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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended
NOVEMBER 30, 1998
Commission File Number 1-12054
[LOGO OF MORRISON KNUDSEN CORPORATION]
A Delaware Corporation
IRS Employer Identification No. 33-0565601
MORRISON KNUDSEN PLAZA, BOISE, IDAHO 83729
208 / 386-5000
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SECURITIES REGISTERED & NUMBER OF REGISTRANT'S COMMON SHARES OUTSTANDING
At January 15, 1999, 53,187,567 shares of the registrant's $.01 par value common
stock were outstanding. Such common stock and warrants to purchase an aggregate
of 2,757,734 shares of such common stock are listed on the New York Stock
Exchange and registered pursuant to Section 12(b) of the Securities Exchange
Act. The registrant has no securities registered under Section 12(g) of the
Securities Exchange Act.
COMPLIANCE WITH REPORTING REQUIREMENTS
The registrant 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
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
DISCLOSURE PURSUANT TO ITEM 405 OF REGULATION S-K
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Yes [X] No [ ]
AGGREGATE MARKET VALUE OF COMMON STOCK HELD BY NONAFFILIATES
At January 15, 1999, the aggregate market value of the registrant's common stock
held by nonaffiliates of the registrant, based on the New York Stock Exchange
closing price on January 15, 1999, was approximately $360,469,005, excluding the
aggregate market value of $216,635,625 of 20,270,000 shares which are assumed to
be held by affiliates of the registrant for the purposes of this calculation.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its annual meeting
of stockholders to be held on April 8, 1999, which is expected to be filed with
the Securities and Exchange Commission not later than March 31, 1999, are
incorporated by reference into Part III of this Annual Report on Form 10-K. In
the event such proxy statement is not so filed by March 31, 1999, the required
information will be filed as an amendment to this Annual Report on Form 10-K no
later than such date.
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MORRISON KNUDSEN CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED NOVEMBER 30, 1998
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business I-1
Item 2. Properties I-8
Item 3. Legal Proceedings I-8
Item 4. Submission of Matters to a Vote of Security Holders I-9
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters II-1
Item 6. Selected Financial Data II-2
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations II-3
Item 7A. Quantitative and Qualitative Disclosure About
Market Risk II-11
Item 8. Financial Statements and Supplementary Data II-12
Item 9. Change in and Disagreements with Accountants on
Accounting and Financial Disclosure II-40
PART III
Item 10. Directors and Executive Officers of the Registrant III-1
Item 11. Executive Compensation III-1
Item 12. Security Ownership of Certain Beneficial Owners
and Management III-1
Item 13. Certain Relationships and Related Transactions III-1
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports
on Form 8-K IV-1
SIGNATURES
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NOTE REGARDING FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K and other reports and statements filed by
Morrison Knudsen Corporation (the "Corporation") from time to time with the
Securities and Exchange Commission (collectively, "SEC Filings") contain or may
contain forward-looking statements. When used in SEC Filings, the words "may,"
"will," "anticipate," "believe," "estimate," "expect," "future," "intend,"
"plan," "could," "should," "potential," or "continue" or the negative or other
variations thereof, as well as other statements regarding matters that are not
historical fact, are or may constitute forward-looking statements. Such forward-
looking statements are necessarily based on various assumptions and estimates
and are inherently subject to various risks and uncertainties including, in
addition to any risks and uncertainties disclosed in the text surrounding such
statements or elsewhere in the SEC Filings, risks and uncertainties relating to
the possible invalidity of the underlying assumptions and estimates and possible
changes or developments in social, economic, business, industry, market, legal
and regulatory circumstances and conditions and actions taken or omitted to be
taken by third parties, including the Corporation's customers, suppliers,
business partners and competitors and legislative, regulatory, judicial and
other governmental authorities and officials. Should the Corporation's
assumptions or estimates prove to be incorrect, or should one or more of these
risks or uncertainties materialize, actual amounts, results, events and
circumstances may vary significantly from those reflected in such forward-
looking statements.
PART I
ITEM 1. BUSINESS
(In thousands of dollars except per share data)
Unless the context otherwise requires, references to 1998, 1997 and 1996 are
references to the Corporation's fiscal years ended November 30, 1998, 1997 and
1996, respectively.
I. GENERAL
The Corporation is an international provider of a broad range of design,
engineering, construction, construction management, facilities management,
environmental remediation and mining services to diverse public and private
sector clients. Through its various operating units, the Corporation:
. Provides design, construction and renovation services for plants and
facilities in the general manufacturing, chemical, petrochemical, food and
beverage, pharmaceuticals, high-technology and institutional buildings
markets;
. Provides a full range of engineering and construction services to power
generation utilities, including construction of new plants, retrofitting of
existing plants and decommissioning and decontamination of nuclear plants
that have reached the end of their operating lives;
. Provides total facilities management to industrial clients, including
maintenance, engineering and construction, and operations and logistics
management at manufacturing plants and related facilities and at toll
roads;
. Provides facilities management and environmental remediation services to
governmental agencies, such as the Department of Energy and the Department
of Defense;
. Provides design, engineering, construction and construction management
services for infrastructure projects in the transportation, marine and
water resources markets, including highway, bridge, railroad, airport,
marine port and water distribution and storage facilities projects; and
. Provides contract mining services in the fossil fuel and industrial
minerals markets, together with technical and engineering services such as
resource evaluation, geologic modeling, mine planning and development,
equipment selection and remediation.
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In providing its services, the Corporation enters into three basic types of
contracts:
. Fixed-price or lump-sum contracts providing for a fixed price for the
total amount of work to be performed;
. Unit-price contracts providing for a fixed price for each unit of work
performed; and
. Cost-type contracts providing for reimbursement of costs plus a fee.
Both anticipated income and economic risk are greater under fixed-price and
unit-price contracts than under cost-type contracts. Engineering, construction
management and environmental and hazardous substance remediation contracts are
typically awarded on a cost-plus-fee basis. See "Risk Factors - The
Corporation's fixed-price and unit-price contracts place the risk of increased
project costs on the Corporation."
The Corporation also participates often as sponsor and manager in construction
joint ventures that are formed for the purpose of bidding, negotiating and
completing specific projects. In addition, the Corporation participates in the
following mining ventures: Westmoreland Resources, Inc., a coal mining company
in Montana, and MIBRAG mbH, a company that operates lignite coal mines and power
plants in Germany. See Note 6. "Ventures" of Notes to Consolidated Financial
Statements in Part II of this Annual Report on Form 10-K .
The Corporation was originally formed in Delaware on April 28, 1993 under the
name Kasler Holding Company to become the parent company of WCG Holdings, Inc.
("WCG") and Kasler Corporation ("Kasler"), which were active in the
infrastructure, contract mining, environmental remediation, commercial
construction and construction materials markets. In April 1996, the name of the
Corporation was changed from Kasler Holding Company to Washington Construction
Group, Inc.
On September 11, 1996, the Corporation acquired the net assets and the
engineering and construction operations of Morrison Knudsen Corporation, a
Delaware corporation ("Old MK"), in a transaction structured as a merger of Old
MK with and into the Corporation, and changed its name to Morrison Knudsen
Corporation. The acquisition of Old MK was an integral part of the
reorganization of Old MK pursuant to a plan of reorganization (the "Plan") filed
by Old MK in the United States Bankruptcy Court for the District of Delaware
(the "Bankruptcy Court"). The Plan was confirmed by the Bankruptcy Court on
August 26, 1996, and became effective concurrently with the merger on September
11, 1996. The Corporation has no remaining obligations under the Plan.
The Corporation's executive offices are located at Morrison Knudsen Plaza,
Boise, Idaho 83729, and its telephone number is (208) 386-5000.
II. OPERATING UNITS
The Corporation's operations have been conducted through three market-driven
operating units: The Engineers and Constructors Group based in Cleveland, Ohio,
and the Heavy Civil Construction Group and the Mining Group based in Boise,
Idaho. In January 1999, the Corporation announced the consolidation of the Heavy
Civil Construction Group and the Mining Group into "Morrison Knudsen Contractors
Group."
ENGINEERS AND CONSTRUCTORS GROUP:
The Engineers and Constructors Group, which is the largest and most diverse of
the Corporation's operating groups, is comprised of five divisions:
. Industrial/Process Division: This division primarily targets Fortune 100
clients and provides design and construction services for new construction
or renovations of plants and facilities in the general manufacturing,
chemical, petrochemical, food and beverage, pharmaceuticals, high-technology
and institutional-buildings markets.
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. Energy Division: This division offers a full range of engineering and
construction services to power generation utilities. These services include
construction of power plants, installation of flue-gas scrubber systems and
plant retrofit projects such as the replacement of steam generators in
nuclear power plants, a division specialty. This division also provides
decommissioning and decontamination of nuclear power plants that have
reached the end of their operating lives.
. Operating and Maintenance Division: This division primarily provides total
facilities management services to industrial clients. These services
include maintenance, engineering and construction and operations and
logistics management at manufacturing plants and related facilities and at
toll roads. These services are typically outsourced by firms that want to
focus internal resources on plant production.
. Transportation Division: This division, which operates as "MK Centennial
Engineering," specializes in engineering and construction management of
highway, bridge, railroad, airport and water resource infrastructure
projects.
. Federal Programs Division: This division specializes in the operation and
environmental remediation of government facilities, primarily for the
Department of Energy and the Department of Defense .
The Engineers and Constructors Group also performs private sector environmental
remediation work, builds and operates chemical weapons demilitarization
facilities and constructs infrastructure projects internationally.
HEAVY CIVIL CONSTRUCTION GROUP:
The Heavy Civil Construction Group, which is one of the largest organizations
of its kind in the United States, provides services both as a general contractor
and in a design-build capacity. This group targets infrastructure projects in
the transportation, marine and water resources markets. This group also provides
site development at mine, industrial, commercial, recreational and large
residential sites.
MINING GROUP:
The Mining Group is an international provider of contract mining services for
the fossil fuel and industrial minerals markets. In addition, this group offers
a full range of technical and engineering services, including resource
evaluation, geologic modeling, mine planning and development, environmental
permitting, equipment selection and remediation.
III. GOVERNMENT CONTRACTS AND BACKLOG
Government contracts are a significant part of the Corporation's business. See
"Risk Factors - The government can audit and potentially disallow claims for
compensation under the Corporation's government contracts, and can terminate
such contracts without cause."
Backlog consists of uncompleted portions of engineering and construction
contracts, including the Corporation's proportionate share of construction
joint-venture contracts and its share of revenues from mining service contracts
and ventures for the next five years. Backlog of all uncompleted contracts at
November 30, 1998 totaled $2.7 billion compared with November 30, 1997 backlog
of $3.7 billion as originally reported and $2.8 billion as restated. (See the
following paragraph for a description of the principal reasons for this decrease
in backlog.) Approximately $657 million or 25% of the backlog at November 30,
1998 was comprised of U.S. government contracts which are subject to termination
by the government, $402 million of which had not been funded. Terminations for
convenience of the government generally provide for recovery of contract costs
and related earnings. Approximately $1.2 billion or 44% of 1998 year-end backlog
is expected to be recognized as revenue in 1999.
Although backlog reflects business which is considered to be firm,
cancellations or scope adjustments may occur. Backlog has been adjusted to
reflect known project cancellations, deferrals and revisions in project scope
and cost, both
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upward and downward. In the third quarter of 1998, the Corporation reduced
backlog by approximately $102 million reflecting the reduction in scope of an
environmental contract for the U.S. government. In anticipation of its pending
acquisition of certain businesses presently owned and operated by CBS
Corporation (see Note 14. "Acquisition of Westinghouse Businesses" of Notes to
Consolidated Financial Statements) which are engaged in the performance of
significant government contracts, and to reduce the exposure to material
adjustments due to scope and funding issues on other government contracts
included in reported backlog, the Corporation made an assessment of its policy
of including in backlog unfunded U.S. government contracts. During the fourth
quarter of 1998, the Corporation adopted a new policy which excludes from
backlog unfunded government contracts which management is not highly confident
will be funded within two years. Backlog has been reduced by $843 million in the
fourth quarter, primarily as a result of the adoption of this new policy. The
reduction in backlog is not an impairment of the revenues or earnings potential
of the Corporation. However, there can be no assurance that future contract
cancellations or modifications will not reduce backlog and future revenues.
<TABLE>
<CAPTION>
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COMPOSITION OF YEAR END BACKLOG
(IN THOUSANDS OF DOLLARS)
YEAR ENDED NOVEMBER 30, 1998 % 1997 %
RESTATED*
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<S> <C> <C> <C> <C>
Fee-type contracts $ 901,000 34% $1,218,000 44%
Fixed-price and unit-price contracts 1,779,100 66% 1,541,300 56%
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Total backlog $2,680,100 $2,759,300 100%
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*Amounts have been restated to conform with the adoption of the new policy in
1998. The Corporation typically has, at any given point in time, 25% to 35%
additional unreported backlog representing awarded yet unfunded contracts and
any mining business beyond five years.
IV. EMPLOYEES
The Corporation's total worldwide employment varies widely with the volume,
type and scope of operations under way at any given time and other factors.
At November 30, 1998, the Corporation employed a total of approximately 9,000
employees -- including 5,800 salaried and project direct-hire craft employees
and 3,200 employees covered by collective bargaining agreements.
V. RAW MATERIALS
Raw materials and components necessary for the rendering of construction,
environmental and hazardous substance remediation and contract mining services
are generally available from numerous sources. The Corporation does not foresee
any unavailability of raw materials and components which would have a material
adverse effect on its business in the near term.
VI. COMPETITION
Engineering and construction is a highly competitive business, particularly
for contracts obtained by competitive bidding. The Corporation competes based
primarily on price, reputation and reliability with other general and specialty
contractors, both foreign and domestic. Success or failure in the engineering
and construction industry is, in large measure, based upon the ability to
compete successfully for contracts and to provide the engineering, planning,
procurement, management and project financing skills required to complete them
in a timely and cost-efficient manner. See "Risk Factors - The Corporation is
engaged in highly competitive businesses and must bid against competitors to
obtain engineering, construction and service contracts."
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VII. ENVIRONMENTAL MATTERS
The Corporation's environmental and hazardous substance remediation and
contract mining services involve risks of liability under federal, state and
local environmental laws and regulations, including the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA"). The
Corporation performs environmental remediation at Superfund sites as a response
action contractor for the Environmental Protection Agency (the "EPA") and, in
such capacity, is exempt from liability under any federal law, including CERCLA,
unless its conduct was negligent; moreover, the Corporation may be entitled to
indemnification from the United States against liability arising out of
negligent performance of work in such capacity. A determination that the
Corporation is liable under environmental laws and regulations for the cost of
environmental remediation due to its performance of contract mining or
environmental remediation could have a material adverse effect on the financial
position, results of operations and cash flows of the Corporation. Amendments
to, or more stringent implementation of, current environmental laws and
regulations also could have such adverse effects.
For additional information regarding environmental matters, see "Summitville
environmental matters" and "Other environmental matters" in Note 13.
"Contingencies and Commitments" of Notes to Consolidated Financial Statements.
See also "Risk Factors - The Corporation could be subject to liability under
environmental laws."
VIII. RISK FACTORS
The Corporation and its businesses are subject to a number of risks, including
those enumerated below. Any or all of such risks could have a material adverse
effect on the business, financial condition, results of operations and cash
flows of the Corporation and on the market price for the Corporation's
securities. See also "Note Regarding Forward-Looking Information."
THE CORPORATION IS ENGAGED IN HIGHLY COMPETITIVE BUSINESSES AND MUST BID AGAINST
COMPETITORS TO OBTAIN ENGINEERING, CONSTRUCTION AND SERVICE CONTRACTS:
The Corporation is engaged in highly competitive businesses, particularly
those portions relating to engineering, construction and other service contracts
that are awarded through competitive bidding processes. The Corporation competes
with other general and specialty contractors, both foreign and domestic,
including large international contractors and small local contractors. Certain
competitors have greater financial and other resources than the Corporation
which, in some instances, could give them a competitive advantage over the
Corporation.
ECONOMIC DOWNTURNS AND REDUCTIONS IN GOVERNMENT FUNDING COULD HAVE A NEGATIVE
IMPACT ON THE CORPORATION'S BUSINESSES:
Demand for the services offered by the Corporation has been, and is expected
to continue to be, subject to significant fluctuations due to a variety of
factors beyond its control, including economic conditions. During economic
downturns, the ability of both private and governmental entities in targeted
markets to make capital expenditures on infrastructure improvement may decline
significantly. There can be no assurance that economic or political conditions
generally will be favorable or that there will not be significant fluctuations
adversely affecting the industry as a whole or key markets targeted by the
Corporation. In addition, the Corporation's operations are in part dependent
upon governmental funding of infrastructure and environmental projects.
Significant changes in the level of government funding of these projects could
have an unfavorable impact on the operating results of the Corporation.
THE CORPORATION'S FIXED-PRICE AND UNIT-PRICE CONTRACTS PLACE THE RISK OF
INCREASED PROJECT COSTS ON THE CORPORATION:
The Corporation's fixed-price and unit-price contracts involve risks relating
to the inability of the Corporation to receive additional compensation in the
event that the costs of performing such contracts prove to be greater than
anticipated. The Corporation's cost of performing such contracts may be greater
than anticipated due to uncertainties inherent in estimating contract completion
costs, contract modifications by customers, failure of subcontractors and
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joint-venture partners to perform and other unforseen events and conditions. Any
one or more of these risks could result in reduced profits or increase losses on
a particular contract or contracts.
THE GOVERNMENT CAN AUDIT AND POTENTIALLY DISALLOW CLAIMS FOR COMPENSATION UNDER
THE CORPORATION'S GOVERNMENT CONTRACTS, AND CAN TERMINATE SUCH CONTRACTS WITHOUT
CAUSE:
Government contracts are a significant part of the Corporation's business. In
addition to other significant government contracts, contracts and subcontracts
with the United States Department of Energy accounted for approximately 14% of
the Corporation's revenues for the year ended November 30, 1998. See Note 12.
"Geographic and Customer Information" of Notes to Consolidated Financial
Statements. The Corporation has a number of cost reimbursement contracts with
various agencies of the U.S. government. Allowable costs under these contracts
are subject to audit by the U.S. government. To the extent that such audits
result in determinations that costs claimed as reimbursable are not allowable
costs or were not allocated in accordance with federal government regulations,
the Corporation could be required to reimburse the U.S. government for amounts
previously paid. See "Government Contracts and Backlog" for the relative
significance of U.S. government contracts included in year-end 1998 backlog and
related risks. See Note 13. "Contingencies and Commitments -- Contract related
matters" of Notes to Consolidated Financial Statements.
The Corporation has a number of contracts and subcontracts with various
agencies of the U.S. government, principally for environmental remediation and
restoration work, which extend beyond one year and for which government funding
has not yet been approved. There can be no assurance that such funding will be
approved. All contracts with agencies of the U.S. government and some commercial
and foreign contracts are subject to unilateral termination at the option of the
customer. In the event of a termination, the Corporation would not receive
projected revenues or profits associated with the terminated portion of such
contracts.
THE CORPORATION'S BUSINESSES INVOLVE MANY PROJECT-RELATED AND CONTRACT-RELATED
RISKS:
The engineering and construction business is subject to a variety of project-
related risks, including changes in political and other circumstances,
particularly since contracts for major projects are performed over extended
periods of time. These risks include the failure of applicable governing
authorities to take certain necessary actions, opposition by third parties to
particular projects and the failure to obtain adequate financing for particular
projects. Due to these factors, losses on a particular contract or contracts
could occur, and the Corporation could experience significant changes in
operating results on a quarterly or annual basis.
Because of the size and complexity of major infrastructure projects, a
relatively small number of projects may provide a significant percentage of the
Corporation's revenue in a given year. The loss of one or more major contracts
or the inability of the Corporation to perform profitably under one or more
major contracts, could have a material adverse effect on the Corporation's
financial condition, results of operations and cash flows.
The Corporation may also be adversely affected by various risks and hazards,
including industrial accidents, labor disputes, geological conditions,
environmental hazards, weather and other natural phenomena such as earthquakes
and floods.
THE CORPORATION'S SUCCESS DEPENDS ON ATTRACTING AND RETAINING QUALIFIED
PERSONNEL IN A COMPETITIVE ENVIRONMENT:
The Corporation is dependent upon its ability to attract and retain highly
qualified managerial, technical and business development personnel. Competition
for such personnel is intense. There can be no assurance that the Corporation
can retain its key managerial, technical and business development personnel or
that it can attract, assimilate or retain such personnel in the future.
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THE CORPORATION'S INTERNATIONAL OPERATIONS INVOLVE SPECIAL RISKS:
The Corporation pursues project opportunities throughout the world through
foreign and domestic subsidiaries as well as agreements with foreign joint-
venture partners. These foreign operations are subject to special risks,
including:
. Uncertain political and economic environments,
. Potential incompatibility with foreign joint-venture partners,
. Foreign currency controls and fluctuations,
. Civil disturbances, and
. Labor strikes.
Events outside of the Corporation's control may limit or disrupt operations,
restrict the movement of funds, result in deprivation of contract rights,
increase foreign taxation or limit repatriation of earnings. In addition, in
certain cases applicable law and joint-venture or other agreements may provide
that each joint-venture partner is jointly and severally liable for all
liabilities of the venture. See Note 12. "Geographic and Customer Information"
of Notes to Consolidated Financial Statements.
THE CORPORATION COULD BE SUBJECT TO LIABILITY UNDER ENVIRONMENTAL LAWS:
The Corporation is subject to a variety of environmental laws and regulations
governing, among other things, discharges to air and water, the handling,
storage, and disposal of hazardous or solid waste materials and the remediation
of contamination associated with releases of hazardous substances. Such laws
and regulations and the risk of attendant litigation can cause significant
delays to a project and add significantly to its cost. Violations of these
environmental laws and regulations could subject the Corporation and its
management to civil and criminal penalties and other liabilities. There can be
no assurance that such laws and regulations will not become more stringent, or
more stringently implemented, in the future.
Various federal, state and local environmental laws and regulations, as well
as common law, may impose liability for property damage and costs of
investigation and cleanup of hazardous or toxic substances on property currently
or previously owned by the Corporation or arising out of the Corporation's waste
management activities. Such laws may impose responsibility and liability
without regard to knowledge of or causation of the presence of the contaminants,
and the liability under such laws is joint and several. The Corporation has
potential liabilities associated with its past waste management and contract
mining activities and with its current and prior ownership of certain property.
See "Business -- Environmental Matters" and "Other environmental matters" in
Note 13. "Contingencies and Commitments" of Notes to Consolidated Financial
Statements.
THE FAILURE OF THE CORPORATION OR ITS BUSINESS PARTNERS TO BE YEAR 2000
COMPLIANT COULD HAVE ADVERSE CONSEQUENCES:
Like most other companies and organizations, the Corporation relies on
computer-based technology in the conduct of its business. The Corporation has
been and is continuing to address the impact of the "Year 2000" issue. This
issue is the result of computer programs that were written using two digits
rather than four to define calendar years. These programs may fail to properly
differentiate between calendar years in the twenty-first century and calendar
years in the twentieth century (e.g., they may recognize a date using "00" as
the year 1900 rather than the year 2000). If not corrected, the Year 2000 issue
could result in complete system failures or miscalculations causing significant
disruption of normal business activities.
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The Corporation has been and is continuing to assess and resolve Year 2000
issues associated with its material internal systems and its material third-
party relationships. Although the Corporation believes that its Year 2000
readiness efforts are designed to appropriately identify and address those Year
2000 issues that are within the Corporation's control, there can be no assurance
that the Corporation's efforts will be fully effective. The newness and
complexity of the issues presented and the Corporation's dependence on the
technical skills and preparedness of third parties are among the factors that
could cause the Corporation's efforts to be less than fully effective. Moreover,
Year 2000 issues present many risks that are simply beyond the Corporation's
control, such as the potential effects of Year 2000 issues on the economy in
general and on the Corporation's business partners, vendors, subcontractors and
customers in particular. See "The Year 2000 Issue" in Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ONE SHAREHOLDER'S LARGE OWNERSHIP INTEREST IN THE CORPORATION, PROVISIONS OF
DELAWARE LAW AND THE CORPORATION'S ORGANIZATIONAL DOCUMENTS COULD INHIBIT A
TAKEOVER OF THE CORPORATION:
As of November 30, 1998, Dennis R. Washington, the Chairman of the Board of
Directors of the Corporation, beneficially owned 37.88% of the 53,352,410 shares
of outstanding common stock of the Corporation. As of February 3, 1999, Mr.
Washington is also President and Chief Executive Officer of the Corporation. Mr.
Washington's substantial ownership interest and certain provisions of the
Delaware General Corporation Law, the Corporation's Certificate of Incorporation
and Bylaws and certain agreements to which the Corporation is a party, may have
the effect of delaying, deterring or preventing a change in control of the
Corporation. In addition, the Certificate of Incorporation authorizes the
issuance of up to 100,000,000 shares of common stock and 10,000,000 shares of
preferred stock of the Corporation. The Board of Directors has the power to
determine the price and terms under which any such additional capital stock may
be issued and to fix the terms of such preferred stock, and existing
stockholders of the Corporation will not have preemptive rights with respect
thereto.
ITEM 2. PROPERTIES
(In thousands of dollars)
At November 30, 1998, the Corporation owned more than 3,500 units of heavy and
light mobile construction, environmental remediation and contract mining
equipment.
The Corporation does not own significant real property for operations other
than certain land and improvements in Highland and Petaluma, California. At
November 30, 1998, the Corporation had real estate held for sale in Nevada. The
two principal administrative office facilities in Boise, Idaho, and Cleveland,
Ohio, of approximately 214,700 square feet and 246,700 square feet,
respectively, are leased under long-term, noncancelable leases expiring in 2003
and 2010, respectively. The Corporation's long-term aggregate rental obligations
for the Boise and Cleveland facilities under these noncancelable leases for each
of the next five years approximate $6,970, $6,970, $7,495, $7,545 and $6,911,
respectively.
Annual rental payments for real estate and equipment leased by the
Corporation during the year ended November 30, 1998 aggregated $52,067. See Note
13. "Contingencies and Commitments -- Long-term leases" of Notes to Consolidated
Financial Statements.
Construction, environmental remediation and mining equipment and leased
administrative and engineering facilities are considered by the Corporation to
be well maintained and suitable for current operations.
ITEM 3. LEGAL PROCEEDINGS
Information regarding legal proceedings set forth under the caption "Other" in
Note 13. "Contingencies and Commitments" of Notes to Consolidated Financial
Statements is incorporated by reference in response to this Item 3.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Corporation did not submit any matters to a vote of security holders
during the fourth quarter of 1998.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION:
The Corporation's voting common stock is traded on the New York Stock Exchange
under the symbol "MK." At the close of business on January 15, 1999, the
Corporation had 53,187,567 shares of common stock issued and outstanding.
The New York Stock Exchange composite high and low sales prices of the
Corporation's common stock traded on the New York Stock Exchange for each
quarterly period within the two most recent fiscal years are set forth under the
caption "Quarterly Financial Data" in Part II of this Annual Report on Form 10-K
and are incorporated by reference in response to this Item 5.
HOLDERS:
The number of record holders of the Corporation's voting common stock at
January 15, 1999 was approximately 1,391 and does not include beneficial owners
of the Corporation's common stock held in the name of nominees.
DIVIDENDS:
The Corporation has not paid a cash dividend since the first quarter of fiscal
1994 and does not anticipate payment of dividends in the near term. The
Corporation is not restricted from paying dividends unless an event of default
exists under its credit facility. See Note 8. "Credit Facilities" of Notes to
Consolidated Financial Statements.
II-1
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(In thousands except per share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
OPERATIONS SUMMARY 1998 1997 1996(A) 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $1,862,174 $1,677,301 $659,100 $228,537 $258,739
Gross profit 86,542 79,315 33,344 24,113 19,849
Operating income (loss) 58,743 52,827 (8,594) 7,926 1,724
Net income (loss) 37,553 32,031 (4,780) 8,165 657
Income (loss) per common share - basic .70 .59 (.14) .28 .02
Shares used to compute basic income per
common share 53,891 54,044 34,790 29,454 29,453
- --------------------------------------------------------------------------------------------------
FINANCIAL POSITION SUMMARY
- --------------------------------------------------------------------------------------------------
Current assets $ 427,722 $ 405,014 $459,249 $ 85,721 $111,184
Total assets 788,151 770,244 839,637 185,301 182,618
Current liabilities 303,024 299,895 400,604 42,188 47,005
Long-term debt - - - 5,042 5,490
Redeemable preferred stock - 18,000 18,000 - -
Stockholders' equity 370,903 343,131 312,004 128,951 119,956
Stockholders' equity per common share 6.95 6.33 5.80 4.37 4.08
Dividends declared per share - - - - .05
- --------------------------------------------------------------------------------------------------
</TABLE>
(a) On September 11, 1996, the Corporation acquired Old MK in a transaction
accounted for as a purchase. The Corporation's results of operations include Old
MK. See Item 1. "Business -- General" in Part I of this Annual Report on Form
10-K and Note 2. "Business Combination" of Notes to Consolidated Financial
Statements.
II-2
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
QUARTER ENDED YEAR ENDED
NOVEMBER 30, NOVEMBER 30,
- -----------------------------------------------------------------------------
(In millions) 1998 1997 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $543.3 $439.3 $1,862.2 $1,677.3
Gross profit 24.1 21.3 86.5 79.3
General and administrative expenses (6.5) (6.0) (24.2) (22.9)
Goodwill amortization (.9) (.9) (3.6) (3.6)
Investment income 1.1 3.8 5.8 9.1
Interest expense (.2) (.2) (.9) (.9)
Other income (expense), net 1.5 - 3.8 (1.1)
Net income 10.7 9.4 37.6 32.0
- -----------------------------------------------------------------------------
</TABLE>
REVENUE AND GROSS PROFIT:
Revenue for the fourth quarter and year ended November 30, 1998 increased
$104.0 million to $543.3 million and $184.9 million to $1,862.2, respectively,
compared to $439.3 million and $1,677.3 million for the comparable periods in
1997. These increases were principally due to an increase in the volume of
industrial/process, operation and maintenance and energy project work executed
by the Engineers and Constructors Group. Revenue increased slightly for the
fourth quarter and year ended November 30, 1998 in the Heavy Civil Construction
Group and for the fourth quarter in the Mining Group over the comparable periods
in 1997. The increase in the Corporation's revenue for the year ended November
30, 1998 was partially offset by a decrease in revenue from the Mining Group,
which experienced a lower demand for coal production and power generation from
the MIBRAG mbH mining venture in Germany during the first nine months of 1998
and the completion of a significant long-term mining contract in the third
quarter of 1997. MIBRAG mbH increased coal production in the fourth quarter of
1998 over each of the previous three quarters of the year.
Gross profit for the fourth quarter and year ended November 30, 1998 increased
$2.8 million to $24.1 million and $7.2 million to $86.5 million, respectively,
compared to $21.3 million and $79.3 million for the comparable periods of 1997.
Gross profit for the fourth quarter of 1998 included favorable results from each
of the Corporation's operating groups. During the fourth quarter of 1997, the
Corporation recognized a $3.9 million pretax loss on a large, fixed-price joint-
venture contract. Gross profit for the year ended November 30, 1998 included
improved profitability in the Heavy Civil Construction Group and a $5.7 million
settlement on an environmental contract. These increases were partially offset
by lower demand for coal production and power generation from the MIBRAG mbH
mining venture during the first nine months of the year, the recognition of a
loss related to start up difficulties on a fixed-price construction contract and
$5.4 million net losses related to the write-off of investment in a solvent
extraction facility and a related contract to treat contaminated soil. Gross
profit for the year ended November 30, 1997 included earnings from a significant
long-term mining contract completed in the third quarter of 1997, offset by
provisions for losses at completion for contracts in progress of $9.5 million
and a $3.9 million pretax loss on a large, fixed-price joint-venture contract.
Gross profit as a percentage of revenue for the fourth quarter and year ended
November 30, 1998 was 4.4% and 4.6%, respectively, compared to 4.8% and 4.7% for
the same periods in 1997. The decrease in gross profit percentage in 1998 was
primarily due to a higher proportion of revenue attributable to the Engineers
and Constructors Group,
II-3
<PAGE>
which had lower operating margins than the comparable period of 1997. The
Engineers and Constructors Group typically executes cost-plus contracts which
have less risk but lower margins. Gross profit percentage for the fourth quarter
of 1998 increased slightly from 4.3% for the third quarter of 1998.
The Corporation's operating margins often vary between periods due to inherent
risks and rewards on fixed-price contracts causing unexpected gains and losses
on contracts. Operating margins may also vary between periods due to changes in
the mix and timing of contracts executed by the Corporation, which contain
various risk and profit profiles and uncertainties inherent in the estimation
process. The Corporation strives to offset certain of the risks inherent in its
contracts through geographic, customer and risk diversification.
At November 30, 1998, backlog of $2,680 million was comprised of $901 million
(34%) of revenue from fee-type contracts and $1,779 million (66%) of revenue
from fixed-price contracts and the Corporation's share of revenue from mining
ventures.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses for the fourth quarter and year ended
November 30, 1998 increased $.5 million and $1.3 million, respectively, compared
to the comparable periods of 1997. The increase is attributable to an increase
in implementation costs of new computer information systems for financial, human
resource and payroll functions and the reengineering of the Corporation's
financial processes. The Corporation's implementation costs are anticipated to
continue through 1999. The Corporation expects the system implementation and
reengineering will improve the efficiency and cost of processing accounting and
financial data, but anticipates that the initial cost savings will be somewhat
offset by expenses associated with training costs and amortization of the new
computer software.
COST IN EXCESS OF NET ASSETS ACQUIRED ("GOODWILL"):
Goodwill amortization for the fourth quarter and year ended November 30, 1998
was $.9 million and $3.6 million, respectively, principally reflecting the
amortization of the $124.1 million of goodwill recorded in connection with the
acquisition of Old MK. The Corporation allocated the purchase price of Old MK to
the assets acquired and liabilities assumed, including preacquisition
contingencies, on the basis of estimated fair values at September 11, 1996.
Resolution and revaluation of certain preacquisition contingencies and tax law
changes extending the net operating loss ("NOL") carryforward period from 15 to
20 years resulted in an adjustment to goodwill in the third quarter of 1997.
During the fourth quarter of 1998, management evaluated the likelihood of the
future realization of the tax benefits of deductible temporary differences and
NOL carryforwards relating to Old MK and concluded, based on available evidence,
that it is more likely than not that a portion of the tax benefits previously
reserved would be realized. This conclusion resulted in an increase in deferred
tax assets and a decrease in recorded goodwill of $20 million at November 30,
1998. The decrease in goodwill will reduce future annual goodwill amortization
by $.5 million. A further adjustment to deferred tax assets and related goodwill
may be likely in connection with the Corporation's pending acquisition of
certain businesses presently owned and operated by CBS Corporation. See Note 14.
"Acquisition of Westinghouse Businesses" of Notes to Consolidated Financial
Statements.
INVESTMENT INCOME:
Investment income for the fourth quarter and year ended November 30, 1998
decreased $2.7 million and $3.3 million, respectively, from the comparable
periods of 1997 due to a decrease in interest recognized in 1997 from U.S.
federal income tax refunds received in January 1998 and a note receivable
collected in October 1997. These reductions in investment income were partially
offset by increased interest income on corporate cash in short-term asset
management accounts.
INTEREST EXPENSE:
Interest expense for the fourth quarter and year ended November 30, 1998 of
$.2 million and $.9 million, respectively, was comparable to interest expense
incurred for the same periods of 1997. Interest expense consists
II-4
<PAGE>
primarily of periodic amortization of prepaid underwriting fees and quarterly
commitment fees in connection with the Corporation's five-year, $200 million
revolving loan and letter of credit facility obtained in the fourth quarter of
1996.
OTHER INCOME (EXPENSE), NET:
Other income (expense) for the fourth quarter and year ended November 30,
1998, of $1.5 million and $3.8 million, respectively, reflects the recognition
of $1.1 million and $3.2 million of income associated with the settlement of the
Corporation's defined benefit pension plan obligation. Final distribution of
surplus plan assets to eligible plan participants is expected to be made in
early 1999.
Other income (expense) for the quarter ended November 30, 1997 includes (i) a
$1.7 million income adjustment of the accrued pension benefit obligation
reflecting the estimate of termination benefits to be settled with cash
proceeds from liquidation of plan assets and (ii) $1.9 million of expensed
acquisition costs associated with the Corporation's cancellation of the proposed
acquisition of Montana Resources, Inc. In addition, for the year ended November
30, 1997, the Corporation recognized an $.8 million loss on the sale of an
equity investment in a foreign bank and a $.6 million gain on adjustment of
insurance premiums paid in prior periods.
INCOME TAX EXPENSE:
The effective tax rate for the fourth quarter and year ended November 30, 1998
was 44%, compared to 48% and 47% in the comparable periods of 1997, principally
due to a decrease in foreign tax expense and a lower proportion of non-
deductible expenses to pretax income. The effective tax rate is higher than the
U.S. federal statutory rate of 35% because of state income taxes and foreign
income taxes not currently eligible for use as credits against U.S. federal
income taxes and non-deductible expenses. It is anticipated that future foreign
income tax will be eligible for use as credits against U.S. federal income taxes
in 1999 and future periods.
1997 COMPARED TO 1996
THE CONSOLIDATED RESULTS OF OPERATIONS FOR THE YEAR ENDED NOVEMBER 30, 1996
INCLUDE THE RESULTS OF OLD MK FOR THE PERIOD FROM SEPTEMBER 12 TO NOVEMBER 30,
1996.
REVENUE AND GROSS PROFIT:
Revenue and gross profit for the year ended November 30, 1997 increased
$1,018.2 and $46.0, respectively, compared to 1996 primarily due to the
acquisition of Old MK on September 11, 1996, which was accounted for as a
purchase. Gross profit, as a percent of revenue for the year, was 4.7% for 1997
compared to 5.1% for 1996. During 1997, the Corporation's gross profit
benefitted from strong performances on several contracts which more than offset
the losses incurred on certain fixed-price contracts. In the fourth quarter of
1997, the Corporation assumed sponsorship of a large, fixed-price joint venture
due to the bankruptcy of the previous sponsor and recorded a $3.9 million pretax
loss because of the uncertainties on the project, including change orders and
potential project claims.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses for the year ended November 30, 1997
increased $.3 million compared to the year ended November 30, 1996. The
Corporation incurred approximately $1 million in expenses related to an
enterprise-wide implementation of new computer information systems for the
Corporation's financial, human resource and payroll functions.
IMPAIRMENT OF LONG-LIVED ASSETS:
In 1996, the Corporation recognized impairment losses of $18.2 million on
certain real property held for sale or use and operating assets of a subsidiary
held for sale.
II-5
<PAGE>
COST IN EXCESS OF NET ASSETS ACQUIRED ("GOODWILL"):
Goodwill amortization for the year ended November 30, 1997 increased to $3.6
million from $1.2 million in 1996, reflecting the $124.1 million of goodwill
recorded in connection with the acquisition of Old MK. The Corporation allocated
the purchase price of Old MK to the assets acquired and liabilities assumed,
including preacquisition contingencies, on the basis of estimated fair values at
September 11, 1996. Resolution and revaluation of certain preacquisition
contingencies and the recent tax law change extending the NOL carryforward
period from 15 to 20 years, resulted in a net decrease in goodwill of $1.0
million in the third quarter of 1997. The extension of the NOL carryforward
period resulted in a decrease to goodwill of $19.7 million after adjusting the
valuation allowance related to the deferred tax asset. This decrease was offset
by an accrual for preacquisition contingencies of $18.7 million, primarily for
legal proceedings.
INVESTMENT INCOME:
Investment income was comprised of (i) earnings from cash equivalents,
securities jointly held with customers as contract retentions and securities
available for sale, and (ii) interest on a note receivable collected in the
fourth quarter of 1997 and U.S. federal income tax refund receivables.
Investment income for the year ended November 30, 1997 increased $5.4 million
from 1996 principally due to interest recognized on U.S. federal income tax
refunds and earnings from securities available for sale.
INTEREST EXPENSE:
Interest expense for the year ended November 30, 1997 decreased $.1 million
compared to 1996. Interest expense for 1997 consisted primarily of periodic
amortization of prepaid underwriting fees and quarterly commitment fees in
connection with the Corporation's five-year, $200 million revolving loan and
letter of credit facility obtained in the fourth quarter of 1996.
OTHER INCOME (EXPENSE), NET:
Other expense for the year ended November 30, 1997 included (i) $1.7 million
income adjustment of the accrued pension benefit obligation reflecting the
estimate of termination benefits to be settled with cash proceeds from
liquidation of plan assets and (ii) $1.9 million of expensed acquisition costs
associated with the Corporation's cancellation of the proposed acquisition of
Montana Resources, Inc. In addition, the Corporation recognized an $.8 million
loss on the sale of an equity investment in a foreign bank and a $.6 million
gain on adjustment of insurance premiums paid in prior periods.
INCOME TAX EXPENSE:
The effective tax rate for the year ended November 30, 1997 was 47%. The
effective rate was greater than the U.S. federal statutory rate of 35%,
primarily due to the impact of state and foreign income taxes and non-deductible
goodwill amortization. For the year ended November 30, 1996, the Corporation
recognized an income tax benefit of $.5 million which reflected recoverable
federal income taxes, net of foreign and state income tax expense.
II-6
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
The Corporation has three principal sources of near-term liquidity: (1)
existing cash and cash equivalents; (2) cash generated by its operations; and
(3) revolving loan borrowings under its credit facility. Management believes the
Corporation's liquidity and capital resources should be sufficient to meet its
reasonably foreseeable working capital, capital expenditure and other
anticipated cash requirements.
<TABLE>
<CAPTION>
- ----------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES NOVEMBER 30,
(IN THOUSANDS) 1998 1997
- ----------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents
Beginning of period $ 53,215 $48,310
End of period 67,054 53,215
- ----------------------------------------------------------
YEAR ENDED
NOVEMBER 30,
1998 1997
- ----------------------------------------------------------
Net cash provided (used) by:
Operating activities $ 71,728 $ 9,290
Investing activities (28,155) (7,487)
Financing activities (29,734) 3,102
- ----------------------------------------------------------
</TABLE>
Cash and cash equivalents increased $13.8 million during the year ended
November 30, 1998 to $67.1 million at November 30, 1998. This increase reflects
net cash provided from operating activities of $71.7 million offset by net cash
used in investing and financing activities of $28.1 million and $29.7 million,
respectively. The favorable operating cash flow for 1998 was attributable to
improved profitability and a greater focus on cash flow and working capital
management. Cash provided by operations also included $25.2 million from an
income tax refund and related interest; of which $18.0 million was applied as
required to the redemption of the Corporation's Series A redeemable preferred
stock. These increases were partially offset by additional capital requirements
for three significant construction joint ventures in the Heavy Civil
Construction Group. Cash provided or used from operating activities from period
to period is affected to a large extent by the mix, timing, state of completion
and commercial terms of engineering and construction contracts which is
reflected in changes in net operating assets and liabilities. The Corporation
anticipates that the execution of existing backlog can be managed through future
operating cash flows and available cash and cash equivalents without need for
additional capital resources.
Net cash used for investing activities in 1998 of $28.2 million included net
$20.5 million of property and equipment acquisitions, the net purchase of $5.9
million of securities available for sale in connection with the Corporation's
self-insured risk management program and $4.0 million primarily for the purchase
of a ready-mix concrete business offset by $2.8 million in cash proceeds from
the sale of a non-core business.
Cash used in financing activities in 1998 of $29.7 million included $18.0
million for the redemption of the Corporation's Series A redeemable preferred
stock and $12.8 million for repurchase of 973,100 shares of the Corporation's
outstanding common stock. The Corporation received authorization in January 1998
to repurchase, in open market transactions, block trades or otherwise up to 2
million shares of the Corporation's outstanding common stock to counteract the
dilutive effect of the issuance of stock under its stock option plans, and up to
2.765 million of its warrants to purchase common stock. Subject to market
conditions and other factors, these purchases may be commenced, discontinued and
resumed from time to time without prior notice. It is anticipated that future
purchases will be funded from available cash and equivalents and operating cash
flows. Depending upon conditions in capital markets and other factors, the
Corporation may consider the possible issuance of long-term debt or other
securities.
The Corporation anticipates capital expenditures for major construction
equipment of approximately $25 million
II-7
<PAGE>
during 1999 for normal replacement and to meet equipment requirements of its
expanding business.
The Corporation has a five-year, $200.0 million revolving loan and letter of
credit facility from the Bank of Montreal. Under the credit facility,
outstanding revolving loan borrowings are limited to $125.0 million. During
1998, the Corporation had no outstanding borrowings under the facility and was
in compliance with its covenants, the most restrictive of which is fixed charge
coverage.
The Corporation is subject to foreign currency translation and exchange
issues, primarily with regard to its mining venture, MIBRAG mbH, in Germany. At
November 30, 1998, the cumulative adjustments for translation losses net of
related income tax benefits was $3.0 million. The Corporation realized a pretax
gain on foreign currency exchange transactions of $358 thousand for the year
ended November 30, 1998. The Corporation endeavors to enter into contracts with
foreign customers with repayment terms in U.S. currency as a protection from
foreign exchange risk.
As discussed in Note 14. "Acquisition of Westinghouse Businesses," the
Corporation intends to fund its share of the purchase price for certain
businesses presently owned and operated by CBS Corporation and its share of the
working capital requirements of such businesses using existing financing
facilities, additional financing facilities for which the Corporation has
received commitments or an offering of senior unsecured notes, together with
cash on hand and cash from other operations. The terms of such additional
borrowings have not yet been finalized.
The Corporation may, from time to time, pursue opportunities to complement
existing operations through business combinations and participation in ventures,
which may require additional financing and utilization of the Corporation's
capital resources.
THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs written and electronic
circuitry that use two digits rather than four to define calendar years. These
programs may fail to properly differentiate between calendar years in the
twenty-first century and calendar years in the twentieth century (e.g., they may
recognize a date using "00" as the year 1900 rather than the year 2000). If not
corrected, the Year 2000 issue could result in complete system failures or
miscalculations causing significant disruption of normal business activities.
The Year 2000 issue affects virtually all companies and organizations, including
the Corporation.
The Corporation employs a number of information technology ("IT") systems in
its operations including, without limitation, computer networking systems,
financial systems and other similar systems. Throughout its operations, the
Corporation also employs numerous non-IT devices such as building security and
safety devices and other devices containing embedded electronic circuits. Both
IT systems and non-IT devices are subject to potential failure or error due to
the Year 2000 issue.
The Corporation has developed and implemented a strategic plan (the "Year
2000 Project") to achieve Year 2000 readiness. The Year 2000 Project's
activities are intended to remediate the Year 2000 issue in all major categories
of systems and electronic devices in use by the Corporation, including IT
systems, non-IT devices and supply chain relationships so that the Corporation
may continue its operations without interruption or with minimal disruption. It
also includes communication with critical third parties such as clients,
vendors, subcontractors and other business partners to determine the expected
degree of Year 2000 compliance of those parties, and to monitor their progress
towards Year 2000 readiness. The Year 2000 Project includes the following
phases: (1) awareness, (2) inventory, (3) assessment, (4) remediation, (5)
testing/validation and (6) return to production. Progress reports on the Year
2000 Project are presented regularly to the Corporation's senior management and
periodically to the Audit Committee of the Board of Directors.
Because of the scope of its operations, the Corporation believes it is
impractical to seek to eliminate all potential Year 2000 problems before they
arise. As a result, the Corporation expects that its Year 2000 assessments and
corrections will include ongoing remedial efforts into the year 2000. The
Corporation is using a risk-based analysis of
II-8
<PAGE>
its operations to identify those items that are critical to the Corporation and
at risk. Critical items are being identified through the "inventory" phase of
the Year 2000 Project.
The Corporation is in various "inventory," "assessment" and "remediation"
phases with regard to its state of readiness related to non-IT devices
containing embedded circuitry and issues related to third parties with whom the
Corporation has material relationships. The Corporation is in various states of
the "inventory," "assessment," "remediation" and "testing/validation" phases
with regard to its IT systems. As part of the Year 2000 Project regarding IT
systems, the Corporation continues implementing new or upgraded Year 2000
compliant systems for financial information, human resources and payroll. These
systems are expected to be completed in July, 1999.
The Corporation is corresponding with its major clients and joint-venture and
other business partners, and with all vendors and subcontractors that have been
determined, through practical risk assessment techniques, to be critical to the
Corporation, in order to determine the Year 2000 readiness or progress of those
entities and to assess any related risks.
As part of the Year 2000 Project, the Corporation is exploring alternative
solutions and developing contingency plans to address the possibility that the
Corporation and third parties with whom it has material relationships will not
be fully Year 2000 ready on a timely basis. Such plans have not yet been fully
developed, and the Corporation will continue to develop them as necessary to
address each area of Year 2000 risk. Completion of the Year 2000 Project,
including the development of contingency plans, is expected by September 30,
1999.
The Corporation's Year 2000 Project utilizes both internal and external
resources. The total cost of the Corporation's activities to achieve Year 2000
readiness is currently estimated at approximately $21.6 million. As of November
30, 1998, the direct costs incurred by the Corporation to remediate Year 2000
issues were approximately $6.7 million.
Although the Corporation believes that its Year 2000 readiness efforts are
designed to appropriately identify and address those Year 2000 issues that are
within the Corporation's control, there can be no assurance that the
Corporation's efforts will be fully effective. The newness and complexity of the
issues presented and the Corporation's dependence on the technical skills and
preparedness of third parties are among the factors that could cause the
Corporation's efforts to be less than fully effective. Moreover, Year 2000
issues present many risks that are simply beyond the Corporation's control, such
as the potential effects of Year 2000 issues on the economy in general and on
the Corporation's business partners, vendors, subcontractors and customers in
particular.
While the Corporation believes that the impact of any individual Year 2000
failure will most likely be localized and limited to specific facilities or
operations, the Corporation is not yet able to assess the likelihood of
significant business interruptions occurring in one or more of its operations
around the world. Such interruptions could prevent the Corporation, at least
temporarily, from delivering contractual services. Furthermore, it has been
widely reported that significant litigation is expected to occur related to
business interruptions caused by Year 2000 failures. It is uncertain whether, or
to what extent, the Corporation will be affected by such litigation. The failure
of the Corporation, its clients (including U.S. government agencies), vendors,
joint-venture partners or others upon whom the Corporation relies to achieve
Year 2000 readiness could adversely affect the Corporation's business
operations, which could have a material adverse effect on the Corporation's
business, financial condition and results of operations.
The foregoing disclosure is based upon the Corporation's current expectations,
estimates and projections, which could ultimately be found to be inaccurate.
Because of uncertainties and circumstances beyond the Corporation's control, the
actual effects of Year 2000 issues on the Corporation may be different than the
foregoing assessment. See "Note Regarding Forward-Looking Information."
