with respect to the office and
authority of the officer of Seller executing the Agreement and the other
documents delivered by Seller at Closing, duly executed by the Secretary or any
Assistant Secretary of Seller;
(d) A certificate of good standing from each of the secretaries of
state of Seller's organization and the states identified in SCHEDULE 4.1;
(e) All Consents set forth in SCHEDULE 3.6(E) to this Agreement;
(f) Trex's stock books, stock ledgers and minute books;
(g) Resignations of all of Trex's executive officers and directors;
(h) An executed guaranty of Trex's obligations under this Agreement in
the form attached hereto as EXHIBIT A (the "Thermo Electron Guaranty");
(i) A certificate of Seller ("Seller's Officer's Certificate"), dated
the Closing Date and signed by its chief executive officer, with respect to the
following: Each of the representations and warranties of Seller contained in
this Agreement that is qualified as to materiality is true and correct and each
such representation and warranty that is not so qualified is true in all
material respects, in each case on the date hereof, except those representations
and warranties made as of a specified date, which shall be true and correct or
true and correct in all material respects, as the case may be, as of such
specified date.
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(j) On each of Trex's, TrexCom (Asia)'s, LNR's and EMP's letterhead,
all information reasonably requested by MCK relating to Trex's, TrexCom
(Asia)'s, LNR's and EMP's base period research and experimental expenses and any
other information reasonably requested by MCK to allow MCK to claim research and
experimental tax credits in accordance with the relevant sections of the Code
and the Treasury Regulations promulgated thereunder;
(k) FIRPTA CERTIFICATE. A certificate of Seller, dated the Closing Date
and sworn under penalty of perjury, setting forth the name, address and federal
tax identification of Seller and stating that Seller is not a "foreign person"
within the meaning of Section 1445 of the Code, such certificate to be in the
form set forth in the Treasury Regulations hereunder;
(l) An executed Non-Competition Agreement in the form set forth in
EXHIBIT B hereto (the "Non-Competition Agreement");
(m) Such affidavits as the Title Company shall reasonably require in
order to omit from its title insurance policy exceptions for judgments,
bankruptcies or other returns against Persons whose names are the same as or
similar to Seller's, Trex's, TrexCom (Asia)'s, LNR's or EMP's names; and
(n) An executed Termination Agreement in the form set forth in EXHIBIT
C hereto (the "TERMINATION AGREEMENT").
Section 3.7. TRANSFER OF CONTROL. Simultaneously with the deliveries described
in SECTIONS 3.5 and 3.6, Seller shall take all actions reasonably requested by
MCK and necessary to put MCK in actual possession and control of the Shares.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to MCK as of the date hereof as follows:
Section 4.1. CORPORATE STATUS.
(a) Seller is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization. Seller has
full power and authority to carry on its business as currently conducted by it
and to own or lease and to operate its properties currently owned or leased by
it.
(b) Each of Trex, TrexCom (Asia), LNR and EMP is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Each of Trex, TrexCom (Asia), LNR and EMP has
full power and authority to carry on the Business (or the applicable portion
thereof) and to own or lease and to operate its properties. Each of Trex,
TrexCom (Asia), LNR and EMP is duly qualified or licensed to do business and is
in good standing in the states set forth in SCHEDULE 4.1, which are all the
states in which the ownership of properties or the conduct of business requires
it to be qualified, except where the failure to be so qualified could not
reasonably be expected to result in a Material Adverse Effect.
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(c) True, complete and correct copies of minutes of all meetings of the
directors (including committees thereof) and shareholders (or written actions or
consents in lieu of meetings) (including minutes and written actions or consents
of predecessor companies) since January 1, 1994 of Trex, TrexCom (Asia), LNR and
EMP have been made available to MCK; PROVIDED, HOWEVER, that for periods prior
to May 28, 1998 in the case of EMP and November 30, 1998 in the case of LNR, the
representation and warranty in this SECTION 4.1(C) is qualified by and made only
to the knowledge of Seller, Trex, TrexCom (Asia), LNR and EMP.
Section 4.2. AUTHORIZATION, ETC. Seller has the requisite power and authority to
execute and deliver this Agreement and the other Transaction Documents to which
it is a party, to perform fully its obligations hereunder and thereunder, and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery by Seller of this Agreement and the other Transaction Documents to
which it is a party, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by all requisite corporate action
of Seller. Seller has duly executed and delivered this Agreement and the other
Transaction Documents to which it is a party. This Agreement and the other
Transaction Documents to which it is a party are legal, valid and binding
obligations of Seller, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors' rights
generally and by equitable principles, including those limiting the availability
of specific performance, injunctive relief and other equitable remedies and
those providing for equitable defenses.
Section 4.3. NO CONFLICTS, ETC. Based on MCK's representation and warranty in
SECTION 5.10 with respect to compliance with the applicable requirements of the
HSR Act, none of the execution and delivery by Seller of this Agreement and the
other Transaction Documents to which it is a party, the performance by Seller of
its obligations hereunder and thereunder and the consummation by Seller of the
transactions contemplated hereby and thereby, conflicts with or results in a
violation of or a default under (with or without the giving of notice or the
lapse of time or both), or results in the acceleration of or gives rise to any
party the right to terminate, modify or cancel under, or results in the loss of
any rights, privileges, options or alternatives under, or results in the
creation of any Lien (other than Permitted Liens) on any of the properties or
assets of Trex, TrexCom (Asia), LNR or EMP or the Business under (a) the
organizational documents of Seller, TrexCom (Asia), LNR, EMP or Trex, (b) any
material Applicable Law applicable to Seller, TrexCom (Asia), LNR, EMP, Trex or
the Business or any of their respective properties or assets used in connection
with the Business, or (c) except as set forth in SCHEDULE 4.3, any Contract to
which Seller, TrexCom (Asia), LNR, EMP or Trex is a party or by which Seller,
TrexCom (Asia), LNR, EMP or Trex or any of their respective properties or assets
used in connection with the Business is bound, other than in the case of clause
(c) any such conflicts, violations or defaults that, in either case,
individually or in the aggregate, (i) would not reasonably be expected to have a
Material Adverse Effect, and (ii) would not reasonably be expected to impair
Seller's ability to perform its obligations hereunder. Except as specified in
Schedule 4.3, based on MCK's representation and warranty in SECTION 5.10 with
respect to compliance with the applicable requirements of the HSR Act, no
Governmental Approval or other Consent is required to be obtained or made by
Seller, LNR, EMP or TrexCom (Asia) in connection with the execution and delivery
by Seller of this Agreement or the other Transaction Documents to which it is a
party. At the Closing, Seller will hold the entire legal, equitable and
beneficial title and interest to the Shares, and will transfer to MCK good title
to the Shares, free and clear of all Liens, other than Permitted Liens and
restrictions on the subsequent transfer of the Shares by MCK imposed under
applicable securities laws.
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Section 4.4. FINANCIAL STATEMENTS. MCK has been provided with the following
financial statements: (a) the Baseline Balance Sheet; and (b) the combined
unaudited balance sheet of the Business as of November 27, 1999 (collectively,
the "BASELINE FINANCIAL STATEMENTS"). All intercompany balances between the
Business and Seller relating to the $20 Million Convertible Note have been
eliminated in the Baseline Financial Statements. The Baseline Financial
Statements (i) are consistent with the books and records of Trex, TrexCom
(Asia), LNR and EMP, (ii) have been prepared in accordance with GAAP
consistently applied subject to normal, fiscal year-end adjustments in the case
of the Baseline Balance Sheet and, in all cases, the absence of footnotes, and
(iii) except for the elimination of matters relating to the CCS Business, fairly
present in all material respects the financial condition and results of all
operations of the Business as at and for the periods specified.
Section 4.5. ABSENCE OF UNDISCLOSED LIABILITIES. None of Trex, TrexCom (Asia),
LNR and EMP has any material debts, claims, commitments, liabilities or
obligations of any nature, whether known or unknown, absolute, accrued,
contingent or otherwise and whether due or to become due, asserted or
unasserted, except (a) as set forth in SCHEDULE 4.5, (b) as and to the extent
set forth as liabilities on the Baseline Balance Sheet, and (c) for liabilities
and obligations that were incurred after July 3, 1999 in the ordinary course of
business consistent (in amount and kind) in all material respects with prior
practice and which will be reflected in the Final Closing Statement of Net Book
Value to the extent required by SECTION 3.3.
Section 4.6. TAXES. All material (federal, state, local, foreign and other)
relating to the Business required to be filed (including without limitation all
foreign, federal, state, county and local income, ad valorem, excise, sales,
use, transfer taxes and assessments) have been filed. All material Taxes owed by
Seller (only to the extent Taxes can become Liens on the assets of Trex, TrexCom
(Asia), LNR or EMP or for which MCK may be liable as transferee), TrexCom
(Asia), LNR, EMP, and Trex (whether or not shown on any Tax return) have been
duly and timely paid except for Taxes the payment of which is being disputed in
good faith. Seller, TrexCom (Asia), LNR, EMP, and Trex have not extended or
otherwise waived the benefit of any applicable statute of limitations or agreed
to any extension of time with respect to a Tax assessment or deficiency relating
to the Business. Except as reflected on the Baseline Balance Sheet or on the
Final Closing Statement of Net Book Value, there are no unpaid Taxes (after
taking into account payments of estimated income taxes) relating to the Business
which are, or could become, a Lien on the properties and assets of TrexCom
(Asia), LNR, EMP, and Trex (except for Taxes not yet due and payable). None of
Seller, Trex, TrexCom (Asia), LNR and EMP has received written notice of any
deficiency assessments with respect to foreign, federal or state income or other
Taxes relating to the Business. There are no federal, state, local or foreign
Tax Liens on any asset of the Business (other than Liens for Taxes not yet due
or payable). None of Seller, Trex, TrexCom (Asia), LNR and EMP is a "foreign
person" within the meaning of Section 1445(b)(2) of the Code.
Section 4.7. ABSENCE OF CHANGES. Except as set forth in SCHEDULE 4.7, since
November 30, 1999, none of Trex, TrexCom (Asia), LNR and EMP has:
(a) suffered any Material Adverse Effect;
(b) experienced any event or condition that would reasonably be
expected to cause a Material Adverse Effect to occur in the future;
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(c) incurred, assumed, guaranteed or discharged any debt, claim,
commitment, obligation or liability, absolute, accrued, contingent or otherwise,
whether due or to become due (including any indebtedness for borrowed money), in
excess of $50,000 individually or $200,000 in the aggregate, except current
liabilities for trade or business obligations incurred in connection with the
purchase of goods or services in the ordinary course of business consistent (in
amount and kind) in all material respects with prior practice;
(d) mortgaged, pledged or subjected to any other Lien, any property,
business or assets, tangible or intangible, other than Permitted Liens;
(e) sold, transferred, leased to others or otherwise disposed of any of
the assets of the Business, in excess of $50,000 individually or $200,000 in the
aggregate, except for Inventories sold in the ordinary course of business
(consistent in all material respects with past practice), or canceled or
compromised any debt, claim, commitment, liability or obligation, or waived or
released any right of substantial value, involving an amount in excess of
$50,000 individually or $200,000 in the aggregate;
(f) received any written notice of termination of any Contract with
required payments thereunder in excess of $50,000;
(g) suffered any damage, destruction or loss (whether or not covered by
insurance) to property, in excess of $50,000 individually or $200,000 in the
aggregate;
(h) transferred or granted (except in the ordinary course of business
consistent in all material respects with past practice) any rights under, or
entered into any settlement regarding the breach, misappropriation, infringement
or violation of, any Intellectual Property, or modified any existing rights with
respect thereto in a manner involving payments by or to the Business in excess
of $50,000 individually or $200,000 in the aggregate;
(i) made any change in the rate of compensation, commission, bonus or
other direct or indirect remuneration payable, or paid or agreed or made any
enforceable oral promise to pay, conditionally or otherwise, any bonus,
incentive, retention or other compensation, retirement, welfare, fringe or
severance benefit or vacation pay, to or in respect of any employee, distributor
or agent, in each case other than increases in the ordinary course of business
consistent in all material respects with past practice in the compensation
payable to those employees earning less than $75,000 per annum each;
(j) made any change in its accounting, auditing or tax methods,
practices or principles;
(k) encountered any labor union organizing activity with respect to the
Business, had any actual or threatened employee strikes, work stoppages,
slowdowns or lockouts, or had any material and adverse change in its relations
with its employees, distributors, agents, customers or suppliers;
(l) entered into any transaction, contract, arrangement, order,
license, lease, permit, instrument, agreement or commitment, involving an amount
per year in excess of $50,000 individually or $200,000 in the aggregate, other
than in the ordinary course of business consistent (in amount and kind) in all
material respects with past practice, or paid or agreed to pay any
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brokerage or finder's fee, or incurred any severance pay obligations by reason
of, this Agreement or any of the transactions contemplated hereby;
(m) made any grant of credit to any customer or distributor on terms or
in amounts materially more favorable than had been extended to that customer or
distributor in the past;
(n) taken any action or knowingly omitted to take any action that would
result in the occurrence of any of the foregoing; or
(o) received written notice of any condemnation proceedings commenced
with respect to any Real Estate Asset or written notice as to the proposed
commencement of any such proceedings.
Notwithstanding the foregoing or anything else in this Agreement, based
solely on the truth and accuracy of Seller's representation in SECTION 4.24(B),
MCK acknowledges that prior to the date hereof (i) Trex distributed to Seller
all the issued and outstanding shares of capital stock of CCS held by Trex, and
Seller sold the CCS Business by way of a sale of all the issued and outstanding
shares of capital stock of CCS held by Seller prior to the Closing Date, (ii)
Seller has purchased all of the issued and outstanding Shares of capital stock
of Trex not previously owned by Seller from the other holders of such issued and
outstanding Shares, and (iii) Seller, Trex, TrexCom (Asia), LNR and EMP have
taken the actions described on SCHEDULE 4.24A(A) in an effort to satisfy all the
obligations owing to certain former stockholders of LNR pursuant to an Agreement
and Plan of Merger dated as of November 13, 1998, by and among Trex, LNR
Acquisition Corp., LNR and the stockholders of LNR (the "LNR ACQUISITION
AGREEMENT"), none of which actions has been a violation of any representation or
warranty contained in this Agreement.
Section 4.8. LITIGATION.
(a) Except as set forth in SCHEDULE 4.8(A), there is no action, suit,
proceeding, arbitration, citation, summons or subpoena, civil, criminal,
regulatory or otherwise, in law or in equity, pending or, to the knowledge of
TrexCom (Asia), LNR, EMP, Trex or Seller, threatened by or against Trex, LNR,
EMP or TrexCom (Asia), or, to the knowledge of Seller, Trex, TrexCom (Asia), LNR
or EMP, relating to TrexCom (Asia), LNR, EMP or Trex seeking unspecified
damages, damages in excess of $50,000 or any injunctive or other equitable
relief. To the knowledge of Seller, Trex, TrexCom (Asia), LNR and EMP, there is
no claim, demand, grievance, inquiry or investigation by or against or relating
to Seller, Trex, TrexCom (Asia), LNR or EMP seeking such damages or relief.
(b) There are no judgments unsatisfied against TrexCom (Asia), LNR, EMP
or Trex or consent decrees or injunctions to which TrexCom (Asia), LNR, EMP or
Trex or the assets of the Business are subject.