ENVIRONMENTAL CONTINGENCY
From July 1985 to June 1989, a subsidiary of the Corporation performed certain
contract mining services at the
II-9
<PAGE>
Summitville mine near Del Norte, Colorado. The EPA has notified the Corporation
and approximately 20 other parties that each is a potentially responsible party
("PRP") with regard to hazardous substances generated or disposed of at the
Summitville Mine Superfund Site ("Site"). The EPA has not commenced any
litigation or other proceedings against the Corporation. The Corporation has had
only preliminary discussions with the EPA but has been informally advised that
the EPA does not consider the Corporation eligible for a de minimis settlement
(the basis for settlement by several PRPs considered to have contributed less
than 3% volume and toxicity of the hazardous substances at the Site).
According to a report published in August 1996, the EPA estimated that the
total remediation costs incurred and to be incurred at the Site will be $120.0
million. The Corporation is not a party to any agreement regarding an allocation
of responsibility, and the EPA has not made an allocation of responsibility
among the PRPs. The Corporation's share, if any, of the aggregate environmental
liability associated with the Site is not presently determinable and depends
upon, among other things, the manner in which liability may be allocated to or
among the Corporation or other PRPs associated with the Site, the efficacy of
any defenses that the Corporation or such other PRPs may have to any assertion
of liability, the willingness and ability of such other PRPs to discharge such
liability as may be allocated to them and the outcome of any negotiations or
settlement discussions between the Corporation and the EPA and/or such other
PRPs. Accordingly, no remediation costs have been accrued at November 30, 1998.
Management believes that the ultimate resolution of this matter could have a
material adverse effect on the Corporation's financial position and could
materially and adversely effect its results of operations and cash flows in one
or more periods.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statements No. 128
Earnings Per Share, No. 130 Reporting Comprehensive Income, No. 131 Disclosures
about Segments of an Enterprise and Related Information, No. 132 Employers'
Disclosures about Pensions and Other Postretirement Benefits and No. 133
Accounting for Derivative Instruments and Hedging Activities. The American
Institute of Certified Public Accountants has issued Statement of Position
("SOP") 98-1 Accounting for Costs of Computer Software Developed or Obtained for
Internal Use. Descriptions of Statements No. 128, 130, 131, 132 and 133 and SOP
98-1 are included in the Notes to Consolidated Financial Statements.
Statement No. 128 was first effective for the Corporation for its fiscal
quarter ended February 28, 1998. Basic and diluted earnings per share determined
pursuant to the requirements of Statement No. 128 are presented on the face of
the income statement and in the Notes to Consolidated Financial Statements.
Statement No. 130 will require the Corporation to provide additional disclosures
commencing with its fiscal quarter ending February 28, 1999. Statements No. 131
and 132 will require the Corporation to provide additional disclosures
commencing with its fiscal year ending November 30, 1999. The Corporation will
be required to implement Statement No. 133 commencing with its first fiscal
quarter of 2000. The Corporation is in compliance with SOP 98-1.
II-10
<PAGE>
QUARTERLY FINANCIAL DATA
(In thousands except per share data)
- --------------------------------------------------------------------------------
Selected quarterly financial data for the years ended November 30, 1998 and 1997
are presented below. Income (loss) per share is computed separately for each
quarterly and annual period presented.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
1998 QUARTERS ENDED FEBRUARY 28 MAY 31 AUGUST 31 NOVEMBER 30
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $385,041 $436,069 $497,795 $543,269
Gross profit 18,976 22,121 21,307 24,138
Net income 8,222 9,084 9,579 10,668
Income per share
Basic $ .15 $ .17 $ .18 $ .20
Diluted .15 .17 .18 .20
- --------------------------------------------------------------------
Market price
High $ 12.44 $ 12.25 $ 14.94 $ 11.88
Low 9.06 10.88 11.06 8.75
- --------------------------------------------------------------------
- --------------------------------------------------------------------
1997 QUARTERS ENDED FEBRUARY 28 MAY 31 AUGUST 31 NOVEMBER 30
- --------------------------------------------------------------------
Revenue $389,530 $414,225 $434,288 $439,258
Gross profit 18,104 19,206 20,742 21,263
Net income 7,004 7,419 8,235 9,373
Income per share
Basic $ .13 $ .14 $ .15 $ .17
Diluted .13 .14 .15 .17
- --------------------------------------------------------------------
Market price
High $ 10.50 $ 12.75 $ 14.63 $ 13.88
Low 8.63 9.75 11.38 9.75
- --------------------------------------------------------------------
</TABLE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
(IN THOUSANDS)
The Corporation's exposure to market risk for changes in interest rates
relates primarily to the Corporation's short-and long-term investment portfolio
and debt obligations. The Corporation's short-term investment portfolio consists
primarily of highly liquid instruments with maturities of one month or less. The
Corporation's long-term investment portfolio consists primarily of high-quality
debt instruments with maturities under 10 years and an average maturity of 3.5
years. These long-term instruments are held to fund potential workers
compensation obligations of the Corporation. The Corporation seeks to match the
maturities of these instruments as closely as possible with its anticipated
workers compensation obligations and to hold these instruments to maturity in
order to minimize market risk exposure. As of November 30, 1998, the Corporation
had $39,644 of short-term investments classified as cash equivalents and $45,985
in its long-term investment portfolio.
The Corporation may from time to time effect borrowings under its bank credit
facility for general corporate purposes, including working capital requirements,
capital expenditures and acquisitions. Borrowings under the bank credit facility
bear interest at the applicable LIBOR or base rate and, therefore, the
Corporation is subject to fluctuations in interest rates. As of November 30,
1998, the Corporation had no outstanding debt obligations.
II-11
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
MORRISON KNUDSEN CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements as of November 30, 1998 and 1997, and for
each of the three years in the period ended November 30, 1998
PAGE(S)
Report of Independent Accountants II-13
Consolidated Statements of Operations II-14
Consolidated Balance Sheets II-15, II-16
Consolidated Statements of Cash Flows II-17
Consolidated Statements of Stockholders' Equity II-18
Notes to Consolidated Financial Statements II-19 to II-39
II-12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Morrison Knudsen Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Morrison
Knudsen Corporation and subsidiaries (the "Corporation") at November 30, 1998
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended November 30, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Corporation's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 3 to the consolidated financial statements, the
Corporation changed its method of accounting for impairment of long-lived assets
in 1996 to conform with Statement of Financial Accounting Standards No. 121.
As discussed in Note 13 to the consolidated financial statements, the
Corporation has been named as a potentially responsible party at the Summitville
Mine Superfund Site. The Corporation's share, if any, of the ultimate
environmental liability at the site is not presently determinable and,
accordingly, no remediation costs have been accrued in the accompanying
financial statements.
Boise, Idaho
January 25, 1999
II-13
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 1,862,174 $ 1,677,301 $ 659,100
Cost of revenue (1,775,632) (1,597,986) (625,756)
- -------------------------------------------------------------------------------------------------
Gross profit 86,542 79,315 33,344
General and administrative expenses (24,202) (22,910) (22,574)
Impairment loss on long-lived assets - - (18,200)
Goodwill amortization (3,597) (3,578) (1,164)
- -------------------------------------------------------------------------------------------------
Operating income (loss) 58,743 52,827 (8,594)
Investment income 5,774 9,075 3,679
Interest expense (869) (890) (993)
Other income (expense), net 3,757 (1,116) 634
- -------------------------------------------------------------------------------------------------
Income (loss) before income taxes 67,405 59,896 (5,274)
Income tax (expense) benefit (29,852) (27,865) 494
- -------------------------------------------------------------------------------------------------
Net income (loss) $ 37,553 $ 32,031 $ (4,780)
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Income (loss) per share
Basic $.70 $.59 $(.14)
Diluted .69 .59 (.14)
- -------------------------------------------------------------------------------------------------
Common shares used to compute income (loss) per share
Basic 53,891,191 54,044,004 34,790,085
Diluted 54,136,295 54,181,062 34,977,464
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-14
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
- --------------------------------------------------------------------------------------------
NOVEMBER 30, 1998 1997
- --------------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 67,054 $ 53,215
Accounts receivable, including retentions of $18,627 and $26,970 175,513 187,311
Unbilled receivables 74,552 74,514
Refundable income taxes 780 14,331
Investments in and advances to construction joint ventures 70,855 29,270
Deferred income taxes 26,489 30,173
Other 12,479 16,200
- --------------------------------------------------------------------------------------------
Total current assets 427,722 405,014
- --------------------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Securities available for sale, at fair value 45,985 39,314
Investments in mining ventures 67,967 57,439
Assets held for sale 14,169 13,301
Cost in excess of net assets acquired, net of accumulated amortization
of $9,330 and $5,755 112,994 136,150
Deferred income taxes 30,965 31,183
Other 8,077 7,594
- --------------------------------------------------------------------------------------------
Total investments and other assets 280,157 284,981
- --------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, AT COST
Construction equipment 179,337 172,154
Land and improvements 6,993 6,993
Buildings and improvements 6,341 6,276
Equipment and fixtures 63,534 53,483
- --------------------------------------------------------------------------------------------
Total property and equipment 256,205 238,906
LESS ACCUMULATED DEPRECIATION (175,933) (158,657)
- --------------------------------------------------------------------------------------------
Property and equipment, net 80,272 80,249
- --------------------------------------------------------------------------------------------
Total assets $ 788,151 $ 770,244
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-15
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
NOVEMBER 30, 1998 1997
- ---------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 56,388 $ 53,448
Subcontracts payable, including retentions of $22,843 and $20,266 59,857 42,513
Billings in excess of cost and estimated earnings on uncompleted contracts 40,959 34,163
Estimated costs to complete long-term contracts 49,228 73,103
Accrued salaries, wages and benefits 58,939 52,618
Income taxes payable 1,535 1,371
Other accrued liabilities 36,118 42,679
- ---------------------------------------------------------------------------------------------------------
Total current liabilities 303,024 299,895
- ---------------------------------------------------------------------------------------------------------
NON-CURRENT LIABILITIES
Postretirement benefit obligation 53,456 53,689
Accrued workers' compensation 39,625 34,088
Pension and deferred compensation liabilities 16,390 15,334
Environmental remediation obligations 4,753 6,107
- ---------------------------------------------------------------------------------------------------------
Total non-current liabilities 114,224 109,218
- ---------------------------------------------------------------------------------------------------------
CONTINGENCIES AND COMMITMENTS (Note 13)
- ---------------------------------------------------------------------------------------------------------
REDEEMABLE PREFERRED STOCK, issued 1,800,000 shares of Series A - 18,000
- ---------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01, 10,000,000 shares authorized; zero
and 1,800,000 redeemable shares of Series A issued and outstanding
Common stock, par value $.01, authorized 100,000,000 shares;
issued 54,334,898 and 54,299,160 544 543
Capital in excess of par value 248,277 247,820
Stock purchase warrants 6,555 6,557
Retained earnings 131,411 93,858
Treasury stock, 982,488 and 57,806 shares, at cost (12,960) (685)
Cumulative translation adjustments, net of income tax benefit (3,050) (5,512)
Unrealized net gain on securities available for sale, net of income tax liability 796 550
Minimum pension liability adjustment, net of income tax benefit (670) -
- ---------------------------------------------------------------------------------------------------------
Total stockholders' equity 370,903 343,131
- ---------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $788,151 $770,244
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
II-16
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- ---------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 37,553 $ 32,031 $ (4,780)
Adjustments to reconcile net income (loss) to cash provided
by operating activities:
Depreciation of property and equipment 20,522 22,808 11,773
Amortization of goodwill 3,575 3,577 1,164
Provision for losses on uncompleted contracts, net change (9,580) (11,516) 5,724
Deferred income taxes 23,902 20,974 703
Equity in net income of mining ventures less dividends received (7,157) (9,502) (2,636)
Accrued workers' compensation 5,537 6,799 1,966
Gain on sale of assets, net (716) (1,602) (694)
Other (2,685) (4,849) (2,860)
Provision for impairment of long-lived assets - - 18,200
Changes in other assets and liabilities, net of effects of
business combination:
Receivables and unbilled receivables 11,762 63,580 (3,541)
Investment in and advances to construction joint ventures (41,297) (9,388) (9,522)
Other assets 751 1,199 (43)
Accounts payable, accrued salaries, other accrued liabilities,
and subcontracts payable 18,816 (62,908) (6,925)
Billings in excess of costs and estimated earnings 11,393 (26,743) 4,599
Estimated cost to complete long-term contracts (14,428) (8,054) 3,136
Income taxes 13,780 (7,116) (3,052)
- ---------------------------------------------------------------------------------------------------
Net cash provided by operating activities 71,728 9,290 13,212
- ---------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Property and equipment acquisitions (25,493) (19,700) (26,172)
Property and equipment disposals 5,017 6,675 11,013
Purchase of securities available for sale (19,293) (22,191) (1,096)
Sale and maturities of securities available for sale 13,377 13,387 -
Purchase of business (4,037) - -
Sale of business 2,758 - -
Collection of notes receivable - 8,087 7,595
Other investing activities (484) 6,255 1,257
Cash acquired in business combination - - 52,640
- ---------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (28,155) (7,487) 45,237
- ---------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Redemption of redeemable preferred stock, Series A (18,000) - -
Purchase of treasury stock (12,848) - -
Other financing activities 1,114 3,102 (1,293)
Borrowing under credit agreement - - 30,000
Repayments under credit agreement - - (63,839)
Payments of long-term borrowings - - (5,042)
- ---------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (29,734) 3,102 (40,174)
- ---------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 13,839 4,905 18,275
Cash and cash equivalents at beginning of period 53,215 48,310 30,035
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 67,054 $ 53,215 $ 48,310
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (Note 15)
The accompanying notes are an integral part of the financial statements.
II-17
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands except per share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL IN STOCK UNEARNED CUMULATIVE
COMMON EXCESS OF PURCHASE RETAINED TREASURY COMPENSATION - TRANSLATION
STOCK PAR VALUE WARRANTS EARNINGS STOCK RESTRICTED STOCK ADJUSTMENTS OTHER
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NOVEMBER 30, 1995 $295 $ 62,134 $ 66,607 $ (85)
Net loss (4,780)
Shares issued under stock
award plan 1 413 66
Shares and warrants
issued for business
combination 242 180,122 $6,564
Foreign currency
translation adjustments $ (154)
Change in unrealized gain
on securities available for
sale, net $579
- -----------------------------------------------------------------------------------------------------------------------------------
NOVEMBER 30, 1996 538 242,669 6,564 61,827 (19) (154) 579
Net income 32,031
Shares issued under
(acquired for) stock
award plan 5 4,725 $(685) 19
Stock purchase warrants
converted to shares of
common stock 32 (7)
Compensation related to
stock option plans 394
Foreign currency
translation adjustments,
net (5,358)
Change in unrealized gain on
securities available for
sale, net (29)
- -----------------------------------------------------------------------------------------------------------------------------------
NOVEMBER 30, 1997 543 247,820 6,557 93,858 (685) - (5,512) 550
Net income 37,553
Shares issued under
stock award plan 1 221 573
Stock purchase warrants
converted to shares of
common stock 17 (2)
Compensation related to
stock option plans 219
Treasury stock acquisitions (12,848)
Foreign currency transla-
tion adjustments, net 2,462
Change in unrealized gain
on securities available for
sale, net 246
Minimum pension liability
adjustment (670)
- -----------------------------------------------------------------------------------------------------------------------------------
NOVEMBER 30, 1998 $544 $248,277 $6,555 $131,411 $(12,960) $ - $(3,050) $ 126
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-18
<PAGE>
MORRISON KNUDSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
The term "Corporation" as used in this Annual Report includes Morrison Knudsen
Corporation and its consolidated subsidiaries unless otherwise indicated.
1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS:
The Corporation is a provider of (i) engineering and construction management
services to industrial companies, electric utilities and public agencies, (ii)
comprehensive environmental and hazardous substance remediation services to
governmental and private-sector clients, (iii) diverse heavy construction
services for the highway, airport, water resource, railway and commercial
building industries, and (iv) mine planning, engineering and contract mining
services for diverse customers. In providing such services, the Corporation
enters into three basic types of contracts: fixed-price or lump-sum contracts
providing for a fixed price for the total amount of work to be performed, unit-
price contracts providing for a fixed price for each unit of work performed, and
cost-type contracts providing for reimbursement of costs plus a fee. Both
anticipated income and economic risk are greater under fixed-price and unit-
price contracts than under cost-type contracts. Engineering, construction
management and environmental and hazardous substance remediation contracts are
typically awarded on a cost-plus-fee basis.
The Corporation also participates in construction joint ventures, often as
sponsor and manager of projects, which are formed for the sole purpose of
bidding, negotiating and completing specific projects. In addition, the
Corporation participates in the following mining ventures: Westmoreland
Resources, Inc., a coal mining company in Montana, and MIBRAG mbH, a company
that operates lignite coal mines and power plants in Germany.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Corporation
and all of its majority-owned subsidiaries. Investments in mining ventures and
all joint ventures are accounted for by the equity method. The Corporation's
proportionate share of construction joint-venture and mining venture revenue,
cost of revenue and gross profit (loss) is included in the consolidated
statements of operations. Intercompany accounts and transactions have been
eliminated.
REVENUE RECOGNITION:
Revenue is generally recognized on a percentage-of-completion method.
Completion is generally measured for engineering and construction contracts
based on the proportion of costs incurred to total estimated contract costs. For
certain long-term contracts involving mining, environmental and hazardous
substance remediation, completion is measured on estimated physical completion
or units of production.
Revenue recognition on certain fixed-price construction contracts begins when
progress is sufficient to estimate the probable outcome or on the completed
contract method if the probable outcome cannot be reasonably estimated. The
cumulative effect of revisions to contract revenue and completion costs,
including incentive awards, penalties, change orders and anticipated losses, is
recorded in the accounting period in which the amounts are known and can be
reasonably estimated. Such revisions could occur at any time, and the effects
could be material. Revenue from claims are recorded, to the extent that contract
costs have been incurred, when it is probable that the claim will result in
additional contract revenue and it can be reliably estimated.
The Corporation has a history of making reasonably dependable estimates of the
extent of progress towards completion, contract revenue and contract completion
costs on its long-term engineering and construction contracts.
II-19
<PAGE>
However, due to uncertainties inherent in the estimation process, it is possible
that actual completion costs may vary from estimates in the near term.
USE OF ESTIMATES:
The preparation of the Corporation's consolidated financial statements in
conformity with generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the balance sheet date and the reported amounts of revenue and costs during the
reporting periods. Actual results could differ in the near term from those
estimates.
UNBILLED RECEIVABLES:
Unbilled receivables at November 30, 1998 arise from the use of the
percentage-of-completion method of accounting, cost reimbursement-type contracts
and the timing of billings. Substantially all of the unbilled receivables at
November 30, 1998 are expected to be billed and collected within one year.
CLASSIFICATION OF CURRENT ASSETS AND LIABILITIES:
The Corporation includes in current assets and liabilities amounts realizable
and payable under engineering and construction contracts that extend beyond one
year. Accounts receivable at November 30, 1998 include approximately $2,180 of
contract retentions which are not expected to be collected within one year. At
November 30, 1998 accounts receivable include $1,931 of short-term marketable
securities jointly held with customers as contract retentions, the market value
of which approximated the carrying amounts. The Corporation recognizes interest
income from marketable securities as earned. Advances from customers are non-
interest bearing.
CASH EQUIVALENTS:
Cash equivalents consist of liquid securities with original maturities of
three months or less readily convertible to known amounts of cash.
CREDIT RISK CONCENTRATION:
The Corporation, by policy, limits the amount of credit exposure to any one
financial institution and places investments with financial institutions
evaluated as highly creditworthy. Concentrations of credit risk with respect to
accounts receivable and unbilled receivables are believed to be limited due to
the number, diversification and character of the obligors and the Corporation's
credit evaluation process. Typically, the Corporation has not required
collateral for such obligations, but can place liens against property, plant or
equipment constructed if a default occurs. Historically, the Corporation has not
incurred any material credit-related losses.
COST IN EXCESS OF NET ASSETS ACQUIRED:
Cost in excess of net assets acquired in business combinations ("goodwill") is
amortized using the straight-line method over 40 years. The carrying value of
goodwill is reviewed for impairment on a quarterly basis. If impairment is
indicated by the facts and circumstances, an impairment loss will be recognized
based on a comparison of the carrying value of the long-lived assets and
associated goodwill with the undiscounted cash flow of such assets. The carrying
amount of the goodwill identifiable with such assets will be eliminated before
recognition of impairment of the related long-lived assets and identifiable
intangibles.
PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost. Major renewals and improvements are
capitalized, while maintenance and
II-20
<PAGE>
repairs are expensed when incurred. Depreciation of construction equipment is
provided on straight-line and accelerated methods, after an allowance for
estimated salvage value, over estimated lives of two to 10 years. Depreciation
of buildings is provided on the straight-line method over estimated lives of 10
to 20 years, and improvements are amortized over the shorter of the asset life
or lease term. Depreciation of equipment, principally computer systems, is
provided under the straight-line method generally over three to five years. Upon
disposition, cost and related accumulated depreciation of property and equipment
are removed from the accounts and the gain or loss is reflected in results of
operations.
FOREIGN CURRENCY TRANSLATION:
The functional currency for foreign operations is generally the local
currency. Translation of assets and liabilities to U.S. dollars is based on
exchange rates at the balance sheet date. Translation of revenue and expenses to
U.S. dollars is based on a weighted-average exchange rate during the period.
Translation gains or losses, net of income tax effects, are reported as a
component of stockholders' equity for foreign subsidiaries. Because of the
short-term duration of construction and engineering projects, related
translation gains or losses are recognized currently. Gains or losses from
foreign currency transactions are included in the results of operations of the
period in which the transaction is completed.
ENVIRONMENTAL LIABILITIES:
Accruals for estimated costs of response actions for environmental matters are
recorded when it is probable that a liability has been incurred and the amount
of the liability can be reasonably estimated. On a quarterly basis, the
Corporation reviews estimates of costs of response actions at various sites,
including sites in respect of which government agencies have designated the
Corporation as a potentially responsible party. Accrued liabilities may be
discounted and are exclusive of claims for recovery, if any. However, due to
uncertainties inherent in the estimation process, it is possible that actual
results may vary from estimates in the near term.
INCOME TAXES:
Deferred income tax assets and liabilities are recognized for the effects of
temporary differences between the carrying amounts and the income tax basis of
assets and liabilities using enacted tax rates. A valuation allowance is
established when it is more likely than not that net deferred tax assets will
not be realized. Tax credits are recognized in the year they arise.
INCOME (LOSS) PER SHARE:
Basic income (loss) per share is based on the weighted-average number of
outstanding common shares during the applicable period. Diluted income (loss)
per share is based on the weighted-average number of outstanding common shares
plus the weighted-average number of potential outstanding common shares. The
additional weighted-average number of potential outstanding common shares for
purposes of computed diluted earnings per share consisted solely of stock
options for all periods presented. Income (loss) per share is computed
separately for each quarterly and annual period presented.
RECLASSIFICATIONS:
Certain reclassifications have been made in prior period financial statements
to conform to the 1998 presentation.
2. BUSINESS COMBINATION
On September 11, 1996, the Corporation (which was then known as Washington
Construction Group, Inc.) acquired the net assets and the engineering and
construction operations of Morrison Knudsen Corporation ("Old MK") for $221,736,
and changed its name to Morrison Knudsen Corporation.
II-21
<PAGE>
The purchase price consisted of (i) $13,300 of cash, (ii) 24,161,421 newly
issued shares of common stock of the Corporation valued at $180,364 in the
aggregate, or $7.465 per share, (iii) 1,800,000 newly issued shares of preferred
stock valued at $18,000, (iv) warrants to purchase 2,952,848 shares of the
Corporation's common stock at $12.00 per share valued at $6,564, and (v) $3,508
of acquisition costs. The acquisition of Old MK was structured as a merger of
Old MK with and into the Corporation and was accounted for using the purchase
method of accounting. The purchase price was allocated to the assets acquired
and liabilities assumed based on estimated fair values at September 11, 1996.
The consolidated results of operations for periods subsequent to September 11,
1996 reflect the merged operations. The cost in excess of the net assets
acquired is being amortized under the straight-line method over 40 years.
- --------------------------------------------------
PURCHASE PRICE ALLOCATION AS OF SEPTEMBER 11, 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------
<S> <C>
Net working capital $ 22,880
Investments and other assets 155,800
Cost in excess of net assets acquired 124,115
Property and equipment 28,730
Non-current liabilities (109,789)
- ---------------------------------------------------
Purchase price $ 221,736
- ---------------------------------------------------
- ---------------------------------------------------
</TABLE>
The following unaudited pro forma information presents the Corporation's
consolidated results of operations as if the acquisition of Old MK had occurred
on December 1, 1995 and after giving effect to certain adjustments, including
amortization of goodwill, depreciation expense, reduction in investment income
and related tax effects. The unaudited pro forma results of operations for 1996
include Old MK's results of operations for the eleven months ended November 30,
1996. The pro forma results of operations for 1996 reflect certain adjustments
made in 1997 to reflect revenue on mining ventures consistent with the 1997
presentation and to eliminate certain after tax losses on disposal of assets and
professional fees. Such pro forma information does not purport to be indicative
of operating results that would have been reported had the acquisition of Old MK
occurred on December 1, 1995 or of future operating results.
<TABLE>
<CAPTION>
- -----------------------------------------------------------
PRO FORMA RESULTS OF OPERATIONS (UNAUDITED)
PERIOD ENDED NOVEMBER 30, 1996
- -----------------------------------------------------------
<S> <C>
Revenue $1,751,389
Income from continuing operations 22,597
Income per common share -- basic and diluted .43
- -----------------------------------------------------------
</TABLE>
3. ADOPTION OF ACCOUNTING PRINCIPLE
During 1998, the Corporation adopted Statement of Financial Accounting
Standards No. 128 Earnings Per Share ("SFAS No. 128") which changed the standard
for computing and presenting earnings per share ("EPS"). Basic EPS excludes
dilution and is computed by dividing net income by the weighted-average number
of shares outstanding for the period. Diluted EPS is computed by dividing net
income by the sum of the weighted-average number of shares outstanding plus the
weighted-average number of potential common shares outstanding. Potential common
shares consist of shares issuable upon the exercise of stock options and
warrants. Earnings per share computations exclude stock options and potential
shares for stock purchase warrants to the extent that their effect would be
antidilutive.
During 1998, the Corporation also adopted the provisions of Statement of
Position ("SOP") 98-1 Accounting for Costs of Computer Software Developed or
Obtained for Internal Use issued by the American Institute of Certified Public
Accountants. The SOP provides guidance on accounting for the costs of computer
software developed or obtained for internal use. In general, the SOP calls for
expensing software costs incurred in the preliminary project stage and post-
implementation/operation stage and the capitalization of software costs incurred
during the application development stage, including payroll and payroll-related
costs for employees who are directly associated with the
II-22
<PAGE>
project.
In the third quarter of 1996, the Corporation adopted Statement of Financial
Accounting Standards No. 121 Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of , which requires that long-lived assets
and certain identifiable intangible assets be periodically reviewed for
impairment. The impairment loss on long-lived assets aggregating $18,200 in 1996
was comprised of the following:
(i) The Corporation's Board of Directors approved a plan to offer for sale
certain assets of a non-core subsidiary with a carrying amount of $17,486 at
August 31, 1996. The Corporation recognized an estimated impairment loss of
$6,500 to reduce the carrying amount of the assets to estimated fair value.
(ii) Land previously held primarily for lease with a carrying amount of $8,266
at August 31, 1996 was reclassified to land held for sale. The Corporation
recognized an estimated impairment loss of $5,600 and established a new
carrying amount of $2,666 at August 31, 1996, based upon an appraisal of the
current fair value net of the estimated improvement and disposal costs
required for a near-term bulk sale of the land.
(iii) As of August 31, 1996, the Corporation recognized an estimated
impairment loss of $6,100 on the land and buildings in Highland, California,
which comprised the Corporation's headquarters prior to relocation of the
headquarters to Boise, Idaho. The loss reflects the change in use and the
impairment of the $7,016 carrying amount of the Highland property. The
impairment loss was estimated based on an appraisal of the current fair value.
4. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130 Reporting Comprehensive Income ("SFAS No. 130"). SFAS No. 130 establishes
standards for the reporting and display of comprehensive income but does not
effect the current principles of measurement of revenue. Comprehensive income is
defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. The
adoption of SFAS No. 130 is effective for the Corporation commencing with the
quarter ending February 28, 1999.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131 Disclosures about Segments of an Enterprise and Related Information ("SFAS
No. 131"). SFAS No. 131 requires publicly-held companies to report segment and
other financial information which is utilized by the chief operating decision
maker and to reconcile the segment information to financial statement amounts.
Specific information to be reported for individual segments includes profit or
loss, certain revenue and expense items and total assets. SFAS No. 131 is
effective for the Corporation commencing with the year ending November 30, 1999.
In February 1998, the Financial Accounting Standards Board issued Statement
No. 132 Employers' Disclosures about Pensions and Other Postretirement Benefits
- - an amendment of FASB Statements No. 87, 88 and 106 ("SFAS No. 132"). SFAS No.
132 revises and standardizes the disclosure requirements for pensions and other
postretirement benefits, requires additional information on changes in the
benefit obligations and fair values of plan assets and eliminates certain
disclosures previously required. SFAS No. 132 does not change the measurement or
recognition of those plans. SFAS No. 132 is effective for the Corporation
commencing with the year ending November 30, 1999.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 Accounting for Derivative Instruments and Hedging Activities ("SFAS No.
133"). SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. The statement requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
Corporation is currently evaluating the effect of SFAS No. 133 will have on
future results of operations and financial position. Implementation of SFAS No.
133 is required commencing with the first quarter of 2000.
II-23
<PAGE>
5. SECURITIES AVAILABLE FOR SALE
Securities available for sale are reported at fair value and consisted
primarily of debt securities at November 30, 1998. Gross unrealized gains were
$1,459 and losses were $157 at November 30, 1998. Gross unrealized gains were
$732 and losses were $182 at November 30, 1997. Unrealized gains and losses, net
of income tax effects, are reported as a component of stockholders' equity. Cost
is determined using the specific identification method for purposes of
calculating realized gains and losses. Securities available for sale are held in
a captive insurance subsidiary which insures workers' compensation risks of the
Corporation. Securities available for sale having a fair value of $3,443 at
November 30, 1998 are pledged as collateral for the Corporation's reimbursement
obligations in respect of letters of credit issued at the Corporation's request
by third parties. Maturity, fair value and cost of securities held for sale were
as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------
MATURITIES OF SECURITIES FAIR VALUE COST
<S> <C> <C>
- -------------------------------------------------
1999 $15,444 $15,426
2000 - 2001 22,025 21,226
2002 - 2005 8,516 8,031
- -------------------------------------------------
Total at November 30, 1998 $45,985 $44,683
- -------------------------------------------------
- -------------------------------------------------
Total at November 30, 1997 $39,314 $38,764
- -------------------------------------------------
- -------------------------------------------------
</TABLE>
6. VENTURES
CONSTRUCTION JOINT VENTURES:
The Corporation participates in joint ventures, generally as sponsor and
manager of the projects, which are formed to bid, negotiate and complete
specific projects. The size, scope and duration of joint-venture projects vary
among periods.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
COMBINED FINANCIAL POSITION OF CONSTRUCTION JOINT VENTURES
NOVEMBER 30, 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets $ 407,790 $ 364,752
Property and equipment, net 52,698 33,223
Current liabilities (269,813) (324,092)
- -----------------------------------------------------------------------------------------------------
Net assets $ 190,675 $ 73,883
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
COMBINED RESULTS OF OPERATIONS OF CONSTRUCTION JOINT VENTURES
YEAR ENDED NOVEMBER 30, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
Revenue $ 1,219,951 $ 793,555 $ 246,636
Cost of revenue (1,058,715) (715,492) (229,836)
- -----------------------------------------------------------------------------------------------------
Gross profit (excludes indirect overhead cost) $ 161,236 $ 78,063 $ 16,800
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
II-24
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
CORPORATION'S SHARE OF RESULTS OF OPERATIONS OF CONSTRUCTION JOINT VENTURES
YEAR ENDED NOVEMBER 30, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 436,407 $ 331,940 $103,709
Cost of revenue (384,549) (299,701) (95,953)
- ----------------------------------------------------------------------------------------------------------------
Gross profit (excludes indirect overhead cost) $ 51,858 $ 32,239 $ 7,756
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Combined financial position and results of operations of joint ventures
subsequent to September 11, 1996 include the financial position and operating
results of joint ventures acquired as a result of the acquisition of Old MK.
MINING VENTURES:
At November 30, 1998, the Corporation had ownership interests in two mining
ventures, MIBRAG mbH (33%) and Westmoreland Resources, Inc. ("Westmoreland
Resources") (20%). On September 30, 1996, the Corporation sold a 4% ownership
interest in Westmoreland Resources to Westmoreland Coal Company ("Westmoreland
Coal") thereby reducing its ownership interest to 20%. The Corporation provides
contract mining services to these ventures.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
COMBINED FINANCIAL POSITION OF MINING VENTURES
NOVEMBER 30, 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets $ 313,607 $ 302,237
Non-current assets 123,286 117,447
Property and equipment, net 594,916 498,310
Current liabilities (87,824) (101,241)
Long-term debt (356,767) (267,026)
Other non-current liabilities (369,823) (365,058)
- -----------------------------------------------------------------------------------------------------
Net assets $ 217,395 $ 184,669
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
COMBINED RESULTS OF OPERATIONS OF MINING VENTURES
YEAR ENDED NOVEMBER 30, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
Revenue $ 291,918 $ 364,425 $ 102,701
Cost of revenue (267,397) (331,502) (92,071)
- -----------------------------------------------------------------------------------------------------
Gross profit (excludes indirect overhead cost) $ 24,521 $ 32,923 $ 10,630
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
CORPORATION'S SHARE OF RESULTS OF OPERATIONS OF MINING VENTURES
YEAR ENDED NOVEMBER 30, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
Revenue $ 93,568 $ 115,412 $ 32,786
Cost of revenue (85,775) (105,108) (29,385)
- -----------------------------------------------------------------------------------------------------
Gross profit (excludes indirect overhead cost) $ 7,793 $ 10,304 $ 3,401
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
Combined financial position and results of operations of mining ventures
subsequent to September 11, 1996 include the financial position and operating
results of mining ventures acquired as a result of the acquisition of Old MK.
II-25
<PAGE>
Undistributed earnings from mining ventures totaled $19,295 at November 30,
1998.
On December 23, 1996, Westmoreland Coal and four subsidiaries, including
Westmoreland Resources, filed for protection under Chapter 11 of the United
States Bankruptcy Code. Effective at the beginning of July 1998, the Corporation
temporarily suspended recording its equity in the income of Westmoreland
Resources pending the outcome of the proceedings. Subsequently, Westmoreland and
its creditors compromised and resolved their differences and, on December 23,
1998, the Chapter 11 bankruptcy case was dismissed. As a result, the
Westmoreland mining contracts with the Corporation remain in full force and
effect and the Corporation's equity interest in Westmoreland Resources is
unaffected.
7. ASSETS HELD FOR SALE
At November 30, 1998, assets held for sale are stated at the lower of cost or
fair value less cost of disposal and are comprised of the net assets of a
subsidiary. The Corporation is unable to predict disposal dates. Operations of
the subsidiary resulted in revenue of $20,200 and $5,300, and net losses of $12
and $937 for 1998 and 1997, respectively. During 1998, land held for sale was
sold at approximate book value of $2,758. During 1997, a 29.5% stock ownership
interest in a foreign bank which had a carrying amount of $5,244 at November 30,
1996 was sold at a loss of $833. In 1996, the Corporation recognized aggregate
impairment losses of $12,100 on assets held for sale and $6,100 on assets held
for use.
8. CREDIT FACILITIES
On October 31, 1996, the Corporation obtained from the Bank of Montreal a
five-year, $200,000 revolving loan and letter of credit facility (the
"Facility"). Revolving loan borrowings under the Facility are limited to
$125,000. On October 8, 1997, the Facility was extended for an additional year
to October 2002. Annually thereafter, the Facility may be extended by an
additional year upon mutual approval of the bank and the Corporation.
Substantially all of the assets of the Corporation and certain of its material
domestic subsidiaries are pledged to collateralize the Corporation's
obligations under the Facility. The Facility covenants require the maintenance
of financial ratios, the most restrictive of which is fixed charge coverage and
minimum levels of net worth, and place limitations on additional indebtedness,
guarantees, liens, investments and other matters. At November 30, 1998, the
Corporation had no outstanding borrowings under the Facility and was in
compliance with the covenants. The Corporation is not restricted from paying
dividends unless an event of default exists.
The Facility provides for loans bearing interest, payable quarterly, at the
applicable LIBOR rate or the base rate, as defined, plus an additional margin.
The additional margin ranges from 3/4% to 1 1/8% for the LIBOR rate and zero to
1/4% for the base rate, based on the ratio of earnings before interest, taxes,
depreciation and amortization to the Corporation's funded debt. In 1996, the
Corporation paid a $1,100 underwriting fee to the bank and is required to pay
annual/quarterly commitment and letter of credit fees.
II-26
<PAGE>
9. TAXES ON INCOME
The components of the U.S. federal, state and foreign income tax expense
(benefit) were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable (refundable)
U.S. federal $ 1,601 $ (2,699) $ (10)
State 761 871 108
Foreign 4,437 3,535 1,019
- ----------------------------------------------------------------------
Current 6,799 1,707 1,117
- ----------------------------------------------------------------------
Deferred
U.S. federal 21,128 22,585 (1,459)
State 3,604 3,043 (361)
Foreign (1,679) 530 209
- ----------------------------------------------------------------------
Deferred 23,053 26,158 (1,611)
- ----------------------------------------------------------------------
Income tax expense (benefit) $29,852 $ 27,865 $ (494)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
DEFERRED TAX ASSETS AND LIABILITIES
NOVEMBER 30, 1998 1997
- ----------------------------------------------------------------------
Deferred tax assets
Employee benefit plans $ 34,177 $ 31,926
Estimated loss accruals 38,643 54,429
Revenue recognition 1,413 2,585
Alternative minimum tax 13,731 14,507
Joint ventures - 3,633
Self-insurance accruals 34,612 31,643
Loss carryforwards 85,911 88,326
Valuation allowance (91,987) (111,987)
- ----------------------------------------------------------------------
Total deferred tax assets 116,500 115,062
- ----------------------------------------------------------------------
Deferred tax liabilities
Depreciation (11,483) (10,217)
Basis difference in affiliates (20,314) (16,686)
Joint ventures (5,581) -
Other, net (21,668) (26,803)
- ----------------------------------------------------------------------
Total deferred tax liabilities (59,046) (53,706)
- ----------------------------------------------------------------------
Total deferred tax assets, net $ 57,454 $ 61,356
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</TABLE>
At November 30, 1998, the Corporation had consolidated regular tax net
operating loss carryforwards for federal, state and foreign tax purposes of
approximately $211,137, $194,654 and $3,775, respectively, which expire in the
years 2000 through 2012. In addition, the Corporation had federal alternative
minimum tax credits of $13,731 at November 30, 1998 which carry forward
indefinitely. The $91,987 valuation allowance reduces these net operating loss
carryforwards and other deferred tax assets to a level which management believes
will, more likely than not, be realized based on estimated future taxable
income. The net decrease of $20,000 in the valuation allowance at November 30,
1998 resulted from an evaluation of the likelihood of the future realization of
deductible temporary differences and net
II-27
<PAGE>
operating loss carryforwards of Old MK. The reduction in the valuation allowance
was recorded as a reduction of goodwill related to the acquisition of Old MK.
Any future reduction in the valuation allowance related to tax assets acquired
at September 11, 1996 will result in a reduction of goodwill. The valuation
allowance may be increased based on the occurrence of future events, and any
such increase could be material. Years prior to 1994 are closed to examination
for federal tax purposes. Management believes that adequate provision has been
made for probable tax assessments.
Income tax expense (benefit) differed from income taxes at the U.S. federal
statutory tax rate of 35% as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense (benefit) at 35% U.S. federal statutory rate $23,592 $20,964 $(1,846)
State income tax, net of federal benefit 2,837 2,544 (165)
Foreign income tax, net of federal benefit 1,793 2,642 799
Nondeductible expenses (nontaxable income), net 1,867 1,643 447
Other (237) 72 271
- ---------------------------------------------------------------------------------------
Income tax expense (benefit) $29,852 $27,865 $ (494)
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
Nondeductible expenses (nontaxable income), net was comprised principally of
goodwill amortization and the nondeductible portion of meals and entertainment
expenses.
Income (loss) before income taxes was comprised of a domestic source income of
$40,366 and foreign source income of $27,039 in 1998, domestic source income of
$28,725 and foreign source income of $31,171 in 1997 and a domestic source loss
of $(6,406) and foreign source income of $1,132 in 1996.
10. BENEFIT PLANS
PENSION PLAN:
The Corporation terminated its defined benefit pension plan in 1997. During
1998, a settlement of the plan's accumulated vested termination benefit
obligation was effected through a combination of lump-sum cash payments and the
purchase of a nonparticipating group annuity contract. As a result of this
termination, other income of $3,161 was recognized during 1998. At November 30,
1998, approximately $4,348 in excess plan assets remain in trust and are
expected to be distributed equally after payment of final plan expenses to
eligible plan participants early in 1999. All of these remaining excess assets
are invested in cash equivalents pending this final distribution.
MULTIEMPLOYER PENSION PLANS:
The Corporation participates in and makes contributions to numerous
construction-industry multiemployer pension plans. Generally, the plans provide
defined benefits to substantially all employees covered by collective bargaining
agreements. Cost of the plans was $18,871 in 1998, $16,098 in 1997 and $4,972 in
1996. Under the Employee Retirement Income Security Act, a contributor to a
multiemployer plan is liable, upon termination or withdrawal from a plan, for
its proportionate share of a plan's unfunded vested liability. The Corporation
currently has no intention of withdrawing from any of the multiemployer pension
plans in which it participates.
II-28
<PAGE>
ACCRUED PENSION LIABILITIES:
The Corporation has assumed the pension liabilities to current employees,
former employees and former non-employee directors of Old MK as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
STATUS OF THE UNFUNDED PENSION PLANS
NOVEMBER 30, 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated vested benefit obligation, discounted at 6.5% and 7.0% $(14,357) $(14,549)
Unrecognized net loss 1,096 960
- ------------------------------------------------------------------------------------------
Accrued pension liability (13,261) (13,589)
Minimum pension liability (1,096) -
- ------------------------------------------------------------------------------------------
Pension liability included in consolidated balance sheets $(14,357) $(13,589)
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
Participants do not accrue any service cost under the plans. There was no
interest expense associated with the pension liability for former non-employee
directors in 1998, 1997 and 1996, as the full, undiscounted liability is
included in the accumulated vested benefit obligation ("ABO"). Pension expense
(consisting entirely of interest on the unfunded current and former employee
ABO) for 1998, 1997 and 1996 was $928, $955 and $207.
POSTRETIREMENT HEALTH CARE PLAN:
The Corporation succeeded Old MK as sponsor of an unfunded plan to provide
certain health care benefits for employees of Old MK who retired before July 1,
1993, including their surviving spouses and dependent children. Employees who
retired after July 1, 1993 are not eligible for company subsidized
postretirement health care benefits. The plan was amended in past years, and the
Corporation reserves the right to amend or terminate the postretirement health
care benefits currently provided under the plan and may increase retirees' cash
contributions at any time.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
ACCRUED POSTRETIREMENT BENEFIT OBLIGATION
NOVEMBER 30, 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation, discounted at 6.5% and 7.0% $(39,545) $(43,250)
Unrecognized prior service cost (4,211) (4,593)
Unrecognized actuarial net gain (9,700) (5,846)
- -----------------------------------------------------------------------------------
Accrued postretirement benefit obligation $(53,456) $(53,689)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>
Periodic cost of the plan included the following components:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
PERIODIC COST
YEAR ENDED NOVEMBER 30, 1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Interest cost on accumulated benefit obligation $2,924 $3,522 $ 803
Amortization of prior service cost (383) (383) -
Amortization of actuarial gains (127) - -
- --------------------------------------------------------------------------
Periodic cost $2,414 $3,139 $ 803
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</TABLE>
II-29
<PAGE>
The unrecognized prior service cost is being amortized to periodic health care
expense over the 13-year average future expected lifetime of retirees and their
surviving spouses beginning in fiscal 1997, the date of the last plan change.
The accumulated postretirement benefit obligation ("APBO") was determined
using the projected unit credit method and assumed discount rates of 6.5% and 7%
in 1998 and 1997, respectively. In addition, an annual rate increase of 8.5% in
the per capita cost of health care benefits was assumed, gradually declining to
4.5% in the year 2007 and continuing thereafter at that rate over the projected
payout period of the benefits. The health care cost trend rate assumption has a
significant effect on the APBO. For example, a 1% increase in the health care
cost trend rate would increase the APBO at November 30, 1998 by approximately
$3,837 and increase the 1998 expense by approximately $294.
DEFERRED COMPENSATION PLANS:
The Corporation adopted a deferred compensation plan effective January 1, 1998
for the benefit of executive officers and key employees. The unfunded plan
allows participants to elect to defer salary and bonus subject to certain
limits. An accrued liability for the plan of $2,202 has been accrued at November
30, 1998.
OTHER RETIREMENT PLANS:
The Corporation also sponsors a number of defined contribution retirement
plans. Participation in these plans is available to substantially all salaried
employees and to certain groups of hourly employees. The Corporation's cash
contributions to these plans are based on either a percentage of employee
contributions or on a specified amount per hour based on the provisions of each
plan. Costs associated with these plans totaled $12,219, 12,354 and $3,192 for
1998, 1997 and 1996, respectively.
The net cost of all of the above plans was $31,408 in 1998, $30,846 in 1997
and $9,174 in 1996.
11. TRANSACTIONS WITH AFFILIATES
The Corporation purchased goods and services from and participated in joint
ventures with affiliates of a principal stockholder and Chairman of the Board of
Directors of the Corporation as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Capital expenditures $ 193 $1,444 $1,063
Lease and maintenance of corporate aircraft 669 931 -
Parts, rentals, overhauls and repairs 1,943 4,565 7,709
Administrative support services 1,411 1,066 1,688
Revenue recognized from joint ventures 3,203 4,798 2,103
Profit recognition from joint ventures 1,264 1,522 393
Corporation's investment in joint ventures 1,843 1,648 1,080
- ---------------------------------------------------------------------
</TABLE>
The Corporation performed construction services, rented equipment and realized
gains on sales of equipment to affiliates of a principal stockholder and
Chairman of the Board of Directors of the Corporation as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998 1997 1996
- -----------------------------------------------------------------
<S> <C> <C> <C>
Construction services $1,789 $ 29 $4,696
Equipment rental - - 346
Gain (loss) on sales of equipment, net (37) (63) 466
- -----------------------------------------------------------------
</TABLE>
II-30
<PAGE>
The Corporation purchased insurance, surety bonds and financial advisory
services from firms owned by or affiliated with current members of the Board of
Directors of the Corporation as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insurance premiums paid, net $ 9,266 $ 9,401 $11,508
Insurance fees 1,150 1,280 875
Financial advisory services regarding purchase of Old MK - - 992
Fair value of stock purchase warrants issued for service in
connection with the purchase of Old MK - - 543
Financial advisory services 301 154 -
- ----------------------------------------------------------------------------------------
</TABLE>
In January 1998, the Corporation and a brokerage firm owned by a member of the
Board of Directors approved a new agreement for insurance and bond services
supplied to the Corporation effective January 1, 1998 and expiring December 31,
2000, with automatic renewal annually for 12-month terms thereafter, unless
canceled by either party prior to the annual date. Pursuant to the agreement,
the brokerage firm receives an annual fixed fee of $1,150, which will be paid in
equal quarterly installments with all insurance commissions earned to be
credited 100% against the fee.
Negotiations of the proposed acquisition of an interest in a copper mine
between the Corporation and a principal stockholder and the Chairman of the
Board of Directors were terminated in January, 1998.
12. GEOGRAPHIC AND CUSTOMER INFORMATION
The Corporation operates in the engineering and construction industry in the
following geographic areas:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
GEOGRAPHIC DATA
YEAR ENDED NOVEMBER 30, 1998 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
United States $1,595,463 $1,474,831 $589,930
International 266,711 202,470 69,170
- ---------------------------------------------------------------------
Total revenue $1,862,174 $1,677,301 $659,100
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Operating income (loss)
United States $ 61,753 $ 50,182 $ 14,377
International 24,789 29,133 767
Unallocated corporate expense (27,799) (26,488) (23,738)
- ---------------------------------------------------------------------
Operating income (loss) $ 58,743 $ 52,827 $ (8,594)
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998 1997
- ---------------------------------------------------------------------
Identifiable assets
United States $ 412,483 $357,424
International 93,882 111,182
Corporate assets 281,786 301,638
- ---------------------------------------------------------------------
Total assets $ 788,151 $770,244
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
</TABLE>
II-31
<PAGE>
Corporate assets include cash and cash equivalents, refundable income taxes,
deferred tax assets, securities available for sale, assets held for sale and
cost in excess of net assets acquired. Revenue from international operations and
identifiable assets of international operations in 1998, 1997 and 1996 was in
numerous geographic areas without significant concentration. Unallocated
corporate expense consists of general and administrative expense and goodwill
amortization. Indirect overhead cost has been allocated based on a percentage of
revenue for all periods presented.
Ten percent or more of the Corporation's revenues for one or more of the three
years in the period ended November 30, 1998 were derived from contracts and
subcontracts with the following customers:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C> <C>
California Department of Transportation $106,855 $125,136 $147,598
United States Department of Energy 266,859 289,288 69,614
Other U.S. government agencies 126,933 71,684 36,439
- -----------------------------------------------------------------------
</TABLE>
13. CONTINGENCIES AND COMMITMENTS
SUMMITVILLE ENVIRONMENTAL MATTERS:
From July 1985 to June 1989, a subsidiary of the Corporation performed certain
contract mining services at the Summitville mine near Del Norte, Colorado. The
United States Environmental Protection Agency (the "EPA") has notified the
Corporation and approximately 20 other parties that each is a potentially
responsible party ("PRP") with regard to hazardous substances generated or
disposed of at the Summitville Mine Superfund Site (the "Site"). The EPA has not
commenced any litigation or other proceedings against the Corporation. The
Corporation has had only preliminary discussions with the EPA but has been
informally advised that the EPA does not consider the Corporation eligible for a
de minimis settlement (the basis for settlement by several PRPs considered to
have contributed less than 3% volume and toxicity of the hazardous substances at
the Site).
According to a report published in August 1996, the EPA estimated that the
total remediation costs incurred and to be incurred at the Site will be
$120,000. The Corporation is not a party to any agreement regarding an
allocation of responsibility, and the EPA has not made an allocation of
responsibility among the PRPs. The Corporation's share, if any, of the aggregate
environmental liability associated with the Site is not presently determinable
and depends upon, among other things, the manner in which liability may be
allocated to or among the Corporation or other PRPs associated with the Site,
the efficacy of any defenses that the Corporation or such other PRPs may have to
any assertion of liability, the willingness and ability of such other PRPs to
discharge such liability as may be allocated to them and the outcome of any
negotiations or settlement discussions between the Corporation and the EPA
and/or such other PRPs. Accordingly, no remediation costs have been accrued at
November 30, 1998.