(c) There is no action, suit or proceeding pending, or to the knowledge
of TrexCom (Asia), LNR, EMP, Trex or Seller, threatened, by or against or
affecting TrexCom (Asia), LNR, EMP, Trex or Seller in connection with or
relating to the transactions contemplated by this Agreement or of any action
taken or to be taken in connection herewith or the consummation of the
transactions contemplated hereby.
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(d) Since January 1, 1994, there have been no product liability, suits,
actions or proceedings involving TrexCom (Asia), LNR, EMP or Trex or relating to
products or services manufactured, sold or provided by TrexCom (Asia), LNR, EMP
or Trex.
Section 4.9. COMPLIANCE WITH LAWS; GOVERNMENTAL APPROVALS AND CONSENTS.
(a) Except as disclosed in SCHEDULE 4.9(A), each of TrexCom (Asia),
LNR, EMP and Trex has complied in all material respects with all Applicable Laws
applicable to the Business and the assets of the Business.
(b) SCHEDULE 4.9(B) sets forth all Governmental Approvals and other
Consents necessary for, or otherwise material to, the conduct of the Business as
currently conducted and ownership and operation of the assets of the Business.
Except as set forth in SCHEDULE 4.9(B), all such Governmental Approvals and
Consents (excluding Governmental Approvals and Consents required under
Environmental Laws which are covered in SECTION 4.18) have been duly obtained
and are in full force and effect, and each of TrexCom (Asia), LNR, EMP and Trex
is in compliance in all material respects with each of such Governmental
Approvals and Consents held by it with respect to the Business and the assets of
the Business.
(c) Neither this SECTION 4.9 nor any other provision of this ARTICLE IV
other than SECTION 4.18 addresses representations and warranties concerning
Environmental Laws, any environmental matter or environmental litigation, all of
which representations and warranties are addressed exclusively in SECTION 4.18.
Section 4.10. ASSETS.
(a) Each of Trex, TrexCom (Asia), LNR and EMP has good and valid title
to its respective assets, free and clear of any and all Liens (other than
Permitted Liens). The assets of the Business include all assets reasonably
required for the conduct of the Business by MCK (through the ownership of the
Shares) as the Business is now being conducted. Trex does not own the stock of
or other equity interests in any Person other than TrexCom (Asia), LNR and EMP.
The assets of the Business are free and clear of any and all voting trust
agreements, options or rights of first refusal.
(b) The material tangible assets of the Business are, in all material
respects, in good condition and repair (except for ordinary wear and tear), free
from any known defects (except such minor defects as do not interfere with the
use thereof in the conduct of normal operations). All buildings, plants and
other material structures currently utilized by Trex, TrexCom (Asia), LNR and
EMP are, in all material respects, in good operating condition and repair.
(c) SCHEDULE 4.10(C) contains a list of all the Real Estate Assets,
which constitute all the real property owned, leased or licensed by Trex,
TrexCom (Asia), LNR and EMP in the Business. Each of Trex, TrexCom (Asia), LNR
and EMP has good and marketable title to its owned real property, subject only
to Permitted Liens and, with respect to real property, to (i) minor
imperfections of title, if any, none of which is substantial in amount,
materially detracts from the value or impairs the use of the property subject
thereto, or impairs the operations of Trex, TrexCom (Asia), LNR or EMP and (ii)
zoning laws and other land use restrictions that do not impair the present use
of the property subject thereto. Each lease covering leased real property used
in connection with the Business is a legal, valid and binding agreement of Trex,
TrexCom
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(Asia), LNR or EMP, as the case may be, except as enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally and by equitable principles, including those
limiting the availability of specific performance, injunctive relief and other
equitable remedies and those providing for equitable defenses. There is not
under any such leases any existing default on the part of TrexCom (Asia), LNR,
EMP or Trex or, to the knowledge of Trex, Seller, TrexCom (Asia), LNR or EMP,
any other party thereto, nor any facts which, with the passage of time or notice
of default or both, constitute such a default.
(d) Each of TrexCom (Asia), LNR, EMP and Trex enjoys peaceful and quiet
possession of the real property owned or leased by it. MCK has been provided
with a true and complete copy of each lease and all amendments thereto
pertaining to any leased real property used in connection with the Business. The
rental amounts set forth in each lease represents the actual rental being paid,
and there are no separate agreements or understandings amending or modifying
such rental amounts.
(e) There are no condemnation proceedings or eminent domain proceedings
of any kind pending against the Real Estate Assets or any portion thereof, and
no written notice of any threatened condemnation proceedings or eminent domain
proceedings of any kind against the Real Estate Assets or any portion thereof
has been received by Seller, Trex, TrexCom (Asia), LNR or EMP.
(f) To the knowledge of Seller, Trex, TrexCom (Asia), LNR and EMP, all
improvements comprising part of the Real Estate Assets are in compliance with
all Applicable Laws (including all ordinances, regulations, rules, codes, orders
and requirements and all building, zoning or environmental laws or codes),
except for any such non-compliance that would not have, individually or in the
aggregate, a Material Adverse Effect.
(g) All improvements comprising part of the Real Estate Assets and the
present use thereof for the operation of the Business do not, to the knowledge
of Seller, Trex, TrexCom (Asia), LNR and EMP, violate: (i) any applicable deed
restrictions or applicable covenants, restrictions or other similar agreements;
(ii) any existing site plan approvals, zoning or subdivision regulations; or
(iii) any urban redevelopment plans, as modified by any duly issued variances in
a manner which would not have a Material Adverse Effect.
Section 4.11. CONTRACTS.
(a) SCHEDULE 4.11(A) contains a true, complete and correct list of all
agreements, contracts, commitments, orders, licenses, leases and other
instruments and arrangements (whether written or oral) which, in each case, are
related in any way to the Business, Trex, TrexCom (Asia), LNR or EMP of the
types described below to which TrexCom (Asia), LNR, EMP or Trex is a party or by
which any of them, the Business or the assets of the Business are bound and
under which any such Person continues to have any obligation (the "CONTRACTS"):
(i) leases, licenses and other similar material contracts, and
material permits, franchises and Governmental Approvals, concerning or relating
to the real property used in the Business;
(ii) employment, consulting, agency, collective bargaining or
other similar contracts or agreements, in each case providing for annual base
compensation in excess of
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$50,000 and which is not terminable on not more than 30 days' notice without
penalty or premium, and other material instruments and arrangements relating to
or for the benefit of employees, sales representatives, distributors, dealers,
agents or independent contractors;
(iii) loan agreements, indentures, letters of credit,
mortgages, security agreements, pledge agreements, deeds of trust, bonds, notes,
and other agreements and instruments relating to the borrowing of money or
obtaining of or extension of credit (excluding accounts payable), in each case,
involving in excess of $50,000;
(iv) material licenses, licensing arrangements and other
similar contracts providing in whole or in part for the use of, or limiting the
use of, any Intellectual Property;
(v) brokerage or finder's agreements;
(vi) joint venture, partnership and similar contracts
involving a sharing of profits or expenses (including but not limited to joint
research and development and joint marketing contracts);
(vii) asset purchase agreements, stock purchase agreements and
other acquisition or divestiture agreements, including any agreements relating
to the sale, lease or disposal of any assets of Trex, EMP or TrexCom (Asia), LNR
for consideration in excess of $50,000 (other than sales of inventory in the
ordinary course of business) or involving continuing indemnity or other
obligations;
(viii) any contract (other than with respect to the sale or
production of inventory in the ordinary course of business consistent in all
material respects with past practice) that requires payments by or to TrexCom
(Asia), LNR, EMP or Trex in excess of $100,000 per annum;
(ix) material sales agency, manufacturer's representative,
marketing or distributorship agreements;
(x) contracts, agreements or arrangements with respect to the
representation of the Business in foreign countries;
(xi) purchase commitments for inventory items or supplies
that, together with amounts on hand, constitute in excess of six months normal
usage;
(xii) any agreement, understanding, contract or commitment
(written or oral) with (A) any employee, agent, consultant, distributor, dealer
or franchisee other than those involving in the aggregate consideration or other
expenditure of less than $50,000 per annum, or (B) any Affiliate;
(xiii) any guarantee of the payment or performance of any
Person or any agreement to indemnify any Person, or act as a surety, or other
agreement to be contingently or secondarily liable for the obligations of any
Person other than (A) the endorsement of checks in the ordinary course of
business, and (B) guarantees or agreements which individually do not exceed
$50,000 or in the aggregate do not exceed $100,000;
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(xiv) any outstanding bid or proposal or any outstanding
customer option relating to Contracts in the Backlog, in each case involving an
amount in excess of $100,000 with respect to the products business of LNR and
$200,000 with respect to other aspects of the Business;
(xv) Government Contracts; and
(xvi) any other contract, agreement or commitment not the
subject matter of clauses (i) through (xv) above that is material to the
Business.
(b) MCK has been furnished with access to all written Contracts,
together with all amendments thereto, set forth in SCHEDULE 4.11(A). MCK has
been furnished with an accurate summary of all oral Contracts listed on SCHEDULE
4.11(A).
(c) There does not exist under any Contract any event of default or
event or condition that, after notice or lapse of time or both, would constitute
a violation, breach or event of default thereunder on the part of TrexCom
(Asia), LNR, EMP or Trex or, to the knowledge of TrexCom (Asia), LNR, EMP, Trex
or Seller, any other party thereto except, in each case, for such events or
conditions that, individually and in the aggregate, (i) have not had or resulted
in, and would not reasonably be expected to result in the future in, a Material
Adverse Effect, and (ii) have not materially impaired the ability of Seller to
perform its obligations under this Agreement. Each Contract is a legal, valid,
binding and enforceable obligation of TrexCom (Asia), LNR, EMP or Trex, as the
case may be, and, to the knowledge of TrexCom (Asia), LNR, EMP, Trex or Seller,
the other parties thereto, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally and by equitable principles, including without
limitation those limiting the availability of specific performance, injunctive
relief and other equitable remedies and those providing for equitable defenses.
Except as set forth in SCHEDULE 4.11(C), no consent of any third party is
required under any Contract as a result of or in connection with the execution
and delivery by Seller of this Agreement or the performance by Seller of its
obligations hereunder or the consummation by Seller of the transactions
contemplated hereby. Except as set forth in SCHEDULE 4.11(c), no outstanding bid
or proposal (or series of related bids or proposals) was bid knowing that when
accepted it would result in a loss.
Section 4.12. TERRITORIAL RESTRICTIONS. None of TrexCom (Asia), LNR, EMP and
Trex is restricted by any agreement or understanding with any other Person from
carrying on the Business anywhere in the world, other than pursuant to exclusive
distribution arrangements.
Section 4.13. INVENTORIES.
(a) Except as set forth on SCHEDULES 4.13(A) AND 4.13(b) and net of
reserves as reflected in the Baseline Balance Sheet, (i) Inventories are of such
quality and quantity as to be usable in the ordinary course of business, and
(ii) Inventories that are finished goods are usable and saleable in the ordinary
course of business.
(b) The Inventories listed on SCHEDULE 4.13(B) will be sold without
discounting the sales price thereof from the sales prices listed on SCHEDULE
4.13(B) on or prior to the first anniversary of the Closing Date.
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Section 4.14. RECEIVABLES. The receivables of TrexCom (Asia), LNR, EMP and Trex
(including Accounts Receivable, loans receivable and advances) have arisen only
from BONA FIDE transactions in the ordinary course of business. There has not
been any material adverse change in the collectibility of such receivables since
the date of the Baseline Balance Sheet. SCHEDULE 4.14 sets forth a list of all
such receivables which are more than 30 days past due as of January 31, 2000,
and of all such receivables classified as doubtful accounts as of January 31,
2000.
Section 4.15. PRODUCT WARRANTIES. SCHEDULE 4.15 sets forth a description of the
standard warranties offered by TrexCom (Asia), LNR, EMP and Trex with respect to
its products or services (other than warranties under Applicable Law, if any).
SCHEDULE 4.15 sets forth a list as of the date hereof of all pending or, to the
knowledge of TrexCom (Asia), LNR, EMP, Trex or Seller, threatened product
warranty claims against TrexCom (Asia), LNR, EMP, Trex or the Business in excess
of $5,000 individually or $25,000 in the aggregate.
Section 4.16. INTELLECTUAL PROPERTY.
(a) Trex, TrexCom (Asia), LNR and EMP own (and as of the Closing Date,
through the ownership of the Shares, MCK will own) all right, title and interest
in, or Trex, TrexCom (Asia), LNR or EMP have a valid right or license to use,
the material Intellectual Property used in the Business. SCHEDULE 4.16(A) sets
forth a list of all material trademarks, service marks, trade names, and domain
names as well as all patents, patent applications, copyright registrations,
copyright registration applications, trademark registrations, trademark
registration applications and other registered Intellectual Property owned or
licensed to any of Trex, TrexCom (Asia), LNR or EMP. All such Intellectual
Property either is owned solely by one or more of Trex, TrexCom (Asia), LNR and
EMP, or used by same pursuant to a valid license which (i) is not currently
terminable by anyone other than Trex, TrexCom (Asia), LNR or EMP, and (ii) which
shall not be adversely affected by the transactions contemplated herein. To the
knowledge of any of Seller, Trex, TrexCom (Asia), LNR and EMP and excluding
generally available third-party computer programs and software, no Person is
infringing the Intellectual Property used by Trex, TrexCom (Asia), LNR or EMP.
SCHEDULE 4.16(A) indicates which material Intellectual Property used in the
Business is licensed to any of Trex, TrexCom (Asia), LNR or EMP. Except as
specified in SCHEDULE 4.16(A), all issued patents, copyright registrations, and
registered trademarks and service marks listed on SCHEDULE 4.16(A) and all
material copyrights held by Trex, TrexCom (Asia), LNR and EMP are valid,
enforceable and subsisting. Trex, TrexCom (Asia), LNR and EMP have the exclusive
right to file, prosecute and maintain all of their respective material patent
applications and other applications to register Intellectual Property, and have
the exclusive right to maintain their respective material patents and other
registrations of Intellectual Property.
(b) Except as set forth in SCHEDULE 4.16(B), none of Trex's, TrexCom
(Asia)'s, LNR's and EMP's rights in or to any of their respective Intellectual
Property shall be adversely affected by the execution or delivery of this
Agreement by Seller or by the full performance by Seller of any of Seller's
obligations hereunder. No allegations or claims with respect to any Intellectual
Property used in the Business have been asserted in writing or, to TrexCom
(Asia)'s, LNR's, EMP's, Trex's or Seller's knowledge, threatened by any Person
(i) against Trex, Seller, TrexCom (Asia), LNR or EMP, or (ii) to Trex's, TrexCom
(Asia)'s, LNR's, EMP's or Seller's knowledge, against any other Person based on
its use of any Intellectual Property used in the Business. To the knowledge of
Seller, Trex, TrexCom (Asia), EMP and LNR, no use of any Intellectual Property
used in or covering any aspect of the Business by Trex, TrexCom (Asia), LNR and
EMP or any of their respective customers constitutes or has constituted an
unauthorized use, inducement to
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infringe, contributory infringement, misappropriation or other violation of the
Intellectual Property of any other Person and no valid grounds exist for any
BONA FIDE claims against Trex, TrexCom (Asia), LNR, or EMP or any of their
respective customers with respect to any Intellectual Property used in or
covering any aspect of the Business. Without limiting the generality of the
foregoing, no Person ever employed or otherwise engaged by Trex, TrexCom (Asia),
LNR or EMP has asserted in writing or, to Seller's, Trex's, TrexCom (Asia)'s,
LNR's or EMP's knowledge, threatened any claim against Trex, TrexCom (Asia), LNR
or EMP relating to any Intellectual Property used in the Business or covering
any aspect of the Business. To the knowledge of Seller, Trex, TrexCom (Asia),
LNR or EMP, there has not been and there is not presently, any unauthorized use,
infringement, misappropriation or violation of any material Intellectual
Property used in or covering any aspect of the Business by any Person. Except as
set forth in SCHEDULE 4.16(B), none of Trex, TrexCom (Asia), LNR and EMP co-owns
or has licensed any Intellectual Property in which any of Trex, TrexCom (Asia),
LNR or EMP has ownership interest.