Management believes that the ultimate resolution of this matter could have a
material adverse effect on the Corporation's financial position and could
materially and adversely effect its results of operations and cash flows in one
or more periods.
OTHER ENVIRONMENTAL MATTERS:
The Corporation has been identified as a PRP and is contingently liable for
remediation liabilities in connection with Old MK's former Transit business. The
Corporation agreed to indemnify the buyer of the Transit business for
remediation costs and has therefore accrued $3,000. While the Corporation's
range of loss cannot be estimated, management believes that the ultimate outcome
of the matter will not have a material adverse effect on the Corporation's
financial position, results of operations or cash flows.
II-32
<PAGE>
The Corporation has assumed an undiscounted liability of Old MK which at
November 30, 1998 was $1,753 for environmental cleanup activities at four other
sites. The Corporation estimates that such costs could range from $1,000 to
$1,800 in the aggregate.
CONTRACT RELATED MATTERS:
In 1995, Old MK entered into a fixed-price contract with the Texas Natural
Resource Conservation Commission ("TNRCC") for construction of a solvent-
extraction facility and treatment of contaminated soil at a Superfund site in
Texas. The TNRCC notified the Corporation in February 1998 that it was
terminating its contract with the Corporation. In the fourth quarter of 1998,
the Corporation received $1,600 as settlement for all issues relating to this
contract, and the TNRCC has released the Corporation's letter of credit in the
amount of $13,619 that had been provided by the Corporation to collateralize its
obligations under the contract.
In the fourth quarter of 1997, the Corporation assumed sponsorship of a large,
fixed-price joint-venture contract due to the bankruptcy of the previous sponsor
and recorded a $3,900 pretax loss due to uncertainties on the project, including
unpaid client-directed change orders and potential project claims. Management
believes that acceptable pricing will be achieved by further negotiation with
the client. The ultimate outcome cannot be currently determined with certainty
and may not occur in the near term.
The Corporation has a number of cost reimbursable contracts with the U.S.
government, the allowable costs of which are subject to adjustments upon audit
and negotiation by various agencies of the U.S. government. Audits and
negotiations of the Corporation's allocation of periodic costs of insurance
programs are complete through 1997, resulting in a $4,300 credit refund by the
Corporation to certain U.S. government contracts to be applied over two years.
Audits and negotiations of indirect costs are substantially complete through
1996. The anticipated adjustment in favor of the government is $1,000 for which
the Corporation has previously established a reserve. Audits of 1997 indirect
costs are in progress.
LETTERS OF CREDIT:
In the normal course of business, the Corporation causes letters of credit to
be issued in connection with contract performance obligations which are not
reflected in the balance sheet. The Corporation is obligated to reimburse the
issuer of such letters of credit for any payments made thereunder. At November
30, 1998 and 1997, $37,157 and $41,297, respectively, in face amount of such
letters of credit were outstanding. The Corporation has pledged securities
available for sale as collateral for its reimbursement obligations in respect of
$3,443 in face amount of certain letters of credit that were outstanding at
November 30, 1998.
In connection with a 1989 sale of Old MK's ownership interest of a
shipbuilding subsidiary, the Corporation assumed a guarantee of port facility
bonds of $21,000 through 2002. The former subsidiary has collateralized the
bonds with certain assets and has established a sinking fund of $5,272 for the
bonds. No loss on the guarantee is probable and, accordingly, no accrual has
been made by the Corporation.
II-33
<PAGE>
LONG-TERM LEASES:
Total rental payments for real estate and equipment under lease charged to
operations in 1998, 1997, and 1996 were $52,067, $36,575 and $11,780,
respectively. Future minimum rental payments under operating leases, some of
which contain renewal or escalation clauses, with remaining noncancelable terms
in excess of one year at November 30, 1998 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
REAL ESTATE EQUIPMENT TOTAL
- -------------------------------------------------------------------------
<S> <C> <C> <C>
YEAR ENDING NOVEMBER 30, 1999 $13,207 $ 11,903 $25,110
2000 12,840 1,328 14,168
2001 9,648 317 9,965
2002 9,302 92 9,394
2003 8,234 - 8,234
THEREAFTER 36,289 - 36,289
- -------------------------------------------------------------------------
Totals $89,520 $13,640 $103,160
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
</TABLE>
Administrative and engineering facilities in Boise, Idaho, and Cleveland,
Ohio, are leased under long-term, non-cancelable leases expiring in 2003 and
2010, respectively, with aggregate lease obligations of $12,469 and $59,200 for
the Boise facility and Cleveland facility, respectively.
OTHER:
In May 1998, Leucadia National Corporation filed an action against the
Corporation and certain officers and directors in The United States District
Court for the District of Utah, Civil Action Number 2:98CV-0327S. The complaint
alleges fraud in the sale of shares of MK Gold Corporation by Old MK to Leucadia
and seeks rescission of the sale and restitution of $22,500. Leucadia contends
that the Corporation knew or believed that a non-competition agreement between
the Corporation and MK Gold was unenforceable and failed to disclose that belief
to Leucadia. The non-competition agreement is the subject of separate litigation
between MK Gold and the Corporation. On January 5, 1999, the two cases were
consolidated for trial. No trial date has been set.
The Corporation and certain current and former officers, employees and
directors were named defendants in two legal actions: John B. Blyler and Malcolm
J. Corse v. William J. Agee, et. al., Civil Action No. 97-0332-S-BLW ("Blyler
case") and Martin Radwell v. Dennis R. Washington, et. al., Civil Action No.
15934 ("Radwell case"). The complaint in the Blyler case alleges, among other
things, that the defendants breached certain fiduciary duties. The Radwell case
was dismissed in 1998 following stockholder approval of a settlement between the
parties. The settlement amount was not material.
Although the ultimate outcome of these matters cannot be predicted with
certainty, management believes that the outcome of these actions, individually
or collectively, will not have a material adverse impact on the Corporation's
financial position, results of operations or cash flows.
In addition to the foregoing, there are other claims, lawsuits, disputes with
third parties, investigations and administrative proceedings against the
Corporation and its subsidiaries relating to matters in the ordinary course of
its business activities that are not expected to have a material adverse effect
on the Corporation's financial position, results of operations or cash flows.
II-34
<PAGE>
14. ACQUISITION OF WESTINGHOUSE BUSINESSES
On June 26, 1998, the Corporation announced the formation of a joint venture
with British Nuclear Fuels, Ltd. ("BNFL") to acquire certain businesses (the
"Westinghouse businesses") from CBS Corporation (formerly known as Westinghouse
Electric Corporation). The transaction is subject to regulatory approvals and is
expected to close in the second quarter of 1999. The Westinghouse businesses,
which consist of the Government and Environment Services Company ("GESCO") and
the Energy Systems Business Unit ("ESBU"), and which are both divisions of CBS
Corporation, provide a wide range of products, services and technologies in the
government services and nuclear industries throughout the world.
GESCO manages highly complex facilities and programs for the United States
Departments of Energy and Defense. GESCO also provides a wide range of services
at government installations, including the production of tritium for national
weapons programs and high-level waste solidification. GESCO employs over 13,000
employees, including those at government-owned, contractor-operated locations.
ESBU provides commercial nuclear power technology with emphasis on service,
fuel and instrumentation and control technologies for the world's operating
nuclear power plants. ESBU is also heavily involved in the development of new
plant technology and has received final design approval from the Nuclear
Regulatory Commission for its advanced nuclear power plant, the AP600. ESBU has
approximately 4,000 employees.
The Corporation was informed by CBS that the Department of the Navy has
chosen another party to perform certain contracts which were to be part of the
acquisition of the Westinghouse businesses and that CBS Corporation had formally
protested the award of those Navy contracts. This protest was unsuccessful. The
purchase price for the acquisition of the Westinghouse businesses has,
therefore, been adjusted downward by $38,000 to approximately $1,150,000
(consisting of $200,000 in cash and the assumption of approximately $950,000 in
specified liabilities, commitments and obligations). Under the transaction
structure currently proposed, the Corporation's share of the purchase price
would be approximately $120,000 in cash.
During the second half of 1998, the Corporation and BNFL entered into
negotiations with GESCO's primary client, the Department of Energy, regarding
the transfer of GESCO and ESBU and the contracts that each of those units has
with the Departments of Energy and Defense. As a result of those negotiations,
the Corporation and BNFL have proposed a transaction structure pursuant to which
(1) the Corporation and BNFL would form three limited liability companies -
Westinghouse Government Services Company, L.L.C. ("WGS"), which would acquire
the portion of GESCO's business relating to defense program services -
Westinghouse Government Environmental Services Company, L.L.C. ("WGES"), which
would acquire the portion of GESCO's business relating to environmental
remediation and waste management services - and Westinghouse Electric Company,
L.L.C. ("WEC"), which would acquire ESBU, (2) the Corporation would hold 100% of
the membership interests in WGS and 60% of the membership interests in WGES and
BNFL would hold 100% of the membership interests in WEC and 40% of the
membership interests in WGES, and (3) the Corporation would assign a passive
economic right to 40% of profits and losses of WGS to BNFL. These arrangements
are subject to final Department of Energy approval and approval by the Committee
on Foreign Investment in the United States.
The Corporation intends to fund its share of the purchase price and the
working capital requirements of the Westinghouse businesses using existing
financing facilities, additional financing facilities for which the Corporation
has received commitments or an offering of senior unsecured notes, together with
cash on hand and cash from other operations. The terms of such additional
borrowings have not yet been finalized.
II-35
<PAGE>
15. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental cash flow information
Interest paid $ 944 $ 890 $ 993
Income taxes paid (refunds received), net (6,718) 12,796 1,877
- ----------------------------------------------------------------------------------------
Supplemental noncash investing activities
Property and equipment classified as assets held for sale 25,485
Other current assets classified as assets held for sale 224
Investment in mining ventures adjusted for cumulative
translation adjustments, net of income tax benefit 2,462 (5,512)
- ----------------------------------------------------------------------------------------
Business combination:
Fair value of assets $(15,538) $ 701,188
Liabilities assumed 15,538 (479,452)
Redeemable preferred stock issued (18,000)
Equity securities issued (186,928)
- ----------------------------------------------------------------------------------------
Total cash paid, including acquisition cost of $3,508 $ - $ 16,808
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
16. REDEEMABLE PREFERRED STOCK
On September 11, 1996, the Corporation issued 1,800,000 shares of Series A
preferred stock in connection with the acquisition of Old MK. On April 15, 1998,
all of the Series A preferred stock was redeemed, in accordance with terms, with
$18,000 of federal income tax refunds received by the Corporation in January
1998.
17. CAPITAL STOCK, STOCK PURCHASE WARRANTS AND STOCK COMPENSATION PLAN
CAPITAL STOCK:
Pursuant to its Certificate of Incorporation, the Corporation has the
authority to issue 100,000,000 shares of common stock and 10,000,000 shares of
preferred stock. Preferred stock may be issued at any time or from time to time
in one or more series with such designations, powers, preferences and rights,
qualifications, limitations or restrictions thereof as determined by the Board
of Directors of the Corporation.
STOCK PURCHASE WARRANTS:
At November 30, 1998, the Corporation had outstanding stock purchase warrants
giving rights to acquire 2,945,582 shares of the Corporation's common stock at
an exercise price of $12.00 per share. Of such warrants 2,757,734 expire in
March 2003, and 187,848 expire in September 2001.
STOCK REPURCHASE PROGRAM:
In January 1998, the Board of Directors authorized the purchase, from time to
time, of up to 2 million shares of the Corporation's common stock to counteract
the dilutive effect of the issuance of stock under its stock option plans and up
to 2.765 million of its stock purchase warrants. As of November 30, 1998,
973,100 shares have been repurchased at a cost of $12,848.
II-36
<PAGE>
STOCK COMPENSATION PLAN:
The Corporation has a stock compensation plan for employees and non-employee
directors (the "1994 plan") which provides for grants in the form of
nonqualified stock options or incentive stock options ("ISOs") and restricted
stock awards. Additional shares of common stock available each year for grants
under the 1994 plan are equal to 3% of the outstanding shares as of the first
day of such year. Exercise prices for nonqualified stock options are determined
by the Board of Directors. Exercise prices for ISOs are equal to the fair market
value of the Corporation's common stock at the date of grant. Stock options
extend for and vest over periods of up to ten years as determined by the Board.
The Board may accelerate the vesting period after award of an option. The number
of shares available for grant of ISOs may not exceed 2,900,000 shares, and no
individual shall be granted stock options or restricted stock awards for more
than 5,000,000 shares over any three-year period.
Non-employee directors may elect to forego receipt in cash of certain fees
earned during any year in return for an option with a grant price equal to 80%
of the fair market value of the Corporation's common stock, vesting quarterly
during the year with a term period of up to ten years as determined by the
Board. Non-employee directors elected options for 88,204, 95,556 and 50,461
shares in lieu of fees earned in 1998, 1997 and 1996, respectively.
On April 11, 1997, the Corporation's stockholders adopted the 1997 Stock
Option and Incentive Plan for Non-employee Directors (the "1997 plan") which
provides for grants in the form of nonqualified stock options and restricted
stock awards. Grant prices per share for stock options are at fair market value
at the date of grant. The number of shares available for grant as options and
restricted stock awards is 500,000, of which no more than 100,000 may be awarded
as restricted. Grants of nonqualified stock options and restricted stock awards
to the non-employee directors under the 1997 plan do not preclude grants under
the 1994 plan. Options are subject to terms and conditions determined by the
Board of Directors and have a term not exceeding 10 years from the date of
grant. Option activity under the Corporation's stock plans is summarized as
follows:
<TABLE>
<CAPTION>
NOVEMBER 30, 1998 NOVEMBER 30, 1997 NOVEMBER 30, 1996
- --------------------------------------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF OPTIONS OPTION PRICE OF OPTIONS OPTION PRICE OF OPTIONS OPTION PRICE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 1,775,673 9.12 1,107,905 6.33 940,986 5.56
Granted 524,554 9.19 1,398,056 10.02 360,461 7.98
Canceled (133,575) 9.69 (86,756) 8.96 (26,875) 8.14
Exercised (82,383) 7.91 (643,532) 6.30 (166,667) 5.25
- --------------------------------------------------------------------------------------------------------------------
Outstanding at end
of year 2,084,269 9.15 1,775,673 9.12 1,107,905 6.33
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Exercisable at end
of year 768,439 7.76 370,178 6.41 718,782 6.22
Shares available for
grant 1,376,759 - 1,767,738 - 1,375,948 -
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The terms and conditions of restricted stock awards issued to key employees
are determined by the Board. Upon termination of employment, shares that remain
subject to restriction are forfeited. At November 30, 1998, there were no
restricted shares outstanding. No restricted stock awards were made in 1998,
1997 and 1996.
II-37
<PAGE>
STOCK-BASED COMPENSATION:
The Corporation has adopted the disclosure-only provisions of the Financial
Accounting Standards Board Statement No. 123 Accounting for Stock-Based
Compensation ("SFAS No. 123") issued in October 1995. Accordingly, compensation
cost has been recorded based on the intrinsic value of the option only. The
Corporation recognized $219, $477 and $702 of compensation cost in 1998, 1997
and 1996, respectively, for stock-based employee compensation awards. If the
Corporation had elected to recognize compensation cost based on the fair value
of the options granted at grant date as prescribed by SFAS No. 123, net income
and earnings per share would have been reduced to the pro forma amounts as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
NOVEMBER 30, 1998 1997 1996
- -------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss)
As reported $37,553 $32,031 $(4,780)
Pro forma 36,362 30,925 (4,620)
Net income (loss) per share
As reported - basic .70 .59 (.14)
- diluted .69 .59 (.14)
Pro forma - basic and diluted .67 .57 (.13)
- -------------------------------------------------------------------
</TABLE>
The pro forma amounts set forth above reflect the portion of the estimated
fair value of awards earned in 1998, 1997 and 1996 based on the vesting period
of the options. The pro forma effects disclosed above are not likely to be
representative of the pro forma disclosures of future years because SFAS No. 123
is applicable only to options granted subsequent to November 30, 1995, the
effect of which will not be fully reflected until 1999.
The Black-Scholes option valuation model was used to estimate the fair value
of the options for purposes of the pro forma presentation set forth above.
The following assumptions were used in the valuation and no dividends were
assumed:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Average expected life (years) 5 5 5
Expected volatility 38.5% 30.7% 38.0%
Risk-free interest rate 5.4% 6.4% 6.4%
Weighted-average fair value:
Exercise price equal to market price at grant $9.47 $10.23 $7.98
Exercise price less than market price at grant $7.80 $ 7.20 -
- --------------------------------------------------------------------------
</TABLE>
The assumptions used in the Black-Scholes option valuation model are highly
subjective, particularly as to stock price volatility of the underlying stock,
and can materially affect the resulting valuation. In management's opinion, the
model does not provide a reliable single measure of the fair value of the
employee stock options.
II-38
<PAGE>
The following table summarizes information regarding options that were
outstanding at November 30, 1998:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------------------------------------------------------
Weighted-average
Number Weighted-average remaining Number Weighted-average
Price Range (000's) exercise price contractual life (000's) exercise price
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Below $9.87 912 $ 7.68 8.1 485 $ 6.33
$9.88 - $11.87 982 $ 9.88 8.1 246 $ 9.88
Above $11.88 190 $12.44 8.5 37 $12.40
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
18. FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments at November 30, 1998 have
been determined by the Corporation, using available market information and
valuation methodologies believed to be appropriate. However, judgment is
necessary in interpreting market data to develop the estimates of fair values.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that the Corporation could realize in a current market exchange. The
use of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
The carrying amounts and estimated fair values of certain financial
instruments at November 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
NOVEMBER 30, 1998 1997
- ---------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Customer retentions $18,627 $17,728 $26,970 $26,175
FINANCIAL LIABILITIES
Subcontract retentions 22,843 22,169 20,266 19,668
Advances from customers 8,506 8,255 8,987 8,722
- ---------------------------------------------------------------
</TABLE>
The fair value of other financial instruments was comprised of (i) cash and
cash equivalents, accounts receivable excluding customer retentions, unbilled
receivables and accounts and subcontracts payable excluding retentions which
approximate cost because of the immediate or short-term maturity, (ii)
securities available for sale based on quoted market prices of the securities at
the balance sheet date, and (iii) customer retentions, subcontract retentions
and customer advances estimated by discounting expected cash flows at rates
currently available to the Corporation for instruments with similar risks and
maturities.
II-39
<PAGE>
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
II-40
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item will be set forth under the captions
"Directors" and "Executive Officers" in the Corporation's definitive proxy
statement for its annual meeting of stockholders, to be filed not later than
March 31, 1999, and is incorporated herein by this reference.
On February 3, 1999, the Corporation announced the retirement of Robert A.
Tinstman from his position of President and Chief Executive Officer of the
Corporation and the election of Dennis R. Washington, the Chairman of the Board
of the Corporation, to those additional positions. In connection with his
retirement, Mr. Tinstman also resigned from the Corporation's Board of
Directors.
On February 1, 1999, Roger J. Ludlam was elected Executive Vice President of
the Corporation and was hired as President and Chief Executive Officer of
Morrison Knudsen Contractors Group.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item will be set forth under the caption
"Report of the Compensation Committee on Executive Compensation for 1998" in the
Corporation's definitive proxy statement for its annual meeting of stockholders,
to be filed not later than March 31, 1999, and is incorporated herein by this
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item will be set forth under the caption
"Voting Securities and Principal Holders Thereof" in the Corporation's
definitive proxy statement for its annual meeting of stockholders, to be filed
not later than March 31, 1999, and is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item will be set forth under the caption
"Certain Relationships and Related Transactions" in the Corporation's definitive
proxy statement for its annual meeting of stockholders, to be filed not later
than March 31, 1999, and is incorporated herein by this reference.
III-1
<PAGE>
PART IV
<TABLE>
<CAPTION>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
<S> <C>
(a) Documents filed as a part of this Annual Report on Form 10-K.
PAGE(S)
1. The Consolidated Financial Statements, together with the report thereon of
PricewaterhouseCoopers LLP dated January 25, 1999, is included in Part II,
Item 8 of this Annual Report on Form 10-K
Report of Independent Accountants II-13
Consolidated Statements of Operations for each of the three years in
the period ended November 30, 1998 II-14
Consolidated Balance Sheets at November 30, 1998 and 1997 II-15, II-16
Consolidated Statements of Cash Flows for each of the three years in
the period ended November 30, 1998 II-17
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended November 30, 1998 II-18
Notes to Consolidated Financial Statements II-19 to II-39
2. Financial Statement Schedule as of November 30, 1998
Part IV of this Annual Report on Form 10-K IV-1
Valuation and Qualifying and Reserve Accounts
Financial statement schedules not listed above are omitted because they
are not required or are not applicable, or the required information is given in
the financial statements including the notes thereto. Captions and column headings have
been omitted where not applicable.
3. Exhibits
The exhibits to this Annual Report on Form 10-K are listed in the Exhibit
Index contained elsewhere in this Annual Report.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed in the fourth quarter of 1998.
</TABLE>
IV-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Corporation has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized on
February 4, 1999.
Morrison Knudsen Corporation
By /s/ A. S. Cleberg
- ----------------------------------------------------------------------
A. S. Cleberg, Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below on February 4, 1999 by the following persons on
behalf of the Corporation in the capacities indicated.
President and Chief Executive Officer and Director
/s/ D. R. Washington* (Principal Executive Officer)
- -------------------------
Executive Vice President and Chief Financial Officer
/s/ A.S. Cleberg (Principal Financial Officer)
- -------------------------
Vice President and Controller
/s/ D.L. Brigham (Principal Accounting Officer)
- -------------------------
/s/ D.H. Batchelder* Director
- -------------------------
/s/ L.R. Judd* Director
- -------------------------
/s/ W.C. Langley* Director
- -------------------------
/s/ R.S. Miller* Director
- -------------------------
/s/ D. Parkinson* Director
- -------------------------
/s/ T.W. Payne* Director
- -------------------------
/s/ J.D. Roach* Director
- -------------------------
* S. G. Hanks, by signing his name hereto, does hereby sign this Annual Report
on Form 10-K on behalf of each of the above-named officers and directors of
Morrison Knudsen Corporation, pursuant to powers of attorney executed on behalf
of each such officer and director.
*By /s/ S. G. Hanks
- ------------------------------------
S. G. Hanks, Attorney-in-fact
<PAGE>
MORRISON KNUDSEN CORPORATION
SCHEDULE II. VALUATION AND QUALIFYING AND RESERVE ACCOUNTS
FOR THE YEAR ENDED NOVEMBER 30, 1998
(In thousands)
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLES DEDUCTED IN THE BALANCE SHEET FROM
ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
Balance at Provisions Balance at
Beginning Charged to End of
Year Ended of Year Operations Other Deductions Period
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
November 30, 1996 $ - $ (275) $(8,210)(1) $ 600 $(7,885)
November 30, 1997 (7,885) (978) - 4,124 $(4,739)
November 30, 1998 (4,739) (3,849) (141) 1,198 (7,531)
</TABLE>
DEFERRED INCOME TAX ASSET VALUATION ALLOWANCE DEDUCTED IN THE BALANCE SHEET
FROM DEFERRED INCOME TAX ASSET
<TABLE>
<CAPTION>
Balance at Provisions Balance at
Beginning Charged to End of
Year Ended of Year Operations Other Deductions Period
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
November 30, 1996 $ - $ - $(126,878)(1) $ - $(126,878)
November 30, 1997 (126,878) - (4,797)(2) 19,688(3) (111,987)
November 30, 1998 (111,987) - - 20,000(4) (91,987)
</TABLE>
ESTIMATED COSTS TO COMPLETE LONG-TERM CONTRACTS REFLECTED IN THE BALANCE SHEET
<TABLE>
<CAPTION>
Balance at Provisions Balance at
Beginning Charged to End of
Year Ended of Year Operations Other Deductions Period
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
November 30, 1996 $ (3,184) $(23,283) $(86,450)(1) $ 12,085 $(100,832)
November 30, 1997 (100,832) $(56,861) $ - $ 84,590 $ (73,103)
November 30, 1998 (73,103) (15,993) - 39,868 (49,228)
</TABLE>
- -----------------------------
(1) Assumed in connection with the acquisition of Old MK.
(2) Adjustment due to change in deferred taxes for preacquisition contingencies.
(3) Adjustment due to extension of federal net operating loss carryforward
period.
(4) Change in estimate of the future realization of deductible temporary
differences.
<PAGE>
EXHIBIT INDEX
COPIES OF EXHIBITS WILL BE SUPPLIED UPON REQUEST. EXHIBITS WILL BE PROVIDED AT A
FEE OF $.25 PER PAGE REQUESTED.
Exhibits marked with an asterisk are filed herewith, the remainder of
the exhibits have heretofore been filed with the Commission and are
incorporated by reference.
EXHIBIT
NUMBER EXHIBITS
2.1 First Amended Plan of Reorganization confirmed on August 26, 1996 under
Chapter 11 of the United States Bankruptcy Code for the District of
Delaware, Case No. 96-1006 (PJW) as filed by Morrison Knudsen
Corporation (Commission File No. 1-8889 - "Old MK") prior to its merger
on September 11, 1996 with and into Washington Construction Group, Inc.
(the "registrant") with the registrant being the surviving corporation
in the merger and being renamed "Morrison Knudsen Corporation" (filed
as Exhibit 2.1 to Old MK's Form 10-Q Quarterly Report for the quarter
ended June 30, 1996 and incorporated herein by reference).
2.2 Restructuring and Merger Agreement dated May 28, 1996 by and between
the registrant and Old MK (filed as Exhibit 1 to the registrant's Proxy
Statement dated September 11, 1996 and incorporated herein by
reference).
3.1 * The registrant's Restated Certificate of Incorporation.
3.2 * The registrant's Restated and Amended Bylaws.
4.1 Specimen certificate for the registrant's Common Stock (filed as
Exhibit 4.1 to the registrant's Form 10-K Annual Report for fiscal year
ended November 30, 1996 and incorporated herein by reference).
4.2 Specimen certificate for the registrant's Warrants to expire on March
11, 2003 (filed as Exhibit 4.2 to the registrant's Form 10-Q Quarterly
Report for quarter ended August 31, 1996 and incorporated herein by
reference).
4.3 Warrant Agreement dated September 11, 1996 by and between the
registrant and Norwest Bank Minnesota, N.A. (filed as Exhibit 4.4 to
the registrant's Form 10-Q Quarterly Report for quarter ended August
31, 1996 and incorporated herein by reference).
4.4 Warrant Agreement dated September 11, 1996 among the registrant,
Batchelder & Partners, Inc. and Schroder Wertheim & Co. Incorporated,
including the form of certificate attached thereto as Exhibit A for
certain registrant Warrants to expire on September 11, 2001 (filed as
Exhibit 4.6 to the registrant's Form 10-Q Quarterly Report for quarter
ended August 31, 1996 and incorporated herein by reference).
4.5 Registration Rights Agreement dated September 11, 1996 among the
registrant, Batchelder & Partners, Inc. and Schroder Wertheim & Co.
Incorporated (filed as Exhibit 4.7 to the registrant's Form 10-Q
Quarterly Report for quarter ended August 31, 1996 and incorporated
herein by reference).
10.1 Credit Agreement dated October 8, 1996 among the registrant, Bank of
Montreal, individually and as Agent, and the Banks which are parties
thereto ("Credit Agreement") (filed as Exhibit 10.2 to the registrant's
Form 10-Q Quarterly Report for quarter ended August 31, 1996 and
incorporated herein by
E-1
<PAGE>
reference), the First Amendment thereto dated January 31, 1997 (filed
as Exhibit 10.1 to the registrant's Form 10-K Annual Report for fiscal
year ended November 30, 1996 and incorporated herein by reference) and
the Second Amendment thereto dated October 6, 1997 (filed as Exhibit
10.1 to the registrant's Form 10-K Annual Report for fiscal year ended
November 30, 1997 and incorporated herein by reference).
10.2 * The registrant's engagement agreement with Batchelder & Partners, Inc.
dated April 6, 1998 relating to the possible acquisition by the
registrant of the Westinghouse Government and Environmental Services
Company and Energy Systems businesses from CBS Corporation.
10.3 The registrant's Professional Services Agreement dated January 19, 1998
with Terry Payne & Co., Inc. (filed as Exhibit 10.3 to the registrant's
Form 10-K Annual Report for fiscal year ended November 30, 1997 and
incorporated herein by reference).
10.4 General and Administrative Services Agreement dated as of August 1,
1993 between the registrant and Washington Corporations (filed as
Exhibit 10.3 to the registrant's Form 10-K Annual Report for fiscal
year ended November 30, 1996 and incorporated herein by reference).
10.5 The registrant's Environmental Indemnification Agreement with
Washington Corporations dated July 8, 1993 (filed as Exhibit 10.5 to
the registrant's Form 10-K Annual Report for fiscal year ended November
30, 1996 and incorporated herein by reference).
10.6 Shareholders Agreement dated December 18, 1993 among Morrison Knudsen
BV, a wholly owned subsidiary of the registrant, Lambique Beheer BV and
Ergon Overseas Holdings Limited (filed as Exhibit 10.6 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1997 and incorporated herein by reference).
10.7 Form of Guaranty by Old MK, as Guarantor, in favor of Morgan Guaranty
Trust Company of New York, as Trustee (filed as Exhibit 4.2 to
Amendment No. 1 to Old MK's Form S-3 Registration Statement No. 33-
50046 filed on October 30, 1992 and incorporated herein by reference).
10.8 Form of Indenture of Trust between the City of San Diego and Morgan
Guaranty Trust Company of New York, as Trustee (filed as Exhibit 4.3 to
Amendment No. 1 to Old MK's Form S-3 Registration Statement No. 33-
50046 filed on October 30, 1992 and incorporated herein by reference).
10.9 Form of Loan Agreement between the City of San Diego and National Steel
and Shipbuilding Company (filed as Exhibit 4.4 to Amendment No. 1 to
Old MK's Form S-3 Registration Statement No. 33-50046 filed on October
30, 1992 and incorporated herein by reference).
10.10 * Asset Purchase Agreement dated as of June 25, 1998 between CBS
Corporation and WGNH Acquisition, LLC related to the acquisition of the
Westinghouse Energy Systems Business Unit from CBS Corporation.**
10.11 * Asset Purchase Agreement dated as of June 25, 1998 between CBS
Corporation and WGNH Acquisition, LLC related to the acquisition of the
Westinghouse Government and Environmental Services Company business
from CBS Corporation.**
10.12 * Consortium Agreement dated as of June 24, 1998 between the registrant's
wholly owned subsidiary, Morrison Knudsen Corporation, an Ohio
corporation, and BNFL USA Group, Inc. and related
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<PAGE>
Guarantee of the registrant.**
10.13 * Amended and Restated Consortium Agreement draft between the
registrant's wholly owned subsidiary, Morrison Knudsen Corporation, an
Ohio corporation, and BNFL USA Group, Inc. and related Guarantees of
the registrant.***
MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT WHICH IS SEPARATELY
IDENTIFIED IN ACCORDANCE WITH ITEM 14(A)(3) OF FORM 10-K.
10.14 * The registrant's Amended and Restated Stock Option Plan (filed as
Exhibit 10.10 to the registrant's Form 10-K Annual Report for fiscal
year ended November 30, 1996 and incorporated herein by reference) and
Amendment No. 1 thereto dated October 30, 1998 (filed herewith).
10.15 The registrant's 1997 Stock Option and Incentive Plan for Non-Employee
Directors (filed as Exhibit 10.11 to the registrant's Form 10-K Annual
Report for fiscal year ended November 30, 1996 and incorporated herein
by reference).
10.16 The registrant's Deferred Compensation Plan (filed as Exhibit 10.12 to
the registrant's Form 10-K Annual Report for fiscal year ended November
30, 1997 and incorporated herein by reference).
10.17 A description of the registrant's Cash Bonus Program (filed as Exhibit
10.13 to the registrant's Form 10-K Annual Report for fiscal year ended
November 30, 1997 and incorporated herein by reference).
10.18 The registrant's Long-Term Incentive Plan for Corporate Executives
(filed as Exhibit 10.3 to Old MK's Form 10-Q Quarterly Report for
quarter ended March 31, 1994 and incorporated herein by reference.)
10.19 The registrant's Long-Term Incentive Plan for the Mining Group (filed
as Exhibit 10.50 to Old MK's Form 10-K Annual Report for year ended
December 31, 1995 and incorporated herein by reference.)
10.20 The registrant's Key Executive Disability Insurance Plan (filed as
Exhibit 10.12 to Old MK's Form 10-K Annual Report for year ended
December 31, 1992 and incorporated herein by reference.)
10.21 The registrant's Key Executive Life Insurance Plan (filed as Exhibit
10.13 to Old MK's Form 10-K Annual Report for year ended December 31,
1992 and incorporated herein by reference).
10.22 * Form of registrant's Indemnification Agreement (filed as Exhibit 10.20
to the registrant's Form 10-K Annual Report for fiscal year ended
November 30, 1996 and incorporated herein by reference). [A schedule
listing the individuals with whom the registrant has entered into such
agreements is filed herewith]
10.23 The registrant's employment agreement with Robert A. Tinstman dated as
of January 1, 1993, and Amendment thereto dated April 22, 1996 (filed
as Exhibit 10.21 to the registrant's Form
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<PAGE>
10-K Annual Report for fiscal year ended November 30, 1996 and
incorporated herein by reference).
10.24 The registrant's Nonqualified Stock Option Agreement with Robert A.
Tinstman dated as of January 10, 1997 (filed as Exhibit 10.22 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1996 and incorporated herein by reference).
10.25 The registrant's Nonqualified Stock Option Agreement with Robert A.
Tinstman dated as of January 14, 1998 (filed as Exhibit 10.22 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1997 and incorporated herein by reference).
10.26 * The registrant's Nonqualified Stock Option Agreement with Robert A.
Tinstman dated as of January 20, 1999.
10.27 The registrant's Supplemental Retirement Benefit Agreement with Robert
A. Tinstman dated as of August 3, 1990 (filed as Exhibit 10.23 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1996 and incorporated herein by reference).
10.28 The registrant's employment agreement with Stephen G. Hanks dated as of
January 1, 1993 and Amendments thereto dated as of August 9, 1993 and
April 22, 1996 (filed as Exhibit 10.24 to the registrant's Form 10-K
Annual Report for fiscal year ended November 30, 1996 and incorporated
herein by reference).
10.29 The registrant's Nonqualified Stock Option Agreement with Stephen G.
Hanks dated as of January 10, 1997 (filed as Exhibit 10.25 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1996 and incorporated herein by reference).
10.30 The registrant's Nonqualified Stock Option Agreement with Stephen G.
Hanks dated as of January 14, 1998 (filed as Exhibit 10.26 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1997 and incorporated herein by reference).
10.31 * The registrant's Nonqualified Stock Option Agreement with Stephen G.
Hanks dated as of January 20, 1999.
10.32 The registrant's employment agreement with Thomas H. Zarges dated as of
January 1, 1994 (filed as Exhibit 10.26 to the registrant's Form 10-K
Annual Report for fiscal year ended November 30, 1996 and incorporated
herein by reference).
10.33 The registrant's Nonqualified Stock Option Agreement with Thomas H.
Zarges dated as of January 10, 1997 (filed as Exhibit 10.27 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1996 and incorporated herein by reference).
10.34 The registrant's Nonqualified Stock Option Agreement with Thomas H.
Zarges dated as of January 14, 1998 (filed as Exhibit 10.29 to the
registrant's Form 10-K Annual Report for fiscal year ended November 30,
1997 and incorporated herein by reference).
10.35 * The registrant's Nonqualified Stock Option Agreement with Thomas H.
Zarges dated as of January 20, 1999.
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<PAGE>
10.36 The registrant's employment agreement with Douglas L. Brigham dated as
of April 26, 1996 (filed as Exhibit 10.28 to the registrant's Form
10-K Annual Report for fiscal year ended November 30, 1996 and
incorporated herein by reference).
10.37 The registrant's employment agreement with Alvia L. Henderson dated as
of April 26, 1996 (filed as Exhibit 10.29 to the registrant's Form
10-K Annual Report for fiscal year ended November 30, 1996 and
incorporated herein by reference).
10.38 The registrant's employment agreement with Steven Y. Chi dated as of
April 26, 1996 (filed as Exhibit 10.3 to the registrant's Form 10-Q
Quarterly Report for quarter ended May 31, 1997 and incorporated
herein by reference).
10.39 The registrant's employment agreement with A. S. Cleberg dated as of
April 11, 1997 (filed as Exhibit 10.1 to the registrant's Form 10-Q
Quarterly Report for quarter ended May 31, 1997 and incorporated
herein by reference).
10.40 * The registrant's employment agreement with Roger J. Ludlam dated
January 11, 1999.
21. * Subsidiaries of the registrant.
23. * Consent of PricewaterhouseCoopers LLP.
24. * Powers of Attorney.
27. * Financial Data Schedule.
______________
* Filed herewith.
** Subsequent to the entry into this agreement, the proposed terms upon which
the Corporation and BNFL would jointly acquire the Westinghouse businesses
were modified as reflected in Note 14, "Acquisition of Westinghouse
Businesses" of Notes to Consolidated Financial Statements. It is
contemplated that this agreement will be modified, supplemented or
superseded by one or more new agreements to reflect such terms and such
other terms as may ultimately be agreed upon by the relevant parties.
*** This agreement has not yet been entered into, but reflects, the general
terms upon which the Corporation and BNFL would jointly acquire the
Westinghouse Businesses as contemplated as of the date of this Report.
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<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
MORRISON KNUDSEN CORPORATION
(AS OF APRIL 8, 1998)
ARTICLE I.
The name of the Corporation is Morrison Knudsen Corporation.
ARTICLE II.
The address of the registered office of the Corporation in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle, 19805. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III.
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which a corporation may now or
hereafter be organized under the General Corporation Law of the State of
Delaware as set forth in Title 8 of the Delaware Code (the "GCL").
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ARTICLE IV.
Section 1. Authorized Capital Stock. The total number of shares of
------------------------
all classes of stock which the Corporation shall have authority to issue is One
Hundred Ten Million (110,000,000), consisting of One Hundred Million
(100,000,000) shares of common stock, par value $0.01 per share (the "Common
Stock"), and Ten Million (10,000,000) shares of preferred stock, par value $0.01
per share (the "Preferred Stock").
Section 2. Preferred Stock. The Preferred Stock may be issued in one
----------------
or more series. The Board of Directors of the Corporation is hereby authorized
to issue the shares of Preferred Stock in such series and to fix from time to
time before issuance the number of shares to be included in any series and the
designation, relative powers, preferences, and rights and qualifications,
limitations, or restrictions of all shares of a series.
a. Authority of the Board of Directors. The authority of the Board
-----------------------------------
of Directors with respect to each series will include, without limiting the
generality of the foregoing, the determination of any or all of the
following:
(i) the distinctive designation of and the number of shares
comprising the series, which number may be increased (except where
otherwise provided by the Board of Directors in creating the series)
or decreased (but not below the number of such shares then
outstanding) from time to time by like action of the Board of
Directors;
(ii) the voting powers, if any, and whether such voting powers
are full or limited in such series;
(iii) the redemption provisions, if any, applicable to the
series, including the redemption price or prices to be paid;
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(iv) whether dividends, if any, will be cumulative or
noncumulative, the dividend rate of the series, and the dates and
preferences of dividends on the series;
(v) the rights of the series upon the voluntary or involuntary
dissolution of, or upon any distribution of the assets of, the
Corporation;
(vi) the provisions, if any, pursuant to which the shares of the
series are convertible into, or exchangeable for, shares of any other
class or classes or of any other series of the same or any other class
or classes of stock, or any other security, of the Corporation or any
other corporation or other entity, and the price or prices or the
rates of exchange applicable thereto;
(vii) the right, if any, to subscribe for or to purchase any
securities of the Corporation or any other corporation or other
entity;
(viii) the provisions, if any, of a sinking fund applicable to
the series; and
(ix) any other relative, participating, optional, or other
special powers, preferences, rights, qualifications, limitations, or
restrictions thereof;
all as may be determined from time to time by the Board of Directors and
stated in the resolution or resolutions providing for the issuance of the
Preferred Stock (collectively, a "Preferred Stock Designation").
b. Series A Preferred Stock. The following is a statement of the
------------------------
powers, preferences, rights, qualifications, limitations and restrictions
of the series of Preferred Stock designated as Series A Preferred Stock.
(i) Designation and Amount. The shares of such series of
----------------------
Preferred Stock shall be designated as "Series A Preferred Stock" and
the number of shares constituting such series shall be 1,800,000.
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<PAGE>
(ii) Rank. With respect to rights on liquidation, winding up
----
and dissolution, the Series A Preferred Stock ranks (i) senior to both
the Corporation's Common Stock and to all classes and series of stock
of the Corporation now or hereafter authorized, issued or outstanding
which by their terms expressly provide that they are junior to the
Series A Preferred Stock as to distributions upon the liquidation,
winding up and dissolution of the Corporation or which do not specify
their rank (collectively with the Common Stock, the "Junior
Securities"); (ii) on a parity with each other class or series of
capital stock issued by the Corporation after the date hereof the
terms of which specifically provide that such class or series will
rank on a parity with the Series A Preferred Stock as to distributions
upon the liquidation, winding up and dissolution of the Corporation
(collectively referred to as "Parity Securities"), provided that any
--------
such Parity Securities that were not approved by the holders of Series
A Preferred Stock in accordance with paragraph (b)(vii)(B) of this
Section 2 shall be deemed to be Junior Securities and not Parity
Securities; and (iii) junior to each other class of capital stock or
other series of Preferred Stock issued by the Corporation after the
date hereof the terms of which have been approved by the holders of
the Series A Preferred Stock in accordance with paragraph (b)(vii)(B)
of this Section 2 and which specifically provide that such class or
series will rank senior to the Series A Preferred Stock as to
distributions upon the liquidation, winding up and dissolution of the
Corporation (collectively referred to as "Senior Securities").
(iii) Dividends. The holders of shares of Series A Preferred
---------
Stock are not entitled to receive dividends.
(iv) Foreign Tax Credit Sinking Fund; Redemption.
-------------------------------------------
(A) The Corporation shall create and maintain a sinking
fund ("Foreign Tax Credit Sinking Fund") into which it shall
deposit promptly upon
4
<PAGE>
receipt and hold all amounts received by the Corporation in
respect of refunds of federal income tax and interest thereon
associated with amended federal income tax returns of the
Corporation and consolidated subsidiaries for the calendar years
1982 through 1990 which were filed prior to January 1, 1996,
which change the Corporation's election from deducting foreign
taxes to claiming a credit for those taxes ("Foreign Tax Credit
Refunds"); provided, however, that the cumulative total amount of
Foreign Tax Credit Refunds, together with any amounts contributed
pursuant to the sentence prior to the penultimate sentence of
this paragraph, which the Corporation may deposit to the Sinking
Fund shall not exceed $18,000,000. A majority of the directors of
the Corporation present at a meeting at which a quorum is present
has the exclusive power and authority to determine, in good
faith, on the basis of information known to them after reasonable
inquiry, (i) whether funds received by the Corporation are
Foreign Tax Credit Refunds and (ii) the amount of any Foreign Tax
Credit Refunds. The holders of the Series A Preferred Stock shall
have no right to challenge any such determination unless such
challenge is specifically authorized by the beneficial owners of
a majority of the issued and outstanding shares of the Series A
Preferred Stock. The Corporation may, but shall not be obligated
to, deposit funds other than Foreign Tax Credit Refunds into the
Foreign Tax Credit Sinking Fund; provided, however, that such a
-------- -------
deposit of funds other than Foreign Tax Credit Refunds shall be
made only upon the affirmative vote of two-thirds of the total
number of directors that the Corporation would have if there were
no vacancies. Pending distribution of the amounts in the Foreign
Tax Credit Sinking Fund pursuant to paragraph (b)(iv)(B) of this
Section 2, all such amounts shall be
5
<PAGE>
deposited into and maintained in an interest-bearing account at a
bank or other depository institution at which the Corporation
maintains other interest-bearing deposit accounts. Other than
distributions made pursuant to paragraph (b)(iv)(B) of this
Section 2, the Corporation shall not withdraw any funds from the
Foreign Tax Credit Sinking Fund.
(B) On the fifteenth day of the month following the end
of each calendar quarter, the Corporation shall distribute to
each holder of record of Series A Preferred Stock as of the last
day of such calendar quarter an amount per share equal to a pro
rata portion of (i) the total amount of Foreign Tax Credit
Refunds deposited into the Foreign Credit Sinking Fund during the
quarter and (ii) all interest earned on such total amount during
the quarter. The distribution for the calendar quarter in which
the cumulative total deposits to the sinking fund reaches
$18,000,000 will be the final distribution with respect to the
Series A Preferred Stock. Upon this final distribution, all
shares of Series A Preferred Stock will be canceled and no longer
outstanding and will not have the status of shares of Series A
Preferred Stock, and all rights of the holders thereof as
stockholders of the Corporation will cease.
(C) If the Series A Preferred Stock has not been canceled
as provided in paragraph (b)(iv)(B) of this Section 2 by the
fifth anniversary of the issuance of the Series A Preferred
Stock, the Corporation shall, on the fifteenth day ("Redemption
Date") of the month following the fifth anniversary of the
issuance of the Series A Preferred Stock, redeem all the
outstanding shares of Series A Preferred Stock at a per share
redemption price ("Redemption Price") equal to the greater of (I)
$0.01, or (II) a pro rata portion of the balance of the Foreign
Tax
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<PAGE>
Credit Sinking Fund (including all interest earned thereon)
as of the fifth anniversary of the issuance of the Series A
Preferred Stock.
(D) In the event that the Corporation redeems shares of
Series A Preferred Stock pursuant to paragraph (b)(iv)(C) of this
Section 2, the Corporation shall send notice of the redemption by
first-class mail, postage prepaid, not less than 30 days prior to
the Redemption Date, to the holders of record of the shares to be
redeemed at their respective addresses as they shall appear in
the records of the Corporation; provided, however, that failure
-------- -------
to give such notice or any defect therein or in the mailing
thereof shall not affect the validity of the proceedings for the
redemption of any shares so to be redeemed except as to the
holder to whom the Corporation has failed to give such notice or
except as to the holder to whom notice was defective. Each such
notice shall state: (i) the Redemption Date; (ii) the number of
shares of Preferred Stock to be redeemed; (iii) the Redemption
Price, and (iv) the place or places where certificates for such
shares are to be surrendered for payment of the Redemption Price.
Upon surrender of the certificates for the shares (properly
endorsed or assigned for transfer, if the Board of Directors so
requires and a notice by the Corporation so states), the
Corporation shall redeem such shares at the Redemption Price as
aforesaid.
(E) If the Corporation has mailed the notice provided in
paragraph (b)(iv)(D) of this Section 2, then, from and after the
Redemption Date (unless the Corporation defaults in the payment
of the Redemption Price, in which case such rights shall continue
until the Redemption Price is paid), all shares of Series A
Preferred Stock will be deemed to be cancelled and no longer
outstanding, and will not have the status of shares of Series A
Preferred Stock, and all rights of the
7
<PAGE>
holders thereof as stockholders of the Corporation (except the
right to receive the Redemption Price) will cease.
(v) Liquidation Preference.
----------------------
(A) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Corporation, each holder of outstanding shares of Series A
Preferred Stock will be entitled to be paid out of the assets of
the Corporation available for distribution to its stockholders,
before any payment is made or any assets distributed to the
holders of any of the Junior Securities, an amount in cash per
share of Series A Preferred Stock held equal to the greater of
(I) $0.01, or (II) a pro rata portion of the remaining balance of
the Foreign Tax Credit Sinking Fund (including all interest
earned thereon). If the assets of the Corporation are not
sufficient to pay in full the liquidation payments payable to the
holders of outstanding shares of the Series A Preferred Stock and
any Parity Securities, then the holders of all such shares shall
share ratably in such distribution of assets in accordance with
the amount which would be payable on such distribution if the
amounts to which the holders of outstanding shares of Series A
Preferred Stock and the holders of outstanding shares of such
Parity Securities are entitled were paid in full.
(B) For the purposes of this paragraph (b)(v), neither
the voluntary sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the Corporation
nor the consolidation or merger of the Corporation with any one
or more other corporations shall be deemed to be a voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, unless such voluntary sale,
8
<PAGE>
conveyance, exchange or transfer shall be in connection with a
plan of liquidation, dissolution or winding up of the
Corporation.
(vi) Reacquired Shares. Shares of Series A Preferred Stock
-----------------
that have been issued and reacquired by the Corporation in any manner,
including shares reacquired by redemption pursuant to paragraph
(b)(iv) of this Section 2, shall (upon compliance with any applicable
provisions of the laws of the State of Delaware) have the status of
authorized and unissued shares of Preferred Stock undesignated as to
series, and may be redesignated and reissued as part of any series of
Preferred Stock.
(vii) Voting Rights. In addition to any voting rights provided
-------------
by law, the holders of Series A Preferred Stock have the following
voting rights:
(A) General. Except as required in this Article IV and
-------
as otherwise required by law, shares of Series A Preferred Stock
shall vote together with shares of Common Stock of the
Corporation as a single class on all matters as to which the
shares of Common Stock are entitled to vote generally. Each
share of Series A Preferred Stock is entitled to 1/10,000 of a
vote.
(B) Voting Rights On Extraordinary Matters. In
--------------------------------------
addition to any vote or consent of stockholders required by law,
the approval of holders of at least two-thirds of the outstanding
shares of Series A Preferred Stock, voting as a class, is
required (i) to reclassify any series of Junior Securities as
Senior Securities or Parity Securities, or (ii) to amend, repeal
or change any of the provisions of this Restated and Amended
Certificate of Incorporation or the provisions of this Article IV
in any manner that would alter or change the rights, powers,
preferences or privileges of the shares of Series A Preferred
Stock so as to affect them adversely, including, without
limitation, changing the voting percentage
9
<PAGE>
required for approval by the holders of Series A Preferred Stock
of the foregoing matters.
ARTICLE V.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, which shall consist of not less
than six directors nor more than 12 directors, the exact number of directors to
be determined from time to time by resolution adopted by the Board of Directors.
At each annual meeting of the stockholders of the Corporation, commencing with
the 1998 annual meeting, all directors will be elected to serve for a term
expiring at the next annual meeting of the stockholders of the Corporation. A
director shall hold office until the annual meeting at which his or her term
expires and until his or her successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement, disqualification or
removal from office. Any vacancy on the Board of Directors, howsoever
resulting, may be filled by a majority of the directors then in office, even if
less than a quorum, or by a sole remaining director. Any director elected to
fill a vacancy shall hold office for a term expiring at the next annual meeting
of the stockholders of the Corporation. Notwithstanding anything to the
contrary in this Restated and Amended Certificate of Incorporation or any
provision of Bylaws of the Corporation, there shall be no cumulative voting.
ARTICLE VI.
Any or all of the directors of the Corporation may be removed from the
Board of Directors, with or without cause, by the affirmative vote of the
holders of a majority of the voting power of the outstanding shares of voting
stock of the Corporation entitled to vote thereon.
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<PAGE>
ARTICLE VII.
Elections of directors at an annual or special meeting of stockholders
need not be by written ballot unless the Bylaws of the Corporation shall
otherwise provide.
ARTICLE VIII.
Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time only by a majority of the Board of
Directors or the Chief Executive Officer or the President.
ARTICLE IX.
Any action which may be taken by stockholders of the Corporation at an
annual or special meeting may not be effected except at such an annual or
special meeting by the vote required for the taking of such action, and the
right of stockholders to act by written consent is expressly denied.
ARTICLE X.
The officers of the Corporation shall be chosen in such a manner,
shall hold their offices for such terms and shall carry out such duties as are
determined by the Board of Directors, subject to the right of the Board of
Directors to remove any officer or officers at any time with or without cause.
ARTICLE XI.
A. The Corporation shall indemnify to the full extent authorized or
permitted by law (as now or hereafter in effect) any person made, or threatened
to be made, a defendant or witness to any action, suit or proceeding (whether
civil or criminal or otherwise) by reason of the fact that he, his testator or
intestate, is or was a director or officer of the Corporation or by reason of
the fact that such director or officer, at the request of the Corporation, is or
was serving any other corporation, partnership, joint
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<PAGE>
venture, employee benefit plan or other enterprise, in any capacity. Nothing
contained herein shall affect any rights to indemnification to which employees
other than directors or officers may be entitled by law. No amendment or repeal
of this Section A of Article XI shall apply to or have any effect on any right
to indemnification provided hereunder with respect to any acts or omissions
occurring prior to such amendment or repeal.
B. No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty by such a director as a director. Notwithstanding the foregoing sentence,
a director shall be liable to the extent provided by applicable law (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
GCL, or (iv) for any transaction from which such director derived an improper
personal benefit. No amendment to or repeal of this Section B of this Article
XI shall apply to or have any effect on the liability or alleged liability of
any director of the Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment or repeal.
C. In furtherance and not in limitation of the powers conferred by
statute:
(i) the Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would
have the power to indemnify him against such liability under the provisions
of law; and
(ii) the Corporation may create a trust fund, grant a security
interest and/or use other means (including, without limitation, letters of
credit, surety bonds and/or other similar
12
<PAGE>
arrangements), as well as enter into contracts providing indemnification to
the full extent authorized or permitted by law and including as part
thereof provisions with respect to any or all of the foregoing to ensure
the payment of such amounts as may become necessary to effect
indemnification as provided therein, or elsewhere.
ARTICLE XII.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, repeal, alter,
amend or rescind the Bylaws of the Corporation. In addition, the Bylaws of the
Corporation may be adopted, repealed, altered, amended, or rescinded by the
affirmative vote of two-thirds of the issued and outstanding stock of the
Corporation entitled to vote thereon.
ARTICLE XIII.
The Corporation reserves the right to repeal, alter amend, or rescind
any provision contained in this Restated and Amended Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred on stockholders herein are granted subject to this reservation.
Notwithstanding any other provision of this Restated and Amended Certificate of
Incorporation and any provisions of the Bylaws of the Corporation, any proposal
to amend or repeal Articles V, VI, VIII, IX, or XII, or this Article XIII or any
other proposal to amend this Restated and Amended Certificate of Incorporation
that is inconsistent with any provisions of Articles V, VI, VIII, IX, or XII or
this Article XIII shall require not less than the affirmative vote of two-thirds
of the issued and outstanding stock of the Corporation entitled to vote thereon.
ARTICLE XIV.
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The Corporation will not issue nonvoting equity securities to the
extent prohibited by Section 1123 of the United States Bankruptcy Code;
provided, however, that this Article XIV (a) will have no further force and
effect beyond that required under Section 1123 of the United States Bankruptcy
Code, (b) will have such force and effect, if any, only for so long as such
Section 1123 is in effect and applicable to the Corporation, and (c) in all
events may be amended or eliminated in accordance with applicable law as from
time to time in effect.
* * * * *
14
<PAGE>
EXHIBIT 3.2
RESTATED AND AMENDED BYLAWS
OF
MORRISON KNUDSEN CORPORATION
Amended and Restated as of April 8, 1998
<PAGE>
RESTATED AND AMENDED BYLAWS
OF
MORRISON KNUDSEN CORPORATION
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
OFFICES.................................................................1
- -------
Section 1. REGISTERED OFFICES.......................................1
Section 2. OTHER OFFICES............................................1
ARTICLE II
MEETINGS OF STOCKHOLDERS................................................1
- ------------------------
Section 1. PLACE OF MEETINGS........................................1
Section 2. ANNUAL MEETING OF STOCKHOLDERS...........................1
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF............2
Section 4. VOTING...................................................2
Section 5. PROXIES..................................................2
Section 6. SPECIAL MEETINGS.........................................3
Section 7. NOTICE OF STOCKHOLDERS' MEETINGS.........................3
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST...........3
Section 9. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING..3
ARTICLE III
DIRECTORS...............................................................3
- ---------
Section 1. THE NUMBER OF DIRECTORS..................................3
Section 2. VACANCIES................................................4
Section 3. POWERS...................................................4
Section 4. PLACE OF DIRECTORS' MEETINGS.............................5
Section 5. MEETINGS.................................................5
Section 6. QUORUM...................................................5
Section 7. ACTION WITHOUT MEETING...................................5
Section 8. TELEPHONIC MEETINGS......................................5
Section 9. COMMITTEES OF DIRECTORS..................................5
Section 10. MINUTES OF COMMITTEE MEETINGS...........................6
Section 11. COMPENSATION OF DIRECTORS...............................6
ARTICLE IV
OFFICERS................................................................6
- --------
Section 1. OFFICERS.................................................6
Section 2. ELECTION OF OFFICERS.....................................6
-i-
<PAGE>
Section 3. SUBORDINATE OFFICEHOLDERS................................6
Section 4. COMPENSATION OF OFFICERS.................................6
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES....................7
Section 6. TERM OF OFFICE; REMOVAL AND VACANCIES....................7
Section 7. CHAIRMAN OF THE BOARD....................................7
Section 8. PRESIDENT AND CHIEF EXECUTIVE OFFICER....................7
Section 9. VICE PRESIDENTS..........................................7
Section 10. SECRETARY...............................................7
Section 11. ASSISTANT SECRETARY.....................................8
Section 12. TREASURER...............................................8
Section 13. ASSISTANT TREASURER.....................................8
ARTICLE V
INDEMNIFICATION OF DIRECTORS,OFFICERS, EMPLOYEES AND AGENTS.............8
- -----------------------------------------------------------
ARTICLE VI
CERTIFICATES OF STOCK..................................................10
- ---------------------
Section 1. CERTIFICATES............................................10
Section 2. SIGNATURES ON CERTIFICATES..............................10
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES......10
Section 4. LOST CERTIFICATES.......................................11
Section 5. TRANSFERS OF STOCK......................................11
Section 6. FIXED RECORD DATE.......................................11
Section 7. REGISTERED STOCKHOLDERS.................................11
ARTICLE VII
GENERAL PROVISIONS.....................................................11
- ------------------
Section 1. DIVIDENDS...............................................11
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES.................11
Section 3. CHECKS..................................................12
Section 4. FISCAL YEAR.............................................12
Section 5. CORPORATE SEAL..........................................12
Section 6. MANNER OF GIVING NOTICE.................................12
Section 7. WAIVER OF NOTICE........................................12
Section 8. ANNUAL STATEMENT........................................12
ARTICLE VIII
AMENDMENTS.............................................................12
- ----------
Section 1. AMENDMENT BY DIRECTORS..................................12
Section 2. AMENDMENT BY STOCKHOLDERS...............................13
-ii-
<PAGE>
RESTATED AND AMENDED BYLAWS
OF
MORRISON KNUDSEN CORPORATION
(AS OF APRIL 8, 1998)
ARTICLE I
OFFICES
-------
Section 1. REGISTERED OFFICES . The registered office shall be in
the City of Dover, County of Kent, State of Delaware.
Section 2. OTHER OFFICES . The corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. PLACE OF MEETINGS . Meetings of stockholders shall be
held at any place within or outside the State of Delaware designated by the
Board of Directors. In the absence of any such designation, stockholders'
meetings shall be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING OF STOCKHOLDERS . The annual meeting of
stockholders shall be held on such date and at such time and place as may be
fixed by the Board of Directors and stated in the notice of the meeting, for the
purposes of electing directors and for the transaction of such other business as
is properly brought before the meeting in accordance with these Bylaws.
To be properly brought before the annual meeting, business must be
either (i) specified in the annual notice of meeting (or any supplement or
amendment thereto) given by or at the direction of the Board of Directors, (ii)
otherwise brought before the annual meeting by or at the direction of the Board
of Directors, or (iii) otherwise brought before the annual meeting by a
stockholder. In addition to any other applicable requirements, for business to
be brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the corporation. To
be timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation, not less than fifty (50)
days nor more than seventy-five (75) days prior to the meeting; provided,
however, that in the event that less than sixty-five (65) days' notice or prior
public disclosure of the date of the annual meeting is given or made to
stockholders, notice by a stockholder to be timely must be so received not later
than the close of business on the fifteenth (15th) day following the day on
which such notice of the date of the annual meeting was mailed or such public
disclosure was made, whichever
<PAGE>
first occurs. A stockholder's notice to the Secretary shall set forth (a) as to
each matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and record address of the stockholder proposing such business, (iii)
the class, series and number of shares of the corporation which are beneficially
owned by the stockholder, and (iv) any material interest of the stockholder in
such business and (b) as to the stockholder giving the notice (i) the name and
record address of the stockholder and (ii) the class and number of shares of
capital stock of the corporation which are beneficially owned by the
stockholder. Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Article II, Section 2. The officer of the
corporation presiding at an annual meeting shall, if the facts warrant,
determine and declare to the annual meeting that business was not properly
brought before the annual meeting in accordance with the provisions of this
Article II, Section 2, and if he should so determine, he shall so declare to the
annual meeting and any such business not properly brought before the meeting
shall not be transacted. Written notice of the annual meeting stating the place,
date and hour of the annual meeting shall be given to each stockholder entitled
to vote at such meeting not less than ten (10) nor more than sixty (60) days
before the date of the meeting.
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF . A
majority of the stock issued and outstanding and entitled to vote at any meeting
of stockholders, the holders of which are present in person or represented by
proxy, shall constitute a quorum for the transaction of business except as
otherwise provided by law, by the Certificate of Incorporation, or by these
Bylaws. A quorum, once established, shall not be broken by the withdrawal of
enough votes to leave less than a quorum and the votes present may continue to
transact business until adjournment. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, a majority of the
voting stock represented in person or by proxy may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally notified. If the adjournment is
for more than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote thereat.
Section 4. VOTING . When a quorum is present at any meeting, the
vote of the holders of a majority of the stock having power present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
shall decide any question brought before such meeting, unless the question is
one upon which by express provision of the statutes, or the Certificate of
Incorporation or these Bylaws, a different vote is required in which case such
express provisions shall govern and control the decision of such question.
Directors of the corporation shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Shares represented by proxies that reflect,
with respect to a proposal, abstentions or limited voting authority, including
"broker non-votes" (i.e., shares held by a broker or nominee which are
represented at the meeting, but with respect to which such broker or nominee is
not empowered to vote on a particular proposal or proposals) shall be counted as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum. For purposes of determining the outcome of any proposal,
shares represented by such proxies will be treated as not present and not
entitled to vote with respect to the proposal or proposals.
Section 5. PROXIES . At each meeting of the stockholders, each
stockholder having the right to vote may vote in person or may authorize another
person or persons to act for him by proxy appointed by an instrument in writing
subscribed by such stockholder and bearing a date not more than three years
prior to said meeting, unless said instrument provides for a longer period. All
proxies must be filed with the Secretary of the corporation at the beginning of
each meeting in order to be counted in any
2
<PAGE>
vote at the meeting. Each stockholder shall have one vote for each share of
stock having voting power, registered in his name on the books of the
corporation on the record date set by the Board of Directors as provided in
Article VI, Section 6 hereof. All elections shall be had and all questions
decided by a plurality vote.
Section 6. SPECIAL MEETINGS . Special meetings of the stockholders,
for any purpose, or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called only by a majority of the Board of
Directors or the Chief Executive Officer or the President. Business transacted
at any special meeting of stockholders shall be limited to the purposes stated
in the notice.
Section 7. NOTICE OF STOCKHOLDERS' MEETINGS . Whenever stockholders
are required or permitted to take any action at a meeting, a written notice of
the meeting shall be given which notice shall state the place, date and hour of
the meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. The written notice of any meeting shall be given
to each stockholder entitled to vote at such meeting not less than 10 (ten) nor
more than 60 (sixty) days before the date of the meeting. If mailed, notice is
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST . The
officer who has charge of the stock ledger of the corporation shall prepare and
make, at least 10 (ten) days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 (ten) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 9. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING .
Any action which may be taken by stockholders of the corporation at an annual or
special meeting may not be effected except at such an annual or special meeting
by the vote required for the taking of such action, and the right of
stockholders to act by written consent is expressly denied.
ARTICLE III
DIRECTORS
---------
Section 1. THE NUMBER OF DIRECTORS . The number of directors which
shall constitute the whole Board shall be not less than six (6) directors nor
more than twelve (12) directors, the exact number of directors to be determined
from time to time by resolutions adopted by the Board of Directors. The exact
number of directors shall be nine (9) until changed as provided in this Section
1. The directors need not be stockholders. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation at the annual meeting may be made at such meeting by or at the
direction of the Board of Directors, by any committee or persons appointed by
the Board of Directors or by any stockholder of the corporation entitled to vote
for the election of directors at the meeting who complies with the notice
procedures set forth in this Article III, Section 1. Such nominations by any
stockholder shall be made pursuant to timely notice in writing to the Secretary
of the corporation. To be timely, a stockholder's notice shall be delivered to
or mailed and received at the principal executive offices of the corporation not
3
<PAGE>
less than fifty (50) days nor more than seventy-five (75) days prior to the
meeting; provided, however, that in the event that less than sixty-five (65)
days notice or prior to public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so received
not later than the close of business of the fifteenth (15th) day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made, whichever first occurs. Such stockholder's notice to the
Secretary shall set forth (i) as to each person whom the stockholder proposes to
nominate for election or reelection as a director, (a) the name, age, business
address and residence address of the person, (b) the principal occupation or
employment of the person, (c) the class and number of shares of capital stock of
the corporation which are beneficially owned by the person, and (d) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to the Rules and
Regulations of the Securities and Exchange Commission under Section 14 of the
Securities Exchange Act of 1934, as amended; and (ii) as to the stockholder
giving the notice (a) the name and record address of the stockholder and (b) the
class and number of shares of capital stock of the corporation which are
beneficially owned by the stockholder. The corporation may require any proposed
nominee to furnish such other information as may reasonably be required by the
corporation to determine the eligibility of such proposed nominee to serve as a
director of the corporation. No person shall be eligible for election as a
director of the corporation unless nominated in accordance with the procedures
set forth herein. The officer of the corporation presiding at an annual meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the foregoing procedure, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 2 of this Article
III, and each director elected shall hold office until his successor is elected
and qualified; provided, however, that unless otherwise restricted by the
Certificate of Incorporation or by law, any director or the entire Board of
Directors may be removed from the Board of Directors with or without cause at
any meeting of stockholders by a majority of the stock represented and entitled
to vote thereat.
Section 2. VACANCIES . Vacancies on the Board of Directors by reason
of death, resignation, retirement, disqualification, removal from office, or
otherwise, and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority of the directors then
in office, although less than a quorum, or by a sole remaining director. The
directors so chosen shall hold office for a term that shall coincide with the
term of the class to which such director shall have been elected. If there are
no directors in office, then an election of directors may be held in the manner
provided by statute. If, at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than a
majority of the whole Board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent of the total number of the shares at
the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office.
Section 3. POWERS . The property and business of the corporation
shall be managed by or under the direction of its Board of Directors. In
addition to the powers and authorities by these Bylaws expressly conferred upon
them, the Board may exercise all such powers of the corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these Bylaws directed or required to be exercised or done by
the stockholders.
Section 4. PLACE OF DIRECTORS' MEETINGS . The directors may hold
their meetings and have one or more offices, and keep the books of the
corporation outside of the State of Delaware.
4
<PAGE>
Section 5. MEETINGS . The Board of Directors of the corporation may
hold meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman of the Board of Directors, the President, or by a majority of the
Board of Directors. Notice thereof, stating the place, date and hour of the
meeting, shall be given to each director either by mail not less than four (4)
days before the date of the meeting, or personally or by telephone, telegram,
telex or similar means of communication on twelve (12) hours' notice, or on such
shorter notice as the person or persons calling such meeting may deem necessary
or appropriate in the circumstances.
Section 6. QUORUM . At all meetings of the Board of Directors a
majority of the authorized number of directors shall be necessary and sufficient
to constitute a quorum for the transaction of business, and the vote of a
majority of the directors present at any meeting at which there is a quorum,
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, by the Certificate of Incorporation or by
these Bylaws. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present. If only one director is authorized, such sole director shall
constitute a quorum.
Section 7. ACTION WITHOUT MEETING . Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 8. TELEPHONIC MEETINGS . Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at such meeting.
Section 9. COMMITTEES OF DIRECTORS . The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each such committee to consist of one or more of the directors of
the corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to the following matters: (i) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by the Delaware General
Corporation Law to be submitted to stockholders for approval or (ii) adopting,
amending or repealing any bylaw of the corporation.
Section 10. MINUTES OF COMMITTEE MEETINGS . Each committee shall
keep regular minutes of its meetings and report the same to the Board of
Directors when required.
5
<PAGE>
Section 11. COMPENSATION OF DIRECTORS . Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, the Board of Directors
shall have the authority to fix the compensation of directors. The directors
may be paid their expenses, if any, of attendance at each meeting of the Board
of Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
ARTICLE IV
OFFICERS
--------
Section 1. OFFICERS . The principal officers of this corporation
shall be chosen by the Board of Directors and shall include a President and a
Secretary. The corporation may also have at the discretion of the Board of
Directors such other officers as are desired, including a Chief Executive
Officer, a Treasurer, one or more Vice Presidents, one or more Assistant
Secretaries and Assistant Treasurers, and such other subordinate officers as it
may deem appropriate, and such other subordinate officeholders as may be
appointed in accordance with the provisions of Section 3 hereof. In the event
there are two or more Vice Presidents, then one or more may be designated as
Executive Vice President, Senior Vice President, or other similar or dissimilar
title. At the time of the election of officers, the directors may by resolution
determine the order of their rank. Any number of offices may be held by the
same person, unless the Certificate of Incorporation or these Bylaws otherwise
provide. The Board of Directors may also appoint a Chairman of the Board who
need not be an officer of the corporation unless specifically designated as such
by the Board.
Section 2. ELECTION OF OFFICERS . The Board of Directors, at its
first meeting after each annual meeting of stockholders, shall choose the
officers of the corporation.
Section 3. SUBORDINATE OFFICEHOLDERS . The Board of Directors may
appoint such other subordinate officeholders and agents as it shall deem
necessary who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board. The Chief Executive Officer may also from time to time appoint
subordinate officeholders, who shall not be corporate officers, to such
positions, with such limited authority and such titles, as the Chief Executive
Officer may determine. Subordinate officeholders shall hold office for such
period, and have such authority and title, and perform such duties as may be
designated by the Chief Executive Officer, provided, that such subordinate
officeholders shall not have or perform authorities or duties co-extensive with
the authorities or duties of principal or subordinate officers chosen by the
Board of Directors.
Section 4. COMPENSATION OF OFFICERS . The salaries of all officers
and agents of the corporation shall be fixed by the Board of Directors.
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES . The officers of
the corporation shall hold office until their successors are chosen and qualify
in their stead. Any officer elected or appointed by the Board of Directors may
be removed at any time by the affirmative vote of a majority of the Board of
Directors. If the office of any officer or officers becomes vacant for any
reason, the vacancy shall be filled by the Board of Directors.
Section 6. TERM OF OFFICE; REMOVAL AND VACANCIES . The officers of
the corporation shall hold office until their successors are chosen and qualify
in their stead. Any officer elected or appointed by the Board of Directors may
be removed at any time by the affirmative vote of a majority
6
<PAGE>
of the Board of Directors. If the office of any officer or officers becomes
vacant for any reason, the vacancy shall be filled by the Board of Directors.
Section 7. CHAIRMAN OF THE BOARD . The Chairman of the Board, if the
Board has appointed one, shall, if present, preside at all meetings of the Board
of Directors and exercise and perform such other powers and duties as may be
from time to time assigned to him by the Board of Directors or prescribed by
these Bylaws. If there is no President or Chief Executive Officer, the Chairman
of the Board shall become the Chief Executive Officer of the corporation and
shall have the powers and duties prescribed in Section 7 of this Article IV.
Section 8. PRESIDENT AND CHIEF EXECUTIVE OFFICER . Subject to such
supervisory powers, if any, as may be given by the Board of Directors to the
Chairman of the Board, if there be a Chairman, the President shall, subject to
the control of the Board of Directors, have general supervision, direction and
control of the business and officers of the corporation. The President shall
preside at all meetings of the stockholders and, in the absence of the Chairman
of the Board, or if there be none, at all meetings of the Board of Directors.
The President shall be an ex-officio member of all committees and shall have the
general powers and duties of management usually vested in the office of
President of corporations, and shall have such other powers and duties as may be
prescribed by the Board of Directors or these Bylaws. The President shall be
the Chief Executive Officer of the corporation, unless the Board of Directors,
in its discretion, elects or appoints a President and a Chief Executive Officer.
If there is a Chief Executive Officer of the corporation, other than the
President, the Chief Executive Officer shall have such powers and duties as may
be prescribed by the Board of Directors or these Bylaws.
Section 9. VICE PRESIDENTS . In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board of
Directors, or if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other duties as from time to
time may be prescribed for them, respectively, by the Board of Directors.
Section 10. SECRETARY . The Secretary shall attend all sessions of
the Board of Directors and all meetings of the stockholders and record all votes
and the minutes of all proceedings in a book to be kept for that purpose; and
shall perform like duties for the standing committees when required by the Board
of Directors. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors or these
Bylaws. The Secretary shall keep in safe custody the seal of the corporation,
and when authorized by the Board, affix the same to any instrument requiring it,
and when so affixed it shall be attested by his signature or by the signature of
an Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
his signature.
7
<PAGE>
Section 11. ASSISTANT SECRETARY. The Assistant Secretary, or if there
be more than one, the Assistant Secretaries in the order determined by the Board
of Directors, or if there be no such determination, the Assistant Secretary
designated by the Board of Directors, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
Section 12. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys, and other valuable effects in the name and to the credit of
the corporation, in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial condition of the corporation. If
required by the Board of Directors, the Treasurer shall give the corporation a
bond, in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors, for the faithful performance of the duties of his office
and for the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the corporation.
Section 13. ASSISTANT TREASURER. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order determined
by the Board of Directors, or if there be no such determination, the Assistant
Treasurer designated by the Board of Directors, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
ARTICLE V
INDEMNIFICATION OF DIRECTORS,
-----------------------------
OFFICERS, EMPLOYEES AND AGENTS
------------------------------
(a) The corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director,
8
<PAGE>
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no such indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery of Delaware or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such Court
of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
corporation shall be successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs (a) and (b), or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under paragraphs (a) and (b) (unless ordered
by a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper under the circumstances because he has met the
applicable standard of conduct set forth in paragraphs (a) and (b). Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this Article V. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Article V shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) The Board of Directors may authorize, by a vote of a majority of a
quorum of the Board of Directors, the corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this Article V.
(h) For the purposes of this Article V, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any
9
<PAGE>
person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article V with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include service
as a director, officer, employee or agent of the corporation which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants or beneficiaries; and
a person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article V shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The corporation shall be required to indemnify a person in
connection with a proceeding (or part thereof) initiated by such person only if
the proceeding (or part thereof) was authorized by the Board of Directors of the
corporation.
ARTICLE VI
CERTIFICATES OF STOCK
---------------------
Section 1. CERTIFICATES . Every holder of stock of the corporation
shall be entitled to have a certificate signed by, or in the name of the
corporation by, the Chairman of the Board of Directors, if the Board has
appointed one, or the President or a Vice President, and by the Secretary or an
Assistant Secretary, or the Treasurer or an Assistant Treasurer of the
corporation, certifying the number of shares represented by the certificate
owned by such stockholder in the corporation.
Section 2. SIGNATURES ON CERTIFICATES . Any or all of the signatures
on the certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent, or registrar at the date
of issue.
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES . If
the corporation shall be authorized to issue more than one class of stock or
more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualification, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in Section
202 of the General Corporation Law of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock, a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights
10
<PAGE>
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
Section 4. LOST CERTIFICATES . The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 5. TRANSFERS OF STOCK . Upon surrender to the corporation,
or the transfer agent of the corporation, of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignation or
authority to transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 6. FIXED RECORD DATE . In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
the stockholders, or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date which shall not be more than 60 (sixty) nor less than 10 (ten) days
before the date of such meeting, nor more than 60 (sixty) days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 7. REGISTERED STOCKHOLDERS . The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, save as
expressly provided by the laws of the State of Delaware.
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1. DIVIDENDS . Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
11
<PAGE>
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES . Before payment
of any dividend there may be set aside out of any funds of the corporation
available for dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve fund to meet contingencies,
or for equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the directors shall think conducive to
the interests of the corporation, and the directors may abolish any such
reserve.
Section 3. CHECKS . All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 4. FISCAL YEAR . The fiscal year of the corporation shall
be fixed by resolution of the Board of Directors.
Section 5. CORPORATE SEAL . The corporate seal shall have inscribed
thereon the name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware." Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
Section 6. MANNER OF GIVING NOTICE . Whenever, under the provisions
of the statutes or of the Certificate of Incorporation or of these Bylaws,
notice is required to be given to any director or stockholder, it shall not be
construed to mean personal notice, but such notice may be given in writing, by
mail, addressed to such director or stockholder, at his address as it appears on
the records of the corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Notice to directors may also be given by telegram.
Section 7. WAIVER OF NOTICE . Whenever any notice is required to be
given under the provisions of the statutes or of the Certificate of
Incorporation or of these Bylaws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
Section 8. ANNUAL STATEMENT . The Board of Directors shall present
at each annual meeting, and at any special meeting of the stockholders, a full
and clear statement of the business and condition of the corporation.
ARTICLE VIII
AMENDMENTS
----------
Section 1. AMENDMENT BY DIRECTORS . These Bylaws may be altered,
amended or repealed or new Bylaws may be adopted by the Board of Directors, when
such power is conferred upon the Board of Directors by the Certificate of
Incorporation, at any regular meeting of the Board of Directors or at any
special meeting of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new Bylaws be contained in the notice of such
special meeting. If the power to adopt, amend or repeal Bylaws is conferred
upon the Board of Directors by the Certificate of Incorporation, it shall not
divest or limit the power of the stockholders to adopt, amend or repeal Bylaws.
12
<PAGE>
Section 2. AMENDMENT BY STOCKHOLDERS . These Bylaws may be altered,
amended or repealed or new Bylaws may be adopted by the stockholders, at any
regular meeting of the stockholders or at any special meeting of the
stockholders if notice of such alteration, amendment, repeal or adoption of new
Bylaws be contained in the notice of such special meeting; provided, however,
any proposal to adopt, amend or repeal Bylaws shall require not less than the
affirmative vote of two-thirds of the issued and outstanding stock of the
Corporation entitled to vote thereon.
* * * * *
13
<PAGE>
EXHIBIT 10.2
BATCHELDER & PARTNERS, INC.
4330 La Jolla Village Drive, Suite 200
San Diego, California 92122
David H. Batchelder Telephone: (619) 456-6655
Chairman and Chief Executive Officer Telecopier: (619) 456-7969
April 6, 1998
Mr. Robert A. Tinstman
President and Chief Executive Officer
Morrison Knudsen Corporation
Morrison Knudsen Plaza
720 Park Boulevard
Boise, Idaho 83712
Dear Bob:
This is to confirm our understanding that Morrison Knudsen Corporation, its
successors and/or assignees (the "Company") has retained Batchelder & Partners,
Inc. ("B&P") as its non-exclusive financial advisor with respect to transactions
that the Company may pursue with CBS Corporation ("CBS"), including the merger,
consolidation, combination, reorganization, recapitalization or acquisition of
all or a portion of the stock or assets of CBS Corporation divisions known to
you and us as Government and Environmental Services Company ("GESCO"), and
Energy Systems ("Energy Systems") (individually or collectively a
"Transaction"). "You," as used herein, shall refer to the Company.
In connection with our engagement hereunder and all other engagements
involving the Company and in effect during calendar year 1998, the Company shall
pay B&P an aggregate retainer fee of $50,000 per month, payable in cash on the
first business day of each month commencing April 1, 1998. Provided, however,
that the maximum monthly, and aggregate retainer fee payable to B&P pursuant to
this agreement and pursuant to all other fee arrangements in effect during
calendar year 1998 between the Company and B&P shall not exceed $50,000, and
$250,000, respectively, for the twelve months ended December 31, 1998. Provided
further that any retainer fee paid to B&P hereunder shall be creditable against
any Success Fee (as hereinafter defined) paid to B&P pursuant to this agreement
or pursuant to any other agreement entered into during 1998 between B&P and the
Company.
Further, if any Transaction or series of Transactions is consummated by You
and/or any entity substantially owned by You or any partnership, limited
liability company, affiliate or joint venture of which You are a member (singly
or collectively, "Acquirer"), the Company agrees to pay B&P a fee (the "Success
Fee") equal to 0.6 percent (.006) of the MK Transaction Value. "MK
<PAGE>
Mr. Robert Tinstman -2- April 6, 1998
Transaction Value" shall mean the aggregate Value (as hereinafter defined) of
all cash, non-cash assets, equity and debt issued or assumed in connection with
a Transaction and shall include the Value of equity and debt securities of any
entity created as part of a process to effect a Transaction. "Value" shall mean
(i) with respect to cash, the amount thereof provided by You or accruing to the
Company's economic interest in Acquirer; (ii) with respect to marketable
securities contributed by You or accruing to the Company's economic interest in
Acquirer, the mean of the average of the bid and ask of such securities as
quoted at the close on their principal trading market on the tenth through the
sixth consecutive trading days ending on the trading day preceding the date of
closing of the Transaction or, if not quoted on such dates, the mean of the
average of the bid and ask of such securities as quoted at the close on their
principal trading market on the five (5) consecutive trading days beginning with
the next such trading day on which a bid/ask is so quoted; and (iii) with
respect to non-cash consideration other than marketable securities, the fair
market value thereof relevant to the Company's economic interest in Acquirer as
mutually agreed by the Company and B&P. Any fee pursuant to this paragraph
shall be payable in cash upon closing or consummation of such Transaction or, in
the event that the determination of Value requires market information only
available after such closing, as soon as practicable thereafter but in no event
later than fifteen (15) days after closing or consummation of such Transaction.
In the event that a Transaction is not consummated and the Company receives a
break fee or similar compensation (a "Break Fee"), the Company shall pay to B&P
ten (10) percent of such Break Fee.
In addition to the foregoing compensation, You shall reimburse B&P for our
reasonable out-of-pocket expenses, which shall include the fees and
disbursements of our counsel. We shall not incur expenses in excess of $25,000
without your approval, which shall not be unreasonably withheld.
Since we will be acting on the Company's behalf, the Company is agreeing to
provide us with indemnification pursuant to the letter dated April 1, 1998 from
the Company to B&P. Further, nothing in this engagement is intended to create
an agency or other fiduciary relationship between the parties or any of their
affiliates, directors, officers, partners, agents or employees. The sole
obligation of B&P hereunder shall be the contractual obligations specifically
created by this agreement.
Our services hereunder may be terminated by the Company or by B&P upon
written notice and, in any event, shall terminate on March 31, 1999. If the
Company elects to terminate, no further retainer amounts shall accrue, any due
but unpaid retainer amounts and fees shall be paid and any reimbursable expenses
incurred before the date of termination shall be paid. Provided, however,
<PAGE>
Mr. Robert Tinstman -3- April 6, 1998
you specifically acknowledge that our services hereunder will have continuing
value to the Company and therefore You agree that if You terminate our services
and within 12 months thereafter, an Acquirer effects a Transaction, then B&P
shall be entitled to compensation pursuant to the third paragraph hereof to the
same extent as if our services had not been terminated. If B&P elects to
terminate, no further retainer amounts shall accrue, any due but unpaid retainer
amounts and fees shall be paid and any reimbursable expenses incurred before the
date of termination shall be paid. Notwithstanding the foregoing, the
provisions of the preceding paragraph shall survive any termination, whether by
the Company, or by B&P, as a result of the passage of time or otherwise.
Except as required by law, any advise (written or oral) rendered by us
pursuant to this letter ay not be disclosed publicly without our prior written
consent, which consent shall not be unreasonably withheld.
Please confirm that the foregoing is in accordance with the Company's
understanding by signing and returning the duplicate of this letter attached
hereto, which shall thereupon constitute a binding agreement.
Very truly yours,
BATCHELDER & PARTNERS, INC.
By: /s/ David H. Batchelder
-----------------------------------
Chairman and CEO
Confirmed:
MORRISON KNUDSEN CORPORATION
By: /s/ Stephen G. Hanks
---------------------------
Printed Name: Stephen G. Hanks
-----------------
Title: Exec. Vice President
------------------------
Date: Oct. 6, 1998
-------------------------
<PAGE>
April 1, 1998
Batchelder & Partners, Inc.
4330 La Jolla Village Drive, Suite 200
San Diego, California 92122
Gentlemen:
In connection with your engagement as financial advisor to Morrison Knudsen
Corporation, its successors and/or assignees (the "Undersigned") with respect to
the matters contemplated by the letter from you to the Undersigned of even date
herewith, the Undersigned hereby agrees to indemnify and hold harmless you and
your affiliates, the respective directors, officers, partners, agents, and
employees of you and your affiliates and each other person, if any, controlling
you or any of your affiliates, to the full extent lawful, from and against all
losses, claims, damages, liabilities and expenses incurred by you and such other
persons (including reasonable fees and disbursements of counsel) which (A) are
related to or arise out of (i) actions taken or omitted to be taken (including
any untrue statements made or any statements omitted to be made) by the
Undersigned, its associates or affiliates or (ii) actions taken or omitted to be
taken by an indemnified person with the consent of the Undersigned, its
associates or affiliates or in conformity with their actions or omissions or (B)
are otherwise related to or arise out of your activities on behalf of the
Undersigned, its associates or affiliates under your engagement, and the
Undersigned will reimburse you and any other person indemnified hereunder for
all expenses (including reasonable fees and disbursements of counsel) as they
are incurred by you or such other indemnified person in connection with
investigating, preparing or defending any such action or claim, whether or not
in connection with pending or threatened litigation in which you or any other
indemnified person is a party. The Undersigned will not be responsible,
however, for any losses, claims, damages, liabilities or expenses pursuant to
clause (B) of the preceding sentence which are finally judicially determined to
have resulted primarily from the willful misconduct, bad faith or gross
negligence of the person seeking indemnification hereunder (although it is
expressly intended that the Undersigned will be responsible for any thereof that
result from the negligence, other than gross negligence, of such person). The
Undersigned also agrees that neither you, nor any of your affiliates, nor any
director, officer, partner, agent or employee of you or any of your affiliates,
nor any person controlling you or any of your affiliates, shall have any
liability to the Undersigned for or in connection with such engagement except
for such liability for losses, claims, damages, liabilities or expenses incurred
by the Undersigned which is finally judicially determined to have resulted
primarily from your willful misconduct, bad faith or gross negligence as herein
described. The foregoing agreement shall be in addition to any rights that you
or any indemnified person may have at common law or otherwise, including, but
not limited to, any right to contribution.
<PAGE>
Batchelder & Partners, Inc. -2- April 1, 1998
It is understood that, in connection with your engagement, you may also be
engaged to act for the Undersigned, its associates or affiliates in one or more
additional capacities, and that the terms of the original engagement or any such
additional engagement may be embodied in one or more separate written
agreements. This indemnification shall apply to the original engagement, any
such additional engagement and any modification of the original engagement or
such additional engagement in connection with which this letter is expressly
referenced in writing and shall remain in full force and effect following the
completion or termination of such engagement(s).
Very truly yours,
MORRISON KNUDSEN CORPORATION
/s/Stephen G. Hanks
-----------------------------------
Accepted:
BATCHELDER & PARTNERS, INC.
By: /s/ David H. Batchelder
----------------------------
Title:
---------------------------
Date:
---------------------------
<PAGE>
EXHIBIT 10.10
EXECUTION COPY
ESBU
================================================================================
ASSET PURCHASE AGREEMENT
BETWEEN
CBS CORPORATION
AND
WGNH ACQUISITION, LLC
DATED AS OF JUNE 25, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
DEFINITIONS.................................. 4
SECTION 1.1. Specified Definitions.......................................... 4
---------------------
SECTION 1.2. Other Terms.................................................... 17
-----------
SECTION 1.3. Other Definitional Provisions.................................. 17
-----------------------------
ARTICLE 2
SALE AND PURCHASE OF ASSETS; ASSUMPTION OF LIABILITIES............ 18
SECTION 2.1. Purchase and Sale.............................................. 18
-----------------
SECTION 2.2. Acquired Assets and Excluded Assets............................ 18
-----------------------------------
(a) Acquired Assets.............................................. 18
---------------
(b) Excluded Assets.............................................. 21
---------------
(c) Nonassignable Rights......................................... 24
--------------------
(d) Termination of Rights of Sold Subsidiaries................... 24
------------------------------------------
SECTION 2.3. Assumption of Liabilities...................................... 25
-------------------------
(a) Assumed Liabilities.......................................... 25
-------------------
(b) Excluded Liabilities......................................... 27
--------------------
SECTION 2.4. Purchase Price................................................. 29
--------------
SECTION 2.5. Purchase Price Adjustment...................................... 29
-------------------------
ARTICLE 3
THE CLOSING.................................. 34
SECTION 3.1. Closing Date................................................... 34
------------
SECTION 3.2. Transactions to be Effected at the Closing..................... 34
------------------------------------------
(a) Deliveries by Sellers........................................ 34
---------------------
(b) Deliveries by Purchaser...................................... 34
-----------------------
(c) Nominee Shares............................................... 35
--------------
ARTICLE 4
REPRESENTATIONS AND WARRANTIES....................... 35
SECTION 4.1. Representations and Warranties of CBS.......................... 35
-------------------------------------
(a) Organization, Standing and Power............................. 35
--------------------------------
(b) Authority.................................................... 35
---------
i
<PAGE>
Page
----
(c) Financial Statements; Undisclosed Liabilities................. 37
---------------------------------------------
(d) Compliance with Applicable Laws............................... 38
-------------------------------
(e) Litigation; Decrees........................................... 39
-------------------
(f) Title to Acquired Assets; Leasehold Interests................. 39
---------------------------------------------
(g) Real Property................................................. 40
-------------
(h) Intellectual Property and Technology.......................... 42
------------------------------------
(i) Insurance..................................................... 43
---------
(j) Contracts..................................................... 44
---------
(k) Sufficiency of Acquired Assets................................ 47
------------------------------
(l) Absence of Certain Changes or Events.......................... 47
------------------------------------
(m) Employee Benefits............................................. 48
-----------------
(n) Environmental Matters......................................... 51
---------------------
(o) Taxes......................................................... 53
-----
(p) Sold Subsidiaries............................................. 55
-----------------
(q) Labor Matters................................................. 55
-------------
(r) Outstanding Bids.............................................. 56
----------------
(s) Major Suppliers and Customers................................. 56
-----------------------------
(t) Year 2000..................................................... 57
---------
(u) Tangible Property............................................. 57
-----------------
SECTION 4.2. Representations and Warranties of Purchaser.................... 57
-------------------------------------------
(a) Organization, Standing and Power.............................. 57
--------------------------------
(b) Authority..................................................... 58
---------
(c) U.S.-Controlled Entity........................................ 59
----------------------
(d) U.K. Shareholder Approval..................................... 59
-------------------------
ARTICLE 5
COVENANTS................................... 59
SECTION 5.1. (a) Covenants of CBS Relating to Conduct of Business............ 59
------------------------------------------------
(b) Advice of Changes............................................. 62
-----------------
SECTION 5.2. Access to Information; Consultation............................ 62
-----------------------------------
SECTION 5.3. Governmental Approvals, Etc.................................... 64
---------------------------
SECTION 5.4. Novations of Contracts and Third Party Consents................ 66
-----------------------------------------------
SECTION 5.5. Employee Matters............................................... 68
----------------
(a) Employee Matters.............................................. 68
----------------
(b) Accrued Vacation.............................................. 69
----------------
(c) Union Representation.......................................... 70
--------------------
(d) Pension Plan.................................................. 70
------------
(e) Savings Plan.................................................. 72
------------
(f) Welfare Benefits.............................................. 74
----------------
(g) Severance Obligations......................................... 77
---------------------
ii
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Page
----
(h) Executive Compensation...................................... 78
----------------------
(i) Cooperation................................................. 79
-----------
(j) WARN Act.................................................... 79
--------
(k) COBRA....................................................... 79
-----
(l) Workers Compensation........................................ 79
--------------------
(m) Retained Liabilities........................................ 80
--------------------
(n) Actuarial Determinations and Payments....................... 80
-------------------------------------
(o) Post-Closing Hiring of Employees............................ 81
--------------------------------
(p) Free-Standing Plans......................................... 81
-------------------
(q) Foreign Employment Matters.................................. 82
--------------------------
(r) No Right to Employment...................................... 84
----------------------
(s) Alternative Procedure....................................... 84
---------------------
SECTION 5.6. Collection of Receivables..................................... 84
-------------------------
SECTION 5.7. Expenses...................................................... 84
--------
SECTION 5.8. Brokers or Finders............................................ 84
------------------
SECTION 5.9. Shared Technology and Trademark License Agreements............ 85
---------------------
SECTION 5.10. Certain Information.......................................... 86
-------------------
SECTION 5.11. Bulk Transfer Laws........................................... 87
------------------
SECTION 5.12. Additional Agreements........................................ 87
---------------------
SECTION 5.13. Certain Understandings....................................... 88
----------------------
SECTION 5.14. Allocation; Tax Matters...................................... 88
-----------------------
SECTION 5.15. Supplies..................................................... 93
--------
SECTION 5.16. Transfer of Assets of Sold Subsidiaries...................... 94
---------------------------------------
SECTION 5.17. Removal of Excluded Assets and Liabilities from Sold
----------------------------------------------------
Subsidiaries........................................................ 94
------------
SECTION 5.18. Credit Support............................................... 94
--------------
SECTION 5.19. Non-Competition and Confidentiality.......................... 95
-----------------------------------
SECTION 5.20. Related Agreements........................................... 97
------------------
(a) Transitional Services....................................... 97
---------------------
(b) Business Supply Agreement................................... 97
-------------------------
(c) Facilities.................................................. 97
----------
(d) Field Sales Offices......................................... 97
-------------------
SECTION 5.21. Business Relationships with Sellers.......................... 98
-----------------------------------
SECTION 5.22. Science and Technology Center................................ 98
-----------------------------
SECTION 5.23. U.S.-Controlled Entity....................................... 99
----------------------
SECTION 5.24. Insurance Matters............................................ 99
-----------------
SECTION 5.25. Guarantee Agreement.......................................... 99
-------------------
SECTION 5.26. Waivers...................................................... 100
-------
SECTION 5.27. Third Party Agreements....................................... 100
----------------------
SECTION 5.28. [Intentionally omitted....................................... 100
SECTION 5.29. Year 2000 Matters............................................ 100
-----------------
iii
<PAGE>
Page
----
SECTION 5.30. Joint Defense Agreement...................................... 101
-----------------------
SECTION 5.31. Waltz Mill Service Center.................................... 101
-------------------------
SECTION 5.32. Guarantee Agreement.......................................... 101
-------------------
ARTICLE 6
CONDITIONS PRECEDENT............................ 101
SECTION 6.1. Conditions to Each Party's Obligation......................... 101
-------------------------------------
(a) Certain Waiting Periods...................................... 101
-----------------------
(b) No Injunctions or Restraints................................. 101
----------------------------
(c) Governmental Action.......................................... 102
-------------------
(d) Governmental Consents........................................ 102
---------------------
(e) Consummation of the GESCO Asset Purchase Agreement........... 102
--------------------------------------------------
SECTION 6.2. Conditions to Obligation of Purchaser......................... 102
-------------------------------------
(a) Representations and Warranties............................... 102
------------------------------
(b) Performance of Obligations of CBS............................ 102
---------------------------------
(c) Material Permits............................................. 102
----------------
(d) Conveyancing Documents....................................... 103
----------------------
(e) Opinion of CBS's Counsel..................................... 103
------------------------
SECTION 6.3. Conditions to Obligation of CBS............................... 103
-------------------------------
(a) Representations and Warranties............................... 103
------------------------------
(b) Performance of Obligations of Purchaser...................... 103
---------------------------------------
(c) Guarantee Agreement.......................................... 103
-------------------
(d) Opinion of Purchaser's Counsel............................... 104
------------------------------
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER..................... 104
SECTION 7.1. Termination................................................... 104
-----------
SECTION 7.2. Amendments and Waivers........................................ 105
----------------------
ARTICLE 8
INDEMNIFICATION.............................. 106
SECTION 8.1. Indemnification By CBS........................................ 106
----------------------
SECTION 8.2. Indemnification by Purchaser.................................. 111
----------------------------
SECTION 8.3. Characterization of Indemnification Payments.................. 112
--------------------------------------------
SECTION 8.4. Losses Net of Insurance; Tax Loss and Benefits; No
--------------------------------------------------
Consequential Damages............................................... 112
---------------------
SECTION 8.5. Termination of Indemnification................................ 113
------------------------------
SECTION 8.6. Procedures Relating to Third Party Claims (Other than Tax
---------------------------------------------------------
iv
<PAGE>
Page
----
Controversies and Environmental Liabilities)........................ 114
--------------------------------------------
SECTION 8.7. Procedures Relating to Non-Third Party Claims................. 115
---------------------------------------------
SECTION 8.8. Arbitration of Certain Environmental Liabilities.............. 115
------------------------------------------------
SECTION 8.9. Procedures Relating to Claims Constituting an
---------------------------------------------
Environmental Liability............................................. 116
-----------------------
SECTION 8.10. Steam Generator Matters...................................... 117
-----------------------
SECTION 8.11. Subrogation.................................................. 117
-----------
ARTICLE 9
GENERAL PROVISIONS............................. 118
SECTION 9.1. Notices....................................................... 118
-------
SECTION 9.2. Interpretation................................................ 120
--------------
SECTION 9.3. Survival of Representations, Warranties and Covenants......... 120
-----------------------------------------------------
SECTION 9.4. Severability.................................................. 120
------------
SECTION 9.5. Counterparts.................................................. 121
------------
SECTION 9.6. Entire Agreement; No Third Party Beneficiaries................ 121
----------------------------------------------
SECTION 9.7. Governing Law................................................. 121
-------------
SECTION 9.8. Mediation; Consent to Jurisdiction............................ 121
----------------------------------
SECTION 9.9. Publicity..................................................... 122
---------
SECTION 9.10. Assignment................................................... 123
----------
SECTION 9.11. Waiver of Jury Trial; Trial Costs............................ 123
---------------------------------
v
<PAGE>
Page
----
Exhibit A Terms of ESBU/PCD Business Supply Agreement
Exhibit B Shared Technology Agreement
Exhibit C Trademark and Trade Name License Agreement
Exhibit D Terms of Transitional Services Agreement
Exhibit E Guarantee Agreement
Exhibit F Joint Defense Agreement
List of Annexes
Annex S Steam Generator Matters
List of Schedules
Schedule 1.1(b) Leased Real Property
Schedule 1.1(c) Owned Real Property
Schedule 1.1(d) Permitted Liens
Schedule 1.1(e) Selling Subsidiaries
Schedule 1.1(f) Steam Generator Settlement Agreements
Schedule 1.1(g) Sold Subsidiaries
Schedule 2.2(a) Acquired Assets
Schedule 2.2(b) Excluded Assets
Schedule 2.3(a)(i) Contractual Liabilities
Schedule Other Assumed Liabilities
2.3(a)(xviii)
vi
<PAGE>
Page
----
Schedule 2.3(b) Non-excluded Liabilities
Schedule 2.5(a) Target Amount
Schedule 4.1(b)(i) Consents under Intellectual
Property, Technology and Other
Contracts
Schedule 4.1(b)(ii) Governmental Consents,
Approvals, and Filings
Schedule 4.1(c)(i)(A) Financial Statements:
Differences between the Business
and Assets and Liabilities in
Financial Statements
Schedule 4.1(c)(i)(B) Financial Statements:
Reconciliation
Schedule 4.1(c)(ii) Undisclosed Liabilities
Schedule 4.1(c)(iii) Accounts Receivable
Schedule 4.1(c)(v) Order Backlog Information
Schedule 4.1(d)(i) Compliance with Applicable
Laws
Schedule 4.1(d)(ii) Non-Compliance with Cost
Accounting Standards.
Schedule 4.1(e) Certain Lawsuits, Actions and
Proceedings
Schedule 4.1(g)(i) Leases of Owned Real Property
Schedule 4.1(g)(iv) Subleases Affecting Leased Real
Property.