(c) To the knowledge of Seller, Trex, TrexCom (Asia), LNR or EMP,
except as set forth in SCHEDULE 4.16(C), no material Intellectual Property used
in or covering any aspect of the Business is subject to any outstanding order,
award, decision, injunction, judgment, decree, stipulation or agreement in any
manner restricting the transfer, use, enforcement or licensing thereof . Except
as set forth in SCHEDULE 4.16(C), none of TrexCom (Asia), LNR, EMP and Trex has
entered into any agreement to indemnify any other Person against any charge of
infringement of any Intellectual Property. None of TrexCom (Asia), LNR, EMP and
Trex has entered into any agreement granting any third party the right to bring
infringement actions with respect to, or otherwise to enforce rights with
respect to, any of Trex's, TrexCom (Asia)'s, LNR's or EMP's owned Intellectual
Property.
(d) Trex, TrexCom (Asia), LNR and EMP have paid all fees, annuities and
all other payments which have heretofore become due to any Governmental
Authority with respect to their respective owned Intellectual Property and have
taken all reasonable steps to prosecute and maintain the same.
(e) Except as set forth on SCHEDULE 4.16(E), none of Trex, TrexCom
(Asia), LNR or EMP has transferred its title in or to any copy of any material
computer programs or software (including source code, object code, data and
databases developed or distributed (to the extent title was acquired) by them).
No Intellectual Property has been supplied by Trex, TrexCom (Asia), LNR or EMP
to any Person except pursuant to a binding license prohibiting further
distribution and disclosure. Except as disclosed on SCHEDULE 4.16(E), all
computer programs and software which are distributed by any of Trex, TrexCom
(Asia), LNR or EMP, (i) conform in all material respects with all specifications
conveyed to its customers or other transferees, and (ii) are operative for their
intended purposes free of any material defects or deficiencies.
(f) Each of the current employees of Trex, TrexCom (Asia), LNR or EMP
is, and each of the former employees of Trex, TrexCom (Asia), LNR or EMP was, an
"employee" within the meaning of and pursuant to 17 U.S.C. 101. All current and
former independent contractors and consultants have assigned all of their
respective rights in any Intellectual Property developed by such independent
contractors and consultants for any of TrexCom (Asia), LNR, EMP or Trex to Trex,
TrexCom (Asia), LNR or EMP. No current or former employee, independent
contractor or consultant has any interest in any Intellectual Property developed
for or used by any of Trex, TrexCom (Asia), LNR or EMP.
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Section 4.17. INSURANCE. Each of Trex, TrexCom (Asia), LNR and EMP has in full
force and effect insurance policies covering its assets and its Business
customary for similar businesses of a similar size, nature and ownership.
Section 4.18. ENVIRONMENTAL MATTERS.
(a) COMPLIANCE WITH ENVIRONMENTAL LAW. Each of TrexCom (Asia), LNR, EMP
and Trex is and has been in compliance in all material respects with all
applicable Environmental Laws pertaining to any of the properties and assets of
its business and the use by TrexCom (Asia), LNR, EMP or Trex thereof. Except as
disclosed on SCHEDULE 4.18(A), each of TrexCom (Asia), LNR, EMP and Trex has
obtained all material permits, licenses and other authorizations that are
required under Environmental Laws to operate its business and the same are
listed on SCHEDULE 4.18(A). None of TrexCom (Asia), LNR, EMP, Trex or Seller has
received written notice of any violation of any applicable Environmental Law
relating to any of the assets or to any premises utilized by the Business and,
to the knowledge of TrexCom (Asia), LNR, EMP, Trex and Seller, no written notice
of any such violation has been threatened.
(b) OTHER ENVIRONMENTAL MATTERS. None of TrexCom (Asia), LNR, EMP and
Trex have caused or taken any action that resulted in, and none of them is,
subject to, any material liability or obligation relating to (i) the
environmental conditions on, under, or about any part of the premises utilized
by its business or other properties or assets owned, leased, operated or used by
TrexCom (Asia), LNR, EMP or Trex in its business, including the air, soil and
groundwater conditions at such properties, or (ii) the use, management,
handling, transport, treatment, generation, storage, disposal or Release of any
Hazardous Substances by TrexCom (Asia), LNR, EMP or Trex.
(c) NO HAZARDOUS SUBSTANCES. No Hazardous Substances have been treated,
stored or disposed of by TrexCom (Asia), LNR, EMP or Trex (or, to the knowledge
of TrexCom (Asia), LNR, EMP, Trex or Seller, any other Person) at, on, or under
any part of the premises utilized by it, except (i) in compliance with
Environmental Laws; and (ii) which does not require investigation or remediation
pursuant to Environmental Laws.
(d) NO PROCEEDINGS. Except as disclosed on SCHEDULE 4.18(D), none of
TrexCom (Asia), LNR, EMP, Trex and Seller has received written notice or other
written communication concerning any alleged liability for Environmental
Liabilities and Costs in connection with any part of the premises utilized by
its business, and, to TrexCom (Asia)'s, LNR's, EMP's, Trex's or Seller's
knowledge, there exists no writ, injunction, decree, order, judgment, lawsuit,
claim, proceeding, citation, directive, or summons, pending or threatened,
relating to any environmental matters with respect to any leased real property
of TrexCom (Asia), LNR, EMP or Trex.
Section 4.19. EMPLOYEES, LABOR MATTERS, ETC. None of TrexCom (Asia), LNR, EMP
and Trex is a party to or bound by any collective bargaining agreement and there
are no labor unions or other organizations representing, purporting to represent
or, to the knowledge of Seller, Trex, EMP and TrexCom (Asia), LNR, attempting to
represent any employees employed in the operation of the Business. Since January
1, 1993, there has not occurred or, to the knowledge of TrexCom (Asia), LNR,
EMP, Trex or Seller, been threatened any material strike, slowdown, picketing,
work stoppage, concerted refusal to work overtime or other similar labor
activity with respect to any employees employed in the operation of the
Business. Except as disclosed on SCHEDULE 4.19, there are no labor disputes
currently subject to any grievance procedure, arbitration or litigation
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and there is no representation petition pending or, to the knowledge of TrexCom
(Asia), LNR, EMP, Trex or Seller, threatened with respect to any employee
employed in the operation of the Business.
Section 4.20. EMPLOYEE BENEFIT PLANS AND RELATED MATTERS.
(a) SCHEDULE 4.20(A) lists each material pension, retirement,
profit-sharing, deferred compensation, bonus, phantom stock, restricted stock
plan, stock option plan, stock purchase plan, deferred compensation arrangement,
other incentive plan, severance pay plan or policy, supplemental executive
retirement plan or policy, or other employee benefit program, arrangement,
agreement or understanding, or medical, vision, dental or other health plan, or
life insurance or disability plan, or any other employee benefit plan, including
any "employee benefit plan" as defined in Section 3(3) of ERISA, to which any of
TrexCom (Asia), LNR, EMP or Trex contribute or is a party or is bound and under
which it may have liability and under which employees or former employees (or
their beneficiaries) are eligible to participate or derive a benefit ("EMPLOYEE
BENEFIT PLANS"). Seller has made available to MCK true, correct and complete
copies of all documents, summary plan descriptions, insurance contracts, third
party administration contracts and all other documentation created to embody all
Employee Benefit Plans, plus descriptions of any Employee Benefit Plans that
have not been reduced to writing.
(b) No material liability has been incurred by TrexCom (Asia), LNR,
EMP, or Trex under or pursuant to the Code or ERISA or the penalty, excise tax
or joint and several liability provisions of the Code or ERISA relating to
Employee Benefit Plans and, to the knowledge of Seller, Trex, TrexCom (Asia),
LNR or EMP, no event, transaction or condition has occurred or exists that could
reasonably be expected to result in any such material liability to the Business
or, following the Closing, MCK or any such Employee Benefit Plan.
(c) Except as disclosed on SCHEDULE 4.20(C), no Employee Benefit Plan
is a "multiple employer plan" within the meaning of Section 413(c) of the Code,
or a defined benefit plan within the meaning of Section 3(35) of ERISA.
(d) Each of the Employee Benefit Plans listed in SCHEDULE 4.20(A) is
and has at all times been in compliance in all material respects with all
applicable provisions of ERISA, the Code and other Applicable Law.
(e) Each "employee pension benefit plan" as defined in Section 3(2) of
ERISA (each a "PENSION PLAN") which is intended to meet the requirements of
Section 401(a) of the Code now meet, and since their inception have met, the
requirements for qualification under Section 401(a) of the Code and nothing has
occurred which would adversely affect the qualified status of any such Pension
Plan other than such occurrences as may be corrected without resulting in a
Material Adverse Effect. The IRS has issued a favorable determination letter
with respect to the requirements of the Tax Reform Act of 1986 with respect to
the qualification under the Code of each Pension Plan and, to the knowledge of
Seller, Trex, TrexCom (Asia), LNR and EMP, the IRS has not taken any written
action to revoke any such letter. Moreover, nothing has occurred since the date
of the most recent IRS favorable determination letter which would reasonably be
expected to cause the loss of such qualification or the imposition of any
material liability or penalty under the Code.
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(f) Each fiduciary and every plan official of each Employee Benefit
Plan is bonded to the extent required by Section 412 of ERISA. Those sections of
all annual reports heretofore filed with the IRS, the Department of Labor and
the Pension Benefit Guaranty Corporation by or on behalf of every Employee
Benefit Plan which were required to be certified were only certified without
qualification by the accountants or actuaries of such Employee Benefit Plan.
(g) Except as specifically set forth in SCHEDULE 4.20(G), the execution
and performance of the transactions contemplated by this Agreement will not
(either alone or upon the occurrence of any additional or subsequent event)
constitute an event under any Employee Benefit Plan or individual agreement that
will or may result in any payment (whether of severance pay or otherwise),
acceleration, vesting or increase in material benefits with respect to any
employee, former employee, consultant, agent or director of Trex, TrexCom
(Asia), LNR or EMP. No payment which will be or may be made by Trex, TrexCom
(Asia), LNR or EMP to any employee, former employee, director, consultant or
agent thereof will or could be characterized as an "excess parachute payment"
within the meaning of Section 280G(b) (1) of the Code.
(h) Except as disclosed on SCHEDULE 4.20(H), at no time has Trex,
TrexCom (Asia), LNR or EMP or any ERISA Affiliate contributed to, been required
to contribute to, or incurred any withdrawal liability (within the meaning of
Section 4201 of ERISA) with respect to any Employee Benefit Plan which is a
multiemployer plan as defined in Section 3(37) of ERISA.
(i) Each "group health plan" (within the meaning of Section 4980B of
the Code) maintained by Trex, TrexCom (Asia), LNR or EMP or any ERISA Affiliate
has been administered in material compliance with the coverage continuation
requirements contained in the Consolidated Omnibus Budget Reconciliation Act of
1985 and as provided under Section 4980B of the Code and any regulations
promulgated or proposed under the Code.
(j) With respect to all Employee Benefit Plans which are funded, or are
required by Applicable Law to be funded, the present value of all accrued
benefits (vested and non vested) of each such Employee Benefit Plan as of the
Closing Date, will not exceed the fair market value of the assets of each such
Employee Benefit Plan as of the Closing Date.
(k) Trex, TrexCom (Asia), LNR, EMP and each ERISA Affiliate have made
all contributions required to be made to each Employee Benefit Plan under the
terms of the plan and Applicable Law. No prohibited transaction (as defined in
Section 4975 of the Code or Section 406 of ERISA) has occurred with respect to
any Employee Benefit Plan listed, which could subject any Employee Benefit Plan
or any related trust, Trex, TrexCom (Asia), LNR, EMP, any ERISA Affiliate, MCK
or any director or employee of any of them to any material tax or penalty
imposed under Section 4975 of the Code or Section 502(i) or 502(l) of ERISA,
either directly or indirectly, and whether by way of indemnity or otherwise.
(l) Trex, TrexCom (Asia), LNR and EMP do not maintain, sponsor or
contribute to any plan or program providing retiree medical or life insurance
benefits, except to the extent required by Applicable Law.
Section 4.21. BROKERS, FINDERS, ETC. All negotiations relating to this
Agreement, and the transactions contemplated hereby, have been carried on
without the participation of any Person acting on behalf of TrexCom (Asia), LNR,
EMP, Trex, Seller or any of their respective Affiliates in such manner as to
give rise to any valid claim against MCK or its Affiliates for any brokerage
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or finder's commission, fee or similar compensation, or for any bonus payable to
any officer, director, employee, agent or sales representative of or consultant
to TrexCom (Asia), LNR, EMP, Trex, Seller or any of their respective Affiliates
or any other Person upon consummation of the transactions contemplated hereby or
thereby, except for those retention and transaction bonuses described on
SCHEDULE 4.21 (it being understood and agreed that Seller (and not MCK) will
have the responsibility of making the payment of all such bonuses).
Section 4.22. SUPPLIERS AND CUSTOMERS. SCHEDULE 4.22 attached hereto sets forth
the 10 largest suppliers, all sole source suppliers and the 10 largest customers
of LNR and EMP, in each case for the period January 1, 1998 through the date
hereof. During the period January 1, 1998 through the date hereof, none of such
10 largest suppliers, sole source suppliers or 10 largest customers has canceled
or materially and adversely modified its agreement or commitment with LNR or EMP
to supply or purchase products or services (or threatened in writing to do any
of the foregoing). To TrexCom (Asia)'s, LNR's, EMP's, Trex's or Seller's
knowledge, the relationship of Trex, TrexCom (Asia), LNR and EMP with each of
their respective suppliers and each of their respective customers is a good
commercial working relationship. None of Trex, TrexCom (Asia), LNR, EMP and
Seller has received written notice that any such supplier or customer intends to
cancel or otherwise materially and adversely modify its relationship with it or
limit materially its services, supplies or materials to it, or its usage or
purchase of the services and products of its business either as a result of the
transactions contemplated hereby or otherwise.
Section 4.23. ORDER BACKLOG. A true and complete list of (a) all firm product
and service purchase orders and contracts for the sale of goods or the delivery
of services by Trex, TrexCom (Asia), LNR or EMP in connection to Persons other
than Governmental Authorities, and (b) all firm funded product and service
purchase orders and contracts for the sale of goods or the delivery of services
by Trex, TrexCom (Asia), LNR or EMP to Governmental Authorities (collectively,
the "BACKLOG") pending as of the latest practical date prior to the date of this
Agreement is set forth in SCHEDULE 4.23.
Section 4.24. SUBSIDIARIES.
(a) Except as set forth on SCHEDULE 4.24A, Trex does not own, directly
or indirectly, beneficially or of record, or have any obligation to redeem,
purchase or otherwise acquire, any capital stock or other securities of any
Person other than Trex's ownership of the capital stock of TrexCom (Asia), LNR
and EMP. LNR, EMP and TrexCom (Asia) do not own, directly or indirectly,
beneficially or of record, or have any obligation to acquire, any capital stock
or other securities of any Person.
(b) Prior to the date hereof, (i) Trex distributed to Seller all the
issued and outstanding shares of capital stock of CCS held by Trex, (ii) no
other Person at the time of such distribution held any shares of capital stock
of CCS, (iii) Seller sold the CCS Business by way of a sale of all of the issued
and outstanding shares of capital stock of CCS held by Trex prior to the date
hereof, (iv) Seller has purchased all of the issued and outstanding shares of
capital stock of Trex not previously owned by Seller from the other holders of
such issued and outstanding shares, and (v) Seller, Trex, TrexCom (Asia), LNR
and EMP have taken the actions described on SCHEDULE 4.24A(A) in an effort to
satisfy all the obligations owing to certain former stockholders of LNR pursuant
to the LNR Acquisition Agreement.
Section 4.24A. OWNERSHIP OF TREX, TREXCOM (ASIA), LNR AND EMP.
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(a) Except as set forth on SCHEDULE 4.24A, Seller owns of record and
beneficially all of the issued and outstanding shares of capital stock of Trex
free and clear of Liens except for restrictions on the subsequent transfer of
such Shares by MCK imposed under applicable securities laws. The authorized
capital stock of Trex is set forth on SCHEDULE 4.24A. No other class or series
of capital stock of Trex is authorized, and, except as set forth on SCHEDULE
4.24A, no other securities (including, without limitation, options, warrants,
conversion privileges or other rights, contingent or otherwise, to redeem,
purchase or otherwise acquire (or to require the redemption, purchase or other
acquisition of) any capital stock or other securities of Trex) are authorized,
issued or outstanding. All of the issued and outstanding shares of capital stock
of Trex are duly authorized, validly issued, fully paid and nonassessable. All
of the issued and outstanding shares of capital stock of Trex were issued in
compliance with all Applicable Laws (including applicable securities laws, if
any) and in compliance with Trex's Certificate of Incorporation and Bylaws.
(b) Trex owns of record and beneficially all of the issued and
outstanding shares of capital stock of each of TrexCom (Asia), LNR and EMP free
and clear of Liens except for restrictions on the subsequent transfer of such
Shares by MCK imposed under applicable securities laws. The authorized capital
stock of TrexCom (Asia), LNR and EMP is set forth on SCHEDULE 4.24A. No other
class or series of capital stock of TrexCom (Asia), LNR or EMP is authorized
and, except as set forth on SCHEDULE 4.24A, no other securities (including,
without limitation, options, warrants, conversion privileges or other rights,
contingent or otherwise, to redeem, purchase or otherwise acquire (or to require
the redemption, purchase or other acquisition of) any capital stock or other
securities of TrexCom (Asia), LNR or EMP) are authorized, issued or outstanding.
All of the issued and outstanding shares of capital stock of each of TrexCom
(Asia), LNR and EMP are duly authorized, validly issued, fully paid and
nonassessable. All of the outstanding shares of capital stock of each of TrexCom
(Asia), LNR and EMP were issued in compliance with all Applicable Laws
(including applicable securities laws, if any) and in compliance with their
respective Certificates of Incorporation and Bylaws (or equivalent documents).
Section 4.25. DISCLOSURE. No representation or warranty of Seller in this
Agreement contains any untrue statement of a material fact or omits any
statement of a material fact necessary in order to make the statements contained
herein, in light of the circumstances in which they were made, not misleading.
Section 4.26. YEAR 2000. Each of the material computer-based systems of each of
Trex, TrexCom (Asia), LNR and EMP, including its material information data
bases, accounting systems and data processing systems, as well as all other
computer software or hardware owned, used or sold by Trex, TrexCom (Asia), LNR
or EMP, (a) records, stores, processes, calculates, presents and, where
appropriate, inserts correctly entered and formatted time and accurate dates and
calculations for calendar dates falling on or after (and if applicable, spans of
time including) January 1, 2000, and records, stores, processes, calculates and
presents correctly entered and formatted information or data dependent on or
relating to such dates with the same functionality, data integrity and
performance, as such item records, stores, processes, calculates and presents
calendar dates on or before December 31, 1999, and in such fashion as to respond
to two-digit date input in a way that eliminates all ambiguities as to the
century of concern, and treats the year 2000 as a leap-year and correctly and
accurately records and processes data and information with respect thereto; and
(b) loses no functionality with respect to the introduction of records,
including back-up and archived information or data, containing dates falling on
or after January 1,
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2000. Each of Trex, TrexCom (Asia), LNR and EMP has made inquiries of each of
its material suppliers regarding the Year 2000 readiness of all computer-based
systems, software and hardware supplied to it by such supplier, and has not
received any notice that such systems, software and hardware will not meet the
requirements of the foregoing clauses (a) and (b). The information set forth on
SCHEDULE 4.26 fairly and accurately represents the status of Trex's, TrexCom
(Asia)'s, LNR's and EMP's Year 2000 compliance program.
Section 4.27. NO RETENTION AGREEMENTS, ETC. Except as set forth on SCHEDULE
4.27, there are no retention agreements, severance agreements, change of control
agreements and similar arrangements to which Trex, TrexCom (Asia), LNR or EMP,
on the one hand, and any employee, consultant or other Person, on the other
hand, are a party.
Section 4.28. REAL PROPERTY HOLDING COMPANY. None of TrexCom (Asia), LNR, EMP,
Trex and Seller is a real property holding company within the meaning of Section
897 of the Code.
Section 4.29. GOVERNMENT CONTRACTS.
(a) Except as set forth in SCHEDULE 4.29(A): (i) each of Trex, TrexCom
(Asia), LNR or EMP has fully complied with all material terms and conditions of
each Government Contract and Government Bid to which Trex, TrexCom (Asia), LNR
or EMP is a party as required; (ii) each of Trex, TrexCom (Asia), LNR or EMP has
complied with all material requirements of any statute, rule or regulation
pertaining to such Government Contract or for Government Bid; (iii) all
representations and certifications made by Trex, EMP or TrexCom (Asia), LNR with
respect to such Government Contract or Government Bid were accurate in every
material respect as of their effective date and Trex, TrexCom (Asia), LNR or EMP
has fully complied with all such representations and certifications in all
material respects; and (iv) no termination or default, cure notice or show cause
notice has been issued and remains unresolved.
(b) Except as set forth on SCHEDULE 4.29(B): (i) to the knowledge of
Seller, Trex, TrexCom (Asia), LNR and EMP, none of Trex, TrexCom (Asia), LNR and
EMP employees, consultants or agents is (or during the last five years has been)
under administrative, civil or criminal investigation or indictment by any
Governmental Authority with respect to the conduct of the Business; (ii) to the
knowledge of Seller, Trex, TrexCom (Asia), LNR and EMP, there is no pending
audit or investigation of Trex, TrexCom (Asia), LNR or EMP or any of their
respective officers, employees or representatives nor within the last five years
has there been any audit or investigation of Trex, TrexCom (Asia), LNR or EMP or
any of their respective officers, employees or representatives resulting in a
material adverse finding with respect to any material alleged irregularity,
misstatement or omission arising under or relating to any Government Contract or
Government Bid with respect to the Business; and (iii) during the last five
years, Trex, TrexCom (Asia), LNR and EMP have not made any voluntary disclosure
in writing to the U.S. Government or any non-U.S. government with respect to any
alleged irregularity, misstatement or omission arising under or relating to a
Government Contract or Government Bid with respect to the Business. Except as
set forth in SCHEDULE 4.29(B), Trex, TrexCom (Asia), LNR and EMP have not had
any such irregularities, misstatements or omissions arising under or relating to
any such Government Contract or Government Bid that has led to any of the
consequences set forth in clause (i) or (ii) of the immediately preceding
sentence or any other material damage, penalty assessment, recoupment of payment
or disallowance of cost.
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(c) Except as set forth in SCHEDULE 4.29(C), there are (i) no
outstanding written claims against Trex, TrexCom (Asia), LNR or EMP, either by
the U.S. Government or any non-U.S. Government or by any prime contractor,
subcontractor, vendor or other third party arising under or relating to any
Government Contract or Government Bid referred to in SCHEDULE 4.29(A), and (ii)
no written disputes between Trex, TrexCom (Asia), LNR or EMP, on the one hand,
and the U.S. Government or any non-U.S. Government, on the other hand, under the
Contract Disputes Act or any other Federal statute or between Trex, TrexCom
(Asia), LNR or EMP, on the one hand, and any prime contractor, subcontractor or
vendor, on the other hand, arising under or relating to any such Government
Contract or Government Bid.
(d) Except as set forth in SCHEDULE 4.29(D), none of Trex, TrexCom
(Asia), LNR and EMP, nor to the knowledge of Trex, Seller, TrexCom (Asia), LNR
and EMP, any of their respective employees, consultants or agents is (or during
the last five years has been) suspended or debarred from doing business with the
U.S. Government or any non-U.S. government or is (or during such period was) the
subject of a finding of non-responsibility or ineligibility for U.S. Government
or non-U.S. government contracting. Except as set forth in SCHEDULE 4.29(D), to
the knowledge of Trex, TrexCom (Asia), LNR, EMP and Seller, each of Trex,
TrexCom (Asia), LNR and EMP conducted its operations in all material respects in
compliance with all requirements of all laws pertaining to all Government
Contracts and Government Bids.
(e) Except as set forth in SCHEDULE 4.29(E), no statement,
representation or warranty made by Trex, TrexCom (Asia), LNR or EMP in any
Government Contract, any Government Bid or any exhibit thereto or in any
certificate, statement, list, schedule or other document submitted or furnished
to the U.S. Government or any non-U.S. government in connection with any
Government Contract or Government Bid contained on the date so furnished or
submitted (or on any other date where such statement, representation or warranty
is deemed made or brought down as of a subsequent date either under Applicable
Law or pursuant to the applicable Government Contract or Government Bid or any
exhibit thereto or in any written certificate, statement, list, schedule or
other document submitted or furnished to the U.S. Government or any non-U.S.
Government in connection with such Government Contract or Government Bid) any
untrue statement of material fact, or failed to state a material fact necessary
to make the statements contained therein, in light of the circumstances in which
they are made, not misleading, except for any untrue statement or failure to
state a material fact that would not result in any material liability to Trex,
TrexCom (Asia), LNR or EMP as a result of such untrue statement or failure to
state a material fact.
(f) SCHEDULE 4.29(F) lists all Government Bids submitted by Trex,
TrexCom (Asia), LNR and EMP and outstanding as of the date of this Agreement.
(g) Except as set forth on SCHEDULE 4.29(G), the rates and rate
schedules submitted to the U.S. Government with respect to Government Contracts
included in the Business have been closed for all years prior to 1996.
Section 4.30. GOVERNMENT FURNISHED EQUIPMENT. SCHEDULE 4.30 incorporates the
most recent schedule delivered to the U.S. Government or any non-U.S. government
which identifies by description or by inventory number certain equipment and
fixtures loaned, bailed or otherwise furnished to or held by Trex, TrexCom
(Asia), LNR or EMP by or on behalf of the United States or any foreign country.
Such schedule was accurate and complete in all material respects on its date
and, if dated on the Closing Date, would contain only those additions and omit
only those
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deletions of equipment and fixtures that have occurred in the ordinary course of
business consistent with past practice.
Section 4.31. ORGANIZATIONAL CONFLICTS OF INTEREST. Except as set forth on
SCHEDULE 4.31, Seller, Trex, TrexCom (Asia), LNR and EMP, in the past six years,
have not, to the knowledge of Seller, Trex, TrexCom (Asia), LNR and EMP, had
access to non-public information nor provided systems engineering, technical
direction, consultation, technical evaluation, source selection services or
services of any type, nor prepared specifications or statements of work, nor
engaged in any other conduct that would create in any current Government
procurement an Organizational Conflict of Interest, as defined in Federal
Acquisition Regulation 9.501, with Trex, TrexCom (Asia), LNR or EMP.
Section 4.32. AFFILIATED GROUP LIABILITY. Except as set forth on SCHEDULE 4.32 ,
Trex, TrexCom (Asia), LNR and EMP (and any predecessor of the foregoing Persons)
(a) have not been a member of an affiliated group filing a consolidated income
Tax return; and (b) have no liability for the Taxes of any person under Treasury
Regulations section 1.1502-6(a) (or any analogous or similar provision of any
state, local or foreign law or regulation), as a transferee or successor, by
contract, or otherwise.
Section 4.33. POWER OF ATTORNEY/BANK ACCOUNTS. SCHEDULE 4.33 sets forth the
names and locations of (a) each Person holding a power of attorney on behalf of
Trex, TrexCom (Asia), LNR or EMP with respect to the Business, and (b) all
banks, trust companies, brokerage firms or other financial institutions at which
TrexCom (Asia), LNR, EMP or Trex with respect to the Business maintains an
account or safe-deposit box and the name of each Person authorized to draw
thereon or make withdrawals therefrom.
Section 4.34. TAX RETURNS. Seller has made available to MCK, in respect of LNR
and EMP, copies of (a) IRS Form 1120 (1998), (b) New York Form CT-3 (1998) and
(c) New York Form CT-3M (1998), which forms, to the knowledge of Seller, Trex,
TrexCom (Asia), LNR and EMP, fairly present in all material respects the
information set forth therein.
Section 4.35. TREX BUSINESS. Trex and TrexCom (Asia) do not conduct any business
other than the Business.
Section 4.36. ACQUISITIONS. Except as set forth in SCHEDULE 4.36, there are no
outstanding obligations of any kind on the part of TrexCom (Asia), LNR, EMP or
Trex existing or continuing on the date hereof or arising after the date hereof
relating to, under, or pursuant to any of the following with respect to the
acquisition of Trex, LNR, EMP or TrexCom (Asia): (a) the LNR Acquisition
Agreement; (b) the Agreement and Plan of Merger, dated May 28, 1998, by and
among Trex, EMP Acquisition Corp., EMP and certain individuals (the "EMP
Acquisition Agreement"); and (c) any agreement or instrument entered into
connection with the LNR Acquisition Agreement or the EMP Acquisition Agreement.
Section 4.37. $6,926,855 PROMISSORY NOTE. The $6,926,855 loan from Seller to
Trex evidenced by that certain Promissory Note dated November 30, 1998 has been
repaid in full or cancelled and such Promissory Note (including any amendment or
modification thereof, or supplement thereto) is of no force and effect.
ARTICLE V
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REPRESENTATIONS AND WARRANTIES OF MCK
MCK represents and warrants to Seller as of the date hereof as follows:
Section 5.1. ORGANIZATIONAL STATUS. MCK is a statutory trust duly organized and
validly existing under the laws of the State of Connecticut.
Section 5.2. AUTHORIZATION, ETC. MCK has the power and authority to execute and
deliver this Agreement, to perform fully its obligations hereunder, and to
consummate the transactions contemplated hereby. The execution and delivery by
MCK of this Agreement, and the consummation of the transactions contemplated
hereby, have been duly authorized by all requisite action of MCK. MCK has duly
executed and delivered this Agreement. This Agreement is a legal, valid and
binding obligation of MCK, enforceable against it in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally
and by equitable principles, including without limitation those limiting the
availability of specific performance, injunctive relief and other equitable
remedies and those providing for equitable defenses.