Schedule 4.1(h)(i) Intellectual Property and
Technology
Schedule 4.1(h)(ii) Intellectual Property Subject
to Security Interest
vii
<PAGE>
Page
----
Schedule 4.1(h)(iii) Non-Sole Ownership -
Intellectual Property
Schedule 4.1(h)(iv) Written Challenges to Intellectual
Property Rights
Schedule 4.1(h)(v) CBS Infringement Claims
Schedule 4.1(h)(vi) Third Party Infringement Claims
Schedule 4.1(h)(vii) Copyright or Patent Proceedings
Schedule 4.1(i) Insurance
Schedule Employment Contracts
4.1(j)(A)(i)
Schedule Collective Bargaining
4.1(j)(A)(ii) Agreements
Schedule Affiliated Contracts
4.1(j)(A)(iii)
Schedule Credit Agreements
4.1(j)(A)(iv)
Schedule Non-Compete Covenants
4.1(j)(A)(v)
Schedule Real Property Leases
4.1(j)(A)(vi)
Schedule Personal Property Leases
4.1(j)(A)(vii)
Schedule Purchase Contracts
4.1(j)(A)(viii)
Schedule Products or Services Contracts
4.1(j)(A)(ix)
Schedule Joint Ventures, Long-Term
4.1(j)(A)(x) Alliances, Partnerships or
Teaming Agreements
viii
<PAGE>
Page
----
Schedule Options or Franchise Agreements
4.1(j)(A)(xi)
Schedule Take-or-Pay or Requirements
4.1(j)(A)(xii) Contracts
Schedule Sale or Disposition of Assets
4.1(j)(A)(xiii)
Schedule Contracts Outside the Ordinary
4.1(j)(A)(xiv) Course of Business
Schedule License or Development
4.1(j)(A)(xv) Agreements
Schedule Material Contracts
4.1(j)(A)(xvi)
Schedule 4.1 (j)(C) Allegations of Fraud by Federal
Agencies
Schedule 4.1(k) Sufficiency of Acquired Assets
Schedule 4.1(l) Non-Ordinary Course; Certain
Changes or Events
Schedule 4.1(m)(i) Employee Benefit Plans
Schedule 4.1(m)(ii) Governmental Filings; Litigation
and Termination Proceedings
Schedule 4.1(m)(iii) Compliance with ERISA
Schedule 4.1(m)(iv) Determination Letters; Qualified
Plans
Schedule 4.1(m)(v) Prohibited Transactions;
Reportable Events
Schedule Unfunded Benefit Liabilities
4.1(m)(vii)
Schedule Multiemployee Plans
4.1(m)(viii) Withdrawal Liabilities
Schedule 4.1(m)(ix) Bonus and Severance Payments
ix
<PAGE>
Page
----
Schedule 4.1(m)(xi) Amendments to Benefit Plans
Schedule COBRA Compliance
4.1(m)(xii)
Schedule Underfunding of Foreign Benefit
4.1(m)(xiii) Plans
Schedule Environmental Permits
4.1(n)(iii)(a)
Schedule 4.1 Material Legal or
(n)(iii)(b) Administrational Proceedings for
Permits
Schedule 4.1(n)(iv) Governmental Consent to
Transfer
Schedule 4.1(n)(v) Outstanding or Threatened
Government Authority Non-
Compliance Order or Notice of
Violation
Schedule 4.1(n)(vi) Agency Action Relating to
Environmental Compliance
Schedule CERCLA Potentially Responsible
4.1(n)(viii) Party (PRP) Sites
Schedule 4.1(o)(i) Taxes: Filings
Schedule 4.1(o)(ii) Taxes: Deficiency Claims
Schedule 4.1(o)(iii) Taxes: Extensions
Schedule 4.1(o)(iv) Taxes: Statute of Limitation
Waivers
Schedule 4.1(o)(v) Taxes: Assets Owned by Others
and Tax-Exempt Use Property
Schedule 4.1(o)(vi) Taxes: Adjustments due to
Change in Accounting Method
x
<PAGE>
Page
----
Schedule 4.1(o)(vii) Taxes: Pending Audits or
Proceedings
Schedule Taxes: Powers of Attorney
4.1(o)(viii)
Schedule 4.1(o)(ix) Taxes: Adverse Ruling Against
Sold Subsidiary or Acquired
Assets
Schedule 4.1(o)(x) Taxes: Compliance with the Code
Schedule 4.1(o)(xi) Taxes: Covenants; Non-
deductible Payments
Schedule 4.1(q)(i) Labor Matters: Labor Strikes
Schedule 4.1(q)(ii) Labor Matters: Unfair Labor
Practice Charges
Schedule 4.1(q)(iii) Labor Matters: Union
Grievances
Schedule 4.1(q)(iv) Labor Matters:
Collective Bargaining
Schedule 4.1(q)(v) Labor Matters:
Organization Attempts
Schedule 4.1(r) Outstanding Bids
Schedule 4.1(s) Major Suppliers and Customers
Schedule 5.1(a)(ii) Ordinary Course of Business:
Collective Bargaining Agreement
Schedule 5.1(a)(iii) Ordinary Course of Business:
Executive Compensation
Increases
Schedule 5.1(a)(xi) Claims in Excess of 2.5 million
Schedule 5.1(a)(xiv) Severance or Termination
Payments
Schedule 5.5(d) Pension Plan (Assumptions)
xi
<PAGE>
Page
----
Schedule 5.5(f)(iv) OPEB Schedule
Schedule 5.14 Allocation to Foreign Sold
Subsidiaries
Schedule 5.16 Transfer of Assets of Sold
Subsidiaries
Schedule 5.18 Credit Support Arrangements
Schedule 5.22 STC Programs
Schedule 6.1(d) Governmental Consents
Schedule 6.2(c) Material Permits
Schedule 6.2(e) Opinion of CBS' Counsel
Schedule 6.3(d) Opinion of Purchaser's Counsel
Schedule 8.1(a)(vi) Warranty Obligations
Schedule 8.1(b) Certain Assumed Liabilities
Schedule 9.2 Persons with Knowledge
xii
<PAGE>
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made as of June
---------
25, 1998, between CBS CORPORATION, a Pennsylvania corporation ("CBS"), and WGNH
---
ACQUISITION, LLC, a Delaware limited liability company ("Purchaser").
---------
WITNESSETH:
----------
WHEREAS, CBS is engaged,
(A) through its Energy Systems Business, in a worldwide business
which, among other things, primarily serves the electric power industry by,
among other things, (A) supplying (i) Nuclear Installation design technology,
equipment, technology licensing, construction and start-up services, (ii)
nuclear fuel, UF 6 conversion, associated materials, components, fuel
technology, zirconium and hafnium products, and engineering services, (iii)
technical services (including field and factory equipment refurbishment),
technical information, service tools, training services and equipment, including
simulators, total plant outage and maintenance services (including outage
management, refueling services and other operating plant services, including
renewal/spare parts and equipment and component repair/replacement services),
(iv) engineering, NRC and governmental licensing, start-up and operational
support services, (v) Nuclear Installation instrumentation and control systems,
engineered safeguard and primary plant protection systems, safety monitoring
systems, plant computer, display systems, distributed control, communicators,
data acquisition systems and information systems, monitoring and diagnostics
systems, diverse actuation systems, nuclear instrumentation systems, rod control
and position indication systems, traversing incore probe systems, flux mapping
systems and control room design, (vi) nuclear steam supply systems (including
the over 100 nuclear steam supply systems sold or licensed by the Energy Systems
Business operating worldwide), reactor coolant pumps, seals, motors, valves,
control rod drive mechanisms and other controlled mechanisms (other than for
military applications), steam generators, pressurizers, reactor vessels and
internals, other nuclear primary and secondary loop components, and auxiliary
motor/generator sets, (vii) project management for Nuclear Installation
construction and upgrades, (viii) decontamination and decommissioning equipment
and services, and (ix) spent nuclear fuel management and engineering products,
including canisters and transportation systems, and (B) maintaining and
operating certain research and development facilities and laboratories of the
Science and Technology Center (the "Energy Systems Business"), certain assets of
-----------------------
which are owned by Subsidiaries of CBS; and
<PAGE>
(B) through its Government and Environmental Services Company
("GESCO"), in businesses which serve the United States government by (i)
-----
managing and operating facilities, or providing services, for the United States
Department of Energy pursuant to contracts or subcontracts, (ii) constructing,
systemizing, operating and closing facilities for the United States Government,
pursuant to contracts or subcontracts, (iii) developing, designing,
manufacturing and processing United States Navy nuclear propulsion equipment and
providing training and operations and maintenance services, (iv) developing and
manufacturing low level radioactive waste containers, (v) providing safety
management consulting services to U.S. government facilities and (vi) (through
the Electro-Mechanical Division ("EMD") (which, effective January 1, 1998, was
---
transferred to GESCO from the Energy Systems Business)) manufacturing pumps,
motors, generators and propulsion units for military applications; control rod
drive mechanisms, pumps, seals, spent fuel handling products, motors and motor
refurbishment services for Nuclear Installations, exclusively in connection with
or through, and employing intellectual property and technology owned by or
licensed to, the Energy Systems Business (the Energy Systems Business being the
exclusive owner of all such CBS-owned intellectual property and technology
relating to Nuclear Installations); and in businesses which serve other
governments (through U.S. government contracts), or commercial entities by (x)
providing advanced design deep ocean pumping systems to the oil industry, (y)
designing and manufacturing low level radioactive waste containers, and (z)
miscellaneous machining and fabrication services, which do not compete with the
Energy Systems Business (the "GESCO Businesses"), certain assets of which are
----------------
owned by Subsidiaries of CBS; and
WHEREAS, CBS desires to (and to cause its appropriate Subsidiaries to)
sell, transfer and assign to Purchaser, and Purchaser desires to purchase and
assume from CBS and its appropriate Subsidiaries, substantially all of the
assets and liabilities of the Energy Systems Business together with the shares
of capital stock of certain Subsidiaries of CBS (including the Acquired Assets
and the Assumed Liabilities, but excluding the Excluded Assets and the Excluded
Liabilities (each as hereinafter defined), the "Business"), all as more
--------
specifically provided herein; and
WHEREAS, on the date hereof, concurrently with the execution of this
Agreement, the parties hereto are entering into an asset purchase agreement (the
"GESCO Asset Purchase Agreement") pursuant to which CBS, subject to the terms
------------------------------
and conditions set forth therein, has agreed to (and to cause its appropriate
Subsidiaries to) sell, transfer and assign to Purchaser, and Purchaser has
agreed to purchase and assume from CBS and its
2
<PAGE>
appropriate Subsidiaries, substantially all of the assets and liabilities of the
GESCO Businesses; and
WHEREAS, CBS also is engaged, through its Power Generation Business
Unit, in a fossil fuel power generation business, which, among other things, (i)
designs, manufactures, sells, installs and services steam and combustion turbine
generators and components for the generation, transmission, distribution and
control of electric power, (ii) constructs turn-key fossil fuel power plants
worldwide, (iii) supplies, services and operates power plants for independent
power producers and utilities and supplies power generation equipment and
services to other non-utility customers, (iv) provides field service and factory
service on electrical apparatus and maintains repair facilities which perform
machine work on electrical apparatus (through its Electrical Systems Services
Division), and (v) sells replacement parts and components related to the
generators and components described in clause (i) above (the "Power Generation
----------------
Business"), certain assets of which are owned by Subsidiaries of CBS; and
- --------
WHEREAS, on November 14, 1997, CBS entered into an asset purchase
agreement (the "PGBU Asset Purchase Agreement") pursuant to which CBS, subject
-----------------------------
to the terms and conditions set forth therein, agreed to (and to cause its
appropriate Subsidiaries to) sell, transfer and assign to Siemens Power
Generation Corporation ("Siemens") substantially all of the assets and
-------
liabilities of the Power Generation Business; and
WHEREAS, CBS also is engaged, through its Process Control Division, in
a worldwide process control business that designs, manufactures, sells,
installs, services and supplies advanced industrial control and information
systems and systems components, software, training, servicing, support spares,
upgrade services and parts for power generation and conversion, water and
wastewater treatment, metals, mining, chemical and other process industry
applications (excluding products and services provided by the Energy Systems
Business specifically for nuclear applications) (the "Process Control
---------------
Business"), certain assets of which are owned by Subsidiaries of CBS; and
- --------
WHEREAS, CBS and Emerson Electric Co. ("Emerson") have entered into an
-------
asset purchase agreement, dated as of May 22, 1998 (the "PCD Asset Purchase
------------------
Agreement"), pursuant to which CBS, subject to the terms and conditions set
- ---------
forth therein, agreed to (and to cause its appropriate Subsidiaries to), sell,
transfer and assign to Emerson substantially all of the assets and liabilities
of the Process Control Business and, among other things, enter into a business
supply agreement pursuant to which Emerson will provide certain goods and
services to the Energy Systems Business substantially on the terms set forth on
Exhibit A hereto; and
3
<PAGE>
WHEREAS, certain Subsidiaries of CBS, the capital stock of which will
be transferred to Purchaser hereunder, may hold assets utilized both in the
Business, on the one hand, and in the Power Generation Business, the Process
Control Business, the GESCO Businesses and/or other current and former
businesses of CBS, on the other hand, and certain assets relating to the Power
Generation Business, the Process Control Business, the GESCO Businesses and/or
such other businesses will be transferred by such Subsidiaries prior to the
Closing to CBS or other Subsidiaries of CBS or to the purchaser of the Power
Generation Business, the Process Control Business and/or the GESCO Businesses
pursuant to or in accordance with the terms hereof; and
WHEREAS, certain facilities, assets and services of CBS and its
Subsidiaries are utilized both in the Business, on the one hand, and in the
Power Generation Business, the Process Control Business, the GESCO Businesses
and/or other current and former businesses of CBS, on the other hand, and
certain of such facilities, assets and services will be shared by the owners of
the Business and the Power Generation Business, the Process Control Business,
the GESCO Businesses and/or such other businesses pursuant to the terms of
certain agreements contemplated hereby.
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties herein contained, and subject to and on the terms
and conditions herein set forth, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. SPECIFIED DEFINITIONS. As used in this Agreement, the
---------------------
following capitalized terms have the meanings specified below:
"Accounts Receivable" means all trade accounts receivable and all
-------------------
notes, bonds and other evidences of indebtedness and rights to receive payments
arising out of sales of goods, provision of services or other transactions
occurring in the conduct of the Business.
"Acquired Assets" shall have the meaning specified in Section 2.2(a).
---------------
"Affiliate" of a Person means a Person that directly or indirectly,
---------
through one or more intermediaries, controls, is controlled by or is under
common control with, such
4
<PAGE>
Person. Following the Closing, references to Purchaser's Affiliates shall
include the Sold Subsidiaries.
"Agency Action" means any investigation, request for information,
-------------
notice of violation, complaint, order, directive, court order, injunction,
judgment or decree, consent order, consent agreement, administrative judgment,
decree or injunction or other enforcement inquiry or action brought by a
Governmental Authority having the requisite authority and jurisdiction to bring
such action.
"Agreement State" means each state authorized to regulate nuclear
---------------
related materials based on authority delegated by the NRC pursuant to Section
274 of the Atomic Energy Act.
"Assumed Liabilities" shall have the meaning specified in Section
-------------------
2.3(a).
"Assumed Off-Site Disposal Liabilities" shall mean the first
-------------------------------------
$10,000,000 of the aggregate amount of any Losses incurred in connection with
the conduct of the Business in respect of a Remedial Action required for any
Release of Hazardous Substances at a treatment, storage or disposal facility
other than (i) at the Premises or (ii) at the treatment, storage or disposal
facilities set forth in Schedule 4.1(n)(viii).
"Atomic Energy Act" means the Atomic Energy Act of 1954, as amended,
-----------------
42 U.S.C. (S) 2022.
"Balance Sheet" shall have the meaning specified in Section 4.1(c)(i).
-------------
"Benefit Plans" means "employee welfare benefit plans" (as defined in
-------------
Section 3(1) of ERISA), Pension Plans, bonus, stock option, stock purchase,
severance, employment, change-in-control, fringe benefit, incentive or deferred
compensation plans and all other employee benefit plans, agreements, programs,
policies or other arrangements, whether or not subject to ERISA, currently
maintained or contributed to by CBS or any of its Subsidiaries for the benefit
of (i) any officers or employees or Former Employees of the Business employed in
the United States ("U.S. Benefit Plans") and (ii) any Former Employees or
------------------
officers or employees of the Business employed in foreign jurisdictions
("Foreign Benefit Plans").
- -----------------------
"BNFL" means British Nuclear Fuels plc, an English company.
----
"Business" shall have the meaning specified in the recitals of this
--------
Agreement.
5
<PAGE>
"Business Employees" shall have the meaning specified in Section 5.5.
------------------
"Business-Related Environmental Liability" means any Environmental
----------------------------------------
Liabilities arising under Environmental Laws and any Liability under any Permit
issued pursuant to any Environmental Law in connection with the Acquired Assets,
the Sold Subsidiaries or the Business, to the extent arising from any condition
existing or any act or omission of Sellers, any Sold Subsidiary or any other
Person (including any prior owner, occupant or user of any Premises and any
Person engaged in the removal, transportation or disposition of Hazardous
Substances that were originated or at any time stored or otherwise held at any
site associated with the Sold Subsidiaries or the Business, whether or not
included in whole or in part in the Acquired Assets or the Subsidiary Assets) at
or prior to the Closing Date, but excluding in all cases (i) any liability for
fines or penalties that arise as a result of any actual criminal violation of
any Environmental Law and (ii) any Decontamination and Decommissioning
Liabilities.
"Business Supply Agreement" shall have the meaning specified in
-------------------------
Section 5.20.
"CERCLA" shall have the meaning specified in the definition of
------
"Environmental Law."
"Closing" means the closing of the purchase, assignment and sale of
-------
the Acquired Assets and the assumption of the Assumed Liabilities contemplated
hereunder.
"Closing Date" means the time and date on which the Closing takes
------------
place, as established by Section 3.1.
"Code" means the Internal Revenue Code of 1986, as amended, and all
----
Laws promulgated pursuant thereto or in connection therewith.
"Contracts" means all contracts (including any subcontracts), leases
---------
(including any subleases), indentures, joint venture, governmental funding or
incentive program, guarantee, indemnity (including environmental indemnity),
license (including any sublicense or any license of third-party software),
development, settlement, teaming, divestiture and other agreements, commitments
and all other legally binding arrangements, including all interworks orders and
inter-divisional orders between the Business and other businesses of CBS, in
each case whether oral or written, relating primarily to the Business to which
any of Sellers or a Sold Subsidiary is a party or bound (including Government
Contracts, the Settlement Support
6
<PAGE>
Agreements, the Settlement Agreements and the Business Supply Agreement), except
for Benefit Plans.
"Decontamination and Decommissioning Liabilities" means all costs,
-----------------------------------------------
Losses, Liabilities and Environmental Liabilities, to the extent inherent in or
incident to the termination of service, decommissioning or demolition of
facilities or equipment on the Premises required by the NRC or any foreign
Governmental Authority, but excluding any such costs, Losses, Liabilities and
Environmental Liabilities which are associated with the ongoing operations of
the Business or Acquired Assets and not inherent in or incurred incident to such
termination of service, decommissioning or demolition of facilities; provided,
--------
however, that all costs, Losses, Liabilities and Environmental Liabilities
- -------
inherent in or incurred in any Remedial Action at or relating to any active or
inactive evaporation pond located on the property of the Western Zirconium
facility in Ogden, Utah shall be considered a Decontamination and
Decommissioning Liability regardless of whether such costs, Losses, Liabilities
or Environmental Liabilities are inherent in or are incurred incident to
termination of service, decommissioning or demolition of such ponds.
"Emerson" shall have the meaning specified in the recitals.
-------
"Environmental Law" means any Law (including common law), policy or
-----------------
any other legally binding requirement that governs or purports to govern the
existence of, relates to or provides a remedy for an actual or threatened
Release of Hazardous Substances, pollution or the protection of persons, natural
resources or the environment (including, without limitation, the protection of
ambient air, surface water, groundwater, land surface or subsurface strata,
endangered species or wetlands), occupational health and safety (excluding
workers' compensation), the manufacture, processing, distribution, use,
generation, handling, treatment, storage, disposal, transportation, Release or
management of solid waste or Hazardous Substances, or other activities involving
Hazardous Substances, including the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. (S) 9601 et seq., as
-- ----
amended by the Superfund Amendments and Reauthorization Act, the Hazardous
Materials Transportation Act, 49 U.S.C. (S) 1801 et seq., the Resource
-- ----
Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq., the Clean Water Act,
-- ----
33 U.S.C. (S) 1251 et seq., the Clean Air Act, 33 U.S.C. (S) 2601 et seq., the
-- ---- -- ----
Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq., the Federal
-- ----
Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. (S) 136 et seq., the Oil
-- ---
Pollution Act of 1990, 33 U.S.C. (S) 2701 et seq., the Nuclear Waste Policy Act
-- ----
of 1982, 42 U.S.C. (S) 10101 et seq., Atomic Energy Act of 1954, 42 U.S.C. (S)
-- ----
2011 et seq. and the Occupational Safety and Health Act, 29 U.S.C. (S) 651 et
-- --- --
seq., as such laws have been amended or supplemented, and/or any other similar
- ----
foreign, federal, state,
7
<PAGE>
local and/or county laws or regulations, in each case as in effect on or prior
to the Closing Date or, with respect to representations and warranties made on
the date hereof, on or prior to the date hereof.
"Environmental Liability" means any Liability of Sellers or the Sold
-----------------------
Subsidiaries (other than any Liability of the type described in Section
2.3(a)(iii)) arising under the Environmental Laws, including all direct costs
and expenses associated with Remedial Action, and including claims, demands,
penalties, fines, liens, fees, reasonable costs of environmental consultants,
personal injuries, property damages, natural resource damages, response costs of
any Governmental Authority, administrative proceedings, assessments, judgments,
orders, causes of action (including toxic tort suits), contribution actions,
written notices of actual or alleged violations or liability (including such
notices, claims or any actions arising from or regarding the disposal,
transportation or Release or threatened Release of Hazardous Substances from or
upon any property), proceedings and any associated Losses; provided, however,
-------- -------
that except as expressly used in the definition of Decontamination and
Decommissioning Liabilities, "Environmental Liability" shall not include any
Decontamination and Decommissioning Liability.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, and all Laws promulgated pursuant thereto or in connection therewith.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Excluded Assets" shall have the meaning specified in Section 2.2(b).
---------------
"Excluded Liabilities" shall have the meaning specified in Section
--------------------
2.3(b).
"Existing Steam Generator Liabilities" shall have the meaning
------------------------------------
specified in Annex S.
"Exon-Florio Amendment" means Section 721 of the Omnibus Trade and
---------------------
Competitiveness Act of 1988 (amending Title VII of the Defense Production Act,
50 U.S.C. App. Section 2170 (1997)).
"Financial Statements" shall have the meaning specified in Section
--------------------
4.1(c)(i).
8
<PAGE>
"Fixtures and Equipment" means all furniture, fixtures, furnishings,
----------------------
machinery, vehicles, equipment and other tangible personal property owned or
leased by Sellers or any Sold Subsidiary and used or held for use primarily in
connection with the Business.
"Foreign Benefit Plans" shall have the meaning specified under the
---------------------
definition of "Benefit Plans."
"Foreign Business Employees" shall have the meaning specified in
--------------------------
Section 5.5(q).
"Foreign Plan Participant" shall have the meaning specified in Section
------------------------
5.5(q).
"Foreign Sold Subsidiary" means any Sold Subsidiary other than a U.S.
-----------------------
Sold Subsidiary.
"Former Employee" shall mean any former employee or Inactive Employee
---------------
of the Business whose employment with the Business was terminated for any reason
(including retirement) prior to the Closing Date and who, as of the Closing
Date, is not employed by CBS or any of its Affiliates.
"Free Standing Plan" shall have the meaning specified in Section
------------------
4.1(m)(i).
"GAAP" means United States generally accepted accounting principles.
----
"GESCO" shall have the meaning specified in the recitals of this
-----
Agreement.
"GESCO Asset Purchase Agreement" shall have the meaning specified in
------------------------------
the recitals of this Agreement.
"GESCO Businesses" shall have the meaning specified in the recitals of
----------------
this Agreement.
"Government Contract" means any Contract entered into with any
-------------------
Governmental Authority and any subcontract relating to obligations to be
performed pursuant to a Contract entered into with any Governmental Authority.
"Governmental Authority" means any agency, board, body, bureau, court,
----------------------
commission, department, instrumentality, entity established or controlled by, or
administration
9
<PAGE>
of any foreign government, the United States government, any state government or
any local or other governmental body in a state, territory or possession of the
United States or the District of Columbia or any political subdivision of any of
the foregoing, including any legislative, judicial or administrative body.
"Guarantee Agreement" shall have the meaning specified in Section
-------------------
5.25.
"Guarantors" means the signatories to the Guarantee Agreement.
----------
"Hazardous Substance" means (i) any petroleum or petroleum products
-------------------
(to the extent regulated under Environmental Law), flammable explosives,
radioactive materials, asbestos or polychlorinated biphenyls (PCBs); and (ii)
any substance, material or waste that is regulated under any Environmental Law
and is defined as, or included in the definition of, or deemed by any
Environmental Law or Governmental Authority to be "hazardous," "toxic," a
"contaminant," "waste," a "pollutant," "hazardous substance," "hazardous waste,"
"restricted hazardous waste," "hazardous material," "extremely hazardous waste,"
a "toxic substance," a "toxic pollutant" or words with similar meaning.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
-------
1976, as amended.
"Inactive Employees" shall have the meaning specified in Section
------------------
5.5(a)(i).
"Income Tax" means any Tax on or determined by reference to net income
----------
and all interest, fines and penalties imposed with respect to any such Tax.
"Indebtedness" of any Person means, without duplication, (i) the
------------
principal of and premium (if any) in respect of (A) indebtedness of such Person
for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is responsible or
liable; (ii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person and
all obligations of such Person under any title retention agreement (but
excluding trade accounts payable and other accrued current liabilities arising
in the Ordinary Course of Business); (iii) all obligations of such Person under
leases required to be capitalized in accordance with GAAP; (iv) all obligations
of such Person for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction; (v) all obligations of the
type referred to in clauses (i) through (iv) of any Persons for the payment of
which such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or
10
<PAGE>
otherwise, including guarantees of such obligations; and (vi) all obligations of
the type referred to in clauses (i) through (v) of other Persons secured by any
Lien on any property or asset of such Person (whether or not such obligation is
assumed by such Person).
"Intellectual Property" means all domestic and foreign patents,
---------------------
utility models, patent applications, trademarks, trademark registrations,
service marks, service mark registrations, tradenames, tradename registrations,
slogans, corporate names, corporate nicknames or initialisms, registered
copyrights, applications for registration of any of the foregoing, and trade
secret rights, owned by Sellers or any Sold Subsidiary that relate primarily to
the Business.
"Inventory" means all raw materials, work-in-process, finished goods,
---------
merchandise, office and other supplies, parts, packaging materials and other
accessories related thereto which are held at, or are in transit from or to, the
Premises or located at other locations at which the Business is conducted, or
located at suppliers' premises, in each case, which are used or held for use by
any Seller or Sold Subsidiary primarily in the conduct of the Business,
including any of the foregoing purchased subject to any conditional sales or
title retention agreement in favor of any other Person, together with all rights
of any Seller or Sold Subsidiary against suppliers of such inventories.
"Investments" means all capital stock, partnership interests and other
-----------
equity interests owned by any Seller in any Person which are held primarily in
connection with the Business, including the capital stock, partnership interests
and other equity interests owned by any Seller in the Sold Subsidiaries, and all
issued and outstanding capital stock, partnership interests and other equity
interests owned by any Sold Subsidiary in any Person (except as otherwise
provided by Section 5.16).
"Law" means, as to any Person, any foreign or United States federal,
---
state or local law, statute, code, ordinance, regulation, order, writ,
injunction, decision, directive, judgment or decree (or judicial or
administrative interpretations thereof having the force of law which are not
subject to appeal or challenge) applicable to such Person and to the businesses
and assets thereof.
"Leased Real Property" means all real property leased by any Seller as
--------------------
lessee or by any Sold Subsidiary as lessee and listed in Schedule 1.1(b).
"Liabilities" means, as to any Person, all debts, adverse claims,
-----------
fines, liabilities and obligations, direct, indirect, absolute or contingent,
known or unknown, of such Person,
11
<PAGE>
whether accrued, vested or otherwise, whether in contract, tort, strict
liability or otherwise and whether or not actually reflected, or required by
GAAP to be reflected, in such Person's financial statements (including the notes
thereto) or other books and records.
"Liens" means mortgages, liens, security interests, easements, rights
-----
of way, pledges, restrictions or encumbrances of any nature whatsoever.
"Losses" means, subject to Section 8.4, any and all demands, claims,
------
complaints, actions or causes of action, suits, proceedings, investigations,
arbitrations, assessments, losses, damages, liabilities, obligations (including
those arising out of any action, such as any settlement or compromise thereof or
judgment or award therein) and any reasonable costs and expenses, including
attorney's and other advisors' fees and disbursements.
"Material Adverse Effect" means an effect or change that is materially
-----------------------
adverse to the business, assets, financial condition or results of operations of
the Business taken as a whole.
"MK" means Morrison Knudsen Corporation, a Delaware corporation.
--
"Novation Agreements" shall have the meaning specified in Section
-------------------
5.4(a).
"NRC" means the United States Nuclear Regulatory Commission or any
---
successor agency or other Governmental Authority to whom jurisdiction over
radiological materials has been transferred or delegated and, for purposes of
this Agreement, shall include any Agreement State.
"Nuclear Installation" means a nuclear powered electric generating
--------------------
facility and associated support facilities, nuclear processing facility,
military nuclear instrumentation and control systems and nuclear test
facilities.
"Ordinary Course of Business" means, with respect to any Seller or
---------------------------
Sold Subsidiary, actions taken in the ordinary course of business consistent
with past practices of such Seller or Sold Subsidiary in relation to the
Business.
"Owned Real Property" means all real property owned by any Seller or
-------------------
by any Sold Subsidiary and listed in Schedule 1.1(c).
12
<PAGE>
"Parent Companies" means MK and BNFL.
----------------
"PCD Asset Purchase Agreement" shall have the meaning specified in the
----------------------------
recitals.
"Pension Plan" means an "employee pension benefit plan" (as such term
------------
is defined in Section 3(2) of ERISA) including multiemployer plans within the
meaning of Section 3(37) of ERISA, currently maintained or contributed to by CBS
or any of its Subsidiaries for the benefit of (i) any officers or employees or
Former Employees of the Business employed in the United States and (ii) any
Former Employees or officers or employees of the Business employed in foreign
jurisdictions.
"Permits" means all permits, licenses, registrations, filings,
-------
variances, exemptions, franchises and authorizations by or of any Governmental
Authority, or other indicia of authority necessary for the conduct of the
Business that (i) are owned or held by or otherwise have been granted to or for
the benefit of any Seller and that relate to the Business or any part thereof or
to any of the Acquired Assets or (ii) are owned or held by or otherwise have
been granted to or for the benefit of any Sold Subsidiary; provided, however,
-------- -------
that in no event shall a Government Contract constitute a Permit.
"Permitted Liens" means (i) Liens disclosed in Schedule 1.1(d),
---------------
specifically described in the notes to the Financial Statements or that secure
Indebtedness that is included in Assumed Liabilities and reflected as a
liability on the Balance Sheet, (ii) any progress payment Liens arising in the
ordinary course of business from progress payments made by the United States
Government or any agency thereof or any other Governmental Authority on
Government Contracts that are included in the Assumed Liabilities and (iii)(A)
mechanics' carriers', workmen's, repairmen's and other like Liens arising or
incurred in the Ordinary Course of Business that are included in the Assumed
Liabilities and that are not yet due and payable or that may thereafter be paid
without penalty or that are being contested in good faith by appropriate
proceedings, (B) Liens for Taxes, assessments and other governmental charges not
yet due and payable or that may thereafter be paid without penalty or that are
being contested in good faith by appropriate proceedings and (C) imperfections
of title and other Liens that do not materially affect the value of the
encumbered asset or the continued use and operation of the encumbered asset in
the Business for its intended purpose.
"Person" means any individual, corporation, partnership, limited
------
liability company, joint venture, trust, unincorporated organization, other form
of business or legal entity or Governmental Authority.
13
<PAGE>
"PGBU Asset Purchase Agreement" shall have the meaning specified in
-----------------------------
the recitals.
"Post-Closing Tax Period" means any taxable period commencing after
-----------------------
the Closing Date.
"Power Generation Business" shall have the meaning specified in the
-------------------------
recitals to this Agreement.
"Pre-Closing Tax Period" means any taxable period ending on or before
----------------------
the Closing Date.
"Premises" means, collectively, the Owned Real Property and the Leased
--------
Real Property, in each case to the extent included in the Acquired Assets, and
the portion of STC to be leased by Purchaser pursuant to Section 5.22 and the
leasehold interest in Waltz Mill Service Center contemplated by Section 5.31.
"Process Control Business" shall have the meaning specified in the
------------------------
recitals of this Agreement.
"Purchase Price" shall have the meaning specified in Section 2.4.
--------------
"Purchaser Affiliate" shall mean any Person that is wholly-owned
-------------------
directly or indirectly by Purchaser or directly or indirectly by either or both
of the Parent Companies.
"Purchaser Ancillary Documents" shall have the meaning specified in
-----------------------------
Section 4.2(b).
"Purchaser Permit" shall have the meaning specified in Section 5.3(c).
----------------
"Purchaser's Straddle Period" means any portion of a Straddle Period
---------------------------
beginning after the Closing Date.
"Release" means any releasing, spilling, leaking, discharging,
-------
disposing of, pumping, pouring, emitting, emptying, injecting, leaching, dumping
or allowing to escape into the environment (air, surface water, groundwater,
land surface, soil, substrata, sediment or rock) and includes any "release" as
defined in CERCLA.
14
<PAGE>
"Remedial Action" means any action to investigate, clean up, monitor,
---------------
abate, transport, remove, treat or in any way address any Hazardous Substance
that is required by any Environmental Law, whether or not such action is taken
pursuant or in response to any Agency Action or third party claim.
"Schedules" means the disclosure schedules delivered by CBS to
---------
Purchaser in connection herewith.
"Seller Ancillary Documents" shall have the meaning specified in
--------------------------
Section 4.1(b).
"Sellers" means, collectively, CBS and the Selling Subsidiaries.
-------
"Sellers' Straddle Period" means any portion of a Straddle Period
------------------------
ending on the Closing Date.
"Selling Subsidiary" means each of the Subsidiaries of CBS listed in
------------------
Schedule 1.1(e) and each other Subsidiary of CBS that has any right, title or
interest in, to, or under the Acquired Assets or any Liabilities included in the
Assumed Liabilities, but shall not include any Sold Subsidiary (unless retained
by Sellers pursuant to Section 5.17).
"Settlement Agreements" means all Steam Generator Settlement
---------------------
Agreements and all settlement agreements existing on the date hereof or entered
into prior to the Closing Date with respect to steam generators, uranium or the
matters specified in Schedule 1.1(f).
"Settlement Support Agreements" shall have the meaning specified in
-----------------------------
Annex S.
"Shared Technology Agreement" shall have the meaning specified in
---------------------------
Section 5.9.
"Siemens" shall have the meaning specified in the recitals.
-------
"Significant Real Property" means (i) any Owned Real Property having
-------------------------
improvements thereon in excess of 75,000 square feet, (ii) any Leased Real
Property of more than 25,000 square feet and (iii) any Owned or Leased Real
Property that is the site of any manufacturing, design, management, warehouse,
assembly, distribution, research, marketing or other operation that, in any
case, is material to the operation of the Business as presently conducted.
15
<PAGE>
"Sold Subsidiary" means any Subsidiary of CBS listed in Schedule
---------------
1.1(g) under the caption "Sold Subsidiary."
"Specified Steam Generator Liabilities" shall have the meaning
-------------------------------------
specified in Annex S.
"Statement of Net Assets" shall have the meaning specified in Section
-----------------------
2.5.
"Statement of Working Capital" shall have the meaning specified in
----------------------------
Section 2.5(a).
"STC" shall have the meaning specified in Section 5.22.
---
"STC Employee" shall have the meaning specified in Section 5.22.
------------
"Steam Generator Liabilities" shall have the meaning specified in
---------------------------
Annex S.
"Steam Generator Settlement Agreements" shall have the meaning
-------------------------------------
specified in Annex S.
"Straddle Period" means any taxable period including, but not ending
---------------
on, the Closing Date.
"Subsidiary" means, as to any Person another Person of which an amount
----------
of the voting securities, other voting ownership or voting partnership interests
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests) is owned directly or indirectly by such Person.
"Subsidiary Assets" means all assets, properties, goodwill and rights
-----------------
of the Sold Subsidiaries of whatever kind or nature, real or personal, tangible
or intangible, other than as contemplated by Section 5.16.
"Surplus Property" means all real property owned, leased or occupied
----------------
by any Seller or Sold Subsidiary that is not listed in Schedule 1.1(b) or 1.1(c)
or that is entirely or substantially vacant, "mothballed" or held principally
for remediation or other risk
16
<PAGE>
management purposes; provided, that the property located at Pensacola, Florida
--------
shall not be deemed a Surplus Property.
"Tax Return" means any return, report, form, supplementary or
----------
supporting schedules or other information filed with any taxing authority with
respect to Taxes.
"Taxes" means all federal, state, local, foreign or other governmental
-----
taxes, assessments, duties, fees, levies or similar charges of any kind,
including all income, profit, franchise, capital gains, transfer, excise,
property, use, intangibles, sales, value added, payroll, employment, social
security, withholding, capital and other taxes, all capital duties and all stamp
duties, and including all interest, fines and penalties imposed with respect to
such amounts, and "Tax" and "Taxation" shall have correlative meanings.
"Technology" means all trade secrets, inventions, invention
----------
disclosures under evaluation, know-how, formulae, processes, procedures,
research records, records of inventions, test information, market surveys and
marketing know-how, unregistered copyrights and software including source and
object code, and related documentation, supporting database information and
modification and enhancements thereof owned by any Seller or any Sold Subsidiary
that relate primarily to the Business.
"Transfer Taxes" shall have the meaning specified in Section 5.14.
--------------
"Transitional Services Agreement" shall have the meaning specified in
-------------------------------
Section 5.20(a).
"U.S.-Controlled Entity" shall have the meaning specified in Section
----------------------
4.2(d).
"U.S. Sold Subsidiary" means any Sold Subsidiary incorporated in the
--------------------
United States.
"WARN Act" means the Worker Adjustment and Retraining Notification
--------
Act, as amended.
"WELCO" means the Westinghouse Electric Company Division of CBS, which
-----
comprises certain businesses of CBS, including the GESCO Businesses, the Energy
Systems Business and the Process Control Business.
"Year 2000 Compliance" shall have the meaning specified in Section
--------------------
4.1(t)(ii).
17
<PAGE>
"Year 2000 Plan" shall have the meaning specified in Section
--------------
4.1(t)(i).
SECTION 1.2. OTHER TERMS. Other terms may be defined elsewhere in
-----------
the text of this Agreement or Annex S hereto and, unless otherwise indicated,
shall have such meaning throughout this Agreement.
SECTION 1.3. OTHER DEFINITIONAL PROVISIONS.
-----------------------------
(a) The words "hereof," "herein," and "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole
and not to any particular provision of this Agreement.
(b) The terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.
(c) The terms "dollars" and "$" shall mean United States dollars.
ARTICLE 2
SALE AND PURCHASE OF ASSETS; ASSUMPTION OF LIABILITIES
SECTION 2.1. PURCHASE AND SALE. Upon the terms and subject to the
-----------------
conditions of this Agreement, at the Closing, CBS agrees to sell, assign,
transfer, convey and deliver to Purchaser all of CBS's right, title and interest
in, to and under the Acquired Assets and to cause each Selling Subsidiary to
sell, assign, transfer, convey and deliver to Purchaser all of such Selling
Subsidiary's right, title and interest in, to and under the Acquired Assets held
by it, in each case free and clear of any Liens other than Permitted Liens, and
Purchaser agrees to purchase, acquire and accept from Sellers, all such right,
title and interest in, to and under the Acquired Assets; provided, that the
--------
transfer of the stock of each U.S. Sold Subsidiary shall be effected pursuant to
a forward taxable merger of each U.S. Sold Subsidiary with and into a Purchaser
Affiliate.
SECTION 2.2. ACQUIRED ASSETS AND EXCLUDED ASSETS.
-----------------------------------
(A) ACQUIRED ASSETS. The term "Acquired Assets" means all the
--------------- ---------------
business, properties, assets, goodwill and rights of Sellers of whatever kind
and nature, real or personal, tangible or intangible, and wherever located,
other than the Excluded Assets, primarily used or
18
<PAGE>
held for use in, or primarily relating to or arising out of the conduct of, the
Energy Systems Business and the operation of the Premises, including all
Intellectual Property and Technology of the Energy Systems Business, whether or
not reflected on the books and records of the Sellers or the Schedules hereto,
as they exist on the date hereof, with such changes, deletions or additions
thereto as may occur from the date hereof to the Closing Date consistent with
the terms and conditions of this Agreement, including subject to Section 2.2(b):
(i) all parcels of Owned Real Property listed in Schedule 1.1(c)
(and all easements and rights of way appurtenant thereto) owned by any of
the Sellers, all rights of the Sellers as lessee to the parcels of Leased
Real Property listed in Schedule 1.1(b) and the leasehold interest in the
Waltz Mill Service Center as provided in Section 5.31;
(ii) all Inventory that is located on the Premises and all other
Inventory, including Inventory in transit;
(iii) all Fixtures and Equipment;
(iv) all Accounts Receivable of the Sellers and the security
agreements related thereto, including any rights of any of the Sellers with
respect to any third party collection proceedings or any other actions or
proceedings which have been commenced in connection therewith;
(v) [intentionally omitted];
(vi) subject to Section 2.2(c) and to the licenses to be granted
pursuant to Section 5.9(a), all Intellectual Property and Technology;
(vii) subject to Section 2.2(c), all Permits;
(viii) subject to Section 2.2(c), all Contracts, including all
Government Contracts;
(ix) subject to Section 2.2(c), all bids, quotations and proposals
for Contracts, including all Government Contracts, whether oral or written,
to which any of Sellers is a party or by which any of Sellers is bound that
relate primarily to the Business and including historical proposals,
historical records of indirect costs, Cost Accounting Standards submissions
and current and historical forward pricing policies;
19
<PAGE>
(x) all Investments;
(xi) all books of account, general, financial, accounting and
personnel records, policies and procedures, files, invoices, customers' and
suppliers' lists and other data, both current and historical, owned by
Sellers on the Closing Date and used or held for use primarily by, in or
for the Business, including those which are located in Sellers' storage
facilities, except (A) to the extent relating to the Excluded Assets or the
Excluded Liabilities and (B) the materials described in Section
2.2(b)(vii);
(xii) subject to Section 2.2(c), all rights, claims and causes of
action of the Sellers to the extent relating to the Business or any of the
Assumed Liabilities or the Acquired Assets;
(xiii) all prepaid expenses of the Sellers, to the extent relating to
the Business;
(xiv) all motor vehicles owned by the Sellers and all rights of the
Sellers as lessee to any leased motor vehicles, in each case that are used
or held for use primarily in the conduct of the Business;
(xv) all security deposits (A) deposited by or on behalf of any
Seller as lessee or sublessee under any of the Contracts or (B) deposited
with or paid to any Seller pursuant to any Contract;
(xvi) all site plans, surveys, soil and substratus studies,
architectural drawings, plans and specifications, engineering, electrical
and mechanical plans and studies, floor plans, landscape plans, appraisals,
feasibility studies, environmental studies, audits and assessments and
other plans and studies of any kind if existing and in the possession or
subject to the control of or used by any Seller relating to the Business;
(xvii) all rights of any Seller under or pursuant to all warranties,
representations and guarantees made by suppliers, manufacturers and
contractors in connection with products sold to or services provided to any
Seller for the Business, or affecting the Acquired Assets, the Assumed
Liabilities or the property, machinery or equipment owned by Sellers or any
Sold Subsidiary and used in the conduct of the Business;
20
<PAGE>
(xviii) subject to Section 5.24, (A) all rights to insurance proceeds
receivable after the Closing in respect of any Assumed Liabilities (x) that
reduced both the Target Amount and the Closing Date Working Capital or (y)
that did not reduce Closing Date Working Capital, in each case insured on a
"claims made" basis, or, in the case of workers' compensation losses, on an
"occurrence" basis, and (B) all insurance proceeds received subsequent to
December 31, 1997 and prior to the Closing, and all rights to insurance
proceeds receivable after the Closing, in each case in respect of any loss
or casualty occurring subsequent to December 31, 1997 and prior to the
Closing with respect to any asset that will be or would, if held by a
Seller or a Sold Subsidiary on the Closing Date, be an Acquired Asset
(except to the extent any such proceeds have been used to repair or replace
fixed assets);
(xix) all proceeds, net of any cost of disposition (including
Taxes), from the sale or other disposition after the date of this Agreement
and prior to the Closing Date of any asset that (A) is of a type permitted
or required by GAAP to be treated as a fixed asset on the books of the
Business and (B) but for such sale or other disposition prior to the
Closing would be an Acquired Asset (except to the extent any such proceeds
have been used to repair or replace fixed assets);
(xx) all transferable telephone exchange numbers used by the
Sellers in the Business;
(xxi) the Settlement Support Agreements and all Settlement
Agreements and the rights of Sellers thereunder;
(xxii) the assets of and the leasehold interest in STC, in each case
as described in Section 5.22, but only to the extent provided in or
contemplated by the arrangements described in Section 5.22;
(xxiii) all assets described in Schedule 2.2(a), whether or not
related to the Business; and
(xxiv) all (A) Tax Returns, Tax records, and Tax work papers of the
Foreign Sold Subsidiaries, (B) copies of Tax Returns, Tax records and Tax
work papers of the U.S. Sold Subsidiaries (other than Income Tax Returns
and the records and work papers relative thereto and other than Tax Returns
that include businesses other than the Business), and (C) copies of
separate company Income Tax Returns, Income Tax records, and Income Tax
work papers of the U.S. Sold Subsidiaries, provided that, in
--------
21
<PAGE>
the case of the U.S. Sold Subsidiaries, such Tax Returns, Tax records, Tax
work papers, Income Tax Returns, Income Tax records, and Income Tax work
papers shall be for the six calendar years preceding the Closing Date or,
if longer, the taxable periods for which the applicable statute of
limitations has not yet run.
(B) EXCLUDED ASSETS. The term "Excluded Assets" means:
--------------- ---------------
(i) all cash on hand or in banks and all cash equivalents, on the
books of the Business immediately prior to the Closing, except any cash or
cash equivalents (A) described in Section 2.2(a)(xv)(B), (xviii) or (xix),
(B) constituting security deposits deposited with or paid to any Sold
Subsidiary pursuant to any Contract or (C) required to be held on hand or
in banks pursuant to Contracts, including joint venture Contracts;
(ii) all rights of Sellers under this Agreement and the agreements,
instruments and certificates executed in connection with this Agreement;
(iii) all records prepared in connection with the sale of the
Business, including bids received from third persons and analyses relating
to the Business (but not the Sellers' rights under any confidentiality
agreements with such bidders, which shall be, to the extent related to the
Business, included in Acquired Assets);
(iv) except as provided in Section 2.2(a)(xviii), all rights of
Sellers under insurance policies;
(v) all rights, claims and causes of action relating to any of the
Excluded Liabilities or the Excluded Assets, including rights, claims and
causes of action under Contracts and insurance policies relating thereto;
(vi) all rights to claims, available to or being pursued by Sellers
or any Sold Subsidiary, for refunds of or credits against Taxes (including
all investment tax credits, research credits and credits for prepayments of
Income Taxes) attributable to the Business for Pre-Closing Tax Periods and
Sellers' Straddle Periods, but only to the extent of Taxes that are
Excluded Liabilities; provided that Purchaser shall have no obligation for,
--------
and shall be indemnified by CBS against (without regard to Article 8
hereof), any expenses or Taxes incurred in connection therewith and that
Purchaser shall have the right, solely for its own account and the accounts
of its Affiliates, to make claims for refunds of or credits against Income
Taxes of the Foreign Sold Subsidiaries attributable to carry backs of items
of income, credit, loss, or deduction
22
<PAGE>
from any taxable period beginning after the Closing Date to any taxable
period including or ending prior to the Closing Date to the extent Taxes
remain payable after all CBS tax benefits have been taken into account;
(vii) any consolidated, combined or unitary Tax Return relating to
Income Taxes that includes any of Sellers or any Sold Subsidiary, and
records and work papers used in preparation thereof;
(viii) all assets (other than the Intellectual Property and Technology
of the Business relating to Nuclear Installations) used primarily in the
Power Generation Business, the Process Control Business or the GESCO
Businesses and any other retained business of CBS (including the business
of CBS itself);
(ix) subject to the license to be granted pursuant to Section
5.9(b), all right, title or interest in or to (i) the names and marks
"Westinghouse Electric Corporation," "Westinghouse Electric Company,"
"WESTINGHOUSE," "WELCO," "CIRCLE W" (in logo type design or any other style
or design), and (ii) "129.228.x.x Class B internet address range" and the
westinghouse.com, wec.com and westinghouseelectric.com domain names, and
any name or mark derived from or including any of the foregoing;
(x) all Surplus Property owned by any of the Sellers or the Sold
Subsidiaries;
(xi) all assets of the Sold Subsidiaries not used or held for use
primarily in the Business or which pursuant to Section 5.16 will be
transferred by the Sold Subsidiaries to CBS, to other Subsidiaries of CBS
or to third parties designated by CBS, including the purchaser of the Power
Generation Business, the Process Control Business or the GESCO Businesses,
in the manner provided by Section 5.16;
(xii) all insurance policies of Sellers, including those described in
Schedule 4.1(i), and all insurance proceeds received prior to the Closing,
or rights to insurance proceeds receivable after the Closing, in each case
in respect of any Assumed Liability recognized on the Statement of Working
Capital (except to the extent the right to receive such proceeds is
reflected on the Statement of Working Capital);
(xiii) all assets, including facilities, equipment, intellectual
property and technology, that are subject to the provisions of (A) the
Transitional Services
23
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Agreement and other arrangements described in Section 5.20 or (B) the
licenses described in Sections 5.9(a)(ii) or 5.9(b);
(xiv) CBS's Gateway Center corporate headquarters located in
Pittsburgh, Pennsylvania, the Shared Service Center located in Churchill,
Pennsylvania, the Information Technology shared service operations located
in Monroeville, Pennsylvania and, subject to the Transitional Services
Agreement and the arrangements contemplated by Section 5.20(b), all assets
used in connection with or relating to CBS's corporate headquarters or
corporate activities that are provided to or managed for the benefit of any
of the Sellers or any of the Sold Subsidiaries;
(xv) except to the extent provided in or contemplated by the
arrangements described in Section 5.22, the assets of STC; and
(xvi) all assets identified in Schedule 2.2(b).
(C) NONASSIGNABLE RIGHTS. Notwithstanding anything to the contrary
--------------------
contained herein but without limiting the rights and obligations of the parties
under the other provisions of this Agreement (including Section 5.4), this
Agreement shall not operate to assign, and there shall not be included in the
Acquired Assets, any Intellectual Property, Technology, Permit or Contract or
any claim, right or benefit arising thereunder or resulting therefrom if an
attempted assignment thereof, without the consent of any Person (except for
consents already received), would constitute a breach, default or other
contravention thereof or a violation of Law (it being understood that the
failure to obtain such consents shall not reduce the Purchase Price or, except
as provided in Section 6.1(d), relieve either party from its obligation to
consummate at the Closing the transactions contemplated by this Agreement). To
the extent that this Section 2.2(c) operates to exclude from the Acquired Assets
any such Intellectual Property, Technology, Permit or Contract or any claim,
right or benefit arising thereunder or resulting therefrom, the definition of
"Business" in the recitals hereto shall be modified to exclude such assets and
the business, goodwill and rights related thereto until such consents are
received, and provided that such assets shall be included in the definition of
"Business" to the extent that the benefits thereof inure to Purchaser pursuant
to Section 5.4.
(D) TERMINATION OF RIGHTS OF SOLD SUBSIDIARIES. Notwithstanding
------------------------------------------
anything to the contrary in any agreement or otherwise, any rights, express or
implied, of any Sold Subsidiary to use any and all domestic and foreign patents,
patent applications, trademarks, trademark registrations, service marks, service
mark registrations, trade names, trade name registrations, slogans, corporate
names, corporate nicknames or initialisms, registered
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copyrights, domain names, domain name registrations, trade secrets, inventions,
know-how, formulae, processes, procedures, research records, records of
inventions, test information, market surveys and marketing know-how,
unregistered copyrights and software, including source and object code and
related documentation, supporting database information and modifications and
enhancements thereof owned by Sellers shall terminate at the Closing, except to
the extent included in the Acquired Assets, Intellectual Property, Technology or
Contracts and except as otherwise contemplated by Sections 5.9(a) and 5.9(b).