Section 5.3. NO CONFLICTS, ETC. The execution, delivery and performance by MCK
of this Agreement, and the consummation of the transactions contemplated hereby,
do not and will not conflict with or result in a violation of or under (with or
without the giving of notice or the lapse of time or both) (a) the trust
instruments of MCK, (b) any Applicable Law applicable to MCK or any of its
properties or assets, or (c) any contract, agreement or other instrument
applicable to MCK or any of its properties or assets, except, in the case of
clause (c), for violations and defaults that, individually and in the aggregate,
have not materially impaired and shall not materially impair the ability of MCK
to perform its obligations under this Agreement. Other than as set forth on
SCHEDULE 5.3, no Governmental Approval or other Consent is required to be
obtained or made by MCK in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
Section 5.4. LITIGATION. There is no action, claim, suit or proceeding pending,
or to MCK's knowledge threatened, by or against or affecting MCK in connection
with or relating to the transactions contemplated by this Agreement or of any
action taken or to be taken in connection herewith or the consummation of the
transactions contemplated hereby.
Section 5.5. BROKERS, FINDERS, ETC. All negotiations relating to this Agreement
and the transactions contemplated hereby have been carried on without the
participation of any Person acting on behalf of MCK in such manner as to give
rise to any valid claim against Seller or any Affiliate or former Affiliate for
any brokerage or finder's commission, fee or similar compensation. MCK hereby
represents, warrants and agrees that any fees, commissions and other
compensation due to its Affiliates in connection with the transactions
contemplated by this Agreement have been, or will be, fully paid by MCK.
Section 5.6. ADEQUATE FUNDS. MCK has all funds necessary to enable it to perform
this Agreement in accordance with its terms. Immediately after giving effect to
the transactions contemplated by this Agreement and the closing of any financing
to be obtained by MCK or its Affiliates in order to effect the transactions
contemplated by this Agreement, MCK and each Affiliate shall be able to pay its
respective debts as they become due and shall own property
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having a fair saleable value greater than the amounts required to pay its
respective debts (including a reasonable estimate of the amount of all
contingent liabilities). Immediately after giving effect to the transactions
contemplated by this Agreement and the closing of any financing to be obtained
by MCK or its Affiliates in order to effect the transactions contemplated by
this Agreement, MCK and each Affiliate shall have adequate capital to carry on
its respective businesses. No transfer of property is being made and no
obligation is being incurred in connection with the transactions contemplated by
this Agreement and the closing of any financing to be obtained by MCK or its
Affiliates in order to effect the transactions contemplated by this Agreement
with the intent to hinder, delay or defraud either present or future creditors
of MCK or its Affiliates.
Section 5.7. INVESTMENT INTENT. The Shares are being acquired with MCK's own
funds for investment purposes and for MCK's own account, not as a nominee or
agent, and not with a view to the sale or distribution of any part thereof.
Section 5.8. RESTRICTED SECURITIES. MCK understands that the Shares are
restricted securities under the Securities Act of 1933, as amended (the "Act"),
and may not be resold or transferred unless those securities are registered
under the Federal securities laws or unless an exemption from such registration
is available. In addition, MCK understands that any resale or transfer of the
Shares must comply with applicable state securities laws.
Section 5.9. INVESTMENT EXPERIENCE. MCK is an "accredited investor" as defined
in Section 401 of Regulation D under the Securities Act of 1933, as amended, and
has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment.
Section 5.10. HSR ACT. For purposes of the HSR, MCK is not controlled by any
other entity (as such term is defined in 16 C.F.R. Sections 801.1(b) and
801.1(a)(2)) and is therefore its own ultimate parent entity (as such term is
defined in 16 C.F.R. Section 801.1(a)(3)). MCK did not have, and will not on the
Closing Date have, total assets of $10,000,000 or more on its most recent
regularly prepared balance sheet, nor annual net sales in its most recent fiscal
year of $10,000,000 or more (as such terms are defined in 16 C.F.R. Section
801.11).
Section 5.11. NO KNOWLEDGE OF MISREPRESENTATION OR OMISSION. Neither MCK's
representatives listed on SCHEDULE 5.11 nor any person listed as a
representative of any Qualified Purchaser in a schedule to a provision
comparable to this provision in a purchase agreement with a Qualified Purchaser
has actual knowledge that any of the representations and warranties of Seller
contained in this Agreement that is qualified as to materiality are not true and
correct and any of such representations and warranties that is not so qualified
is not true and correct in any material respect. Notwithstanding anything in
this Agreement to the contrary, nothing in this SECTION 5.11 shall preclude MCK
from seeking indemnification, damages or other remedies from Seller for breach
of any representation or warranty of Seller herein.
Section 5.12. DISCLOSURE. No representation or warranty of MCK in this Agreement
contains any untrue statement of a material fact or omits any statement of a
material fact necessary in order to make the statements contained herein, in
light of the circumstances in which they were made, not misleading.
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ARTICLE VI
COVENANTS
Section 6.1. COVENANTS OF SELLER.
(a) PUBLIC ANNOUNCEMENTS. Notwithstanding anything herein to the
contrary, Seller may make any public announcement regarding this Agreement and
the transactions contemplated hereby in order that it not violate any Applicable
Law or the rules of any stock exchange, after providing notice and the
opportunity to comment on such disclosure to MCK. This covenant shall survive
the Closing for a period of one year.
(b) [INTENTIONALLY DELETED]
(c) ACCESS AND INFORMATION. Subject to compliance with Applicable Laws
regarding classified information and security clearance, for the six-year period
from and after the Closing, Seller shall (and shall cause its accountants,
counsel, consultants, employees and agents to) give MCK and its accountants,
counsel, consultants, employees and agents, reasonable access during normal
business hours, with reasonable prior notice and in a manner not unduly
interfering with the Business, and furnish them with all legally non-privileged
documents, records, correspondence, computer data, work papers and other
information with respect to, the properties, assets, books, Contracts,
commitments, reports and Books and Records relating to the Business
(collectively, the "INFORMATION"), as MCK shall from time to time reasonably
request. In addition, subject to compliance with Applicable Laws regarding
classified information and security clearance, Seller shall permit MCK and its
accountants, counsel, consultants, employees and agents, reasonable access to
such personnel during normal business hours, with reasonable prior notice and in
a manner not unduly interfering with the Business, as may be necessary to MCK in
its review of the properties, assets and business affairs of the Business and
the above-mentioned documents, records and information. Except as otherwise
required by Applicable Law or agreed to in writing by the parties, Seller shall
(and shall cause its Affiliates to) use reasonable efforts to preserve all the
material Information in its possession until December 31, 2005. Notwithstanding
the foregoing, in lieu of retaining any specific Information, Seller may offer
in writing to MCK to deliver such specific information to MCK and, if such offer
is not accepted within 90 days, the offered Information may be disposed of at
any time after the expiration of such 90-day period.
(d) [INTENTIONALLY DELETED]
(e) [INTENTIONALLY DELETED]
(f) FURTHER ASSURANCES. Following the Closing, Seller shall (and shall
cause its Affiliates to), from time to time, execute and deliver such additional
instruments, documents, conveyances or assurances and take such other actions as
shall be necessary, or otherwise reasonably requested by MCK, to confirm and
assure the rights and obligations provided for in this Agreement and render
effective the consummation of the transactions contemplated hereby. MCK will
reimburse Seller for Seller's and any such Affiliate's reasonable, direct
out-of-pocket expenses incurred by any of such Persons and paid to any
unaffiliated third party in connection with the foregoing.
(g) DEALINGS WITH AFFILIATES. SCHEDULE 6.1(G) contains a true, complete
and correct list of all contracts, arrangements and other agreements (whether
written or oral) relating to the Business
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to which Trex, TrexCom (Asia), LNR or EMP, on the one hand, and any of Seller,
Thermo Electron Corporation or any of their respective Affiliates, on the other
hand, are parties (the "INTERCOMPANY AGREEMENTS"). As of the Closing Date, all
Intercompany Agreements shall be terminated and of no force and effect pursuant
to the Termination Agreement, and there shall be no unsatisfied obligations
thereunder. Notwithstanding anything else in this SECTION 6.1(G), Seller shall
not be required to terminate the either (i) Laser Technology License, or (ii)
the Covenant of Performance, each of which shall continue post-Closing in
accordance with their respective terms.
(h) [INTENTIONALLY DELETED]
(i) [INTENTIONALLY DELETED]
(j) POST-CLOSING CONFIDENTIALITY. From and after the Closing, Seller
will, and will cause its Subsidiaries to, hold in strict confidence, and will
not use to the detriment of MCK or any of its Subsidiaries, all information with
respect to the Business. Without limiting the generality of the foregoing,
Seller agrees, covenants and acknowledges that, from and after the Closing Date,
Seller will not, and will cause its Subsidiaries not to, disclose, give, sell,
use, or otherwise divulge any confidential or secret information (including but
not limited to any technology, process, trade secrets, know-how, other
intellectual property rights, strategies, financial statements or other
financial information not otherwise publicly available, forecasts, operations,
business plans, prices, discounts, products, product specifications, designs,
plans, data or ideas). Seller will not distribute any information with respect
to the Business (including any confidential or secret information referred to in
the next preceding sentence) to any of its Affiliates unless such Affiliate
agrees in writing to be bound by the provisions of this SECTION 6.1(J).
Notwithstanding the foregoing, Seller may disclose and use such information (i)
if compelled to disclose the same by judicial or administrative process or by
other requirements of Applicable Law (but subject to the following provisions of
this SECTION 6.1(J)) or such disclosure is necessary so that Seller not commit a
violation of the rules of any securities exchange or is necessary or appropriate
in connection with any legal proceeding, (ii) if the same currently is, or
hereafter is, in the public domain through no fault of Seller or any such
Subsidiaries, (iii) if the same is later acquired by Seller or any such
Subsidiaries from another source and Seller or any such Subsidiaries is not
aware that such source is under an obligation to another Person to keep such
information confidential, or (iv) if the same is independently developed by
Seller or any such Subsidiaries without reference thereto or reliance thereon.
If Seller or any of its Subsidiaries (the "DISCLOSING PARTY") is requested or
required (by oral questions, interrogatories, requests for information or
documents in legal proceedings, subpoena, civil investigative demand or other
similar process) to disclose any such information, the Disclosing Party shall
(unless expressly prohibited by Applicable Law) provide MCK with prompt written
notice of any such request or requirement so that MCK may seek, at its expense,
a protective order or other appropriate remedy and/or waive compliance with the
provisions of this Section. If, in the absence of a protective order or other
remedy or the receipt of a waiver by MCK, the Disclosing Party nonetheless is
required to disclose such information to any tribunal, the Disclosing Party,
without liability hereunder, may disclose that portion of such information that
it is legally required to disclose.
(k) PAYMENTS. Seller promptly shall (and shall cause its Affiliates
promptly to) deliver to Trex, TrexCom (Asia), LNR or EMP any cash, checks or
other instruments of payment to which Trex, TrexCom (Asia), LNR or EMP is
entitled and shall (and shall cause its Affiliates to) hold the same in trust
for Trex, TrexCom (Asia), LNR or EMP until such delivery.
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(l) GOVERNMENT CONTRACTS RATES. Subject to the terms of the Covenant of
Performance, if, after the Closing Date, as a result of any claims, liabilities
or obligations affecting the rates or rate schedules submitted to the U.S.
Government with respect to the Government Contracts included in the Business,
for any period on or prior to the Closing Date, MCK receives or is entitled to
receive additional monies from the U.S. Government in excess of those amounts
included in the proposed final contract close-out billing rates for the
Business, as the same may be amended, in respect of such Government Contracts,
then MCK shall take all commercially reasonable actions necessary to obtain such
additional monies for Seller (and Seller will reimburse MCK for any reasonable,
direct, out-of-pocket expenses, including reasonable attorney's fees incurred by
MCK in connection with the taking of such actions) and shall promptly transfer
such additional monies that are actually received by MCK, but solely to the
extent such additional monies relate to periods prior to or on the Closing Date.
(m) INSURANCE. Seller shall (and shall cause its Affiliates to)
reasonably cooperate with Trex, EMP, TrexCom (Asia), LNR and the Business (and
Trex, EMP or TrexCom (Asia), LNR, as the case may be, will reimburse Seller or
its Affiliates for any reasonable, direct, out-of-pocket expenses incurred by
any of them and paid to any unaffiliated third party in connection with such
cooperation) in order to afford Trex, TrexCom (Asia), EMP, LNR and the Business
the full benefit of all insurance policies and all rights thereunder (including
rights to causes of action, lawsuits, claims and demands, rights of recovery and
set-off) covering the Business and the assets of the Business, and proceeds
under or with respect to such insurance policies, for periods prior to the
Closing to the extent claims thereunder relate to any of the assets or
liabilities of the Business.
(n) NAMES AND LOGOS. After the Closing, Seller will not use (and will
cause each of its Affiliates not to use) the Name "EMP", the Name "LNR", the
Name "TrexCom (Asia)", or the Name "Trex Communications" or the Name "TrexCom",
or any similar Name or any Logo incorporating such Name or any similar Name in
any manner, including in connection with the sale of any products or services or
otherwise in the conduct of its business; PROVIDED, HOWEVER, that, nothing
herein shall prohibit Seller or any of its Affiliates from (a) except as set
forth in the next succeeding paragraph, using the Name "Trex" or any similar
Name or Logo (other than the Name "TrexCom" or the Name "Trex Communications" or
any similar Name or Logo, but not in combination with the Name "TrexCom (Asia)",
the Name "LNR" or the Name "EMP", or any similar Name or Logo), or (b) except as
set forth in the next succeeding paragraph, describing their former affiliation
with Trex, TrexCom (Asia), LNR, EMP and the Business.
After the Closing, Seller will not (and will cause its Affiliates not
to) (i) use the Name "Trex" or any Logo containing the Name "Trex", or any
similar Name or Logo, in connection with any business that is in competition
with the Business (as such phrase is used in Section 4 of the Non-Competition
Agreement), or (ii) refer in any way to the prior ownership of the Business by
Seller, TrexCom (Asia), LNR or EMP, or to any of the products and services of
the Business developed, manufactured, marketed, provided, rendered, sold, leased
or produced on or prior to the date hereof, for the purpose of promoting,
advertising, soliciting orders for, marketing, or attempting to sell, any
product or service of Seller or any of its Affiliates' businesses that is in
competition with the Business.
(o) [INTENTIONALLY DELETED].
(p) TAX RETURNS. Seller shall prepare at its own cost and expense any
and all state, federal and local income, payroll and other Tax returns for all
periods ending through and including the
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Closing Date which Trex, TrexCom (Asia), LNR or EMP is obligated to file. Seller
shall pay all Taxes and associated penalties and interest (including without
limitation, all income and payroll Taxes) pertaining to Trex, TrexCom (Asia),
LNR or EMP for any period ending through and including the Closing Date and all
Taxes accrued or accruable through such date to the extent such Taxes relate to
any period ending through and including the Closing Date ("PRE-CLOSING TAXES")
except to the extent of any reserves for Tax liabilities set forth in the Final
Statement of Net Book Value, and MCK shall pay any Tax liability to the extent
of such reserves; PROVIDED, HOWEVER, that Pre-Closing Taxes shall not include
Taxes attributable to transactions on the Closing Date but after the Closing.
(q) GOVERNMENT AUDIT ASSISTANCE. Seller and its Affiliates shall
furnish MCK with such assistance as may be reasonably requested by MCK in
Government Contract audits and Tax audits.