SECTION 2.3. ASSUMPTION OF LIABILITIES.
-------------------------
(A) ASSUMED LIABILITIES. Upon the terms and subject to the
-------------------
conditions of this Agreement and notwithstanding anything to the contrary in any
Novation Agreement, Purchaser hereby agrees to assume, effective as of the
Closing, and agrees to pay, perform and discharge when due all Liabilities of
Sellers (except Excluded Liabilities) only to the extent arising out of,
relating to or otherwise incurred in respect of the Acquired Assets, the
Business or the operations of the Business before, on or after the Closing Date
(collectively, the "Assumed Liabilities"), including (except Excluded
Liabilities): -------------------
(i) all Liabilities of Sellers under Contracts, including all
Government Contracts and any related guarantees and Novation Agreements and
the Contracts set forth in Schedule 2.3(a)(i) or any other Schedule hereto;
(ii) all accounts payable owed by Sellers arising out of operations
of the Business or otherwise incurred in respect of the Business;
(iii) all Liabilities in respect of any and all products sold or
licensed, services rendered or technology or intellectual property provided
or licensed by the Business, including Liabilities for refunds,
adjustments, allowances, repairs, exchanges, returns and warranty,
merchantability and product liability and other claims;
(iv) all Liabilities (other than Environmental Liabilities and
Decontamination and Decommissioning Liabilities) arising as a result of
being the owner or occupant of, or the operator of the activities conducted
at, (A) the Premises or (B) any other real property owned, leased or
operated at any time by any of Sellers and used or held for use primarily
in the Business, including (in the case of clause (A) only) all Liabilities
relating to personal injury and property damage;
25
<PAGE>
(v) all Business-Related Environmental Liabilities but only to the
extent that (A) they arise as a result of being the owner or occupant of,
or the operator of the activities conducted at, the Premises or (B) they
relate to the treatment, storage, transportation or disposal of Hazardous
Substances on, to or at a waste site, treatment site, disposal site or
other location after they were produced, generated, used or stored at the
Premises;
(vi) all Decontamination and Decommissioning Liabilities, except for
such Liabilities incurred with respect to STC;
(vii) all Assumed Off-Site Disposal Liabilities;
(viii) all Liabilities relating to the employment or termination of
employment of any employee or Former Employee of the Business or an STC
Employee, other than as described in Section 2.3(a)(ix);
(ix) all Liabilities, with respect to an STC Employee or employees
or Former Employees of the Business, arising under or in connection with
any Benefit Plan, other than those Liabilities retained by CBS pursuant to
Section 5.5;
(x) all Liabilities for Taxes (other than Taxes described in
Sections 2.3(b)(ii) and (iii)) attributable to the Business for all taxable
periods;
(xi) all Liabilities in respect of lawsuits, actions and
proceedings, pending or threatened, and claims, whether or not presently
asserted, arising out of, relating to or otherwise in any way in respect of
the Business, including those that are set forth in Schedules 4.1(e),
4.1(m)(ii) and 4.1(q), except as specifically excluded in Sections
2.3(b)(v) and 2.3(b)(ix), but, in the case of employment-related matters
involving employees of the other businesses of CBS, only to the extent they
relate to employees or Former Employees of the Business or to STC
Employees;
(xii) all Liabilities of Sellers or any Sold Subsidiary with respect
to any guarantees (including guarantees of performance (including of
performance by Purchaser or its Affiliates) under Contracts), assumption of
obligations, letters of credit or other similar arrangements established in
connection with and in support of the purposes of the Business, including
surety and performance bonds, and foreign exchange contracts;
26
<PAGE>
(xiii) all Steam Generator Liabilities;
(xiv) all Liabilities arising out of, relating to or otherwise
incurred in respect of the Settlement Agreements (other than the Steam
Generator Settlement Agreements) and any Liabilities, arising out of,
relating to or otherwise in any way in respect of uranium or the matters
set forth in Schedule 1.1(f);
(xv) all Liabilities relating to or associated with STC, but only
to the extent provided in or contemplated by the arrangements described in
Section 5.22;
(xvi) all Liabilities of Sellers or any Sold Subsidiary with respect
to the abatement of asbestos or asbestos-containing products present at the
Premises or claims with respect to exposure after the Closing Date to
asbestos or asbestos-containing products at the Premises;
(xvii) all Indebtedness reflected on the Statement of Net Assets; and
(xviii) all Liabilities described in Schedule 2.3(a)(xviii), whether
or not related to the Business.
(B) EXCLUDED LIABILITIES. The term "Excluded Liabilities" means:
-------------------- --------------------
(i) except as set forth in Schedule 2.3(b), any Liability of
Sellers to the extent related to the Excluded Assets;
(ii) any Liability of Sellers or any Sold Subsidiary for Income
Taxes attributable to the Business or the Sold Subsidiaries or for Taxes
other than Income Taxes of the Sold Subsidiaries to the extent not related
to the Business for Pre-Closing Tax Periods or Sellers' Straddle Periods,
including (A) any Liability for Income Taxes of any of the Sellers or any
Sold Subsidiary pursuant to Treasury Regulation (S) 1.1502-6(a) or any
comparable provision of state, local or foreign law and (B) Income Taxes
resulting from the sale and transfer from any Seller to Purchaser of the
Acquired Assets, but Excluded Liabilities shall not include any Taxes for
Post-Closing Tax Periods or for Purchaser's Straddle Periods;
(iii) any Liability attributable to the Business for Pre-Closing Tax
Periods or Sellers' Straddle Periods for (A) Monroeville, Pennsylvania
business privilege Taxes, (B) any Taxes attributable to the
reclassification for federal Tax purposes of any
27
<PAGE>
individual from independent contractor status to employee status, and (C)
any Taxes (other than Income Taxes) attributable to the organization,
operations, business or activities of Foreign Sold Subsidiaries in excess
of the sum of (i) $1,500,000, (ii) the aggregate amount reflected on the
Statement of Working Capital for such Foreign Taxes (other than Income
Taxes), and (iii) the lesser of (x) the aggregate non-current liability
reflected on the Balance Sheet for such Foreign Taxes (other than Income
Taxes), or (y) the aggregate non-current liability reflected on the
Statement of Net Assets for such Foreign Taxes (other than Income Taxes);
(iv) any Environmental Liabilities of Sellers or any Sold Subsidiary
(other than those Business-Related Environmental Liabilities designated as
Assumed Liabilities pursuant to Section 2.3(a)(v)), including any that
relate to Surplus Property or any other real property owned, leased or
occupied at any time by any Seller or Sold Subsidiary and not included in
the Premises; any Environmental Liabilities of Sellers or any Sold
Subsidiary relating to PCB contamination other than at the Premises; and
any Environmental Liabilities of Sellers or any Sold Subsidiary relating to
any generation, handling, transportation, treatment, storage or disposal of
any Hazardous Substance at any location other than the Premises, other than
the Assumed Off-Site Disposal Liabilities;
(v) any Liabilities in respect of any claim, lawsuit, action or
proceeding before or after the Closing to the extent the same directly
pertain to any Excluded Asset or Excluded Liability;
(vi) any Liabilities relating to the capital stock of any Seller or
any shareholders' agreements to which any Seller is party (except for
agreements relating to the equity interests of any of the Sold
Subsidiaries);
(vii) any Liabilities relating to amounts required to be paid by CBS
pursuant to Section 2.5;
(viii) except for any Liabilities reflected on the Statement of
Working Capital and Liabilities contemplated by the agreements and
arrangements referred to in Sections 5.20 and 5.21, any Liabilities owed to
any Seller or any Affiliate of any Seller;
(ix) any Liabilities in respect of any claim, lawsuit, action or
proceeding that is asserted or brought by any Governmental Authority (in
any criminal proceeding),
28
<PAGE>
before or after the Closing, based on any actual criminal violation of Law
occurring prior to the Closing;
(x) any Liabilities arising out of or in respect of (A) any
Subsidiary of CBS sold or otherwise divested prior to the Closing, or (B)
any business or business unit of CBS or any of its Subsidiaries sold or
otherwise divested prior to Closing;
(xi) any Liabilities with respect to Benefit Plans to be retained by
CBS pursuant to Section 5.5;
(xii) all Liabilities of Sellers or any Sold Subsidiary with respect
to death or personal injury actually or allegedly caused directly or
indirectly by asbestos or asbestos compounds or products or any Liabilities
relating to asbestos or asbestos compounds or products which are not
Assumed Liabilities covered by Section 2.3(a)(xvi);
(xiii) except to the extent provided in Section 5.5 or 5.22, all
Liabilities relating to or associated with STC;
(xiv) subject to Section 5.10(a), any Liability of Sellers or any
Sold Subsidiaries for patent infringement claims asserted in the name of
Jerome H. Lemelson alone or as co-inventor or the Lemelson Medical,
Education and Research Foundation Limited Partnership or its successors or
assigns with respect to any of Sellers' businesses, including the Business,
and for trademark or trade name infringement claims asserted in any way,
including by way of declaratory judgment action, opposition proceeding, or
infringement suit involving White Consolidated Industries, Inc.;
(xv) Sellers' and Sold Subsidiaries' liabilities for outstanding
checks issued on or before the Closing Date which (x) are drawn on bank
accounts that are Excluded Assets and (y) have reduced Assumed Liabilities
as of the Closing; and
(xvi) any other Liabilities not assumed by Purchaser pursuant to the
provisions of Section 2.3(a).
Except for Assumed Liabilities, neither Purchaser nor any of its
Affiliates is assuming, or in any other way becoming responsible for the payment
or performance of, any Liabilities of any of the Sellers, whether known or
unknown, accrued, absolute, contingent,
29
<PAGE>
changing, determinable, indeterminable, liquidated, unliquidated or otherwise
and whether due or to become due or relating to any existing or prior act,
omission, condition or state of facts.
SECTION 2.4. PURCHASE PRICE. Subject to Section 2.5 and Section
--------------
3(a)(iii)(B)(1) of Annex S, the purchase price for the Acquired Assets (the
"Purchase Price") shall consist of the assumption by Purchaser and its
- ---------------
Affiliates of the Assumed Liabilities.
SECTION 2.5. PURCHASE PRICE ADJUSTMENT.
-------------------------
(a) Within 90 days after the Closing Date, CBS shall at its expense
prepare and deliver to Purchaser a statement of Working Capital (the "Statement
---------
of Working Capital") and a statement of Net Assets (the "Statement of Net
- ------------------ ----------------
Assets") as of the close of business on the Closing Date setting forth Working
- ------
Capital (as defined below), and Net Assets (as defined below), respectively,
together with separate special-purpose reports of CBS's independent auditors to
the effect that the Statement of Working Capital and the Statement of Net Assets
have been prepared and audited in compliance with the requirements of this
Section 2.5. The Statement of Working Capital and Statement of Net Assets are
collectively the "Statements."
----------
During the 60-day period following Purchaser's receipt of the
Statements, Purchaser and its independent auditors shall be permitted to review
and make copies reasonably required of the working papers of CBS and its
independent auditors relating to the Statements and shall have reasonable access
to CBS representatives and its independent auditors. The Statement of Working
Capital shall become final and binding upon the parties on the 60/th/ day
following delivery thereof, unless Purchaser gives written notice of its
disagreement with the Statement of Working Capital ("Notice of Disagreement") to
----------------------
CBS prior to such date. Any Notice of Disagreement shall (A) specify in
reasonable detail the nature of any disagreement so asserted, (B) only include
disagreements based on mathematical errors or based on Working Capital not being
calculated in accordance with this Section 2.5, (C) only include disagreements
based on the Statement of Working Capital, (D) be accompanied by a signed
written confirmation by Purchaser that it has complied with the covenants set
forth in Section 2.5(e), and (E) if Purchaser's independent auditors are engaged
by Purchaser in connection with the preparation of the Notice of Disagreement,
be accompanied by a written confirmation of Purchaser's independent auditors
that they concur with each of the positions taken by Purchaser in the Notice of
Disagreement. If a Notice of Disagreement complying with the preceding sentence
is received by CBS in the period specified, then the Statement of Working
Capital (as revised in accordance with clause (I) and (II) below) shall become
final and binding upon the parties on the earlier of (I) the date CBS and
Purchaser resolve in writing
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<PAGE>
any differences they have with respect to the matters specified in the Notice of
Disagreement or (II) the date any disputed matters are finally resolved in
writing by the Accounting Firm (as defined below).
During the 60-day period following the delivery of a Notice of
Disagreement that complies with the preceding paragraph, CBS and Purchaser shall
seek in good faith to resolve in writing any differences which they may have
with respect to the matters specified in the Notice of Disagreement. During
such period, CBS and its independent auditors shall be permitted to review and
make copies reasonably required of the working papers of Purchaser and shall
have reasonable access to its representatives and its independent auditors,
including their working papers and make copies reasonably required relating to
the preparation of the Notice of Disagreement. If, at the end of such 60-day
period, CBS and Purchaser have not so resolved such differences, CBS and
Purchaser shall submit to an independent accounting firm (the "Accounting Firm")
---------------
mutually acceptable to the parties for review and resolution any and all matters
which remain in dispute and which were properly included in the Notice of
Disagreement. CBS and Purchaser shall use reasonable efforts to cause the
Accounting Firm to render a decision resolving the matters in dispute within 30
days following the submission of such matters to the Accounting Firm. CBS and
Purchaser agree that judgment may be entered upon the determination of the
Accounting Firm in any court having jurisdiction over the party against which
such determination is to be enforced. Except as specified in the following
sentence, the cost of any arbitration (including the fees and expenses of the
Accounting Firm) pursuant to this Section 2.5 shall be borne by CBS and
Purchaser in inverse proportion as they may prevail on matters resolved by the
Accounting Firm, which proportionate allocations shall also be determined by the
Accounting Firm at the time the determination of the Accounting Firm is rendered
on the merits of the matters submitted. The fees and expenses of CBS's
independent auditors incurred in connection with the issuance of their special-
purpose reportS relating to the Statements and review of any Notice of
Disagreement shall be borne by CBS, and the fees and expenses of Purchaser's
independent auditors incurred in connection with their review of the Statements
shall be borne by Purchaser.
(b) The Purchase Price shall be increased by the amount by which
Working Capital exceeds the Target Amount (as defined below), and the Purchase
Price shall be decreased by the amount by which Working Capital is less than the
Target Amount (the Purchase Price as so increased or decreased shall hereinafter
be referred to as the "Adjusted Purchase Price"). The Target Amount shall be
-----------------------
$14,600,000. If the Purchase Price is less than the Adjusted Purchase Price,
Purchaser shall, and if the Purchase Price is greater than the Adjusted Purchase
Price, CBS shall, within 10 business days after the Statement of Working
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<PAGE>
Capital becomes final and binding upon the parties, make payment to the other
party by wire transfer in immediately available funds of the amount of such
difference, together with interest thereon at the three-month treasury bill rate
(as reported by The Wall Street Journal or, if not reported thereby, by another
authoritative source) in effect on the Closing Date plus .25% (the "Rate"),
----
calculated on the basis of the actual number of days elapsed over 365, from the
Closing Date to the date of actual payment, compounded annually. Notwithstanding
the foregoing provisions of this Section 2.5, if the Statement of Working
Capital delivered by CBS pursuant to Section 2.5(a) and any Notice of
Disagreement delivered by Purchaser pursuant to Section 2.5(a) both reflect a
calculation of Working Capital that if correct would require a payment by the
same party, then within 10 days after delivery of the Notice of Disagreement
that party shall make a payment to the other, in the manner and with interest as
provided elsewhere in this Section 2.5(b), in an amount equal to the lesser of
(i) the amount payable by that party pursuant to the calculation reflected in
the Statement of Working Capital and (ii) the amount payable by that party
pursuant to the calculation reflected in the Notice of Disagreement. Any amount
paid pursuant to the preceding sentence shall be applied against, and
correspondingly reduce, the amount otherwise payable under this Section 2.5(b).
(c) The term "Working Capital" shall mean Total Current Assets minus
---------------
Total Current liabilities (in each case as defined below). The Target Amount
equals Working Capital at December 31, 1997, including a proforma adjustment for
certain restructuring actions. The terms "Total Current Assets" and "Total
-------------------- -----
Current liabilities" shall mean the total current assets and total current
- -------------------
liabilities, respectively, of the Business (including amounts related to the
nuclear instrumentation and control business), determined in accordance with
GAAP (it being understood that (i) all Excluded Assets, (ii) all Excluded
Liabilities, (iii) all pension, postretirement, and postemployment (excluding
restructuring actions) benefit liabilities, (iv) all warranty liabilities for
(x) RCCA (control rods), (y) fuel element structural corrosion or (z) rod
internal pressure, (v) deferred Income Taxes, (vi) all Steam Generator
Liabilities, (vii) insurance proceeds receivable classified as a current asset
as of the Closing Date related to the loss of any asset for which as of such
date a replacement has not been placed in service and (x) is of a type permitted
or required by GAAP to be recognized as a fixed asset on the books of the
business as of the Balance Sheet date and (y) but for the loss prior to the
Closing would be an Acquired Asset, and (viii) any current assets and current
liabilities of STC, shall be excluded in determining Total Current Assets and
Total Current liabilities), using the same methodologies, practices (including
GAAP as in effect as of December 31, 1997), accounting applications and
assumptions (including discount rates and actuarial assumptions), policies,
valuations and estimation methodologies and judgments (including those relating
to balance sheet classification) as used in determining the Target Amount as set
forth in Schedule 2.5(a).
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<PAGE>
In calculating Working Capital or Net Assets, as the case may be, no
changes will be made in any valuation allowances, including but not limited to
contract estimates at completion, any inventory or accounts receivable valuation
allowances, any product warranty liabilities, environmental liabilities,
including decommissioning and decontamination liabilities, workers compensation
liabilities, government rate and cost disallowance liabilities, or Steam
Generator Liabilities except to reflect specific identifiable events, facts and
circumstances (other than any such events relating to or arising as a result of
the announcement of the transactions contemplated by this Agreement) occurring
between December 31, 1997 and the Closing Date. The parties agree that the
adjustment contemplated by this Section 2.5 is intended to show the change in
Working Capital from the Target Amount and that such change may only be measured
if the calculation is done in accordance with the preceding sentence and using
the same methodologies, practices (including GAAP as in effect as of December
31, 1997), accounting applications and assumptions (including discount rates and
actuarial assumptions), policies, valuations and estimation methodologies and
judgments (including those relating to balance sheet classification) as used in
determining the Target Amount. The scope of the disputes to be resolved by the
Accounting Firm is limited to whether the Statement of Working Capital
calculations were done in accordance with the foregoing provisions of this
Section 2.5 and whether there were mathematical errors in the Statement of
Working Capital.
(d) The term "Net Assets" shall mean Total Assets minus Total
liabilities (in each case as defined below). The terms "Total Assets" and
------------
"Total liabilities" shall mean the total assets and total liabilities,
- ------------------
respectively, of the Business (including amounts related to the nuclear
instrumentation and control business), determined in accordance with GAAP (it
being understood that (i) all Excluded Assets, (ii) all Excluded Liabilities,
(iii) all pension, postretirement, and postemployment (excluding restructuring
actions) benefit liabilities, and (iv) deferred Income Taxes shall be excluded
in determining Total Assets and Total liabilities), using the same
methodologies, practices (including GAAP as in effect as of December 31, 1997),
accounting applications and assumptions (including discount rates and actuarial
assumptions), policies, valuations and estimation methodologies and judgments
(including those relating to balance sheet classification) as used in
determining the Balance Sheet.
(e) Without limiting anything contained in this Section 2.5, no
decision announced or event initiated by Purchaser prior to Closing with respect
to matters to take effect on or after the Closing Date shall be taken into
account in determining Closing Working Capital or Closing Net Assets. Purchaser
further agrees that following the Closing, it shall not take any actions which
would affect preparation and audit of the Statements with respect to the
accounting books and records of the Business on which the Statements are to be
based that are
33
<PAGE>
not consistent with past practices. Purchaser shall cause the employees of the
Business to cooperate in the preparation of the Statements, including providing
customary certifications, including management representation letters, to CBS's
independent auditors.
(f) During the period of time from and after the Closing Date through the
resolution of any adjustment to the Purchase Price contemplated by this Section
2.5, Purchaser shall cause the employees of the Business to afford to CBS and
any accountants, counsel or financial advisers retained by CBS in connection
with any adjustment to the Purchase Price contemplated by this Section 2.5 on-
site access reasonably required at all reasonable times to all personnel,
properties, books, contracts, records, schedules, analyses and working papers of
the Business.
ARTICLE 3
THE CLOSING
SECTION 3.1. CLOSING DATE. The Closing shall take place at the
------------
offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York
10153, at 10:00 a.m. on a date specified by CBS that is not earlier than two (2)
days and not later than ten (10) days following the satisfaction or waiver of
the conditions to the Closing set forth in Sections 6.1(a) and 6.1(d), or, if
the other conditions to the Closing set forth in Article 6 shall not have been
satisfied or waived by such date, as soon as practicable after such conditions
shall have been satisfied or waived, and the Closing shall be deemed to take
place at 10:00 a.m. on such date.
SECTION 3.2. TRANSACTIONS TO BE EFFECTED AT THE CLOSING. At the
------------------------------------------
Closing:
(A) DELIVERIES BY SELLERS. CBS shall deliver (and cause any Selling
---------------------
Subsidiaries to deliver) to Purchaser such appropriately executed deeds, bills
of sale, assignments, certificates or agreements of merger (with respect to the
U.S. Sold Subsidiaries) and other instruments of transfer providing for the
sale, assignment, transfer, conveyance and delivery of the Acquired Assets in
form and substance reasonably satisfactory to Purchaser and its counsel (it
being understood that any such instrument shall not provide for any
representations or warranties or any Liabilities that are not otherwise
expressly provided for in this Agreement), together with resignations as
director of each director of each Sold Subsidiary (together with, to the extent
obtained pursuant to Section 5.26, waivers of any claim such director may have
against the Purchaser or the Sold Subsidiaries) if requested by Purchaser at
least 10 days prior to Closing; and
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<PAGE>
(B) DELIVERIES BY PURCHASER. Purchaser shall deliver to CBS (or, at
-----------------------
CBS's direction, one or more Selling Subsidiaries) (i) by wire transfer at the
Closing, to an account or accounts designated in writing by CBS prior to the
Closing, of immediately available funds in an amount equal to the aggregate of
all amounts, if any, required to be paid by Purchaser to CBS pursuant to Section
3(a)(iii)(B) of Annex S, (ii) certificates or agreements of merger (with respect
to the U.S. Sold Subsidiaries) and (iii) such appropriately executed assumption
agreements and other instruments of assumption providing for the assumption of
the Assumed Liabilities in form and substance reasonably satisfactory to CBS and
its counsel (it being understood that any such instrument in clause (ii) or
(iii) shall not provide for any representations or warranties or any Liabilities
that are not otherwise expressly provided for in this Agreement).
(C) NOMINEE SHARES. At the Closing, or as promptly thereafter as
--------------
possible, with respect to any Foreign Sold Subsidiaries as to which directors or
other nominees of CBS or any of its Subsidiaries (other than one of the Sold
Subsidiaries) own shares of capital stock for the purpose of satisfying
requirements of Law (such shares, "Nominee Shares"), CBS shall cause the
--------------
applicable Selling Subsidiary to take all necessary or appropriate steps to
effect the transfer of the Nominee Shares to new directors or other nominees
designated by Purchaser as, when and to the extent permitted by Law.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. REPRESENTATIONS AND WARRANTIES OF CBS. CBS hereby
-------------------------------------
represents and warrants to Purchaser as follows:
(A) ORGANIZATION, STANDING AND POWER. CBS is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has the requisite corporate power and authority
to own the Acquired Assets owned by it and to carry on the Business as now being
conducted. Each Sold Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, has the requisite corporate power and authority to own its assets
and to carry on its business as now being conducted and is duly qualified to do
business in each jurisdiction in which the nature of its business or properties
requires such qualification, except for failures to qualify that, individually
or in the aggregate, would not have a Material Adverse Effect.
35
<PAGE>
(B) AUTHORITY. CBS has the requisite corporate power and authority to
---------
execute, deliver and perform this Agreement. Sellers have the requisite
corporate power and authority to execute, deliver and perform the agreements to
be entered into by them at the Closing pursuant hereto (the "Seller Ancillary
----------------
Documents") and to consummate the transactions contemplated hereby and thereby.
- ---------
The execution and delivery of this Agreement and the Seller Ancillary Documents
to which CBS is a party and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of CBS, and, in the case of the Seller Ancillary Documents, will be
authorized by all necessary corporate action on the part of the Selling
Subsidiaries prior to the Closing, and do not and will not require the approval
of the stockholders of CBS. This Agreement has been duly executed and delivered
by CBS and constitutes, and each Seller Ancillary Document to be entered into by
any of Sellers will be duly executed and delivered at the Closing and when so
executed and delivered will constitute, a legal, valid and binding obligation of
each of the Sellers party thereto enforceable against it in accordance with its
terms, subject to the Bankruptcy Exception (as defined below). The execution and
delivery of this Agreement by CBS do not, and the execution and delivery by
Sellers of the Seller Ancillary Documents, the consummation by Sellers of the
transactions contemplated hereby and thereby and the compliance by Sellers with
the terms hereof and thereof will not, conflict with, or result in any violation
of or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any obligation
(except, to the extent provided in any such program or plan, any acceleration of
vesting under the Westinghouse Savings Program or under any Pension Plan or
long-term incentive plan) or to the loss of a material benefit under, or result
in the creation of any Lien upon any of the Acquired Assets under, any provision
of (i) the Business Corporation Law of the Commonwealth of Pennsylvania, (ii)
the certificate of incorporation or by-laws (or comparable organizational
documents) of any of Sellers or the Sold Subsidiaries, (iii) except as disclosed
in Schedule 4.1(b)(i), any Intellectual Property, Technology, contract, lease,
indenture or other agreement of any Seller or Sold Subsidiary or (iv) subject to
the filings and other matters referred to in the following sentence, any Law
applicable to Sellers, the Sold Subsidiaries, the Acquired Assets or the
Subsidiary Assets, other than, in the case of clauses (iii) and (iv) above, any
such conflicts, violations, defaults, rights or Liens that, individually or in
the aggregate, would not (A) reasonably be expected to have a Material Adverse
Effect or (B) materially impair the ability of CBS to perform its obligations
under this Agreement. No consent, approval, license, permit, order or
authorization of, or registration, declaration or filing with, any Governmental
Authority is required to be obtained or made by or with respect to Sellers, the
Sold Subsidiaries, the Acquired Assets or the Subsidiary Assets in connection
with the execution and delivery of this Agreement or the Seller Ancillary
Documents or the consummation of the transactions contemplated hereby or
thereby, except as disclosed in
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<PAGE>
Schedule 4.1(b)(ii) and for (i) compliance with and filings under the HSR Act,
(ii) voluntary notification under the Exon-Florio Amendment, (iii) filings and
approvals under foreign laws, (iv) compliance with and filings under the
Exchange Act, (v) consents or novations which may be required for the assignment
of any Intellectual Property, Technology or Contract as contemplated in Section
5.4, (vi) compliance with, and notices and filings under, environmental permits,
statutes and regulations, (vii) compliance with, and notices and filings under,
the regulations of the NRC, including any application for licenses or license
transfers, (viii) those that may be required solely by reason of Purchaser's (as
opposed to any other Person's) participation in the transactions contemplated
hereby and (ix) those the failure of which to obtain or make, individually or in
the aggregate, would not (A) reasonably be expected to have a Material Adverse
Effect or (B) materially impair the ability of CBS to perform its obligations
under this Agreement.
(C) FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
---------------------------------------------
(i) CBS has previously delivered to Purchaser the audited combined
balance sheet (the "Balance Sheet") and related statements of income and
-------------
cash flows of the Business (except as set forth in Schedule 4.1(c)(i)(A))
as of and for the fiscal year ended December 31, 1997, together with the
notes to such financial statements (collectively, the "Financial
---------
Statements"). The Financial Statements have been prepared from the books
----------
and records of CBS and its Subsidiaries relating to the Business and,
except as described in the notes thereto or the independent auditors'
report thereon, or otherwise indicated in the Financial Statements, have
been prepared in accordance with GAAP consistently applied and present
fairly, in all material respects, the financial position, results of
operations and cash flows of the Business (except as set forth in Schedule
4.1(c)(i)(A)) as at the dates and for the periods indicated. Schedule
4.1(c)(i)(B) sets forth a complete and correct reconciliation of the
Financial Statements to the 1997 balance sheet and income statement
contained in the information memorandum dated March 1998 provided by CBS to
potential purchasers (the "Memorandum").
----------
(ii) Except (A) as disclosed, reflected or reserved against in the
Balance Sheet and the notes thereto, (B) for items set forth in Schedules
4.1(c)(ii) and 4.1(e) or any other Schedule hereto, (C) for Liabilities
incurred in the Ordinary Course of Business since the date of the Balance
Sheet that would not reasonably be expected to have a Material Adverse
Effect, (D) for Liabilities incurred in connection with this Agreement and
the transactions contemplated hereby, (E) for Excluded Liabilities, (F) for
Liabilities pursuant to any lawsuit, action or proceeding and (G) for
Income
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Taxes, as of the date hereof there is no material liability related to the
Business and none of the Sold Subsidiaries has any material liabilities, in
each case of a nature required to be reflected on a balance sheet for the
Business prepared in accordance with GAAP.
(iii) All Accounts Receivable reflected on the Balance Sheet and all
Accounts Receivable that have arisen since the date of the Balance Sheet,
(A) have arisen from bona fide sales transactions in the Ordinary Course of
Business, and (B) represent valid and binding obligations due to the
Sellers or Sold Subsidiaries, and are, and immediately following the
Closing will be, enforceable in accordance with their terms (subject to the
Bankruptcy Exception). Schedule 4.1(c)(iii) lists any obligor which
together with all of its Affiliates owed, as of May 31, 1998, amounts
billed and uncollected by Sellers and the Sold Subsidiaries in an aggregate
amount of $5,000,000 or more. Schedule 4.1(c)(iii) also sets forth a
complete and correct list in all material respects of all set-offs or
claims in respect of accounts receivable as of such date in an amount
billed and uncollected with an invoice amount in excess of $500,000.
(iv) All the Inventory held for use or sale by any Seller or Sold
Subsidiary consists of items that are of a quality and quantity usable and
salable in the Ordinary Course of Business consistent with past practice,
subject to normal and customary allowances in the industry for damage and
outdated items.
(v) The order backlog information of the Business at the date of the
Balance Sheet set forth in Schedule 4.1(c)(v) is true and correct in all
material respects. The orders comprising the backlog of the Business
reflect bona fide transactions entered into in the Ordinary Course of
Business.
(vi) The financial projections contained in the Memorandum were
prepared in good faith utilizing assumptions which management of CBS
believed to be reasonable as of the time of such preparation (it being
acknowledged by Purchaser that actual results may vary from such
projections, and that such variances may be material).
(D) COMPLIANCE WITH APPLICABLE LAWS. (i) Except as set forth in
-------------------------------
Schedule 4.1(d)(i), Sellers and the Sold Subsidiaries have complied with all
Laws which relate to the Business and the Acquired Assets, except where the
failure to so comply would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Except as set forth in Schedule
4.1(d)(i), since December 31, 1997, neither Sellers nor the
38
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Sold Subsidiaries have (i) received any written notice alleging any non-
compliance with any such Laws which would reasonably be expected to have a
Material Adverse Effect or (ii) received any written notice of any
administrative, civil or criminal investigation or audit by any Governmental
Authority relating to the Business which if adversely determined would
reasonably be expected to have a Material Adverse Effect. None of the Sellers or
the Sold Subsidiaries has at any time since December 31, 1994, (a) made any
illegal payments for political contributions or any bribes, illegal kickback
payments or other illegal payments except for those that are not material or (b)
been disqualified, for any reason, from bidding on any public or private
contract or project. This Section 4.1(d) does not relate to litigation matters
(to which Section 4.1(e) is applicable), labor and employment matters (to which
Section 4.1(q) is applicable), employee benefits matters (to which Section
4.1(m) is applicable), Environmental Laws (to which Sections 4.1(j)(B) and
4.1(n) are applicable) or Tax matters (to which Section 4.1(o) is applicable).
(ii) Except as set forth in Schedule 4.1(d)(ii), with respect to the
Acquired Assets, all Sellers and Sold Subsidiaries are currently, and will
on the Closing Date be, in material compliance with the requirements of the
Cost Accounting Standards, the Federal Acquisition Regulations and agency
supplements, as applicable.
(E) LITIGATION; DECREES. Schedule 4.1(e) sets forth a list as of the
-------------------
date of this Agreement of all pending lawsuits, actions and proceedings to which
any of the Sold Subsidiaries is a party or to which any of the Sellers is a
party and which, if still pending on the Closing Date, would be an Assumed
Liability, provided that this Section 4.1(e) shall not require disclosure of any
lawsuit, action or proceeding (i) in which one of the Sellers or the Sold
Subsidiaries is the plaintiff and no counterclaim or cross-claim has been, or is
likely, to be made against any of the Sellers or the Sold Subsidiaries, or (ii)
in which the amount at issue is less than $5,000,000. Except for matters set
forth in Schedule 4.1(e), as of the date hereof, there is no lawsuit, action or
proceeding pending, or, to the knowledge of CBS, threatened, against any of
Sellers or the Sold Subsidiaries seeking to delay or prevent, or otherwise
challenging, the transactions contemplated hereby. Neither Sellers nor the Sold
Subsidiaries are in default in any material respect under any judgment, order,
injunction or decree of any Governmental Authority entered against any of
Sellers or the Sold Subsidiaries and relating to the Business.
(F) TITLE TO ACQUIRED ASSETS; LEASEHOLD INTERESTS.
---------------------------------------------
(i) Sellers have, and will convey and transfer (subject to Sections
2.2(c) and 5.4) to Purchaser at Closing, good and valid title to the
Acquired Assets, and the Sold
39
<PAGE>
Subsidiaries have good and valid title to all the Subsidiary Assets, in
each case free and clear of all Liens, except Permitted Liens.
(ii) Sellers have and will convey and transfer to Purchaser at Closing
the right to possess and use all the properties held by them under any
lease, and the Sold Subsidiaries have the right to possess and use all the
properties held by them under any lease, in each case (i) free and clear of
all Liens, except Permitted Liens, and (ii) during the term, and subject to
the provisions, of the leases as being applicable to such properties.
This Section 4.1(f) does not relate to Intellectual Property or Technology (to
which Section 4.1(h) is applicable) or the Owned Real Property and Leased Real
Property (to which Section 4.1(g) is applicable).
(G) REAL PROPERTY.
-------------
(i) Owned Real Property. Schedule 1.1(c) is in all material respects
-------------------
a true, complete and correct list, as of the date hereof, of the street
addresses and square footage of improvements on each parcel of Owned Real
Property. The Owned Real Property constitutes all real property or
interests in real property owned in fee by Sellers or the Sold Subsidiaries
(other than any Excluded Assets) and primarily used in the operation of the
Business as presently conducted. None of the Owned Real Property is Surplus
Property. Each Seller and Sold Subsidiary has good and insurable fee title
to all Owned Real Property owned by it free and clear of all Liens other
than (A) Permitted Liens, (B) easements, covenants, rights-of-way and other
encumbrances or restrictions of record, (C) zoning, building and other
similar restrictions, (D) unrecorded easements, covenants, rights- of-way
or other restrictions, (E) Liens that have been placed by any developer,
landlord or other Person (other than Sellers or the Sold Subsidiaries) on
property (other than Owned Real Property) over which any of Sellers or the
Sold Subsidiaries has easement rights, none of which items set forth in
clauses (B), (C), (D) or (E) above, individually or in the aggregate,
materially impair the ability of the Sellers or the Sold Subsidiaries to
use the property for the purposes for which it is currently being used in
connection with the Business and, with respect to any Significant Real
Property, none of which items set forth in clauses (B), (C), (D) or (E)
would materially impair the continued use and operation thereof for the
same uses and operations as those conducted at the present time or grant to
any party any option or right to acquire or lease a material portion
thereof. Except as set forth in Section 5.8, no brokerage or finders
commissions shall be payable by Purchaser in connection
40
<PAGE>
with the conveyance of the Owned Real Property to Purchaser. Except as set
forth in Schedule 4.1(g)(i), no material portion of any of the Owned Real
Property is leased by Sellers or the Sold Subsidiaries to any Person.
(ii) Leased Real Property. Schedule 1.1(b) is in all material
--------------------
respects a true, complete and correct list of all Leased Real Property. CBS
shall provide Purchaser a list of all leases of Leased Real Property not
later than 20 business days following the date of this Agreement. The
Leased Real Property constitutes all real property leased by any Seller or
Sold Subsidiary as Lessee (other than the Excluded Assets) and primarily
used in the operation of the Business as presently conducted. None of the
Leased Real Property is Surplus Property. With respect to each lease for
Significant Real Property: (A) each such lease is valid and subsisting and
in full force and effect as against the Seller or the Sold Subsidiary
therein designated and, to the best of Sellers' knowledge, as against the
landlord, and has not been amended, modified or supplemented except as set
forth in Schedule 1.1(b) or in a manner which would not reasonably be
expected to materially reduce the benefits to Purchaser of the transactions
contemplated by this Agreement; (B) no notice of a material default has
been sent or received by any Seller or Sold Subsidiary under such lease
which remains uncured and, to the best of Sellers' knowledge, no event has
occurred and is continuing which, with notice or lapse of time or both,
would constitute a material default by any Seller or Sold Subsidiary under
such lease; and (C) the tenant is in occupancy of the space demised
thereunder.
(iii) Significant Real Property. With respect to each Significant Real
-------------------------
Property (which for purposes of this representation and warranty shall also
include any Leased Real Property that is the subject of a sale/leaseback or
similar arrangement in which any Seller or Sold Subsidiary is the primary
occupant of the property demised thereunder): (A) CBS has no knowledge
that any condemnation or eminent domain proceedings are pending with
respect to any Significant Real Property; (B) each Significant Real
Property is an independent unit that does not rely in any material respect
on any facilities located on any property not included in such Significant
Real Property to fulfill any municipal or governmental requirement or for
the furnishing to such Significant Real Property or any essential building
systems or utilities, other than facilities provided to the Significant
Real Property pursuant to one or more valid easements; and (C) each
Significant Real Property has access to a dedicated, public street, either
by reason of such Significant Real Property abutting a dedicated, public
street or by way of good and insurable appurtenant easement(s), and such
access is
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adequate for the present use and operation thereof. No real estate tax
certiorari proceedings are currently pending with respect to any
Significant Real Property.
(iv) Subleases Affecting Leased Real Property. Schedule 4.1(g)(iv)
----------------------------------------
sets forth in all material respects a true, complete and correct list of
all oral or written subleases (including all amendments and supplements
thereto) demising space on the Leased Real Property leased by any of the
Sellers or the Sold Subsidiaries under a lease (each, a "Sublease"). With
--------
respect to each Sublease for premises larger than 15,000 square feet of
rentable space (each, a "Material Sublease"): (A) each such sublease is
-----------------
valid and subsisting and in full force and effect as against the Seller or
the Sold Subsidiary therein designated and, to the best of the knowledge of
CBS, as against the subtenant, and has not been amended, modified or
supplemented expect as set forth in Schedule 4.1(g)(iv); and (B) no notice
of a material default has been sent or received by any Seller or Sold
Subsidiary under any Material Sublease which remains uncured and, to the
best of the knowledge of CBS, no event has occurred and is continuing
which, with notice or lapse of time or both, would constitute a material
default by any Seller or Sold Subsidiary under any Material Sublease.
(H) INTELLECTUAL PROPERTY AND TECHNOLOGY.
------------------------------------
Schedule 4.1(h)(i) sets forth a list, as of the date of this
Agreement, of all material patents, patent applications, registered
trademarks, trademark applications, registered service marks, service mark
applications, registered copyrights and copyright applications owned by
Sellers that relate primarily to the Business or owned by a Sold Subsidiary
(except as otherwise provided by Section 5.16 and subject (i) to rights
under development contracts under which the Intellectual Property and
Technology may have been generated, (ii) to the rights of the United States
government and (iii) to licenses granted to third parties) and included in
the Acquired Assets or the Subsidiary Assets and, to the extent indicated
on such Schedule, the Intellectual Property listed in Schedule 4.1(h)(i)
has been duly registered in, filed in or issued by the United States
Copyright Office or the United States Patent and Trademark Office, the
appropriate offices in the various states of the United States and the
appropriate offices of other jurisdictions. Except as set forth in
Schedule 4.1(h)(ii) and subject (i) to rights under development contracts
under which the Intellectual Property and Technology may have been
generated, (ii) to the rights of the United States government and (iii) to
licenses granted to third parties, a Seller or a Sold Subsidiary is the
sole and exclusive owner of all material Intellectual Property and material
Technology (other than licenses) included in the Acquired Assets or the
Subsidiary Assets, free and clear
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of any security interests. Except as set forth in Schedule 4.1(h)(iii), and
subject (i) to rights under development contracts under which the
Intellectual Property and Technology may have been generated, (ii) to the
rights of the United States government and (iii) to licenses granted to
third parties, a Seller or a Sold Subsidiary is the sole and exclusive
owner of all right to sue and keep any damage awards for any past
infringements by third parties of any material Intellectual Property or
Technology (other than licenses). Except as set forth in Schedule
4.1(h)(iv), since January 1, 1997, no Seller or Sold Subsidiary has
received any written notice from any other Person challenging in any
material respect the right of Sellers or the Sold Subsidiaries to use any
of the material Intellectual Property or material Technology included in
the Acquired Assets or the Subsidiary Assets or any rights thereunder.
Sellers have taken measures, consistent with Sellers' corporate practice,
to protect the secrecy, confidentiality and value of the material
Technology included in the Acquired Assets. Except for the Excluded Assets
(other than those described in clause (viii) of the definition of Excluded
Assets) and subject to Section 2.2(c), Seller does not own any material
intellectual property rights that it is not transferring to Purchaser that
are required for Purchaser (together with the rights of Purchaser under the
Purchaser Ancillary Documents, the Novation Agreements and the Purchaser
Permits) to operate the Business after Closing in the manner in which it
presently is operated. Except as set forth in Schedule 4.1(h)(v), since
January 1, 1997, no Seller or Sold Subsidiary has made any claim in writing
of a violation, infringement, misuse or misappropriation by others of their
rights to or in connection with any material Intellectual Property or
material Technology included in the Acquired Assets or the Subsidiary
Assets, which claim is still pending. Except as set forth in Schedule
4.1(h)(vi), to the knowledge of CBS, as of the date of this Agreement,
there is no pending or threatened claim by any third Person of a violation,
infringement, misuse or misappropriation by any Seller or Sold Subsidiary
of any intellectual property or technology owned by any third Person, or of
the invalidity of any patent or registration of a copyright, trademark,
servicemark or trade name included in the Acquired Assets or the Subsidiary
Assets, which if adversely determined would reasonably be expected to have
a Material Adverse Effect. Except as set forth in Schedule 4.1(h)(vii),
there are no interferences or other contested proceedings, either pending
or, to the knowledge of CBS, threatened, in the United States Copyright
Office, the United States Patent and Trademark Office or any Governmental
Authority relating to any pending application with respect to any material
Intellectual Property. The use by Purchaser and its Affiliates of the names
and marks of CBS as permitted under the licenses described in Section
5.9(b) will not infringe on the rights of third parties. Except as provided
in the immediately preceding
43
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sentence, nothing in this Agreement shall imply an indemnity for the
infringement of third party intellectual property rights not within the
knowledge of CBS.
(I) INSURANCE. Schedule 4.1(i) sets forth a list and brief
---------
description (specifying the insurer, the policy number or covering note number
with respect to binders and the amount of any deductible, and the aggregate
limit, if any, of the insurer's liability thereunder) of all property and
liability policies or binders, including fire, liability, errors and omissions,
workers' compensation, vehicular and other property and liability insurance held
by or on behalf of Sellers or the Sold Subsidiaries with respect to the Acquired
Assets, the Subsidiary Assets and the Business. Such policies and binders are
valid and enforceable in accordance with their terms in all material respects
(subject to the Bankruptcy Exception), and, as of the date hereof, are in full
force and effect. None of the Sellers or the Sold Subsidiaries is in default
with respect to any material provision contained in any such policy or binder or
has failed to give any material notice or present any material claim under any
such policy or binder. As of the date hereof, none of Sellers or the Sold
Subsidiaries has received any notice of cancellation or non-renewal of any such
policy or binder.
(J) CONTRACTS. (A) Except for Contracts listed in Schedule
---------
4.1(j)(A), none of Sellers or any of the Sold Subsidiaries is a party to or
bound by any Contract that is (all such Contracts being referred to as "Material
Contracts"): --------
- ---------
(i) a Contract for the employment of any Person with an annual base
salary in excess of $100,000;
(ii) a collective bargaining agreement relating to the Business or
other Contract with a labor union;
(iii) a Contract with (A) CBS or any of its Subsidiaries (except for
any Sold Subsidiaries), other than Contracts in the Ordinary Course of
Business for the purchase or sale of products or services from or to the
Business, or (B) any director or officer of CBS or any of its Subsidiaries
that will not be terminated at or prior to the Closing that involves
expenditures or receipts in excess of $60,000 in any fiscal year;
(iv) other than letters of credit, foreign exchange contracts, bonds
and similar instruments obtained in the Ordinary Course of Business and
intercompany indebtedness owed by any Seller that will not constitute
Assumed Liabilities, an indenture, note, loan or credit agreement or other
Contract relating to (A) the borrowing of money in an amount in excess of
$1,000,000 by any of Sellers or the
44
<PAGE>
Sold Subsidiaries or (B) the direct or indirect guarantee or assumption by
any of Sellers or the Sold Subsidiaries of the obligations of any other
Person (other than one of Sellers or the Sold Subsidiaries) for borrowed
money in an amount in excess of $1,000,000;
(v) a Contract containing a covenant not to compete, other than
those contained in project-related teaming, consortium or similar
agreements with respect to the project that is the subject of such
agreement, customary covenants contained in distributor agreements and
those of which the Business is the beneficiary in employee-related
agreements;
(vi) a lease or similar agreement under which (A) any of Sellers or
a Sold Subsidiary is a lessee of, or holds or operates, any real property
owned by any third Person for an annual rent in excess of $100,000 or (B)
any of Sellers or a Sold Subsidiary is a lessor of, or makes available for
use by any third Person, any real property owned or held as lessee by
Sellers or a Sold Subsidiary for an annual rent in excess of $250,000;
(vii) a lease or similar agreement under which (A) any of Sellers or
a Sold Subsidiary is lessee of, or holds or uses, any machinery, equipment,
vehicle or other tangible personal property owned by any third Person for
an annual rent in excess of $50,000 or (B) any of Sellers or a Sold
Subsidiary is a lessor of, or makes available for use by any third Person,
any tangible personal property owned (including ownership for Tax purposes)
by Sellers or a Sold Subsidiary having a fair market value in excess of
$50,000;
(viii) a Contract (including purchase orders), involving the
obligation of Sellers or a Sold Subsidiary to purchase products or services
for payment by Sellers or a Sold Subsidiary of more than $1,000,000 (unless
terminable by one of Sellers or a Sold Subsidiary without payment or
penalty of not more than $250,000 upon no more than 60 days' notice);
(ix) a Contract (including sales orders) involving the obligation of
Sellers or a Sold Subsidiary to deliver products or services with an
unfilled order balance of more than $2,000,000 (unless terminable by one of
Sellers or a Sold Subsidiary without payment or penalty of not more than
$250,000 upon no more than 60 days' notice); or
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(x) a Contract providing for the formation of any joint venture,
long-term alliance, partnership or material teaming agreement or
arrangement;
(xi) a Contract for the sale of any of the assets or properties of
any of the Sellers or the Sold Subsidiaries (other than sales orders) or
for the grant to any Person of any preferential rights to purchase any of
its assets or properties, in each case in an amount exceeding $250,000;
(xii) any take-or-pay or requirements Contract or any other Contract
requiring any Seller or Sold Subsidiary to pay regardless of whether
products or services are received;
(xiii) a Contract relating to the acquisition by any Seller or Sold
Subsidiary of any operating business or the capital stock of any other
Person;
(xiv) a Contract made outside the Ordinary Course of Business
relating to any Seller or Sold Subsidiary and involving executory
obligations of any Seller or Sold Subsidiary in an amount in excess of
$1,000,000; and
(xv) a material license or development agreement.
The term "Material Contracts" also includes the 20 largest (measured by unfilled
order balance as of May 31, 1998 and prior to reduction for obligations under
Settlement Agreements) Contracts (including sales orders) involving the
obligation of Sellers or a Sold Subsidiary to deliver products or services. Such
Contracts are listed in Schedule 4.1(j)(A)(xvi). All of the Material Contracts
are (or in the case of the Material Contracts referred to in Schedule
4.1(j)(A)(xvi), were as of May 31, 1998) valid, subsisting, in full force and
effect and binding upon the Sellers or Sold Subsidiaries that are named as
parties thereto and, to the best knowledge of CBS, the other parties thereto in
accordance with their terms, subject to the qualifications that enforcement of
the rights and remedies created thereby is subject to: (A) bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and (B) general principles of
equity (regardless of whether such enforcement is considered in a proceeding in
equity or at law) (clauses (A) and (B) being referred to herein collectively as
the "Bankruptcy Exception"). Each of the respective Sellers or Sold
--------------------
Subsidiaries has satisfied in full or provided for all of its liabilities and
obligations thereunder requiring performance prior to the date hereof in all
material respects, is not in default in any material respect under any of them,
nor does any condition exist that with notice or lapse of time or both would
constitute such a material default. To the
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best knowledge of CBS, as of the date hereof, no other party to any such
Material Contract is in default in any material respect thereunder, nor does any
condition exist as of the date hereof that with notice or lapse of time or both
would constitute such a material default. This paragraph does not relate to real
estate matters (to which Section 4.1(g) is applicable).
(B) With respect to all Government Contracts, none of the managerial
personnel (as such term is defined in the relevant Government Contract) of the
Sellers or any of the Sold Subsidiaries have engaged in any act of willful
misconduct or lack of good faith and none have failed to exercise prudent
business judgment so as to deprive any Seller or Sold Subsidiary of the right to
government reimbursement for Environmental Liabilities to third persons or to
any Governmental Authority either under the Department of Energy Acquisition
Regulations ((A) 48 C.F.R. (S) 970.5204-31 (1997), (B) 48 C.F.R. (S) 970.5204-61
(1997), or (C) 48 C.F.R. (S) 970.3101-3 (1997)) or under the insurance,
litigation and claims or similar clauses in any Government Contract. None of
such managerial personnel have engaged in any negligent, unreasonable or other
behavior so as to create any Environmental Liability in connection with the
performance of the Government Contracts so as to deprive any Seller or Sold
Subsidiary of the right to government reimbursement for liabilities to third
persons or to any Governmental Authority. For purposes of this Section
4.1(j)(B), the terms "lack of good faith," "willful misconduct," and "prudent
business judgment" shall have the meanings provided in 48 C.F.R. (S) 970.5204-31
(1997).