(r) SUBSEQUENT SALE OF THE BUSINESS BY MCK. If, after the Closing, MCK
desires to sell the Business (by merger or stock sale or by transfer of all or
substantially all of the assets of the Business, or other transfer) to a
Qualified Purchaser and such Qualified Purchaser executes an Assignment and
Assumption Agreement in the form attached hereto as EXHIBIT D (the "BUYER'S
ASSIGNMENT AND ASSUMPTION AGREEMENT"), then Seller will execute an Assignment
and Assumption Agreement in the form attached hereto as EXHIBIT E (the "SELLER'S
ASSIGNMENT AND ASSUMPTION AGREEMENT") and thereafter act pursuant to its terms;
PROVIDED, HOWEVER, that (i) MCK agrees not to amend, modify or waive any
provision under such Buyer's Assignment and Assumption Agreement or the
underlying purchase agreement without the prior written consent of Seller (which
consent shall not be unreasonably withheld, conditioned or delayed), (ii) MCK
agrees to promptly furnish to Seller any notices or other communications made or
received by MCK under such Buyer's Assignment and Assumption Agreement and (iii)
MCK agrees not to assign its rights or obligations under such Buyer's Assignment
and Assumption Agreement without the prior written consent of Seller.
(s) AUDIT ASSISTANCE. Seller shall accord MCK and its independent
auditors reasonable assistance and access, during normal business hours and with
reasonable prior notice, to any books and records of the Business retained by
Seller to enable MCK to prepare the following: (i) audited historical financial
statements for the Business for the fiscal year ending December 31, 1999,
including unaudited quarterly income statements, and (ii) unaudited historical
financial statements for the Business for any interim period after December 31,
1999 but before the Closing Date as required, in accordance with the rules and
regulations of the U.S. Securities and Exchange Commission ("SEC"), (A) for
purposes of MCK's preparation of its SEC filings or any other filings which must
or may be undertaken by MCK in connection with the consummation of transactions
contemplated herein or subsequent financing transactions related thereto, (B)
for any other reasonable purpose stipulated by MCK; PROVIDED, HOWEVER, that
Seller, in the case of clause (B) only, shall not be required pursuant to this
Agreement to provide MCK with any such reasonable assistance and access in
connection with a dispute between the parties. Nothing in this Agreement
(including the foregoing proviso), however, is in any way intended to limit the
right of any party to (or to limit the scope of) any discovery to which such
party is entitled under Applicable Law (including applicable discovery rules).
(t) OBLIGATIONS TO CERTAIN FORMER STOCKHOLDERS. Seller, at its expense,
will administer on behalf of MCK further efforts, as determined by Seller in its
reasonable discretion, to satisfy the obligations owing to certain former
stockholders of LNR pursuant to the LNR Acquisition
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Agreement, which obligations shall be the sole responsibility of, and shall be
solely satisfied by, Seller.
(u) CERTAIN PERMITTED LIENS. Seller and its Affiliates will not suffer
or permit any of the material assets of the Business to be foreclosed upon as a
result of any those Permitted Liens specified in clauses (ii) or (iii) of the
definition thereof in connection with any Taxes for which the Seller is liable
or responsible under this Agreement.
Section 6.2. COVENANTS OF MCK.
(a) PUBLIC ANNOUNCEMENTS. Notwithstanding anything herein to the
contrary, MCK may make any public announcement regarding this Agreement and the
transactions contemplated hereby in order that it not violate any Applicable Law
or the rules of any stock exchange, after providing notice and the opportunity
to comment on such disclosure to Seller. This covenant shall survive the Closing
for a period of one year.
(b) [INTENTIONALLY DELTED]
(c) FURTHER ASSURANCES. Following the Closing, MCK shall (and MCK shall
cause Trex, TrexCom (Asia), LNR and EMP to), from time to time, execute and
deliver such additional instruments, documents, conveyances or assurances and
take such other actions as shall be necessary, or otherwise reasonably requested
by Seller, to confirm and assure the rights and obligations provided for in this
Agreement and render effective the consummation of the transactions contemplated
hereby. Seller will reimburse MCK for MCK's and any such Affiliate's reasonable,
direct, out-of-pocket expenses in connection with the foregoing.
(d) ACCESS AND INFORMATION. Subject to compliance with Applicable Laws
regarding classified information and security clearance, for the six-year period
from and after the Closing, MCK shall (and shall cause its accountants, counsel,
consultants, employees and agents to) give Seller and its accountants, counsel,
consultants, employees and agents, reasonable access during normal business
hours (with reasonable prior notice and in a manner not unduly interfering with
the Business) and furnish them with all legally non-privileged documents,
records, correspondence, computer data, work papers and other information with
respect to the properties, assets, books, Contracts, commitments, reports and
Books and Records relating to the Business, but solely for periods prior to the
Closing (collectively, the "PRE-CLOSING INFORMATION"), as Seller shall from time
to time reasonably request solely in connection with the filing by Seller of its
Tax Returns or the preparation of financial statements and the Initial and Final
Closing Statements of Net Book Value. In addition, subject to compliance with
Applicable Laws regarding classified information and security clearance, MCK
shall permit Seller and its accountants, counsel, consultants, employees and
agents, reasonable access to such personnel during normal business hours, with
reasonable prior notice and in a manner not unduly interfering with the
Business, as may be necessary to Seller in its review of the Pre-Closing
Information. Except as otherwise required by Applicable Law or agreed to in
writing by the parties, MCK shall (and shall cause its subsidiaries to) use
reasonable efforts to preserve all material Pre-Closing Information in its
possession until December 31, 2005. Notwithstanding the foregoing, in lieu of
retaining any specific Pre-Closing Information, MCK may offer in writing to
Seller to deliver such specific Pre-Closing Information to Seller and, if such
offer is not accepted within 90 days, the offered Pre-Closing Information may be
disposed of at any time.
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(e) DIRECTOR AND OFFICER INDEMNIFICATION. From and after the Closing
Date, MCK shall not take any action to alter or impair any exculpatory or
indemnification provisions, now existing in the charter or bylaws of any of
Trex, TrexCom (Asia), LNR and EMP, for the benefit of any individual who served
as a director or officer of any of Trex, TrexCom (Asia), LNR and EMP at any time
prior to the Closing Date, except for any changes that may be required to
conform with changes in Applicable Law and any changes that do not affect the
application of such provisions to acts or omissions of such individuals prior to
the Closing Date.
(f) SUBSTITUTE LETTERS OF CREDIT AND BONDS. As soon as practicable
after the Closing, unless otherwise agreed to in writing by Seller, MCK shall
use commercially reasonable efforts to arrange for letters of credit or
performance or surety bonds in substitution for the letters of credit and bonds
listed in SCHEDULE 6.2(F) or assume the liabilities and obligations of Seller
and its Affiliates with respect thereto.
(g) SUBSEQUENT SALE OF THE BUSINESS. Unless otherwise agreed to in
writing by the Seller, MCK will not, after the Closing, sell the Business (by
merger, stock sale or by transfer of all or substantially all of the assets of
the Business, or other transfer) or permit any Person that is not currently MCK
to operate the Business in any manner unless both of the following conditions
are met:
(i) the proposed buyer or transferee of the Business or its
assets (the "Subsequent Owner") is a Qualified Purchaser; and
(ii) the Subsequent Owner executes the Buyer's Assignment and
Assumption Agreement.
(h) SALE OF INVENTORIES. MCK shall use its commercially reasonable
efforts to sell on or prior to the first anniversary of the date of this
Agreement the Inventories listed on SCHEDULE 4.13(B) without discounting the
sales prices thereof from the sales prices listed on SCHEDULE 4.13(B).
(i) GOVERNMENT AUDIT ASSISTANCE. MCK and its Affiliates shall furnish
Seller with such assistance as may be reasonably requested by Seller in
Government Contract audits and Tax audits.
Section 6.3. TAX MATTERS.
(a) The Seller shall cause Trex, TrexCom (Asia), LNR and EMP to be
included in the consolidated Federal Tax Returns that include the Seller for all
periods for which they are required to be so included, including but not limited
to the period from October 1, 1999 and through the Closing Date, and in any
other state, local and foreign consolidated, affiliated, combined, unitary or
other similar group Tax Returns that include the Seller, for all periods ended
on or prior to the time of the Closing ("Pre-Closing Periods") for which Trex,
TrexCom (Asia), LNR and EMP are required to be so included. The Seller shall be
liable for all Pre-Closing Taxes of Trex, TrexCom (Asia), LNR and EMP except to
the extent of any reserves for Tax liabilities set forth in the Final Statement
of Net Book Value, and MCK shall be liable for all post-Closing Taxes and all
Pre-Closing Taxes to the extent of any reserves for Tax liabilities set forth in
the Final Statement of Net Book Value. In the event that the party liable for a
Tax pursuant to the preceding sentence differs from the party responsible for
filing any associated Tax return or
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paying such Tax, such liable party shall promptly pay such other party the
amount of such Tax so that the responsible party may pay the Tax to the relevant
Tax authority. The Seller shall be entitled to all refunds of Pre-Closing Taxes
(including but not limited to interest with respect thereto) that either MCK,
Seller, Trex, TrexCom (Asia), LNR or EMP may receive, and MCK shall pay, or
cause Trex, TrexCom (Asia), LNR or EMP to pay, to the Seller any such refund
that MCK or Trex, TrexCom (Asia), LNR or EMP may receive promptly after receipt
thereof. MCK shall be entitled to all refunds of all other Taxes (including but
not limited to interest with respect thereto) that MCK, Seller, Trex, TrexCom
(Asia), LNR or EMP may receive, and the Seller shall pay to MCK any such refund
that Seller may receive promptly after receipt thereof; PROVIDED, HOWEVER, that
in no event shall MCK, Trex, TrexCom (Asia), LNR or EMP be entitled to any
refund of Pre-Closing Taxes as the result of any carryback or similar use of
losses or other items attributable to any period that is not a Pre-Closing
Period, and MCK shall make (or cause others to make) all necessary elections to
preclude such a carryback or similar use of losses and other items.
(b) Any Taxes with respect to Trex, TrexCom (Asia), LNR and EMP that
relate to a tax period beginning before the Closing Date and ending after the
Closing Date (an "Overlap Period") shall be allocated between the Seller and MCK
as determined from the books and records of Trex, TrexCom (Asia), LNR and EMP
during the portion of such period ending at the Closing and the portion of such
period beginning immediately following the Closing, and based on accounting
methods, elections and conventions then in effect and which are consistent with
past tax accounting practices and in accordance with the applicable Consolidated
Return Regulations. MCK shall cause Trex, TrexCom (Asia), LNR and EMP to file
all Tax Returns for all periods after the Closing Date and pay, or cause to be
paid, when due all Taxes shown as due on all such Tax Returns. The Seller shall
promptly reimburse MCK for all Pre-Closing Taxes paid by Trex, TrexCom (Asia),
LNR or EMP (or on behalf of Trex, TrexCom (Asia), LNR or EMP) after the Closing
Date that exceed the amount of reserves for Tax liabilities set forth in the
Final Statement of Net Book Value.
(c) MCK shall notify the Seller within thirty (30) business days after
receipt by MCK or any of its Affiliate of notice of (i) any pending or
threatened federal, state, local or foreign Tax audits or assessments of Trex,
TrexCom (Asia), LNR or EMP so long as any Pre-Closing Period remains open, and
(ii) any pending or threatened federal, state, local or foreign Tax audits or
assessments of MCK or any of its Affiliates which may affect the Tax liabilities
of Trex, TrexCom (Asia), LNR or EMP, in each case for Taxes and Tax Returns with
respect to which the Seller may be liable under this Agreement. Failure of MCK
to comply with the notification requirement set forth in the preceding sentence
shall relieve the Seller of its indemnification obligations with respect to such
liabilities, but only in the event and to the extent that the Seller was
prejudiced by such failure. The Seller shall promptly notify MCK in writing upon
receipt by the Seller or any Affiliate of the Seller of notice hereafter
received of any pending or threatened federal, state, local or foreign Tax
audits or assessments relating to the income, properties or operations of Trex,
TrexCom (Asia), LNR or EMP. Failure of Seller to comply with the notification
requirement set forth in the preceding sentence shall relieve MCK of its
indemnification obligations with respect to such liabilities, but only in the
event and to the extent that MCK was prejudiced by such failure.
(d) After the Closing Date, MCK and the Seller shall provide each
other, and MCK shall cause Trex, TrexCom (Asia), LNR and EMP to provide the
Seller, with such
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cooperation and information relating to Trex, TrexCom (Asia), LNR and EMP as
either party reasonably may request in filing any Tax Return (or amended Tax
Return) or refund claim, determining any Tax liability or a right to a refund,
conducting or defending any audit or other proceeding in respect of Taxes or
effectuating the terms of this Agreement.
ARTICLE VII
[INTENTIONALLY DELETED]
ARTICLE VIII
CERTAIN EMPLOYEES AND EMPLOYEES BENEFIT PLANS
Section 8.1. EMPLOYMENT OF CERTAIN EMPLOYEES OF THE BUSINESS. MCK shall offer or
cause to be offered employment, effective as of the Closing Date, to each of the
employees listed on SCHEDULE 8.1 attached hereto and who is employed by Trex,
TrexCom (Asia), LNR or EMP (as the case may be) on the Closing Date on
substantially equivalent terms to his or her then current employment terms.
Those employees who do not accept such offers of employment and do not become
employees of MCK shall be referred to herein as the "NON-CONTINUING EMPLOYEES".
For purposes of this Agreement, an offer of employment to any of the employees
listed on SCHEDULE 8.1 shall be on "substantially equivalent terms" if (a) the
wages, life insurance, medical coverage and other employee benefit plans,
programs, policies or arrangements offered to such employee are on a basis
substantially equivalent in the aggregate to those provided to such employee on
the date hereof, and (b) solely for purposes of any period of eligibility
service requirements or commencement of participation with respect to any
employee benefit plan of MCK, such employee shall receive credit of his or her
term of service with Trex, TrexCom (Asia), LNR or EMP, as the case may be;
PROVIDED, HOWEVER, that MCK shall not be required to provide any of those
employees who accept such offers of employment and become employees of MCK with
any stock based plans relating to equity securities (or their equivalent, such
as phantom stock plans or SARs) or any incentive bonus programs based on the
achievement of financial targets. Nothing herein expressed or implied confers
upon any employee of Trex, TrexCom (Asia), LNR or EMP any rights or remedies of
any nature or kind whatsoever under or by reason of this ARTICLE VIII, including
any right of those employees who accept such offers of employment and become
employees of MCK to employment with MCK for a specified period of time.
ARTICLE IX
[INTENTIONALLY DELETED]
ARTICLE X
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INDEMNIFICATION
Section 10.1. BY SELLER. Subject to the terms and conditions of this ARTICLE X,
Seller covenants and agrees to defend, indemnify and hold harmless MCK, its
Affiliates and their respective successors, officers, directors, shareholders,
employees, agents, trustees, advisers, lenders and representatives
(collectively, the "MCK INDEMNITEES"), from and against, and pay or reimburse
the MCK Indemnitees for, any and all claims, liabilities (including Tax
liabilities), obligations, losses, fines, expenses, costs, proceedings,
deficiencies, judgments, penalties or damages (whether absolute, accrued,
conditional or otherwise and whether or not resulting from third party claims),
including reasonable out-of-pocket expenses, consulting fees, court costs,
expert witness fees and reasonable attorneys' fees and expenses incurred in the
investigation or defense of any of the same or in asserting any of their
respective rights hereunder (collectively, "LOSSES"), resulting from, arising
out of or relating to:
(a) any misrepresentation or breach of any warranty of Seller made or
contained in this Agreement;
(b) any failure of Seller to perform any covenant or agreement made or
contained in this Agreement or fulfill any obligation in respect thereof;
(c) any and all Taxes for or in respect of each of the following:
(i) any liability for any Pre-Closing Taxes with respect to
the Business imposed on Seller, TrexCom (Asia), LNR, EMP, Trex or any of their
respective Affiliates, or attributable to the operations of Seller, TrexCom
(Asia), LNR, EMP, Trex or any of their respective Affiliates, with respect to
(A) any taxable period or a portion thereof ending through and including the
Closing Date, or (B) any of the transactions contemplated hereby (it being
understood and agreed that this clause (B) is not in limitation of SECTION
10.2(C));
(ii) with respect to any and all Taxes of any member of a
consolidated, combined or unitary group of which Seller, TrexCom (Asia), LNR,
EMP or Trex (or any predecessor of any of the foregoing Persons) is or was a
member on or prior to the Closing Date by reason of the liability of Seller,
TrexCom (Asia), LNR, EMP or Trex (or any predecessor of any of the foregoing
Persons) pursuant to Treasury Regulation Section 1.1502-6(a) (or any analogous
or similar state, local or foreign law or regulation), as a transferee or
successor, by contract or otherwise;
(iii) any Taxes arising out of a breach of the representations
and warranties contained in ARTICLE IV; and
(iv) any payments required to be made after the Closing Date
under any Tax sharing, Tax allocation or similar contracts (whether or not
written), to which Seller, TrexCom (Asia), LNR, EMP, Trex (or any predecessor of
any of the foregoing Persons) was obligated, or was a party, on or prior to the
Closing Date;
(d) any and all of the Exclusions and the Special Indemnity Items;
(e) any Environmental Liabilities and Costs arising from, relating to,
in respect of or incurred in connection with conditions existing or events
occurring prior to the Closing;
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(f) any solicitation, offer, redemption, purchase or other acquisition
by Seller, Trex, TrexCom (Asia), LNR or EMP or any of their respective
Affiliates before the Closing, in respect of any securities (or any rights or
obligations to redeem, purchase or otherwise acquire any securities) of any of
Trex, LNR, EMP, or TrexCom (Asia), including any obligations of Trex to redeem,
purchase or otherwise acquire any shares of capital stock of Trex that may
hereafter be issued pursuant to the LNR Acquisition Agreement; or any
solicitation, offer, redemption, purchase or other acquisition by Seller or any
of its Affiliates (it being understood and agreed that none of Trex, LNR, EMP,
or TrexCom (Asia) shall constitute Affiliates of Seller from and after the
Closing) whether before or after the Closing Date, in respect of any securities
(or any rights or obligations to redeem, purchase or otherwise acquire any
securities) of any of Trex, LNR, EMP or TrexCom (Asia), including any
obligations of Trex relating to the redemption, purchase, or other acquisition
of any shares of capital stock of Trex that may hereafter be issued pursuant to
the LNR Acquisition Agreement (including any of the cash payment obligations
referred to in SCHEDULE 4.24A(A));
(g) any claim of any former or current holder of any security (or of
any right to redeem, purchase or otherwise acquire any security or to cause the
redemption, purchase or other acquisition of any security) of any of Trex,
TrexCom (Asia), LNR or EMP, in each case arising out of agreements or
arrangements in effect prior to the Closing; or
(h) subject to SECTION 6.2(E), any claim asserted by a third party
arising from, relating to or in respect of acts or omissions, occurring prior to
the Closing Date, of any individual who served as a director or officer of any
of Trex, TrexCom (Asia), LNR and EMP at any time prior to the Closing.
Seller shall not be required to indemnify the MCK Indemnitees with
respect to any claim for indemnification pursuant to SECTION 10.1(A) unless and
until the aggregate amount of all claims for indemnification under SECTION
10.1(A) exceeds $250,000, at which point the MCK Indemnitees shall be entitled
to indemnification only for the amount by which such claims exceed such $250,000
amount. Claims thereafter may be asserted regardless of amount. The aggregate
liability of Seller for monetary damages under this Agreement shall not exceed
$19,000,000, subject to the following provisions of this SECTION 10.1 and
SECTION 10.4. Notwithstanding the foregoing, the indemnification obligations of
Seller from time to time under this SECTION 10.1 with respect to (1) a claim for
indemnification under SECTION 10.1(A) relating to any misrepresentation or
breach of any warranty made or contained in SECTION 4.6, 4.18, or 4.24A, or (2)
a claim for indemnification under SECTION 10.1(B), 10.1(C) or 10.1(E) shall not,
when aggregated with all other liabilities of Seller for monetary damages under
this Agreement, exceed the Purchase Price. Notwithstanding the foregoing, none
of the limitations contained in this paragraph (I.E., the deductibles and caps)
shall apply with respect to a misrepresentation or breach of warranty under
SECTION 4.13(B). A misrepresentation or breach of warranty under SECTION 4.13(B)
shall result in a dollar-for-dollar payment to MCK for any Inventories referred
to therein not sold in accordance with the terms thereof.
Section 10.2. BY MCK. Subject to the terms and condition of this ARTICLE X, MCK
covenants and agrees to defend, indemnify and hold harmless Seller, its
Affiliates and their respective successors, officers, directors, shareholders,
employees, agents, advisers, lenders and representatives (collectively, the
"SELLER INDEMNITEES"), from and against, and pay or reimburse the Seller
Indemnitees for, any and all Losses resulting from, arising out of or relating
to:
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(a) any misrepresentation or breach of warranty of MCK made or
contained in this Agreement;
(b) any failure of MCK to perform any covenant or agreement made or
contained in the Agreement or fulfill any other obligation in respect thereof;
(c) any and all Taxes (other than Transfer Taxes) to the extent such
Taxes would not have been incurred but for transactions or events regarding the
Business occurring from and after the Closing; or
(d) the letters of credit listed on SCHEDULE 6.2(F) arising after the
Closing.
MCK shall not be required to indemnify the Seller Indemnitees with
respect to any claim for indemnification pursuant to SECTION 10.2(A) unless and
until the aggregate amount of all claims for indemnification under SECTION
10.2(A) exceeds $250,000, at which point, the Seller Indemnitees shall be
entitled to indemnification only for the amount by which such claims exceed such
$250,000 amount. Claims thereafter may be asserted regardless of amount. The
aggregate liability obligations of MCK for monetary damages under this Agreement
shall not exceed $19,000,000.
Section 10.3. INDEMNIFICATION PROCEDURES.
(a) THIRD PARTY CLAIMS. In the case of any claim asserted by a third
party against a party entitled to indemnification under this Agreement (the
"INDEMNIFIED PARTY"), written notice describing in reasonable detail the facts
for the basis of such claim shall be given by the Indemnified Party to the party
required to provide indemnification (the "INDEMNIFYING PARTY") as soon as
practicable after such Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and the Indemnified Party shall permit the
Indemnifying Party (at the expense of such Indemnifying Party) to assume control
of the defense of any third party claim or any litigation with a third party
resulting therefrom; PROVIDED, HOWEVER, that (i) the counsel for the
Indemnifying Party who shall conduct the defense of such claim or litigation
shall be subject to the approval of the Indemnified Party (which approval shall
not be unreasonably withheld, conditioned or delayed), (ii) the Indemnified
Party may participate in, but not control, such defense at such Indemnified
Party's expense (which shall not be subject to reimbursement hereunder except as
provided below), and (iii) the omission by any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its
indemnification obligation under this Agreement except and only to the extent
that such Indemnifying Party is actually damaged as a result of such failure to
give notice. Except with the prior written consent of the Indemnified Party, no
Indemnifying Party, in the defense of any such claim or litigation, shall
consent to entry of any judgment or enter into any settlement that provides for
injunctive or other nonmonetary relief affecting the Indemnified Party or that
does not include as an unconditional term thereof the giving by each claimant or
plaintiff to such Indemnified Party of a general release from any and all
liability with respect to such claim or litigation. If the Indemnified Party
shall in good faith and on the advice of outside counsel, determine the
Indemnified Party may have available to it one or more defenses or counterclaims
that are inconsistent with one or more of those that may be available to the
Indemnifying Party in respect of such claim or any litigation relating thereto,
the Indemnified Party shall have the right at all times to take over and assume
control over that portion of the defense, settlement, negotiations or litigation
relating to any such defenses or counterclaim at the sole cost of the
Indemnifying Party; PROVIDED, HOWEVER, that if the Indemnified Party does so
take over and assume control (1) the Indemnifying Party may participate in, but
not control, such defense or litigation with its own
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counsel and at its own expense, and, (2) the Indemnified Party shall not settle
such claim or litigation without the prior written consent of the Indemnifying
Party, such consent not to be unreasonably withheld, conditioned or delayed. If
the Indemnifying Party does not assume control of the defense of any matter as
above provided within 30 days after receipt of the notice from the Indemnified
Party described above, the Indemnified Party shall have the full right to defend
against any such claim or demand for which the Indemnified Party is entitled to
indemnification under this Agreement at the sole cost of the Indemnifying Party
and shall be entitled to settle or agree to pay in full such claim or demand. In
any event, the Indemnifying Party and the Indemnified Party shall reasonably
cooperate in the defense of any claim or litigation subject to this ARTICLE X
and the records of each relating to the defense of such claim or litigation
shall be reasonably available to the other with respect to such defense.
(b) NON-THIRD PARTY CLAIMS. With respect to any claim for
indemnification hereunder which does not involve a third party claim, the
Indemnified Party will give the Indemnifying Party written notice of such claim
promptly after becoming aware of the facts giving rise to such claim, provided,
however, that the failure by any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its indemnification
obligation under this Agreement except and only to the extent that such
Indemnifying Party is actually damaged as a result of such failure to give
notice. The Indemnifying Party may acknowledge and agree by notice to the
Indemnified Party in writing to satisfy such claim within 30 days of receipt of
notice of such claim from the Indemnified Party. If the Indemnifying Party shall
dispute such claim, the Indemnifying Party shall provide written notice of such
dispute to the Indemnified Party within such 30-day period, setting forth in
reasonable detail the basis of such dispute. Upon receipt of notice of any such
dispute, the Indemnified Party and the Indemnifying Party shall use reasonable
efforts to resolve such dispute within 30 days of the date such notice of
dispute is received. If the Indemnifying Party shall fail to provide written
notice to the Indemnified Party within 30 days of receipt of notice from the
Indemnified Party that the Indemnifying Party either acknowledges and agrees to
pay such claim or disputes such claim, the Indemnifying Party shall be deemed to
have disputed such claim in full. If (a) the Indemnifying Party has acknowledged
and agreed to pay any claim pursuant to this ARTICLE X, (b) any dispute under
this ARTICLE X has been resolved in favor of indemnification by mutual agreement
of the Indemnifying Party and the Indemnified Party, or (c) any dispute under
this ARTICLE X has been finally resolved in favor of indemnification by a final
non-appealable order of a court of competent jurisdiction or other tribunal
having jurisdiction over such dispute, then the Indemnifying Party shall pay the
amount of such claim to the Indemnified Party within 20 days of the date of
acknowledgement by the Indemnifying Party or final resolution in favor of
indemnification, as the case may be, to such account and in such manner as is
designated in writing by the Indemnified Party.
(c) ENVIRONMENTAL ACTIONS. If Seller is required to perform any
investigation, monitoring, clean-up, containment, response, removal, remedial,
compliance or other action relating to any Environmental Liabilities and Costs
for which Seller is obligated to defend, indemnify and hold the MCK Indemnities
harmless pursuant to SECTION 10.1 (such work is referred to herein as the
"ENVIRONMENTAL ACTIONS"), then Seller shall perform, or cause to be performed,
the Environmental Action(s); PROVIDED, HOWEVER, that Seller shall have (i) the
continuing right of access during normal business hours, and (ii) the exclusive
right to manage and control all Environmental Actions undertaken pursuant to
this SECTION 10.3, including selection of any contractor or consultant, any
contracts entered into with such parties, any disclosures to or agreements with
any public or private agencies relating to the Environmental Action and any
written plan for the particular Environmental Action, subject to the
requirements of this Agreement, and MCK shall
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reasonably cooperate with Seller's efforts to carry out its obligations under
this Agreement, including by executing any documents reasonably requested by
Seller; PROVIDED, HOWEVER, that MCK shall not be required to execute any
document which will cause MCK to incur any additional liability or obligations
hereunder under Applicable Law or otherwise. Seller shall conduct the
Environmental Actions:
(A) using an environmental consulting firm reasonably
acceptable to MCK;
(B) in a manner which does not impair the use, in any material
respect, of any of the Real Estate Assets as currently used, including refusing
to accept any deed restriction which may impair such use, in any material
respect, of any of the Real Estate Assets; and
(C) in a manner consistent with the MCK's reasonable security
requirements, and which minimizes the intrusion upon business operations,
including providing reasonable notice at least 24 hours prior to entry.
Section 10.4. LIMITATIONS ON LIABILITY.
(a) The parties hereto agree that the limitations set forth in SECTION
10.1 and SECTION 10.2 shall not apply to the indemnification obligations of
Seller or MCK, as the case may be, with respect to any Losses that have resulted
from fraud or intentional misconduct. Absent fraud or intentional misconduct,
each of the parties hereto hereby (i) acknowledges and agrees that the
indemnification provided by this ARTICLE X (as subject to the terms and
conditions contained herein) shall be the sole and exclusive remedy of such
party for any breach of the representations, warranties, covenants or agreements
of the other party set forth in this Agreement, and (ii) waives any other remedy
under law or in equity (subject, however, to SECTION 11.16). The Indemnified
Party shall bear the burden of proof with respect whether any breach of a
representation or warranty by the Indemnifying Party was fraudulent or
intentional.
(b) The amount of any Losses for which indemnification is provided
under this ARTICLE X shall be reduced by any related recoveries to which the
Indemnified Party actually received pursuant to any insurance policies
(excluding any pollution liability policies purchased by MCK or its Affiliates)
on account of the matter resulting in such Losses, and the Indemnified Party
shall use commercially reasonable efforts to pursue such recoveries from the
relevant insurance carriers.
(c) Notwithstanding anything to the contrary in this Agreement, no
party shall be obligated to indemnify any other party with respect to any actual
or alleged breach of representation, warranty, covenant or agreement contained
in this Agreement after the termination of the applicable survival period set
forth in SECTION 10.6; PROVIDED, HOWEVER, that if an Indemnified Party delivers
in good faith a notice of claim for indemnification under this ARTICLE X prior
to (i) in the case of a claim involving a breach of a representation or
warranty, the end of the applicable survival period, or (ii) in the case of a
claim involving a breach of a covenant or agreement, 90 days after the end of
the applicable survival period, and such claim is finally settled or adjudicated
in favor of the Indemnified Party after the end of the applicable survival
period or after 90 days after the end of the applicable survival period, as the
case may be, the Indemnifying Party shall, subject to the provisions herein,
indemnify the Indemnified Party from and against Losses incurred by such
Indemnified Party as a result of such claim for indemnification.