(C) With respect to each of the Government Contracts included in the
Acquired Assets, the Sellers and the Sold Subsidiaries have submitted to the
appropriate Administrative Contracting Officer ("ACO") forward pricing,
provisional indirect cost rate proposals and indirect cost claims on a timely
basis. Final negotiated indirect cost rate agreements closing indirect costs
years have been settled with the ACO through 1992. To the knowledge of CBS,
government audits of open years do not contain questioned costs that would
reasonably be expected to have a Material Adverse Effect. Set forth in Schedule
4.1(j)(C) is a true and correct description of all allegations, presently known
to CBS and made during the period from January 1, 1998 through the date hereof
by Federal agencies, of willful misconduct or fraud as it relates to Federal
contracting activity.
(K) SUFFICIENCY OF ACQUIRED ASSETS. Except as disclosed in Schedule
------------------------------
4.1(k) and except for the Excluded Assets (other than those described in clause
(viii) of the definition of Excluded Assets), and subject to Section 2.2(c), the
Acquired Assets and the Subsidiary Assets on the Closing Date will comprise all
the assets owned by Sellers or the Sold Subsidiaries that, together with the
rights of Purchaser under the Purchaser Ancillary Documents, the Novation
Agreements and the Purchaser Permits, are necessary for (i) the
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conduct of the Business in all material respects as presently conducted and (ii)
the discharge in all material respects of the Assumed Liabilities in the
ordinary course of business consistent with past practice in relation to the
Business.
(L) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the
------------------------------------
Schedules hereto, including Schedule 4.1(l), or as contemplated by this
Agreement, from the date of the Balance Sheet and until the date hereof Sellers
have conducted the Business in all material respects only in the Ordinary Course
of Business. Except as set forth in the Schedules hereto, including Schedule
4.1(l), or as contemplated by this Agreement, and except for changes (A)
relating to or resulting from seasonal changes or that generally affect to the
same extent all participants in the industries in which the Business operates,
(B) relating to or resulting from the public announcement of the transactions
contemplated by this Agreement, or (C) relating to the identity of the Purchaser
or relating to or resulting from actions taken by Purchaser following the date
of this Agreement, from the date of the Balance Sheet there has not been any
Material Adverse Effect.
(M) EMPLOYEE BENEFITS.
-----------------
(i) Schedule 4.1(m)(i) contains a list of all written Benefit Plans.
Except as noted on Schedule 4.1(m)(i), CBS has made available to Purchaser
true, complete and correct copies of (A) each Benefit Plan, (B) the most
recent annual report on Form 5500 and attached schedules filed with the
Internal Revenue Service with respect to each U.S. Benefit Plan (if any
such report was required), (C) the most recent summary plan description for
each U.S. Benefit Plan for which such a summary plan description is
required, (D) each trust agreement and group annuity contract or other
funding mechanism (other than insurance contracts) relating to any U.S.
Benefit Plan, (E) the most recent audited financial statements and
actuarial valuation reports with respect to each U.S. Benefit Plan, to the
extent available, and (F) the most recent determination letter with respect
to each U.S. Benefit Plan intended to qualify under Section 401(a) of the
Code. Schedule 4.1(m)(i) also separately identifies each Benefit Plan
covering only employees or Former Employees of the Business ("Free Standing
-------------
Plans").
-----
(ii) Each Benefit Plan has been administered in all material respects
in accordance with its terms and is in compliance in all material respects
with the applicable provisions of ERISA, the Code and other applicable
laws, rules and regulations (including, without limitation, all applicable
foreign laws). Except as set forth in Schedule 4.1(m)(ii), all material
reports, returns and similar documents with respect to the Benefit Plans
required to be filed with any Governmental Authority or
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distributed to any Benefit Plan participant have been duly and timely filed
or distributed. Except as set forth in Schedule 4.1(m)(ii), there are no
suits, actions, termination proceedings or other proceedings pending, or,
to the knowledge of CBS, threatened against any Benefit Plan that relate to
any Former Employees or employees of the Business who will become Business
Employees and, to the knowledge of CBS and with respect to such employees,
there are no investigations by any Governmental Authority or other claims
(except claims for benefits payable in the normal operation of the Benefit
Plans) pending or threatened against any Benefit Plan or asserting any
rights to benefits under any Benefit Plan, which in each case is reasonably
likely to be adversely determined and which, if adversely determined, would
reasonably be expected to have an adverse effect on the Business.
(iii) Except as set forth in Schedule 4.1(m)(iii), (A) all
contributions to, and payments from, the Benefit Plans that may have been
required to be made in accordance with the Benefit Plans, collective
bargaining agreements and, when applicable, Section 302 of ERISA, Section
412 of the Code or applicable foreign laws, have been timely made, (B)
there has been no application for or waiver of the minimum funding
standards imposed by Section 412 of the Code with respect to any Pension
Plan for the benefit of any officers or employees of the Business employed
in the United States ("U.S. Pension Plans"), and (C) no U.S. Pension Plan
------------------
has an "accumulated funding deficiency" within the meaning of Section
412(a) of the Code as of the most recent plan year, except in each instance
as would not reasonably be expected to have an adverse effect on the
Business.
(iv) Except as set forth in Schedule 4.1(m)(iv), all U.S. Pension
Plans have been the subject of determination letters from the Internal
Revenue Service to the effect that such U.S. Pension Plans are qualified
and exempt from Income Taxes under Sections 401(a) and 501(a),
respectively, of the Code, and no such determination letter has been
revoked nor, to the knowledge of CBS, has revocation been threatened.
Except as set forth in Schedule 4.1(m)(iv), to the knowledge of CBS, (A)
each such U.S. Pension Plan which is intended to be so qualified is so
qualified, and (B) nothing has occurred, whether by action or failure to
act, which would cause the loss of such qualification, except in each
instance as would not reasonably be expected to have an adverse effect on
the Business.
(v) Except as set forth in Schedule 4.1(m)(v), no "prohibited
transaction" (as defined in Section 4975 of the Code or Section 406 of
ERISA) has occurred that involves the assets of any Benefit Plan and that
is reasonably likely to subject any Sold
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Subsidiary or any employees of the Business to the tax or penalty on
prohibited transactions imposed by Section 4975 of ERISA or the sanctions
imposed under Title I of ERISA. Except as set forth in Schedule 4.1(m)(v),
none of the U.S. Pension Plans has been terminated nor have there been any
"reportable events" (as defined in Section 4043 of ERISA and the
regulations thereunder) with respect thereto and no event or condition
exists (other than reportable events triggered solely by pending sales,
dispositions and spin-offs by CBS of Subsidiaries, divisions and
businesses, including the sale contemplated by this Agreement) which is
likely to be deemed such a reportable event.
(vi) With respect to any U.S. Pension Plan subject to Title IV of
ERISA, CBS and its Affiliates have not incurred any Liability to the
Pension Benefit Guaranty Corporation, other than for payment of premiums,
all of which have been paid when due, and other than any Liabilities that,
individually or in the aggregate, would not be reasonably expected to have
an adverse effect on the Business.
(vii) Except as set forth in Schedule 4.1(m)(vii), as of the most
recent valuation date for each U.S. Pension Plan that is a defined benefit
pension plan, there was not any amount of "unfunded benefit liabilities"
(as defined in Section 4001(a)(18) of ERISA) under such U.S. Pension Plan.
(viii) Except as set forth in Schedule 4.1(m)(viii), at no time within
the five years preceding the Closing Date has CBS or any of its Affiliates
(including any of the Sold Subsidiaries) had any liability (including,
without limitation, any withdrawal liability) with respect to, or been
required to contribute to, any "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA) for the benefit of any officers or employees of the
Sold Subsidiaries or incurred any withdrawal liability, within the meaning
of Section 4201 of ERISA, with respect to any such multiemployer plan,
which liability has not been fully paid as of the date hereof, or announced
an intention to withdraw, but not yet completed such withdrawal, from any
such multiemployer plan.
(ix) Except as set forth in Schedule 4.1(m)(ix), no Former Employee
or employee of the Business will become entitled to any material bonus,
retirement, sever ance, job security or similar benefit or any materially
enhanced benefit or the acceleration of payment of any material benefit
contingent on the transactions contemplated hereby that, following the
consummation of the transactions contemplated
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hereby, will be an obligation of (i) Purchaser or its Subsidiaries
(including the Sold Subsidiaries) or (ii) CBS or its Affiliates.
(x) No amount payable to any Business Employee in connection with
the transactions contemplated by this Agreement will fail to be deductible
by a Sold Subsidiary by reason of Code Section 280G.
(xi) Except as disclosed in Schedule 4.1(m)(xi), since December 31,
1996, there have been no Benefit Plan amendments which have resulted in a
material increase in liabilities of the Business.
(xii) Except as identified in Schedule 4.1(m)(xii), CBS and its
Affiliates and the Benefit Plans are in material compliance with the
requirements of Sections 4980B and 9801 et seq. of the Code and Sections
601 et seq. and 701 et seq. of ERISA.
(xiii) Except as identified in Schedule 4.1(m)(xiii) or as otherwise
set forth on the statutory accounts of Sellers or Sold Subsidiaries, and
except for statutory benefits with respect to which the Sold Subsidiaries
are, and have been, in material compliance, there is no significant
underfunding of Foreign Benefit Plans.
(N) ENVIRONMENTAL MATTERS. Except as disclosed in Schedule 4.1(n):
---------------------
(i) For the purposes of this Section 4.1(n), "material" means any
Loss which individually or in the aggregate with respect to the same set of
facts, exceeds $5,000,000 and is not reimbursable by a Governmental
Authority, and "Sellers" and "Sold Subsidiaries" include their directors,
officers, agents, employees, representatives, consultants and shareholders;
(ii) Sellers and Sold Subsidiaries are in compliance in all material
respects with all Environmental Laws governing the operations of the
Business and the Acquired Assets, except where such failure to comply has
not resulted and will not result in an Agency Action in respect of which
the failure to comply would be material; and Sellers and Sold Subsidiaries
are not currently liable for any penalties, fines or forfeitures for
failure to comply with any of the foregoing, for which a failure to comply
would be material;
(iii) Sellers and the Sold Subsidiaries severally hold, and are in
material compliance with, all Permits required under the Environmental Laws
for Sellers and
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the Sold Subsidiaries to conduct the Business, except where such failure to
comply has not resulted and will not result in an Agency Action, a list of
which Permits is identified in Schedule 4.1(n)(iii)(a); all such Permits
are in full force and effect and all charges and fees relating thereto have
been paid and, to the knowledge of CBS, there is no condition nor has any
event occurred which constitutes, or with the giving of notice would
constitute, a material violation of the terms of any such Permit; except as
set forth in Schedule 4.1(n)(iii)(b), there are no material legal or
administrative proceedings pending or, to the knowledge of CBS, threatened,
which involve the validity, modification or breach of any such Permit or
the entitlement of Seller or Sold Subsidiaries for any such Permit; and all
applications for renewal of such Permits have been timely filed;
(iv) Except as set forth in Schedule 4.1(n)(iv), no Governmental
Authority has indicated any unwillingness to grant any such consent
required for the transfer or reissuance of any Permit to Purchaser;
(v) Except as set forth in Schedule 4.1(n)(v), none of the Sellers
or Sold Subsidiaries have received, nor, to the knowledge of CBS, is there
any notice of any outstanding or threatened noncompliance order or notice
of violation issued by any Governmental Authority administering the
Environmental Laws in connection with the operation of the Business, the
Premises or the Acquired Assets by any of the Sellers or Sold Subsidiaries,
or, to the knowledge of CBS, issued to their predecessors in interest,
which has not been resolved to the satisfaction of the issuing Governmental
Authority and which are material;
(vi) Except as set forth on Schedule 4.1(n)(vi), no Seller or Sold
Subsidiary has entered into, agreed to or is subject to any Agency Action
relating to compliance with any Environmental Law or to Remedial Action
under any Environmental Law that would be material or would materially
restrict Purchaser's operations of the Business; and Seller and Sold
Subsidiaries are not in any material respect in noncompliance with, breach
of or default under any such Agency Action;
(vii) To the knowledge of CBS, neither Sellers, in respect of the
operations of the Business and the Acquired Assets, nor any of the Sold
Subsidiaries, nor to the knowledge of CBS any predecessors in interest,
have Released, transported, or disposed of any Hazardous Substance on, to,
under or at any of the Premises, or any other property other than in a
manner that would not cause a material Loss; and none of the Sellers or
Sold Subsidiaries, nor to the knowledge of CBS, their predecessors in
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interest, have received any written notice prior to the date of this
Agreement of the institution or pendency of any lawsuit, action, proceeding
or investigation by any Person arising under any Environmental Law at any
of the Premises, or any other property which is reasonably likely to be
adversely determined and which if adversely determined would cause a
material Loss, or which would require Remedial Action at any of the
Premises, the costs of which would be material;
(viii) Except as disclosed in Schedule 4.1(n)(viii), in respect of the
operations of the Business or the Acquired Assets, no Seller or Sold
Subsidiary has received any notice and CBS has no knowledge of and has no
reason to expect any enforcement order or notice of violation issued or
given by any Governmental Authority or private party in which order or
notice Sellers, Sold Subsidiaries or any of their predecessors in interest
have been named as potentially responsible parties pursuant to CERCLA;
(ix) In respect of the operations of the Business or the Acquired
Assets, Purchaser has been provided with an opportunity to review true,
correct and complete copies of all relevant environmental investigations,
studies, audits, tests, reports, reviews or other analyses conducted by or
on behalf of, and that are in the possession of, any Seller or Sold
Subsidiary in relation to any site or facility now or, in the case of any
Sold Subsidiary, previously owned, operated or leased by any of them or any
other property at which any Seller or Sold Subsidiary has or is alleged to
have Environmental Liabilities; and
(x) None of Sellers or any Sold Subsidiary, in respect of the
operation of the Business or the Acquired Assets, has agreed with any
Governmental Authority pursuant to any Environmental Law to the imposition
of any lien or limitation on the future use of any property that is an
Acquired Asset.
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(O) TAXES. Except as set forth in Schedule 4.1(o):
-----
(i) Each of the Sellers and the Sold Subsidiaries has timely filed
or has had filed on its behalf, after giving effect to any applicable
extensions, all material Tax Returns required to be filed under applicable
law with respect to the Acquired Assets or the income or operations of the
Business, and all such Tax Returns were true, correct, and complete in all
material respects. Each of the Sellers and the Sold Subsidiaries has timely
paid or has had paid on its behalf, after giving effect to any applicable
extensions, all Taxes shown as due on such Tax Returns.
(ii) No taxing authority has asserted in writing any material Tax
deficiency that has not been paid or reserved for in accordance with GAAP
with respect to the Acquired Assets, the Subsidiary Assets or the income or
operations of the Business.
(iii) Except in connection with any consolidated, affiliated, or
combined United States federal, state, or local Income Tax Return, none of
the Sellers and none of the Sold Subsidiaries has requested any extension
of time within which to file any Tax Return with respect to the Acquired
Assets or the income or operation of the Business, which Tax Return has not
since been filed.
(iv) Except in connection with any consolidated, affiliated, or
combined United States federal, state, or local Income Tax Return, no
Seller or Sold Subsidiary has executed any outstanding waivers or
comparable consents regarding the application of the statute of limitations
with respect to any Taxes or Tax Returns with respect to the Acquired
Assets or the income or operation of the Business.
(v) None of the Acquired Assets or the Subsidiary Assets is property
that any party to this transaction is or will be required to treat as being
owned by another person pursuant to the provisions of Code Section
168(f)(8) (as in effect prior to its amendment by the Tax Reform Act of
1986) or is "tax-exempt use property" within the meaning of Code Section
168(h).
(vi) No Sold Subsidiary is required to include in income any
adjustment pursuant to Code Section 481(a) by reason of a voluntary change
in accounting method initiated by such Sold Subsidiary, and the Internal
Revenue Service has not proposed in writing any such adjustment or change
in accounting method.
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(vii) No material audits or other administrative proceedings or court
proceedings are presently pending with regard to any Taxes or Tax Returns
of any Seller (with respect to the Acquired Assets or the income or
operation of the Business) or Sold Subsidiary. There is no pending claim
by any authority of a jurisdiction where any of the Sellers (with respect
to the Acquired Assets or the income or operation of the Business or the
Sold Subsidiaries) has not filed Tax Returns that such Seller or Sold
Subsidiary is or may have been subject to taxation by that jurisdiction.
(viii) No power of attorney currently in force has been granted by
any Seller (with respect to the Acquired Assets or the income or operation
of the Business) or Sold Subsidiary that would be binding on Purchaser with
respect to taxable periods including, or commencing on or after, the
Closing Date.
(ix) No Seller (with respect to the Acquired Assets or the income or
operation of the Business) or Sold Subsidiary has received a tax ruling or
entered into a closing agreement with any taxing authority that would have
a continuing adverse effect upon a Sold Subsidiary, the Acquired Assets or
the Business, after the Closing Date.
(x) Each of the Sellers (with respect to the Acquired Assets or the
income and operation of the Business) and Sold Subsidiaries has complied in
all material respects with the provisions of the Code relating to the
payment and withholding of Taxes, including, without limitation, the
withholding and reporting requirements under Code Sections 1441 through
1464, 3401 through 3606, and 6041 and 6049, as well as similar provisions
under any other Laws, and within the time and in the manner prescribed by
Law, withheld and paid over to the proper governmental authorities all
material amounts required in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third
party.
(xi) No Sold Subsidiary (A) has filed a consent under Code Section
341(f), (B) is obligated to make any payments, or is party to any agreement
that could obligate it to make payments, not deductible under Code Section
280G, or (C) has been a U.S. real property holding company within the
meaning of Code Section 897.
(P) SOLD SUBSIDIARIES. Except as set forth in Schedule 1.1(g) (and
-----------------
except for Nominee Shares), all of the issued and outstanding shares of capital
stock of each Sold Subsidiary are owned, directly or indirectly, beneficially
and of record by one of the Sellers as set forth in Schedule 1.1(g), free and
clear of all Liens, except as set forth in Schedule 1.1(g). For purposes of this
Section 4.1(p), "beneficial ownership" of any shares of capital stock shall
55
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mean having or sharing the power to direct or control the voting or disposition
of such shares of capital stock. All of such outstanding shares of capital stock
have been duly and validly authorized and issued and are fully paid and non-
assessable. Except (i) for any Nominee Shares and (ii) as set forth in Schedule
1.1(g), there are no shares of capital stock of or other equity interests in any
Sold Subsidiary outstanding. Except as set forth in Schedule 1.1(g), none of the
shares of capital stock of or other equity interests in any Sold Subsidiary has
been issued in violation of, or are subject to, any purchase option, call, right
of first refusal or preemptive, subscription or similar rights under any
provision of applicable law, the certificate of incorporation or by-laws (or
comparable organizational documents) of any Sold Subsidiary or any Contracts.
Except as set forth in Schedule 1.1(g), there are no outstanding warrants,
options, rights, "phantom" stock rights, convertible or exchangeable securities
or other agreements to or instruments (other than this Agreement) pursuant to
which any Seller or any Sold Subsidiary is or may become obligated to issue,
sell, purchase, return or redeem any shares of capital stock of or other equity
interests in any Sold Subsidiary.
(Q) LABOR MATTERS. Except as set forth in Schedule 4.1(q), (i) there
-------------
is no pending, and since December 31, 1997 through the date hereof there has not
been any, labor strike, work stoppage or lockout against any Seller in
connection with the Business, or any Sold Subsidiary, nor, to the knowledge of
CBS, is any such action threatened as of the date hereof, (ii) there is no
pending, and since December 31, 1997 through the date hereof there has not been
any, unfair labor practice charge or complaint against any Seller in connection
with the Business, or against any Sold Subsidiary, before the National Labor
Relations Board or any similar body in any material foreign jurisdiction nor, to
the knowledge of CBS, is any such charge or complaint threatened as of the date
hereof, and (iii) as of the date hereof, there are no pending or, to the
knowledge of CBS, threatened union grievances against any Seller in connection
with the Business, or any Sold Subsidiary, which, in the case of clauses (i),
(ii) and (iii), would, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect. Except as disclosed in Schedule 4.1(q)(iv),
each of the Sellers and the Sold Subsidiaries has complied in all material
respects with its obligations related to, and is not in breach in any material
respect of or in default in any material respect under, any collective
bargaining or similar agreements to which any Seller (in connection with the
Business) or any Sold Subsidiary is a party. Except as set forth in Schedule
4.1(q)(v), to the knowledge of CBS, there are no attempts presently being made
to organize any employees employed by any of the Sellers in connection with the
Business or any Sold Subsidiary.
(R) OUTSTANDING BIDS. Set forth in Schedule 4.1(r) is a complete and
----------------
correct list of all bids outstanding as of the date hereof for Contracts by the
Sellers or any Sold Subsidiaries in connection with the Business, which
Contracts, if awarded to the bidding Seller
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or Sold Subsidiary, would involve aggregate expenditures or receipts in excess
of $5,000,000. Other than with respect to Steam Generator Settlement Agreements,
no such bid reflects a material deviation from the past bidding practices and
procedures, including profit objectives, of the Sellers and the Sold
Subsidiaries, nor would any such bid (determined solely on the basis of the
projections of the applicable Seller or Sold Subsidiary as of the time such bid
was made) result in a loss to the applicable Seller or Sold Subsidiary.
(S) MAJOR SUPPLIERS AND CUSTOMERS.
-----------------------------
(i) Schedule 4.1(s) sets forth:
(A) the name of, and a brief description of the goods or services supplied
by, the twenty largest suppliers of goods or services to the Business
(based upon amounts paid by the Sellers and the Sold Subsidiaries
during the twelve-month period ending December 31, 1997); and
(B) the name of, and a brief description of the goods and services
supplied to, the twenty largest customers of the Business (based upon
the net sales of the Business during such period).
(ii) Except to the extent set forth in Schedule 4.1(s),
(A) since December 31, 1997 through the date hereof, no change has
occurred in the business relationship of the Sellers or the Sold
Subsidiaries with any customer or supplier listed in Schedule 4.1(s),
the result of which would reasonably be expected to have a Material
Adverse Effect;
(B) none of the Sellers of the Sold Subsidiaries has received prior to the
date hereof notice from any customer or supplier listed in Schedule
4.1(s), to the effect that any such customer or supplier intends to
cease, or make a material reduction in, its purchases of goods or
services from, or its supply or goods or services to, the Business;
and
(C) without limiting the generality of the foregoing, none of the Sellers
or the Sold Subsidiaries has received prior to the date hereof written
notice in respect of any Government Contract that such Government
Contract is proposed to be rebid or that the Sellers or Sold
Subsidiaries will not be considered for any follow-on work relating to
such Government Contract.
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(T) YEAR 2000.
---------
(i) The Sellers and the Sold Subsidiaries have developed and are
executing a plan with respect to Year 2000 readiness (the "Year 2000
---------
Plan"). The Sellers have provided Purchaser with a copy of the Year 2000
----
Plan and have provided a report on the status of the Year 2000 Plan through
June 13, 1998 that is accurate in all material respects.
(ii) The Year 2000 Plan address the Year 2000 issues which to the
knowledge of CBS are material to the Sellers and the Sold Subsidiaries,
including internal information systems risks, embedded circuitry risks and
third party risks. Except as provided above and in Section 5.29, CBS makes
no representations or warranties with respect to the capability of any of
the equipment, systems, software, data or databases relating to the
Business to adapt, accommodate or respond to the year 2000 and thereafter
("Year 2000 Compliance"), or with respect to the absence of Liabilities,
--------------------
contingent or otherwise, arising from or related to Year 2000 Compliance.
(U) TANGIBLE PROPERTY. All tangible personal property (other than
-----------------
Inventory), including, without limitation, equipment, furniture, leasehold
improvements, fixtures, vehicles, structures, any related capitalized items and
other similar tangible property, in each case owned or leased by any of the
Sellers or Sold Subsidiaries and material to its business is in good operating
condition (normal wear and tear excepted), subject to continued repair and
replacement in accordance with past practice.
SECTION 4.2. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
-------------------------------------------
hereby represents and warrants to CBS as follows:
(A) ORGANIZATION, STANDING AND POWER. Purchaser is a limited
--------------------------------
liability company duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is organized and has the requisite
limited liability company power and authority to carry on its business as now
being conducted.
(B) AUTHORITY. Purchaser has the requisite limited liability company
---------
power and authority to execute, deliver and perform this Agreement and the
agreements to be entered into by it at the Closing pursuant hereto (the
"Purchaser Ancillary Documents") and to consummate the transactions contemplated
- ------------------------------
hereby and thereby. The execution and delivery of this Agreement and the
Purchaser Ancillary Documents and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
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limited liability company action on the part of Purchaser, and, in the case of
the Purchaser Ancillary Documents, will be authorized by all necessary limited
liability company action on the part of Purchaser prior to the Closing, and do
not and will not require the approval of the members of Purchaser. This
Agreement has been duly executed and delivered by Purchaser and constitutes, and
each Purchaser Ancillary Document will be duly executed and delivered by
Purchaser at or prior to the Closing and when so executed and delivered will
constitute, a legal, valid and binding obligation of Purchaser enforceable
against it in accordance with its terms, subject to the Bankruptcy Exception.
The execution and delivery of this Agreement by Purchaser do not, and the
execution and delivery by Purchaser of the Purchaser Ancillary Documents, the
consummation by Purchaser of the transactions contemplated hereby and thereby
and the compliance by Purchaser with the terms hereof and thereof will not,
conflict with, or result in any violation of or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to the loss of a material
benefit under, or result in the creation of any Lien upon any of Purchaser's
assets under, any provision of (i) the laws of the State of Delaware, (ii) the
certificate of incorporation or by-laws (or comparable organizational documents)
of Purchaser, (iii) any contract, lease, indenture or other agreement of
Purchaser or (iv) subject to the filings and other matters referred to in the
following sentence, any Law applicable to Purchaser, other than, in the case of
clause (iii) above, any such conflicts, violations, defaults, rights or Liens
that, individually or in the aggregate, would not materially impair the ability
of Purchaser to perform its obligations under this Agreement. No consent,
approval, license, permit, order or authorization of, or registration,
declaration or filing with, any Governmental Authority is required to be
obtained or made by or with respect to Purchaser in connection with the
execution and delivery of this Agreement or the Purchaser Ancillary Documents or
the consummation of the transactions contemplated hereby or thereby, except for
(i) compliance with and filings under the HSR Act, (ii) voluntary notification
under the Exon-Florio Amendment, (iii) [intentionally omitted], (iv) filings and
approvals under foreign laws, (v) consents or novations which may be required
for the assignment of any Intellectual Property, Technology or Contract as
contemplated in Section 5.4, (vi) compliance with, and notices and filings
under, environmental permits, statutes and regulations, and (vii) compliance
with, and notices, filings and approvals under, the regulations of the NRC or
any Agreement State, including any applications for licenses or license
transfers, and (viii) those the failure of which to obtain or make, individually
or in the aggregate, would not materially impair the ability of Purchaser to
perform its obligations under this Agreement.
(C) U.S.-CONTROLLED ENTITY. Purchaser is an entity the majority
----------------------
ownership of which is, and the control of which is, by citizens of the United
States or corporations or other organizations incorporated or organized under
the laws of a State of the United States
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whose business is administered principally in the United States and which is
capable of holding any licenses issued by the NRC that are contemplated to be
transferred to Purchaser under this Agreement (a "U.S.-Controlled Entity"). All
----------------------
of the equity interests in Purchaser are owned of record and beneficially by
BNFL USA Group, Inc. (or, as of the Closing, a wholly-owned Subsidiary of BNFL
USA Group, Inc.), and MK.
(D) U.K. SHAREHOLDER APPROVAL. Purchaser and its Affiliates have been
-------------------------
duly authorized by its principal shareholder, the Department of Trade and
Industry, to take the necessary actions to execute and deliver this Agreement
and the Purchaser Ancillary Documents and to consummate the transactions
contemplated herein.
ARTICLE 5
COVENANTS
SECTION 5.1. (A) COVENANTS OF CBS RELATING TO CONDUCT OF BUSINESS.
------------------------------------------------
During the period from the date of this Agreement and continuing until
the Closing, except as expressly provided in this Agreement, including the
Schedules hereto, or to the extent that Purchaser shall otherwise consent (which
consent shall not be unreasonably withheld or delayed), CBS shall, and shall
cause the other Sellers and the Sold Subsidiaries to, carry on the Business in
the Ordinary Course of Business and use all reasonable efforts consistent with
past practices to keep available the services of the Business's present officers
and employees and preserve the Business's relationships with customers,
suppliers and others having business dealings with the Business. In addition,
except as contemplated by Schedule 5.1 or as otherwise provided by this
Agreement, CBS shall not, and shall not permit any other Seller (in connection
with the Business) or any Sold Subsidiary to, do any of the following without
the consent of Purchaser (which consent shall not be unreasonably withheld or
delayed):
(i) amend the certificate of incorporation or by-laws (or comparable
organizational documents) of any Sold Subsidiary in any material respect;
(ii) adopt or amend in any material respect any Benefit Plan or
collective bargaining agreement, except as required by Law or pursuant to
the terms of any existing collective bargaining agreement or other existing
Contract and except for
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changes made by CBS to any Benefit Plan which do not increase costs by more
than 5%;
(iii) grant to any executive officer of any Sold Subsidiary any
increase in compensation, benefits or loans or severance benefits, except
in the Ordinary Course of Business or as may be required under existing
contracts or agreements (as set forth in Schedule 5.1(a)(iii)) and except
for any increases or loans the liability for which a Seller shall be solely
obligated both before and after Closing;
(iv) incur or assume any liabilities, obligations, or indebtedness
for borrowed money which would constitute an Assumed Liability, or
guarantee any such liabilities, obligations or indebtedness, in each case
other than in the Ordinary Course of Business;
(v) acquire by merging or consolidating with, or by purchasing a
material portion of the assets of, or by any other manner, any business or
any corporation, partnership, joint stock company, limited liability
company, association or other business organization or division thereof;
(vi) acquire any assets which are material, individually or in the
aggregate, to the Business, taken as a whole, except in the Ordinary Course
of Business;
(vii) sell, lease or mortgage, pledge or otherwise dispose of, or
grant preferential rights to, any of its assets that are material,
individually, or in the aggregate, to the Business as a whole, except for
the sale of Inventory in the Ordinary Course of Business and except for the
sale or factoring of accounts receivable;
(viii) enter into any lease of real property for an annual rent in
excess of $150,000, except any renewals of existing leases in the Ordinary
Course of Business;
(ix) enter into any joint venture or partnership or, other than in
the Ordinary Course of Business, teaming agreement or arrangement; or
(x) enter into, amend or terminate any employment agreement;
(xi) except as set forth in Schedule 5.1(a)(xi), knowingly waive any
right of material value to the Business or settle or compromise any claim
in excess of $2,500,000;
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(xii) make any wage or salary increase or other compensation payable
or to become payable or bonus, or increase in any other direct or indirect
compensation, for or to any of its officers, employees, consultants, agents
or other representatives employed in the Business, or any accrual for or
commitment or agreement to make or pay the same, in each case other than in
the Ordinary Course of Business or as may be required under existing
contracts;
(xiii) except as described in Schedule 4.1(j)(A)(iii) or as otherwise
contemplated by this Agreement, enter into any transactions with any of its
Affiliates, officers, directors, employees, consultants, agents or other
representatives (other than employment arrangements made in the Ordinary
Course of Business), or any Affiliate, of any officer, director,
consultant, employee, agent or other representative, to the extent the
obligations arising from any such transaction would be an Assumed
Liability;
(xiv) except as set forth in Schedule 5.1(a)(xiv), make any payment
or commitment (which would in the case of any Seller constitute an Assumed
Liability) to pay any severance or termination payment to any Person or any
of its officers, directors, employees, consultants, agents or other
representatives employed in the Business, other than payments pursuant to
contractual obligations in effect on the date of this Agreement;
(xv) except in the Ordinary Course of Business, amend in any
material respect or enter into any Contract or other agreement of a type
required to be disclosed pursuant to Section 4.1(j)(A)(v), (vii), (viii),
(xi), (xiii), (xiv) and (xv);
(xvi) declare or pay any non-cash dividend other than, in the case
of CBS, dividends of property not relating to the Business;
(xvii) in the case of a Sold Subsidiary, declare any dividend that is
not paid before the Closing Date;
(xviii) agree to settle any Tax audit or dispute that will have a
binding effect on Purchaser, the Business or any Sold Subsidiary for any
Post-Closing Tax Period or Purchaser's Straddle Period;
(xix) with respect to bids made after the date hereof which would,
if outstanding on the date hereof, be required to be set forth on Schedule
4.1(r), make
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any such bid if the representation set forth in Section 4.1(r) could not be
made with respect to such bid at the time such bid is made; or
(xx) agree, whether in writing or otherwise, to do any of the
foregoing.
(B) ADVICE OF CHANGES. CBS shall promptly notify Purchaser of:
-----------------
(i) any actions, suits, claims or proceedings or, to the knowledge of
CBS, investigations commenced or, to its knowledge, threatened against CBS,
its Subsidiaries or the Business that, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to
Section 4.1(e); and
(ii) the damage or destruction by fire or other casualty of any
material Acquired Asset or part thereof or in the event that any material
Acquired Asset or Subsidiary Asset or part thereof becomes the subject of
any proceeding or, to the knowledge of CBS, threatened proceeding for the
taking thereof or any part thereof or of any right relating thereto by
condemnation, eminent domain or other similar governmental action.
provided, however, that CBS shall have no Liability for breach of this Section
- -------- -------
5.1(b) except to the extent Purchaser has actually been prejudiced by such
breach.
SECTION 5.2. ACCESS TO INFORMATION; CONSULTATION.
-----------------------------------
(a) CBS shall afford to Purchaser and its accountants, counsel and
other representatives reasonable access at reasonable times during the period
prior to the Closing to all the properties, books, Contracts, commitments, Tax
Returns, pending bids and proposals for contracts the anticipated revenues from
which will exceed $25,000,000 (excluding contracts for which CBS believes
Purchaser or any of its Affiliates is a competing bidder), and records of the
Business (other than to the extent such information relates to the Excluded
Assets or Excluded Liabilities), and during such period shall furnish promptly
to Purchaser any information concerning the Business (other than to the extent
such information relates to the Excluded Assets or Excluded Liabilities) as
Purchaser may reasonably request and shall use reasonable commercial efforts on
a timely basis to obtain any counterparty or third-party consents necessary to
permit Purchaser access to such information; and shall cause its and the other
Sellers' officers, employees, consultants, agents, accountants and attorneys to
cooperate reasonably with Purchaser's representatives in connection with such
review and examination; provided, however, that CBS is under no obligation to
-------- -------
disclose to Purchaser (i) any
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information the disclosure of which is restricted by applicable Law except in
strict compliance with the applicable Law, (ii) any information as to which the
attorney-client privilege, the attorney work-product doctrine or the self-
evaluative privilege may be available, except to the extent covered by the Joint
Defense Agreement referred to in Section 5.30 or, if not so covered, until a
mutually satisfactory joint defense agreement has been executed by Purchaser and
CBS, (iii) the medical records pertaining to any employee or former employee of
the Business until after the Closing or (iv) any "Classified Information" other
than in compliance with NRC and any other applicable government security
regulations. CBS shall cooperate reasonably with Purchaser in connection with
any request to make available to Purchaser and its representatives, customers
and suppliers of the Business, and to arrange and participate in meetings
between Purchaser and its representatives and such customers and suppliers, for
the purpose, among other things, of verifying the information furnished to
Purchaser, developing transition plans and integrating the operations of the
Business with the operations of Purchaser and its Affiliates; provided that (i)
--------
such cooperation does not unnecessarily interfere with the operation of the
Energy Systems Business or any other business of CBS and (ii) Purchaser shall
reimburse CBS upon request as incurred for any expenses incurred in connection
with such cooperation. All requests for information, to visit facilities or to
meet with Sellers' representatives shall be made in writing and directed to and
coordinated with the person(s) designated to Purchaser from time to time by CBS
as the ESBU Coordinator(s). Purchaser acknowledges that any information being
provided to it or its representatives by Sellers pursuant to or in connection
with this Agreement is subject to the terms of confidentiality agreements
between each of MK and BNFL, and CBS, dated March 19, 1998 and March 13, 1998,
respectively (the "Confidentiality Agreements"), which terms are incorporated
--------------------------
herein by reference. CBS shall use its commercially reasonable efforts to, and
to cause its Affiliates to, enforce the respective terms of the confidentiality
agreements entered into with other prospective purchasers in connection with the
proposed sale of the Energy Systems Business (including requesting that such
other prospective purchasers return or destroy confidential information to the
extent required to do so as provided therein). Notwithstanding anything to the
contrary contained in paragraph 15 thereof, the Confidentiality Agreements and
the obligations not to use or disclose and to return on request or destroy
Confidential Information (as defined in the Confidentiality Agreements) shall
terminate on the fifth anniversary of the Closing Date. Nothing contained herein
is intended to limit or restrict Purchaser's use or disclosure of Confidential
Information concerning the Business following the Closing. No investigation by
Purchaser shall diminish or obviate any other representations, warranties,
covenants or agreements of CBS under this Agreement.
(b) During the period prior to the Closing, at the request of
Purchaser, CBS shall, and shall cause its and the other Sellers' employees to,
cooperate reasonably with
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Purchaser and its representatives in connection with the preparation of such
financial statements for the Business as may be required in connection with the
preparation by an applicable Affiliate of Purchaser of a Current Report on Form
8-K relating to the transactions contemplated hereby; provided that (i) such
--------
cooperation does not interfere with the operation of the Energy Systems Business
or any other business of CBS and (ii) Purchaser shall reimburse CBS upon request
as incurred for any expenses incurred in connection with such cooperation.
(c) Prior to the Closing, CBS will deliver to Purchaser a complete
and correct list of all bank accounts of each of the Sold Subsidiaries, and all
persons having signing authority with respect thereto.
SECTION 5.3. GOVERNMENTAL APPROVALS, ETC.
---------------------------
(a) Each of Purchaser and CBS shall as promptly as practicable, (i)
but in no event later than 10 business days following the execution and delivery
of this Agreement, file with the United States Federal Trade Commission and the
United States Department of Justice the notification and report form under the
HSR Act required for the transactions contemplated hereby and, thereafter, any
supplemental information requested in connection therewith pursuant to the HSR
Act, (ii) but in no event later than 20 business days following the execution
and delivery of this Agreement, (A) file with the Committee on Foreign
Investment in the United States the voluntary notification under the Exon-Florio
Amendment for the transactions contemplated hereby and (B) file with the NRC or
applicable Agreement States such applications for licenses or license transfers
as necessary for the transactions contemplated hereby. Each of Purchaser and
CBS shall as promptly as practicable comply with any other Laws of any country
which are applicable to any of the transactions contemplated hereby and pursuant
to which any consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Authority or any other Person in
connection with such trans actions is necessary. Each of Purchaser and CBS
shall furnish to the other such necessary information and reasonable assistance
as the other may request in connection with its preparation of any filing,
registration or declaration which is necessary under the HSR Act or any other
such Laws. Purchaser and CBS shall keep each other apprised of the status of
any communications with, and any inquiries or requests for additional
information from, any Governmental Authority, and shall comply promptly with any
such inquiry or request. Purchaser and CBS shall use their best efforts and take
all necessary action to obtain any clearance under the HSR Act, the Exon-Florio
Amendment or any other consent, approval, order or authorization of any
Governmental Authority, necessary in connection with
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the transactions contemplated hereby or to resolve any objections which may be
asserted by any Governmental Authority with respect to the transactions
contemplated hereby.
(b) Subject to the terms and conditions of this Agreement, each party
shall use its best efforts to cause the Closing to occur as promptly as
practicable, including (i) as contemplated by Section 5.3(a) or 5.4, (ii)
defending against any lawsuits, actions or proceedings, judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to prevent the entry or
imposition of any preliminary injunction, temporary restraining order, stay or
other legal restraint or prohibition by any court or other Governmental
Authority and to appeal and seek to have vacated or reversed as promptly as
possible any such injunction, order, stay or other restraint or prohibition that
is not yet final and nonappealable; provided, however, that none of Sellers nor
-------- -------
Purchaser nor their Affiliates shall be required to make any material monetary
expenditure, commence or be a plaintiff in any litigation or offer or grant any
material accommodation (financial or otherwise) to any third Person.
(c) Purchaser shall use its commercially reasonable efforts to obtain
as promptly as practicable all permits, licenses, franchises, approvals,
consents and authorizations by or of Governmental Authorities required by Law or
Contract for Purchaser to conduct the Business following the Closing and to own
the Acquired Assets (each, a "Purchaser Permit"), and CBS shall, and shall cause
----------------
the other Sellers and the Sold Subsidiaries to, cooperate with Purchaser in
connection therewith. Notwithstanding the foregoing, neither CBS nor Purchaser
shall be required to expend any material sum or agree to a material concession
to any Govern mental Authority to obtain, or, in the case of CBS, to assist
Purchaser to obtain, as the case may be, any such Purchaser Permit. Purchaser
acknowledges that certain facilities owned or serviced by the Business and
certain related documents, records and information are classified for United
States government security purposes as high as the level of "Top Secret," which
may require, in addition to any Purchaser Permits required under applicable Law
to conduct the Business at such facilities, the employment of individuals
holding United States government security clearances as high as the level of
"Top Secret." Notwithstanding anything to the contrary in this Agreement, CBS
shall not be required to provide access to such facilities or any such related
documents, records or information to any representative or employee of Purchaser
unless such individual presents evidence reasonably satisfactory to CBS of such
individual's security clearance meeting the security clearance level prescribed
for such access.
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SECTION 5.4. NOVATIONS OF CONTRACTS AND THIRD PARTY CONSENTS.
-----------------------------------------------
(a) As soon as practicable following the execution of this Agreement,
CBS shall prepare (with Purchaser's assistance, as necessary), in accordance
with Federal Acquisition Regulations Part 42, (P) 42.12 and any applicable
agency regulations or policies, a written request for the novation of the
Government Contracts meeting the requirements of the Federal Acquisition
Regulations Part 42, as reasonably interpreted by the Responsible Contracting
Officer (as such term is defined in Federal Acquisition Regulations Part 42, (P)
42.1202(a)). The request for novation shall be submitted by CBS to each
Responsible Contracting Officer, for the United States government (or, in the
case of Government Contracts not subject to the Federal Acquisition Regulations,
Purchaser and CBS shall cooperate in seeking to cause the applicable
Governmental Authority) to (i) recognize Purchaser as CBS's successor in
interest to the Government Contracts and all the Acquired Assets used in the
performance of the Government Contracts and (ii) enter into one or more novation
agreements (collectively, "Novation Agreements") in form and substance
-------------------
reasonably satisfactory to Purchaser and CBS and their respective counsel,
pursuant to which all of CBS's right, title and interest in and to, and all of
CBS's Liabilities under, each such Government Contract shall be validly
conveyed, transferred and assigned and novated to Purchaser by all parties
thereto. Purchaser shall provide to CBS promptly any information regarding
Purchaser required in connection with such request.
(b) CBS and Purchaser will cooperate and use their respective
commercially reasonable efforts to obtain as promptly as practicable (i) all
consents, approvals and waivers (A) required for the purpose of processing,
entering into and completing the Novation Agreements with regard to any of the
Government Contracts, including responding to any requests for information from
the United States government with regard to such Novation Agreements, or (B)
required by third Persons to transfer the Contracts, Intellectual Property,
Technology and the capital stock of the Sold Subsidiaries to Purchaser in a
manner that will avoid any default, conflict, or termination of rights under the
Contracts, Intellectual Property and Technology and (ii) without limiting the
provisions of clause (B) above, novations of all Contracts other than Government
Contracts. Notwithstanding anything to the contrary in this Agreement, nothing
in this Section 5.4 shall require Sellers or Purchaser to expend any material
sum, make a material financial commitment or grant or agree to any material
concession to any third Person to obtain any such consent, approval, waiver or
novation.
(c) If any and all consents, approvals or waivers necessary for the
assignment, transfer or novation of any Contract, Intellectual Property or
Technology, or any claim, right or benefit arising thereunder or resulting
therefrom, or consents relating to a
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change in control of any Sold Subsidiary, shall not have been obtained prior to
the Closing Date, then as of the Closing, this Agreement, if permitted by Law,
shall constitute full and equitable assignment by Sellers to Purchaser of all of
Sellers' right, title and interest in and to, and all of Sellers' obligations
and liabilities under, such Contracts, Intellectual Property and Technology,
and, in the case of such Contracts, Purchaser shall be deemed Sellers' agent for
purpose of completing, fulfilling and discharging all of Sellers' obligations
and liabilities under any such Contract. The parties shall take all necessary
steps and actions to provide Purchaser with the benefits of such Contracts,
Intellectual Property and Technology, and, in the case of such Contracts, to
relieve Sellers of the performance and other obligations and liabilities
thereunder, including entry into subcontracts for the performance thereof.
Purchaser agrees to pay, perform and discharge, and, pursuant to Section 8.2,
indemnify Sellers against and hold Sellers harmless from, all obligations and
liabilities of Sellers relating to such performance or failure to perform under
such Contracts, including any related guarantees.
(d) If Sellers shall be unable to make the equitable assignment
described in Section 5.4(b), or if such attempted assignment would adversely
affect the rights of Sellers or Purchaser under such Contract, Intellectual
Property or Technology, or would not assign all of Sellers' rights thereunder at
the Closing, Sellers and Purchaser shall continue to cooperate and use all
reasonable efforts to provide Purchaser with all such rights. To the extent
that any such consents and waivers are not obtained, or until the impediments to
such assignment are resolved, Sellers shall use all reasonable efforts (without
the expenditure, in the aggregate, of any material sum) to the extent permitted
by Law to (i) provide to Purchaser, at the request of Purchaser, the benefits of
any such Contract or of any such Intellectual Property or Technology, to the
extent related to the Business, (ii) cooperate in any lawful arrangement
designed to provide such benefits to Purchaser and (iii) enforce, at the request
of and for the account of Purchaser, any rights of Sellers arising from any such
Contract, Intellectual Property or Technology against any third Person including
the right to elect to terminate in accordance with the terms thereof upon the
advice of Purchaser. To the extent that Purchaser is provided the benefits
(including payment rights) of any Contract, Intellectual Property or Technology
referred to herein (whether from Sellers or otherwise), (i) Purchaser shall
perform for the benefit of any third Person the obligations of Sellers
thereunder or in connection therewith, and (ii) Purchaser agrees to pay, perform
and discharge, and, pursuant to Section 8.2, indemnify Sellers against and hold
Sellers harmless from, all obligations and liabilities of Sellers relating to
such performance or failure to perform, and in the event of a failure of such
indemnity, Sellers shall cease to be obligated under this Agreement in respect
of the Contract, Intellectual Property or Technology which is the subject of
such failure.
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(e) Without limiting the generality of Section 5.10, from the Closing
Date until, with respect to each Government Contract, the sixth year following
the earlier of the release date or notice of final payment for such Government
Contract, Purchaser agrees to provide CBS and its accountants, counsel and other
representatives access, during normal business hours, to such information,
personnel and assistance relating to the performance by Purchaser of the
Government Contracts and its respective obligations under the Novation
Agreements as CBS shall reasonably request from time to time.
SECTION 5.5. EMPLOYEE MATTERS.
----------------
(A) EMPLOYEE MATTERS.
----------------
(i) Continuation of Employment. Purchaser shall offer employment to (or
--------------------------
cause a Sold Subsidiary to continue to employ) each employee of the
Business (including any individual whose principal place of employment is
on the Premises, who primarily renders services on behalf of the Business
and whose compensation cost is borne primarily by the Business) and each
STC Employee who is actively at work, on vacation or on short-term
disability (including salary continuation and extension) leave on the
Closing Date (each a "Business Employee"). Each employee or former
-----------------
employee who primarily rendered services on behalf of the Business or STC
Employee and who is not actively at work on the Closing Date due to leave
of absence, long-term disability leave, military leave or layoff, and who
in the case of an employee on long-term disability was last actively
employed within two years of the Closing Date, and in the case of an
employee on a leave of absence or layoff was last employed within five
years of the Closing Date and in each case has recall rights ("Recall
------
Rights") under the work rules of the Business, a collective bargaining
------
agreement or applicable law (collectively, "Inactive Employees"), shall be
------------------
offered active employment by Purchaser pursuant to the Recall Rights. Upon
such offer and acceptance and commencement of active employment, each such
Inactive Employee shall be considered a Business Employee effective as of
the first date of return to work. CBS shall deliver a schedule to
Purchaser of anticipated Business Employees and Inactive Employees and with
respect to the latter their designated status as of the Closing Date and
their entitlements, 15 days before the Closing Date. Such schedule shall
be updated by CBS as soon as practical after the Closing Date. Any
employee of Sellers or their Affiliates who is not otherwise a Business
Employee but who is offered and accepts employment by Purchaser, pursuant
to mutual agreement with the Sellers, during the six months following the
Closing Date shall be deemed to be a Business Employee as of the date of
actual employment with the Purchaser. Purchaser shall not offer employment
to any
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employee of any Seller during such six-month period without the consent of
such Seller (other than as provided herein).
(ii) Continuation of Compensation and Benefits. Notwithstanding the
-----------------------------------------
more specific provisions set forth in this Section 5.5, Purchaser shall
provide or shall cause a Subsidiary to provide compensation and written
benefit plans and arrangements which in the aggregate are comparable (but
in no event taking into account any equity-based compensation (including
options) and opportunity to invest in securities of CBS under the CBS Stock
Plan or the Westinghouse Savings Program, provided that with respect to
Business Employees, the match formula under the Westinghouse Savings
Program shall be considered when determining comparability) to the
compensation and written Benefit Plans (See Schedule 4.1(m)(i)) in effect
for Business Employees on the date of this Agreement ("Comparable
----------
Benefits") for a period of not less than one year following the Closing
--------
Date (or, in the case of Business Employees who are subject to a collective
bargaining agreement, the period required therein) (the "Benefits
--------
Maintenance Period"). Comparability for the purpose of determining
------------------
Comparable Benefits shall be assessed in terms of total dollar value (or
such other measurement utilized by the consultant) to Business Employees in
the aggregate. Notwithstanding the above, with respect to Business
Employees who are executives, the Purchaser shall provide long-term
incentives which provide benefits generally comparable in value to long-
term incentive plans of Sellers. No later than 15 days prior to the
Closing Date Purchaser shall either (1) commit to CBS in writing to provide
for Business Employees for the Benefit Maintenance Period substantially
identical compensation and benefits to that provided by CBS and Affiliates
to Business Employees (without regard to the equity-based compensation and
the form of long-term incentive benefits) with CBS to consent to the
determination of substantially identical benefits, which consent shall not
be unreasonably withheld or (2) deliver to CBS a letter from an independent
consulting firm reasonably acceptable to CBS stating that the compensation,
benefits and benefit arrangements offered by Purchaser to the Business
Employees pursuant to this Section are Comparable Benefits.