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(d) Notwithstanding anything to the contrary in this Agreement, the
amount of any Losses for which indemnification is provided under this ARTICLE X
shall be calculated net of any accruals, reserves or provisions reflected in the
Final Closing Statement of Net Book Value that relate to the nature of the claim
from which such Losses arose. By way of illustration, this shall mean that,
subject to the other provisions herein, Seller shall be responsible for, and MCK
may make, a claim relating to accounts receivable only after indemnifiable
Losses relating to accounts receivable exceed the reserve for doubtful accounts
reflected in the Final Closing Statement of Net Book Value; however, such
reserve for doubtful accounts shall not affect Seller's responsibility for, or
MCK's ability to make, any claim for indemnifiable Losses relating to, for
example, Intellectual Property. Notwithstanding the foregoing, it is understood
and agreed that the provisions of this SECTION 10.4(D) shall not apply to any
indemnification claim for Losses relating to the Inventories listed on SCHEDULE
4.13(B).
(e) In no event shall any Indemnifying Party be responsible or liable
to any Indemnified Party for any Losses or other amounts under this ARTICLE X
that constitute punitive or other damages that are not compensatory in nature
(other than any such damages suffered by the Indemnified Party as a result of an
obligation to pay such damages to a third party).
Section 10.5. SET-OFF. Each party hereby affirmatively waives any rights of
set-off with respect to amounts due and payable by it hereunder or that may
thereafter become due and payable by it hereunder.
Section 10.6. SURVIVAL PERIOD. Except as provided in this SECTION 10.6, the
representations and warranties of the parties contained in this Agreement shall
survive for a period of two years from the Closing Date. Notwithstanding
anything to the contrary herein, the representations and warranties contained in
SECTIONS 4.6, 4.10(A), 4.18 and 4.24A shall survive for the period of time equal
to the applicable statute of limitations in respect of claims relating thereto.
All covenants and agreements of the parties contained herein shall survive the
Closing for the period herein specified or, if no period is specified, for a
period of four years from the Closing Date; PROVIDED, HOWEVER, that the
covenants and agreements contained in SECTION 6.1(J) shall survive indefinitely.
At the end of the respective applicable survival periods set forth herein, the
representations, warranties, covenants and agreements of the parties contained
in this Agreement shall terminate and expire for all purposes and shall not
provide the basis for any claim for indemnification thereafter (subject,
however, to the proviso contained in SECTION 10.4(C)).
Section 10.7. TREATMENT OF INDEMNIFICATION PAYMENTS. All indemnification
payments made under this Agreement shall be treated by the parties as an
adjustment to the Purchase Price.
ARTICLE XI
MISCELLANEOUS
Section 11.1. EXPENSES. Except to the extent otherwise provided hereby, Seller
shall bear the Expenses of Seller and its Affiliates (including, for periods
prior to the Closing, Trex, TrexCom (Asia), LNR and EMP) and MCK shall bear its
Expenses. For purposes of this Section, "EXPENSES" shall mean expenses, costs
and fees (including any attorneys' and auditors' fees, investment banking,
brokerage or finder's fees, commission or similar compensation, or any bonus
payable to any officer, director, employee, agent, sales representative,
relative of or
52
<PAGE>
consultant to such party or any of its Affiliates (including, in the case of
Seller prior to the Closing, Trex, TrexCom (Asia), LNR and EMP), payable upon
the consummation of the transactions contemplated hereby) in connection with the
transactions contemplated hereby, including the preparation, execution and
delivery of this Agreement and compliance herewith, whether or not the
transactions contemplated hereby shall be consummated.
Section 11.2. SEVERABILITY. If any provision of this Agreement, including any
phrase, sentence, clause, Section or subsection is inoperative or unenforceable
for any reason, such circumstances shall not have the effect of rendering the
provision in question inoperative or unenforceable in any other case or
circumstance, or of rendering any other provision or provisions herein contained
invalid, inoperative, or unenforceable to any extent whatsoever.
Section 11.3. NOTICES. All notices, requests, demands, approvals, consents,
waivers and other communications required or permitted to be given under this
Agreement (each, a "NOTICE") shall be in writing and shall be (a) delivered
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, (c) sent by next-day or overnight mail or
delivery, or (d) sent by facsimile transmission, provided that the original copy
thereof also is sent by pre-paid, first class certified or registered mail or by
next-day or overnight mail or personal delivery.
(i) if to MCK, to
MCK Communications Statutory Trust
c/o First Union National Bank
10 State House Square
Hartford, CT 06103-3698
Facsimile: (860) 247-1356
Attention: W. Jeffrey Kramer
with copies to:
LeBoeuf, Lamb, Greene & MacRae LLP
One Embarcadero Center, Suite 400
San Francisco, CA 94111
Facsimile: (415) 951-1180
Attention: Graham R. Taylor, Esq.
Bingham Dana LLP
One State Street
Hartford, CT 06103
Facsimile: (860) 240-2800
Attention: James G. Scantling, Esq.
(ii) if to Seller, to
ThermoTrex Corporation
81 Wyman Road
P.O. Box 9046
Waltham, MA 02254-9046
53
<PAGE>
Attention: President
Facsimile: (781) 622-1283
with copies to:
Thermo Electron Corporation
81 Wyman Road
P.O. Box 9046
Waltham, Massachusetts 02254~9046
Attention: General Counsel
Facsimile: (781) 622-1283
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention: Hal J. Leibowitz, Esq.
Facsimile: (617) 526-5000
or, in each case, at such other address as may be specified in a Notice to the
other party hereto. Any Notice shall be deemed effective and given upon receipt
(or intentional refusal of receipt by the addressee of such Notice).
Section 11.4. ATTORNEYS' FEES. If any party hereto initiates any legal action
arising out of or in connection with this Agreement, the prevailing party in
such legal action shall be entitled to recover from the other party all
reasonable attorneys' fees, expert witness fees and expenses incurred by the
prevailing party in connection therewith.
Section 11.5. LIABILITY FOR TRANSFER TAXES. Seller shall be responsible for and
shall pay in a timely manner of all sales, use, value added, documentary, stamp,
gross receipts, registration, transfer, conveyance, excise, recording, license
and other similar Taxes and fees ("TRANSFER TAXES"), arising out of or in
connection with or attributable to the transactions effected pursuant to this
Agreement. Each party hereto shall prepare and timely file all Tax returns
required to be filed in respect of Transfer Taxes that are the primary
responsibility of such party under applicable law; PROVIDED, HOWEVER, that such
party's preparation of any such Tax returns shall be subject to the other
party's approval, which approval shall not be unreasonably withheld, conditioned
or delayed.
Section 11.6. HEADINGS. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
Section 11.7. ENTIRE AGREEMENT. This Agreement (including the Schedules and the
Exhibits hereto) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.
Section 11.8. COUNTERPARTS. This Agreement may be executed (including by
facsimile transmission) with counterpart signature pages or in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
54
<PAGE>
Section 11.9. GOVERNING LAW, ETC. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the internal
laws of the State of New York without giving effect to the conflict of laws
rules thereof. MCK and Seller hereby irrevocably submit to the non-exclusive
jurisdiction of the courts of the State of New York and the Commonwealth of
Massachusetts, and the federal courts of the United States of America located in
the Southern District of New York or in the Commonwealth of Massachusetts solely
in respect of the interpretation and enforcement of the provisions of this
Agreement and of the documents referred to in this Agreement, and hereby waive,
and agree not to assert, as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or of any such document, that it is not
subject thereto or that such action, suit or proceeding may not be brought or is
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement or any of such document may not be enforced in or by said
courts, and the parties hereto irrevocably agree that all claims with respect to
such action or proceeding shall be heard and determined in such a New York or
Massachusetts state or federal court. MCK and Seller hereby consent to and grant
any such court jurisdiction over the person of such parties and over the subject
matter of any such dispute and agree that mailing of process or other papers in
connection with any such action or proceeding in the manner provided in SECTION
11.3, or in such other manner as may be permitted by law, shall be valid and
sufficient service thereof.
Section 11.10. [INTENTIONALLY DELETED]
Section 11.11. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
Section 11.12. ASSIGNMENT. (a) Neither this Agreement nor any party's rights or
obligations hereunder shall be assignable or otherwise transferable (whether by
merger, sale of stock, sale of all or substantially all of the assets or
business, by operation of law or otherwise), without the prior written consent
of the other party hereto, such consent not to be unreasonably withheld,
conditioned or delayed (it being understood and agreed that no such assignment
by a party with the consent of the other party shall relieve the assigning party
of any of its obligations hereunder).
(b) Notwithstanding anything to the contrary contained in this
Agreement, Seller may without the prior consent of MCK, assign or otherwise
transfer its rights and obligations hereunder to: (i) any Affiliate of Seller;
PROVIDED, HOWEVER, that such Affiliate remains an Affiliate of Seller at all
times following such assignment or other transfer and such party continues to be
responsible for its obligations hereunder; or (ii) any successor-in-interest to
substantially all of Seller's business (whether by stock sale, asset sale or
otherwise).
Section 11.13. NO THIRD PARTY BENEFICIARIES. Except as provided in ARTICLE X
with respect to indemnification of the Indemnified Parties hereunder, nothing in
this Agreement shall confer any rights upon any Person other than the parties
hereto and their respective successors and permitted assigns.
Section 11.14. AMENDMENT; WAIVERS, ETC. No discharge of this Agreement, and no
waiver hereunder, shall be valid or binding unless set forth in writing and duly
executed by the party against whom enforcement of the discharge or waiver is
sought. Any such waiver shall constitute a waiver only with respect to the
specific matter described in such writing and shall in no way impair the rights
of the party granting such waiver in any other respect or at any other time.
55
<PAGE>
Neither the waiver by any of the parties hereto of a breach of or a default
under any of the provisions of this Agreement, nor the failure by any of the
parties, on one or more occasions, to enforce any of the provisions of this
Agreement or to exercise any right or privilege hereunder, shall be construed as
a waiver of any other breach or default of a similar nature, or as a waiver of
any of such provisions, rights or privileges hereunder. No amendment or
modification of this Agreement shall be effective unless in a writing signed by
the parties.
Section 11.15. SELLER ACKNOWLEDGMENT. Seller acknowledges that the
representations and warranties contained in this Agreement and in any document
or instrument delivered to MCK pursuant hereto or in connection herewith shall
not be deemed waived or otherwise affected by any investigation by MCK, its
officers, directors, employees, counsel, accountants, advisors, representatives
and agents.
Section 11.16. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur if any of the provisions of this Agreement were not performed
in accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
Section 11.17. DISCLOSURE GENERALLY. The Schedules shall be arranged in sections
corresponding to the Sections contained in this Agreement, and the disclosures
in any section of the Schedules shall qualify only (a) the corresponding section
of this Agreement, and (b) other sections of ARTICLE IV to the extent it is
clear (notwithstanding the absence of a specific cross reference) from a reading
of the disclosure that such disclosure is applicable to such other sections. The
inclusion of any information in the Schedules shall not be deemed to be an
admission or acknowledgment, in and of itself, that such information is required
by the terms hereof to be disclosed, is material or has or would have a Material
Adverse Effect, or is outside the ordinary course of business.
Section 11.18. NO RECOURSE. It is expressly understood and agreed that this
Agreement is executed and delivered by First Union National Bank ("FIRST
UNION"), not in its individual capacity but solely as trustee under the Trust
Agreement (MCK Communications Statutory Trust) dated as of January 21, 2000,
(the "TRUST AGREEMENT"), in the exercise of the powers and authority conferred
and vested in it as the trustee thereunder, and each of the representations,
warranties, undertakings and agreements herein made on the part of MCK is made
and intended not as a personal representation, warranty, undertaking and
agreement by First Union, but is made and intended for the purpose of binding
only the trust estate created by the Trust Agreement (the "TRUST ESTATE") and
all persons having any claim against First Union or MCK by reason of the
transactions contemplated by this Agreement shall, except in the case of fraud,
gross negligence or willful misconduct of First Union, look only to the Trust
Estate for payment or satisfaction thereof.
56
<PAGE>
IN WITNESS WHEREOF, the parties duly have executed this Agreement as of
the date first above written.
THERMOTREX CORPORATION
By /s/ Anne Pol
-------------------------------------
Name: Anne Pol
Title: Interim President
MCK COMMUNICATIONS STATUTORY TRUST
By First Union National Bank, not in its
individual capacity but solely as its
Trustee.
By /s/ W. Jeffrey Kramer
--------------------------------------
Name: W. Jeffrey Kramer
Title: Vice President
57
<PAGE>
EXHIBIT A
TO STOCK PURCHASE AGREEMENT
[THERMO ELECTRON GUARANTY]
58
<PAGE>
EXHIBIT B
TO STOCK PURCHASE AGREEMENT
[NON-COMPETITION AGREEMENT]
59
<PAGE>
EXHIBIT C
TO STOCK PURCHASE AGREEMENT
[TERMINATION AGREEMENT]
60
<PAGE>
EXHIBIT D
TO STOCK PURCHASE AGREEMENT
[BUYER'S ASSIGNMENT AND ASSUMPTION AGREEMENT]
61
<PAGE>
EXHIBIT E
TO STOCK PURCHASE AGREEMENT
[SELLER'S ASSIGNMENT AND ASSUMPTION AGREEMENT]
62
<PAGE>
EXHIBIT F
TO STOCK PURCHASE AGREEMENT
[FORM OF LASER TECHNOLOGY LICENSE]
63
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMOTREX
CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JANUARY 1,2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> JAN-01-2000
<CASH> 8,502
<SECURITIES> 65,175
<RECEIVABLES> 15,462
<ALLOWANCES> 1,204
<INVENTORY> 12,198
<CURRENT-ASSETS> 239,609
<PP&E> 12,256
<DEPRECIATION> 4,084
<TOTAL-ASSETS> 285,109
<CURRENT-LIABILITIES> 46,123
<BONDS> 185,763
0
0
<COMMON> 233
<OTHER-SE> (7,902)
<TOTAL-LIABILITY-AND-EQUITY> 285,109
<SALES> 15,648
<TOTAL-REVENUES> 21,029
<CGS> 11,366
<TOTAL-COSTS> 15,784
<OTHER-EXPENSES> 1,898
<LOSS-PROVISION> 102
<INTEREST-EXPENSE> 2,114
<INCOME-PRETAX> (2,663)
<INCOME-TAX> 185
<INCOME-CONTINUING> (2,848)
<DISCONTINUED> (64,878)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (67,726)
<EPS-BASIC> (3.03)
<EPS-DILUTED> (3.03)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMOTREX
CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JANUARY 2, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-END> JAN-02-1999
<CASH> 102,539
<SECURITIES> 0
<RECEIVABLES> 19,292
<ALLOWANCES> 1,235
<INVENTORY> 14,738
<CURRENT-ASSETS> 332,946
<PP&E> 55,243
<DEPRECIATION> 13,265
<TOTAL-ASSETS> 433,917
<CURRENT-LIABILITIES> 43,673
<BONDS> 189,508
0
0
<COMMON> 196
<OTHER-SE> 129,709
<TOTAL-LIABILITY-AND-EQUITY> 433,917
<SALES> 13,853
<TOTAL-REVENUES> 22,848
<CGS> 8,956
<TOTAL-COSTS> 20,623
<OTHER-EXPENSES> 1,894
<LOSS-PROVISION> 61
<INTEREST-EXPENSE> 2,112
<INCOME-PRETAX> (9,117)
<INCOME-TAX> 198
<INCOME-CONTINUING> (9,294)
<DISCONTINUED> (910)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,204)
<EPS-BASIC> (0.55)
<EPS-DILUTED> (0.55)
</TABLE>