(B) ACCRUED VACATION. Purchaser shall credit each Business Employee
----------------
with the unused vacation days and any personal and sickness days earned in
accordance with the vacation and personnel policies and collective bargaining
agreements of CBS and the Sold Subsidiaries in effect as of the Closing Date,
provided that an appropriate adjustment shall be made in the event of any cash
payment required to be made by either Purchaser or Sellers as a result of the
transaction contemplated by this Agreement. CBS shall provide to Purchaser at
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the Closing Date such schedules as CBS maintains and such other information as
reasonably necessary to calculate such benefits.
(C) UNION REPRESENTATION. Purchaser agrees with respect to any
--------------------
collective bargaining agreement that relates to Business Employees, to (i)
recognize each union which at the Closing Date represents any group of Business
Employees as the collective bargaining representatives of such employees as of
the Closing Date, (ii) provide such employees with comparable wages and benefits
as those in effect on the date of this Agreement in accordance with such
collective bargaining agreements, and (iii) assume the obligations for Business
Employees and Former Employees under any such collective bargaining agreement
that by its terms requires such assumption.
(D) PENSION PLAN. (i) Purchaser shall or shall cause its Affiliates
------------
to credit Business Employees with service with Sellers and Sold Subsidiaries for
purposes of eligibility, vesting and retirement eligibility under all pension
plans within the meaning of Section 3(2) of ERISA in which such Business
Employees participate.
(ii) The WELCO Pension Plan shall retain liability with respect to
Business Employees and Former Employees for their accrued benefit
calculated as of the Closing Date, subject to adjustment as follows. CBS
shall take appropriate action to cause the WELCO Pension Plan to provide
(x) credit for employment of Business Employees with the Purchaser or its
Affiliates solely for purposes of calculating vesting credit and
eligibility for early retirement benefits ("Eligibility Service," as
-------------------
defined in the WELCO Pension Plan), and (y) except as provided in (d)(iv)
below, the early retirement supplement under Section 5 for Business
Employees under the terms of the WELCO Pension Plan shall be equal to the
lesser of -
(A) the early retirement supplement calculated under the terms of the WELCO
Pension Plan, or as it may be reduced by CBS after the Benefits Maintenance
Period, but only to the extent such a change applies to all CBS employees
with the same benefit, as multiplied by a fraction, the numerator of which
is the participant's years of Credited Service (as defined in the WELCO
Pension Plan) under the WELCO Pension Plan as of the Closing Date, and the
denominator of which is the sum of the numerator and the participant's
years of employment with the Purchaser and its Affiliates from the Closing
Date until the participant's retirement or termination of employment with
the Purchaser and its Affiliates, or
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<PAGE>
(B) the comparable early retirement supplement calculated under the terms
of the Purchaser defined benefit plan covering Business Employees
("Purchaser Pension Plan") as in effect on the participant's retirement or
termination of employment from the Purchaser and its Affiliates (prior to
reduction for the portion of the supplement to be paid from the WELCO
Pension Plan) (if the Purchaser Pension Plan has no such supplement or if
there is no Purchaser Pension Plan the amount calculated under this
subparagraph (B) shall be zero (0)) multiplied by a fraction, the numerator
of which is the employee's years of Credited Service under the WELCO
Pension Plan as of the Closing Date, and the denominator of which is the
sum of the numerator and the participant's years of employment with the
Purchaser and its Affiliates from the Closing Date until the participant's
termination of employment with the Purchaser and its Affiliates.
Notwithstanding the foregoing, the WELCO Pension Plan shall not recognize
employment with the Business after the Purchaser and its Affiliates have sold or
divested the Business, or a portion thereof (whether by asset or stock sale,
merger or spin-off (each a "Disposition")), with respect to the Business
-----------
Employees who are transferred or terminated in connection with such a sale or
divestiture.
(iii) The WELCO Pension Plan shall not provide for (A) any early
retirement supplement that becomes payable with respect to a Business
Employee retiring after the Closing Date that is the result of a "Pension
Event" as defined in subsection (iv) below, (B) any benefits pursuant to
Section 19 of the WELCO Pension Plan and the corresponding provision of the
Purchaser Pension Plan, if any, in excess of the benefits that would
otherwise be payable if those sections did not apply, with respect to a
Business Employee who retires or terminates employment with the Purchaser
and its Affiliates after the Closing Date, and (C) any other early
retirement subsidy or supplement with respect to Business Employees that is
not described in (ii) above.
(iv) Purchaser shall indemnify CBS for any actuarial losses (as
defined below) with respect to the WELCO Pension Plan resulting from any
Business Employee commencing the receipt of benefits prior to their Normal
Retirement Date (as defined in the WELCO Pension Plan) and that is
attributable to (A) a Disposition, (B) a closing of a plant or plants by
Purchaser or a reduction in the number of Business Employees employed by
the Purchaser and its Affiliates as a result of action requiring the filing
of a notice under the Worker Adjustment and Retraining Notification Act, as
in effect on the Closing Date (the "WARN Act"), other than termination at
--------
the Pensacola Plant arising from the announced shut down of the plant or
terminations
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announced by CBS prior to the Closing Date (or which would require the
filing of a WARN Act notice if any actions taken within a 6-month period
occurred on the same date (a "WARN Event")), or (C) any action of the
----------
Purchaser or its Affiliates that provides a financial incentive to
Business Employees to terminate or retire prior to their Normal Retirement
Date including, but not limited to, an early retirement window program or a
change in plan design which reduces prospective benefits for Business
Employees who are eligible to retire under the WELCO Pension Plan (other
than a change in plan design during the three (3) year period following the
Closing Date, provided that Purchaser has Comparable Benefits (after one
year from the Closing Date the value of the supplemental retirement
benefits under the WELCO Pension Plan shall not be considered for
comparability) after such change in plan design). Purchaser shall notify
CBS of the occurrence of any of the events described in (A) through (C)
above (each of which is a "Pension Event") within 30 days after such event,
-------------
and shall cooperate with CBS in providing data to CBS to enable the
determination of actuarial losses. Actuarial losses shall be determined by
the enrolled actuary for the WELCO Pension Plan (the "CBS Actuary") with
-----------
respect to each Pension Event and is measured by the difference (positive
or negative) between the accumulated benefit obligation for all of the
Business Employees affected by the Pension Event using (1) immediate
commencement of benefits under actual forms of benefit payment elected and
(2) projected commencement of benefits, both based on the assumptions
described in Schedule 5.5(d), other than lump sums elected under (1) above,
which shall be valued at the actual value distributed. Notwithstanding any
other provision in this Agreement to the contrary, this indemnity shall
survive the Closing Date without limitation.
(E) SAVINGS PLAN. (i) Effective as of the Closing Date, Purchaser
------------
shall adopt or have in effect a defined contribution plan that includes a
qualified cash or deferred arrangement within the meaning of Section 401(k) of
the Code ("Purchaser's 401(k) Plan") which offers benefits to Business Employees
-----------------------
eligible to participate in the Westinghouse Savings Program (the "WELCO Savings
-------------
Program") as of the Closing Date and contains provisions similar to the
- -------
provisions of the WELCO Savings Program to the extent required by Section
411(d)(6) of the Code for account balances to be transferred from the CBS
Savings Program. Each Business Employee eligible to participate in the WELCO
Savings Program as of the Closing Date shall become eligible to participate in
Purchaser's 401(k) Plan as of the Closing Date. Business Employees shall
receive credit for all service with Sellers and their Affiliates for purposes of
eligibility and vesting under Purchaser's 401(k) Plan to the extent credited
under the WELCO Savings Program. Effective as of the date of transfer described
in (iii) below, CBS shall fully vest the account balances of Business Employees
under the WELCO Savings Program and make all applicable contributions under the
WELCO Savings
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<PAGE>
Program otherwise provided for in the plan year in which the Closing occurs with
respect to compensation earned by Business Employees prior to the Closing Date,
without regard to any provision of the WELCO Savings Program requiring a minimum
number of hours of service, or employment on any particular date, if the
applicable Business Employees would have qualified for a contribution if they
had remained employed with Sellers.
(ii) As soon as reasonably practicable after the Closing Date,
Purchaser shall provide CBS with (A) either a copy of a favorable IRS
determination letter to the effect that Purchaser's 401(k) Plan is
qualified under Section 401(a) of the Code or an opinion of Purchaser's
counsel, reasonably satisfactory to CBS, to such effect and (B) an opinion
of Purchaser's counsel, reasonably satisfactory to CBS, that the
Purchaser's 401(k) Plan will satisfy Section 411(d)(6) of the Code with
respect to account balances to be transferred to the Purchaser's 401(k)
Plan from the WELCO Savings Program pursuant to (iii) below.
(iii) As soon as reasonably practicable after the Closing Date and
receipt of the documentation described in (ii) above, CBS shall cause to be
transferred from the WELCO Savings Program to Purchaser's 401(k) Plan
assets having a fair market value equal to the aggregate value of the
account balances in the WELCO Savings Program as of the date of transfer
(such transfer to be in (x) shares of common stock of Seller to the extent
of shares in the CBS Common Stock Fund applicable to Business Employees,
(y) in notes evidencing loans to Business Employees from their account
balances, (z) in cash, (xx) to the extent of the account balances of the
Business Employees in the CBS Savings Program allocable to the Fixed Income
Fund, in investment instruments which approximate from a quality and
interest rate perspective assets held by the fund, but subject to the
applicable fiduciary requirements of the Purchaser's 401(k) Plan relating
to quality and interest rate considerations), (yy) all qualified domestic
relations orders (within the meaning of Section 414(p) of the Code) with
respect to Business Employees and (zz) such other assets as Purchaser and
CBS mutually agree upon and Purchaser shall cause the Purchaser's 401(k)
Plan to accept the receipt of such transfers and the liabilities relating
thereto.
(iv) Sellers represent, warrant and covenant that after the Closing
and at the time of the transfer of assets to the Purchaser's 401(k) Plan,
the WELCO Savings Program will be qualified under Section 401(a) and (k) of
the Code and, to the extent pertinent to the qualified status of the
Purchaser's 401(k) Plan as relevant to asset transfers as provided herein,
for all prior periods, and will not be disqualified retroactively to any
such time or for any such period. Sellers and Purchaser shall
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<PAGE>
cooperate in making, and shall make, all appropriate filings required under
the Code and ERISA, and the regulations thereunder, and shall further
cooperate to ensure that the transfers described in this Section 5.5(e)
satisfy the applicable requirements of Sections 401(k), 414(l), 411(d)(6)
and 401(a)(12) of the Code and the regulations thereunder.
(v) Purchaser's 401(k) Plan shall maintain a CBS common stock fund,
in accordance with applicable law, for Business Employees who so elect, for
such period as Purchaser determines is necessary for an orderly transition.
No new investments in CBS common stock shall be required to be permitted
after the Closing Date.
(F) WELFARE BENEFITS.
----------------
(i) Effective as of the Closing Date, Purchaser shall establish
employee welfare benefit plans, including but not limited to medical and
dental, disability, group life, travel and accident, and accidental death
and dismemberment insurance plans, which (x) provide continuous coverage to
Business Employees and their eligible spouses and dependents, (y) credit
service with Sellers or their Affiliates for purposes of eligibility and
benefit levels, and (z) for medical and dental benefits, waive any pre-
existing condition limitations and credit the amount of any copayments and
deductibles incurred during the calendar year of the Closing.
(ii) Effective as of the Closing Date, Purchaser shall be responsible
for all employee welfare benefit plan claims (whether for insurance,
benefits or otherwise) with respect to Business Employees and Inactive
Employees and their eligible spouses and dependents, whether incurred prior
to or after the Closing Date. Sellers shall cooperate with Purchaser in
transferring to Purchaser applicable insurance company reserves associated
with claims covering Business Employees and Inactive Employees currently
receiving benefits from the Westinghouse Long Term Disability Plan or
Management Disability Benefit Plans. Sellers shall pay or cause to be paid
medical, dental and other welfare benefit claims incurred but not paid in
the ordinary course, prior to the Closing Date with respect to Business
Employees and Inactive Employees and Purchaser shall reimburse and
indemnify the Sellers for the amount of such Payments.
(iii) As of the Closing Date Purchaser shall adopt a plan or plans
providing retiree medical and other retiree welfare benefits for Business
Employees and their eligible spouses and dependents (such plans and their
successors the "Purchaser FAS
-------------
75
<PAGE>
106 Plans") that is substantially similar to such plan or plans maintained
---------
by CBS or its Affiliates in the U.S. immediately prior to the Closing Date
for its domestic Business Employees, their eligible spouses and dependents
(the "WELCO FAS 106 Plans") so that during the Benefits Maintenance Period
-------------------
the combination of the Purchaser FAS 106 Plans and the WELCO FAS 106 Plans
(as modified as described in clause (iv) below) provide the same benefit
and the same cost sharing (with retirees) as if such Business Employees
continued under the WELCO FAS 106 Plans as in effect on the Closing Date
without change. The Purchaser FAS 106 Plans will provide that the benefits
payable under such plans will be offset by the benefits provided under the
WELCO FAS 106 Plans, as to be amended as described in subsection (iv)
below. During the Benefits Maintenance Period, Purchaser shall continue
without adverse change the Purchaser FAS 106 Plans.
(iv) CBS shall establish a new plan to provide FAS 106 coverage or
amend the WELCO FAS 106 Plans effective as of the Closing Date to provide
that CBS obligations under such plans with respect to Business Employees
shall be limited in each calendar year, commencing with the Closing Date,
to the amounts set forth in Schedule 5.5(f)(iv) of the Disclosure Schedule
(the "OPEB Schedule"), as described below. The OPEB Schedule shall be
-------------
updated by CBS after the Closing Date to reflect Business Employees as of
the Closing Date. CBS may amend the WELCO FAS 106 Plans after the Benefits
Maintenance Period to conform to the provisions of the Purchaser FAS 106
Plans after the Benefits Maintenance Period. Such payment obligations
shall be cumulative so that if a scheduled payment is not made in full in
any year because the aggregate benefit payment required is less than the
scheduled payment, the balance not paid out shall be carried forward to the
next year. Such payments represent the accrued obligations of CBS as
calculated under FAS 106, for post-retirement benefit obligations other
than pensions as of the Closing Date with respect to Business Employees,
their eligible spouses and dependents under the WELCO FAS 106 Plans (the
"FAS 106 Obligation"). Such payments under the WELCO FAS 106 Plans, as
------------------
adjusted as described below, shall be the only obligation of CBS to
Business Employees their eligible spouses and dependents (or to the
Purchaser) with respect to post-retirement welfare benefits. Purchaser
shall indemnify CBS for any liability to Business Employees, their eligible
spouses and dependents for all post-retirement welfare benefits (including
retiree medical and retiree life) (other than amounts paid by CBS or a Sold
Subsidiary prior to the Closing Date) other than obligations of CBS under
the WELCO FAS 106 Plans as described in this subsection (iv) and subsection
(v). The payment obligations of CBS under the OPEB Schedule shall be
actuarially adjusted downwards in the event of an "actuarial gain" (as
defined
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<PAGE>
below) arising from any of the following events (a "FAS 106 Event")
-------------
(whether applicable to some or all of the Business Employees): (A) a
change in the benefit design (including but not limited to any reduction of
benefit levels or reduction or freezing of the employer portion of benefit
costs) or plan termination by the Purchaser of the Purchaser FAS 106 Plans
applicable to Business Employees, their eligible spouses and dependents
(e.g. in the event of a termination of the Purchaser FAS 106 Plans, the
OPEB Schedule shall be reduced to zero (0)), (B) an increase in the
contribution rate paid (other than an increase proportionate to an increase
in overall plan costs or an increase provided by plan provisions) by
Business Employees, their eligible spouses and dependents instituted by the
Purchaser under the Purchaser FAS 106 Plans, (C) the enactment of
legislation which reduces or eliminates the requirement of the Purchaser to
provide retiree benefits under the Purchaser FAS 106 Plans, (D) a
Disposition, (E) a closing of a plant or plants by Purchaser (other than
the Pensacola Plant), or (F) a WARN Event. Such adjustment shall be made
as of the January 1 following the calendar year in which the FAS 106 Event
occurs. Actuarial gain, for purposes of this Section 5.5(f)(iv), shall be
determined by the CBS Actuary as of the Closing Date, for the purpose of
calculating the FAS 106 Obligation. Such gain shall be determined with
respect to the WELCO FAS 106 Plans as if the FAS 106 Event applied to the
WELCO FAS 106 Plans to the same extent and as of the same date they apply
to the Purchaser FAS 106 Plans and shall be measured by the difference
between the OPEB Schedule (or as subsequently modified pursuant to this
Section 5.5(f)(iv)) (the "Existing Schedule") and the OPEB Schedule that
-----------------
would have been determined as of the Closing Date to reflect the FAS 106
Liability, if the FAS 106 Event were known as of the Closing Date (the
"Revised Schedule"). To determine whether the change from the Existing
----------------
Schedule to the Revised Schedule would result in an actuarial gain, the
scheduled payments under each schedule (whether resulting in a gain or a
loss) shall be discounted back to the first day of the calendar year in
which the FAS 106 Event occurred, utilizing the discount rate utilized by
CBS as of December 31, 1997 to determine its APBO for FAS 106 purposes (the
"Discount Rate"). In no event shall any actuarial losses in connection
-------------
with the Purchaser FAS 106 Plans (other than arising as a result of a FAS
106 Event which results in a net actuarial gain) offset any actuarial gains
as calculated under this Section 5.5(f)(iv). If the result of discounting
the scheduled payments would result in the Revised Schedule having a lower
present value obligation than the Existing Schedule, the Revised Schedule
shall be substituted for the Existing Schedule as the OPEB Schedule. In no
event shall the OPEB Schedule ever be increased, except to the extent
required by a final, non-appealable court order or as otherwise agreed to
by the parties, but in any event the OPEB Schedule shall not be increased
above the amount as in effect immediately prior to the change that
triggered
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<PAGE>
the reduction in question. Any payment made by CBS hereunder that exceeds a
payment obligation for any year based on a Revised Schedule, shall be
utilized to reduce a future payment obligation under the Revised Schedule.
(v) The Purchaser and CBS shall cooperate with each other so that, to
the maximum extent practicable, benefits shall be paid and administered
under the WELCO FAS 106 Plans and the Purchaser FAS 106 Plans as applicable
to Business Employees, through the third-party service provider to be
selected by Purchaser, subject to consent of CBS, not to be unreasonably
withheld. Any expenses allocable to CBS under such arrangement shall
reduce CBS's payment obligation under the CBS FAS 106 Plans as reflected by
the OPEB Schedule on a dollar-for-dollar basis. Purchaser shall notify CBS
within thirty days after any FAS 106 Event and shall cooperate with CBS in
providing data to determine any adjustments in the OPEB Schedule.
(vi) Subject to the requirements of applicable law, CBS shall use all
reasonable efforts to cash out Business Employees and Former Employees from
a trust qualified under Section 501(c)(9) of the Code maintained by CBS
(the Retiree Health Care Security Fund). To the extent such trust does not
make such distributions prior to the Closing Date, CBS shall cause the
transfer to a trust established by Purchaser satisfying the requirements of
Section 501(c)(9) of the Code of the funds in such trust allocable to such
Business Employees and Former Employees. The trust to be established by
the Purchaser shall have terms substantially similar to the terms of the
CBS Trust.
(G) SEVERANCE OBLIGATIONS. CBS and Purchaser agree that the
---------------------
transactions contemplated hereby shall not constitute a severance of employment
of any Business Employee prior to the consummation of the transactions
contemplated hereby, and that such employees will be deemed for all purposes to
have continuous and uninterrupted employment before and immediately after the
Closing. Except as required by Law or an applicable collective bargaining
agreement or as otherwise agreed in writing by CBS and Purchaser, Purchaser
shall provide severance and other separation benefits to each Business Employee
terminated by Purchaser during the Benefits Maintenance Period and with respect
to the Pensacola Plant in connection with the planned termination of Business
Employees whether before or after the Benefits Maintenance Period upon terms and
conditions that are comparable to the severance and other separation benefits
provided under the Involuntary Separation Program, the Employee Security and
Protection Plan and any applicable Free Standing Plan, which arrangements shall
credit service with the Sellers or their Affiliates prior to the Closing Date
for purposes of determining the amount of such severance and other separation
benefits.
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Purchaser shall indemnify and hold Sellers and their Affiliates harmless from
and be responsible for any claims made by any Business Employee or Former
Employee for severance or other benefits based on separation, for any claims
based on breach of contract and for any other claims arising out of or in
connection with the employment or the failure to offer employment to, or the
termination of employment of, any Business Employee or Former Employee, other
than claims arising as a direct result of the transactions contemplated hereby.
CBS shall be responsible and indemnify Purchaser for any claims made by any
Business Employee or Former Employee for severance or other benefits based on
separation (other than severance benefits based on separation arising from acts
of Purchaser on or after the Closing Date), for any claims based on breach of
contract and for any other claims, in each case arising as a direct result of
the transactions contemplated hereby; provided, however, that CBS shall not be
-------- -------
responsible (and Purchaser shall be responsible) for any such claim if the
principal basis of such claim is due to Purchaser's breach of any provision of
this Section 5.5.
(H) EXECUTIVE COMPENSATION. (i) Effective as of the Closing Date,
----------------------
Purchaser shall adopt and establish a plan for the benefit of Business Employees
that contains terms and conditions (including but not limited to eligibility
requirements) that are substantially similar to those of the Westinghouse
Executive Pension Plan in effect as of the Closing Date (the "WELCO Executive
---------------
Plan") and which provides credit for prior service and compensation under the
- ----
WELCO Executive Plan for purposes of eligibility and benefit accrual (the
"Purchaser Executive Plan"), provided, however, that the Purchaser Executive
------------------------
Plan will include provisions which are consistent with (ii) through (iv) below
and will have its benefits offset by the benefits provided under the WELCO
Executive Plan, the WELCO Pension Plan and the Purchaser Pension Plan. The
Purchaser Executive Plan shall be administered so that the aggregate of the
benefits under the WELCO Executive Plan and the Purchaser Executive Plan are the
same with respect to Business Employees as if the Business Employees were
covered under the WELCO Executive Plan and continued employment with Sellers.
(ii) Purchaser shall continue the Purchaser Executive Plan without
adverse effect, including provisions therein relating to early retirement and
compensation increases, for a period not less than the Benefits Maintenance
Period.
(iii) The WELCO Executive Plan shall retain liability, if any, for
benefits earned to the Closing Date with respect to Business Employees, to be
calculated pursuant to appropriate action to be taken by CBS with respect to the
WELCO Executive Plan to cause the WELCO Executive Plan to take into
consideration (i) credit for employment of Business Employees with the Purchaser
and its Affiliates solely for purposes of calculating eligibility for the
payment of benefits, (ii) that the Average Annual Compensation and Executive
Benefit
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Service (both as defined in the WELCO Executive Plan) will be determined
and frozen as of the Closing Date, and (iii) that the Purchaser and its
Affiliates will be considered a Designated Entity (as defined in the WELCO
Executive Plan) solely for purposes of determining eligibility for the payment
(including suspension of payment) of benefits. Notwithstanding the foregoing,
the WELCO Executive Plan shall not recognize employment with the Business after
the Purchaser and its Affiliates have sold or divested the Business, or a
portion thereof as a result of a Disposition with respect to the Business
Employees who are transferred or terminated in connection with such a sale or
divesture.
(iv) The Purchaser Executive Plan (or, if none, Purchaser) shall be
solely responsible for (and the WELCO Executive Plan shall not provide for) (x)
any benefit that becomes payable with respect to Business Employees retiring
after the Closing Date that is the result of a Pension Event (i.e. the benefit
would not be payable absent such an event) or (y) any other early retirement
subsidy or supplement that is not described in (iii) above.
(v) Purchaser shall indemnify CBS for any actuarial losses (based on
the same actuarial assumptions and methods used for purposes of determining
actuarial losses under Section 5.5(d)(iv)) with respect to the CBS Executive
Plan resulting from any Business Employee commencing the receipt of benefits
prior to their Normal Retirement Date (as defined in the WELCO Pension Plan) and
that is attributable to a Pension Event. Purchaser shall cooperate with WELCO
in providing data to CBS to enable the determination of actuarial losses.
Notwithstanding any other provision in this Agreement to the contrary, this
indemnity shall survive the Closing Date without limitation.
(I) COOPERATION. The parties agree to furnish each other with such
-----------
information concerning employees and employee benefit plans, and to take all
such other action, as is necessary and appropriate to effect the transactions
contemplated by this Agreement.
(J) WARN ACT. Purchaser agrees to provide any required notice under
--------
the WARN Act and any similar statute, and otherwise to comply with any such
statute with respect to any "plant closing" or "mass layoff" (as defined in the
WARN Act) or similar event affecting Business Employees and occurring on or
after the Closing. CBS agrees to provide any notice required under such statute
prior to or arising as a result of the Closing.
(K) COBRA. Effective as of the Closing Date, Purchaser shall assume
-----
all responsibility for COBRA notices and coverage for Business Employees and
Former Employees (and their eligible dependents).
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(L) WORKERS COMPENSATION. Effective as of the Closing Date,
--------------------
Purchaser shall take all necessary and appropriate action to adopt a workers
compensation program providing such workers compensation benefits as are
provided under CBS's Workers Compensation Program for the Business Employees and
Inactive Employees covered by such program ("Purchaser's Workers Compensation
--------------------------------
Program"). Purchaser's Workers Compensation Program shall be responsible for
- -------
all claims for benefits which are payable from and after the Closing Date with
respect to employees and Former Employees of the Business and that are payable
under the terms and conditions of Purchaser's Workers Compensation Program or
the CBS's Workers Compensation Program.
(M) RETAINED LIABILITIES. CBS shall retain liability and
--------------------
responsibility for all benefits payable under (x) the WELCO Pension Plan (but,
with respect to Business Employees, as limited under Section 5.5(d)), (y) the
WELCO Executive Pension Plan (but, with respect to Business Employees, as
limited under Section 5.5(h)), (z) the WELCO FAS 106 Plans with respect to
employees and former employees of the Business other than Business Employees
and, with respect to Business Employees, only to the extent provided in Section
5.5(f), (xx) the WELCO Savings Program (other than with respect to assets and
liabilities to be transferred to the Purchaser's 401(k) Plan under Section
5.5(e)), (yy) the CBS Long-Term Incentive Plan, (zz) deferred compensation
obligations under the Westinghouse Annual Incentive Plan and any other employee
deferral arrangements, except to the extent attributable to Free Standing Plans
and (xxx) retention bonuses for executives relating to this transaction (but not
severance obligations arising from acts of Purchaser).
(N) ACTUARIAL DETERMINATIONS AND PAYMENTS. (i) The calculations of
-------------------------------------
actuarial losses under subsections (d)(iv) and (h)(v) and actuarial gains under
subsection (f)(iv) shall be performed by the CBS Actuary as soon as practicable
after CBS receives notice from Purchaser or CBS otherwise becomes aware of a
Pension Event or a FAS 106 Event. Purchaser shall provide CBS with sufficient
data to enable the determination of any actuarial losses and/or actuarial gains
within the 30 days following a Pension Event or a FAS 106 Event.
(ii) No later than 60 days after the receipt by CBS of both the notice
from Purchaser that a Pension Event or a FAS 106 Event has occurred and
sufficient data to make a determination has been delivered, CBS will deliver to
Purchaser the results of the determination of the actuarial loss or actuarial
gain (each a "Determination"), respectively, and all reasonably necessary
-------------
supporting information in order to permit Purchaser's actuary to verify the
accuracy of the Determination. Each Determination will be conclusive and
binding on the parties unless Purchaser, within the 30-day period after the
delivery of such results and
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supporting information, notifies CBS in writing that it disputes the accuracy of
the calculation, specifying the nature of the dispute and the basis therefor
(the "Notice").
------
(iii) Actuaries retained by CBS and Purchaser shall attempt in good
faith to reach agreement to resolve all of the disputes set forth in the Notice
within 30 days after the Notice is given by Purchaser to CBS. If actuaries
retained by CBS and Purchaser cannot resolve all disputes with respect to a
Determination within such 30-day period, CBS and Purchaser shall jointly select
a third, impartial actuary from a nationally recognized actuarial firm to
resolve the dispute (the same such actuary shall resolve all concurrent
Determinations). If the parties cannot jointly select a third, impartial actuary
within 15 days after the end of such 30-day period, the President of the
Conference of Consulting Actuaries shall select an impartial actuary. The cost
of the impartial actuary shall be shared equally by CBS and Purchaser.
(iv) Promptly, but no later than 60 days after his or her selection,
an impartial actuary selected under (iii) above shall review the results of the
Determination calculation, the supporting information with respect to the
Determination and the Notice, and shall reach his or her own decision as to the
issues in dispute and the determination of the actuarial gain or actuarial loss
or actuarial cost, as the case may be (which determination shall be equal to or
between the respective amounts asserted by CBS and Purchaser). Such
determination shall be final and conclusive for all purposes.
(v) Within 30 days after a final determination of any actuarial loss
under Sections 5.5(d)(iv) or 5.5(h)(v), Purchaser shall make any applicable
indemnification payments under such Sections.
(vi) All indemnification payments under (v) above shall be treated as
purchase price adjustments for tax purposes.
(vii) Within 30 days after a final determination of any actuarial
gain under Section 5.5(f)(iv) CBS shall substitute a Revised Schedule in place
of the Existing Schedule.
(O) POST-CLOSING HIRING OF EMPLOYEES. If within the period ending
--------------------------------
one (1) year after the Closing Date, Purchaser or any of its Affiliates hires
any employee of STC (other than Business Employees), Purchaser shall reimburse
CBS for any severance and other related termination costs paid by CBS or its
Subsidiaries to or on account of such employment with CBS or any of its
Subsidiaries during such one (1) year period.
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(P) FREE-STANDING PLANS. Notwithstanding the foregoing provisions of
-------------------
this Section 5.5, effective as of the Closing, Purchaser shall assume and be
responsible for all liabilities and obligations under the Free-Standing Plans.
CBS and Purchaser shall take all action necessary and appropriate (including, in
the case of Purchaser, establishing legal entities to serve as plan sponsor) to
establish Purchaser or Purchaser Affiliates as successor to CBS or its
Affiliates to all rights, assets, duties, liabilities and obligations under or
with respect to the Free-Standing Plans.
(Q) FOREIGN EMPLOYMENT MATTERS.
--------------------------
(i) Employment. Without limiting the generality of Sections 5.5(a)
----------
and 5.5(b), Purchaser shall, or shall cause a Sold Subsidiary to, assume or
retain and be responsible for the employment (including any employment
contracts) of the Business Employees who are employed outside the United States
("Foreign Business Employees") and Purchaser shall take any and all actions
--------------------------
necessary or appropriate (if any) to continue the employment of such Foreign
Business Employees and to have Purchaser or any Sold Subsidiary assume or retain
all obligations and liabilities relating to their employment (including, but not
but not limited to, any employment contracts listed in Schedule 4.1(j)(A)(i))
under local laws and practices without CBS or any of its affiliates having any
liability to any such employees for severance, redundancy, termination, payment
in lieu of notice, indemnity or other payments to any of such employees by
reason of, or as a result of, the actions contemplated by this Section 5.5(q).
(ii) Employee Benefit Plans for Foreign Business Employees.
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(A) Effective as of the Closing Date, and as soon as necessary or
practicable thereafter, Purchaser or a Sold Subsidiary shall establish and
qualify or register with applicable regulatory authorities employee benefit
plans for, or shall extend existing Purchaser or Sold Subsidiary employee
benefit plans, programs, policies and arrangements to, the Foreign Business
Employees which are in accordance with local law and which provide benefits, for
not less than one year following the Closing Date, to the Foreign Business
Employees on terms and conditions which are substantially similar in the
aggregate to those provided to Foreign Business Employees by CBS or its
subsidiaries immediately prior to the Closing Date.
(B) As of the Closing Date, Purchaser or a Sold Subsidiary shall (i)
establish and adopt one or more foreign pension plans or shall extend one or
more existing Purchaser or Sold Subsidiary pension plans (each, a "New Foreign
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Retirement Plan") which shall provide retirement benefits for each of the
- ---------------
Foreign Business Employees and, to the extent applicable,
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Former Employees who were employed in the Business or by a Sold Subsidiary in a
foreign jurisdiction and who, as of the Closing Date, are not employed by CBS or
any of its affiliates (the Foreign Business Employees and such former foreign
employees, collectively, the "Foreign Plan Participants") on substantially
-------------------------
similar terms and conditions to those provided to Foreign Plan Participants by
CBS or its affiliates (other than a Sold Subsidiary) under each Foreign
Retirement Plan listed in Schedule 4.1(m) as in effect immediately prior to the
Closing Date, and (ii) establish and adopt any necessary trust funds or other
funding vehicles to hold assets or reserves of New Foreign Retirement Plans
which are attributable to the Foreign Plan Participants. Purchaser or a Sold
Subsidiary shall take all action necessary to qualify or register each New
Foreign Retirement Plan and any related trusts with all applicable regulatory
authorities. Subject to Section 5.5(q)(iii), effective as of the Closing Date,
Purchaser or a Sold Subsidiary shall extend coverage under the applicable New
Foreign Retirement Plan to each such Foreign Plan Participant to the extent that
each such Foreign Plan Participant shall then, or at some later date, satisfy
the eligibility and participation requirements of such New Foreign Retirement
Plan.
(C) Except as otherwise specifically provided in this Section 5.5(q),
effective as of the Closing Date, each Foreign Plan Participant who is an active
participant in any Foreign Retirement Plan shall cease to be an active
participant thereunder, and all Foreign Plan Participants shall become eligible
to participate in an applicable New Foreign Retirement Plan in accordance with
the applicable provisions of this Section 5.5(q) and the terms and conditions of
such plan.
(iii) Delayed Foreign Employees. Notwithstanding the foregoing
-------------------------
provisions of this Section 5.5(q), Foreign Employees whose employment by
Purchaser or any Sold Subsidiary will be delayed beyond the Closing Date due to
applicable foreign law (including, without limitation, due to the requirement
that Purchaser establish separate legal entities as employer) ("Delayed Foreign
---------------
Employees") will continue on the payroll of CBS or its affiliates and will
- ---------
continue to participate in each of CBS's or its affiliate's employee benefit
plans in which they are participating immediately prior to the Closing Date
until the applicable date on which they first become eligible to become employed
by Purchaser or any Sold Subsidiary (the "Delayed Transfer Date"). Purchaser
---------------------
will offer, or cause a Sold Subsidiary to offer, employment on the applicable
Delayed Transfer Date to each such Delayed Foreign Employee then in employment,
and on and as of the applicable Delayed Transfer Date, each such Delayed Foreign
Employee will become a Business Employee for all purposes of the Agreement.
Purchaser will promptly reimburse CBS for 100% of the payroll, benefits
(including statutory benefits, severance and other termination benefits) and
other costs and expenses directly or indirectly relating to Delayed Foreign
Employees within 15 days
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following receipt of each written notification (including reasonable
substantiation of costs and expenses) from CBS or any of its affiliates of such
payroll, benefits and other costs and expenses.
(R) NO RIGHT TO EMPLOYMENT. Nothing herein expressed or implied shall
----------------------
confer upon any of the employees of CBS or Purchaser, or any of their respective
Affiliates, any additional rights or remedies, including, without limitation,
any additional right to employment, or continued employment, for any specified
period, of any nature or kind whatsoever under or by reason of this Agreement.
(S) ALTERNATIVE PROCEDURE. CBS and Sellers and Purchaser agree that,
---------------------
pursuant to the "Alternative Procedure" provided in section 5 of Revenue
Procedure 96-60, 1996-2 C.B. 399, (i) Purchaser will report on a
predecessor/successor basis as set forth therein, (ii) CBS and its Affiliates
will be relieved from filing a Form W-2 with respect to any Business Employee
who accepts employment with Purchaser or its Affiliates, and (iii) Purchaser
will undertake to file (or cause to be filed) a Form W-2 for each such employee
for the year that includes the Closing Date, including the portion of such year
that such employee was employed by CBS or its Affiliates (provided, however,
that any agreement between CBS and Purchaser that CBS or its Affiliates shall
furnish to Purchaser payroll and related services under the Transitional
Services Agreement provided for in Section 5.20(a) and any actions by either
party in connection with such agreement shall not alter or otherwise affect the
agreement set forth in this Section 5.5(s)). CBS agrees to provide Purchaser
with all payroll and employment-related information with respect to each
Business Employee who accepts employment with Purchaser (or an Affiliate) and to
otherwise cooperate in following the "Alternative Procedure."
SECTION 5.6. COLLECTION OF RECEIVABLES. From and after the Closing,
-------------------------
Purchaser shall have the right and authority to collect for its own account all
Accounts Receivable and other items that are included in the Acquired Assets and
to endorse with the name of any of Sellers, any checks or drafts received with
respect to any such Accounts Receivable or other items and CBS agrees promptly
to deliver or cause to be delivered to Purchaser any cash or other property
received directly or indirectly by any of Sellers with respect to such
receivables and other items, including any amounts payable as interest.
SECTION 5.7. EXPENSES. Whether or not the Closing takes place, and
--------
except as otherwise specifically provided in this Agreement (including with
respect to Transfer Taxes), all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs or expenses.
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SECTION 5.8. BROKERS OR FINDERS. Each of Purchaser and CBS
------------------
represents, as to itself and its Affiliates, that no agent, broker, investment
banker or other Person is or will be entitled to any broker's or finder's fee or
any other commission or similar fee in connection with any of the transactions
contemplated by this Agreement, except, as to Purchaser and its Affiliates,
Batchelder & Partners, Inc. and Rothschild Inc., whose fees and expenses will be
paid by Purchaser, and each of Purchaser and CBS respectively agrees to
indemnify and hold the other harmless from and against any and all claims,
liabilities or obligations with respect to any other fees, commissions or
expenses asserted by any Person on the basis of any act or statement alleged to
have been made by such party or its affiliate.
SECTION 5.9. SHARED TECHNOLOGY AND TRADEMARK LICENSE AGREEMENTS.
--------------------------------------------------
(a) On the Closing Date, CBS and Purchaser shall enter into a Shared
Technology Agreement in the form of Exhibit B hereto (the "Shared Technology
-----------------
Agreement"), wherein, to the extent CBS and Purchaser have rights on the Closing
- ---------
Date:
(i) Purchaser shall grant to CBS a world-wide, royalty-free,
nonexclusive, perpetual license to use Intellectual Property and Technology
to satisfy its existing obligations, and support its current businesses
that do not compete with the Business;
(ii) CBS shall grant to Purchaser a nonexclusive, world-wide,
royalty-free, perpetual license to use intellectual property and technology
retained by CBS, that are pertinent to the Business; and
(iii) It shall be agreed that each licensed party shall have
appropriate access to the corresponding technology reasonably required for
the licensed purpose. Such right of access to technology shall be
appurtenant to the license and assignable to the same extent as the
license. The owner of the Business, upon Closing, shall have access to all
such technology that is primarily applicable to a Nuclear Installation, in
the possession of the owner of the GESCO Businesses and, at the sole
discretion of the owner of the Business have such technology delivered to
it.
(b) On the Closing Date, CBS and Purchaser shall enter into a
Trademark and Trade Name License Agreement in the form of Exhibit C hereto,
granting certain licenses to Purchaser and its Affiliates to use the names and
marks "WESTINGHOUSE," "CIRCLE W" and "You can be sure . . . if it's
Westinghouse."
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(c) The parties acknowledge and agree that, as between the Energy
Systems Business and the GESCO Businesses, the Energy Systems Business is the
owner of all CBS intellectual property and technology, including Intellectual
Property and Technology, that is primarily applicable to a Nuclear Installation.
SECTION 5.10. CERTAIN INFORMATION. (a) After the Closing, upon
-------------------
reasonable written notice, Purchaser and CBS shall furnish or cause to be
furnished to each other and their respective accountants, counsel and other
representatives access, during normal business hours, to such information
(including records pertinent to the Business), personnel and assistance relating
to the Energy Systems Business as is reasonably necessary for financial
reporting and accounting matters, the preparation and filing of any returns,
reports or forms or the defense of, prosecution of, or response required under,
or pursuant to, any lawsuit, action or proceeding (including any proceeding
involving CBS and any Excluded Assets, any Excluded Liabilities, any
environmental matters related to the Acquired Assets and the matters referred to
in Section 2.3(b)(xiv)) or in order to enable the parties to comply or monitor
compliance (including with respect to Purchaser's obligations in respect of the
Assumed Liabilities) with their respective obligations under this Agreement.
Purchaser and CBS shall also furnish or cause to be furnished to each other and
their respective accountants, counsel and other representative's access, during
normal business hours, to such information for any other reasonable business
purpose. Purchaser and CBS shall, and shall cause their Affiliates to, retain
until five years after the Closing Date all such records pertinent to the
Business which are owned by such Person immediately after the Closing (excluding
any Excluded Assets); after the end of such period, before disposing of any such
records, the applicable party shall give notice to such effect to the other, and
shall give the other, at the other's cost and expense, a reasonable opportunity
to remove and retain all or any part of such records as the other may select.
Cooperation with respect to Tax matters shall be governed by Section 5.14(j).
Cooperation with respect to Intellectual Property and Technology matters shall
be governed by Section 5.10(c).
(b) After the Closing, Purchaser shall furnish or cause to be
furnished to CBS and its respective accountants, counsel and other
representatives access, during normal business hours, to such information
(including records pertinent to the Business), personnel and assistance,
including audit rights, relating to Purchaser's compliance with, and discharge
of its obligations under, the Settlement Agreements.
(c) After the Closing, upon reasonable written notice, CBS will
deliver at Purchaser's expense all reasonably available records regarding the
conception, reduction to practice, evaluation, and efforts to patent or
otherwise protect Intellectual Property or
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Technology. CBS will at all reasonable times cooperate with Purchaser's
reasonable efforts to protect any of the Intellectual Property or Technology by
supplying (i) all requested information reasonably available to CBS about any
public use or offer to sell an invention that occurred prior to the filing of a
U.S. application on the invention, (ii) all requested information reasonably
available to CBS about any use of a trademark or service mark, or (iii) all
requested information reasonably available to CBS about any software or
copyrighted work. With respect to inventions created by inventors who remain in
the employ of CBS after the Closing, CBS promises to provide its full
cooperation with any efforts by Purchaser to patent said inventions or enforce
patents on said inventions, including instructing the employee promptly to
review any draft patent application submitted by Purchaser and advise Purchaser
as to the revisions necessary to make it a full and accurate disclosure of the
invention and to execute all truthful and lawful oaths of inventorship or
assignment deeds presented by Purchaser for purposes of patenting or protecting
the invention. With respect to inventions created by inventors who are past
employees of CBS or any of its Subsidiaries, CBS will, on request by Purchaser,
use its commercially reasonable efforts to encourage the past employee to give
Purchaser full cooperation in connection with efforts to patent said invention
or enforce a patent on said invention. After a period of two years following the
Closing Date, CBS or any of its Subsidiaries that render services under this
Section 5.10(c) shall be entitled to reasonable reimbursement from Purchaser for
its time, as well as out-of-pocket expenses as provided for above, for such
services rendered after the two-year period.
SECTION 5.11. BULK TRANSFER LAWS. Purchaser hereby waives compliance
------------------
by Sellers with the provisions of any so-called "bulk transfer law" of any
jurisdiction in connection with the sale of the Acquired Assets to Purchaser.
SECTION 5.12. ADDITIONAL AGREEMENTS. Subject to the provisions of
---------------------
Section 5.4, each of Purchaser and CBS will use all reasonable efforts to
facilitate and effect the implementation of the transfer of the Acquired Assets
to Purchaser and the assumption of the Assumed Liabilities by Purchaser and, for
such purpose but without limitation, each of Purchaser and CBS promptly will at
and after the Closing execute and deliver or cause to be executed and delivered
to the other party such assignments, deeds, bills of sale, assumption
agreements, consents and other instruments of transfer or assumption as
Purchaser or its counsel or CBS or its counsel may reasonably request as
necessary or desirable for such purpose (it being understood that any such
assignment, deed, bill of sale, assumption agreement, consent or other
instrument of transfer or assumption shall not provide for any representations
or warranties or any obligations or liabilities that are not otherwise expressly
provided for in this Agreement). At any time and from time to time after the
Closing Date at the request of Purchaser, and without further consideration, CBS
will, and will cause the other
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Sellers to, execute and deliver such other instruments of sale, transfer,
conveyance, assignment and confirmation and take such other action as Purchaser
may reasonably deem necessary or desirable in order to transfer, convey and
assign more effectively to Purchaser, the Acquired Assets, to put Purchaser in
actual possession and operating control of the Business and to assist Purchaser
in exercising all rights with respect thereto. Purchaser will cooperate with CBS
with respect to the matters set forth in Item (xi) of Schedule 5.1(a), as
provided therein.
SECTION 5.13. CERTAIN UNDERSTANDINGS. Purchaser acknowledges that
----------------------
none of Sellers or any other Person has made any representation or warranty,
express or implied, as to the accuracy or completeness of any information
regarding the Business, the Acquired Assets or other matters not included in
this Agreement or the Schedules hereto (including, without limitation, the
information, estimates, forecasts and projections contained in the Memorandum),
and none of Sellers or any other Person will be subject to any liability to
Purchaser or any other Person resulting from the distribution to Purchaser, or
Purchaser's use of, any such information, including any information, documents
or material made available to Purchaser in certain "data rooms" or in any other
form in expectation of the transactions contemplated hereby. Purchaser
acknowledges that, should the Closing occur, Purchaser will acquire the Acquired
Assets without any representation or warranty as to merchantability or fitness
for any particular purpose, in an "as is" condition and on a "where is" basis,
except as otherwise expressly represented or warranted herein.
SECTION 5.14. ALLOCATION; TAX MATTERS.
-----------------------
(a) Schedule 5.14 sets forth the allocation of the consideration
hereunder for each of the Foreign Sold Subsidiaries for Tax purposes. CBS and
Purchaser agree to use their best efforts to enter into an agreement (the
"Allocation Agreement") as soon as practicable (but in any event no later than
--------------------
150 days after the Closing Date) to allocate the Purchase Price, the Assumed
Liabilities, and all other capitalizable costs among (i) the Acquired Assets and
(ii) the assets held by each U.S. Sold Subsidiary for all applicable Tax
purposes, including Code Section 1060. To the extent permissible under
applicable Tax Laws, all Assumed Liabilities arising out of the Steam Generator
Settlement Agreements shall be treated as expenses of Purchaser, deductible by
it as such Liabilities are paid in taxable periods after the Closing Date; all
other Assumed Liabilities arising out of the Steam Generator Settlement
Agreements shall be included in the costs capitalizable by Purchaser at the
Closing. Purchaser shall initially prepare a statement setting forth a proposed
computation and allocation of the aggregate purchase price (the "Computation"),
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and submit it to CBS no later than 60 days after the Closing Date. If, within
30 days of CBS's receipt of the Computation,
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CBS shall not have objected in writing to such Computation, the Computation
shall become the Allocation Agreement. If 60 days after CBS's receipt of the
Computation, CBS and Purchaser have not adopted an Allocation Agreement, any
disputed aspects of the Allocation Agreement shall be resolved within 90 days of
CBS's receipt of the Computation by a law or accounting firm mutually acceptable
to CBS and Purchaser (the "Neutral Auditors"), which shall resolve such dispute
----------------
pursuant to, first, the terms of this Agreement and, second, the application of
applicable Tax Laws to the relevant facts. The decision of the Neutral Auditors
shall be final, and the costs, expenses and fees of the Neutral Auditors shall
be borne equally by CBS and Purchaser. CBS and Purchaser shall report the Tax
consequences of the transactions contemplated by this Agreement consistent with
the terms of this Agreement and the Allocation Agreement.
(b) After the Closing, from time to time, Purchaser and CBS shall
agree upon revisions to the Allocation Agreement to reflect any adjustments to
the consideration. Purchaser and CBS shall report the Tax consequences of the
transactions contemplated by this Agreement in a manner consistent with the
terms of this Agreement and the Allocation Agreement, as it may be revised from
time to time. Any disputes regarding such revisions shall be resolved by the
Neutral Auditors.
(c) Purchaser and CBS shall file and cause to be filed all Tax Returns
and execute such other documents as may be required by any taxing authority, in
a manner consistent with the Allocation Agreement, as it may be revised from
time to time. CBS shall prepare Internal Revenue Service Form 8594 pursuant to
Section 1060 of the Code relating to the transactions contemplated by this
Agreement based on the Allocation Agreement, as it may be revised from time to
time, and deliver such form to Purchaser. Purchaser and CBS shall file, or
cause the filing of, such form with each relevant taxing authority. Any
disputes under this provision shall be resolved by the Neutral Auditors.
(d) Irrespective of Article 8 or any other provision hereof, Sellers
and Purchaser shall each bear and be liable for 50% of the transfer,
documentary, sales, use, registration, stamp, value-added and other similar
taxes (including all applicable real estate transfer taxes and real property
gains taxes), including any penalties, interest and additions to tax, incurred
in connection with the transactions contemplated hereby ("Transfer Taxes").
--------------
Sellers or Purchaser, as the case may be, shall pay the Transfer Taxes for which
it is liable under applicable Law. Five days before any such payment of Taxes
is due, the nonpaying party shall reimburse the paying party for 50% of such
Taxes. CBS and Purchaser shall cooperate in timely making and filing all Tax
Returns as may be required to comply with the provisions of any Transfer Tax
Laws. To the extent legally able to do so, Purchaser shall
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deliver to CBS exemption certificates satisfactory in form and substance to CBS
with respect to Transfer Taxes if such delivery would reduce the amount of
Transfer Taxes that would otherwise be imposed. Any disputes under this
provision shall be resolved by the Neutral Auditors within 30 days of the
submission of such dispute.
(e) CBS shall terminate and shall cause the termination by the Closing
of any agreement or practice relating to Taxes between CBS or any of its
Affiliates (other than any Investment), on the one hand, and any Investment, on
the other hand. On and after the Closing Date, neither CBS or its Affiliates
(other than any Investment), on the one hand, nor any Investment, on the other
hand, shall have any further rights, obligations, or liabilities under any such
agreement or practice, and no Investment shall have any obligation in respect of
any agreement for practice relating to Taxes for any period prior to or
including the Closing Date.
(f) At the Closing, CBS shall deliver to Purchaser duly executed
certificates certifying that the transactions contemplated hereby are exempt
from withholding under Section 1445 of the Code.
(g) To the extent permitted by Law, Purchaser shall have the right to
cause each Foreign Sold Subsidiary to carry back any item of income, loss,
credit or deduction from any taxable period beginning after the Closing Date to
any taxable period including or ending prior to the Closing Date to the extent
Tax remains payable after all CBS Tax benefits have been taken into account.
(h) CBS shall file any amended consolidated, combined or unitary
Income Tax Returns that include the Business or any Sold Subsidiary for Pre-
Closing Tax Periods which are required as a result of examination adjustments
made by any taxing authority as finally determined. For those jurisdictions in
which separate Income Tax Returns are filed by any Sold Subsidiary, any required
amended returns for Pre-Closing Tax Periods resulting from such examination
adjustments, as finally determined, shall be prepared by CBS and furnished to
such Sold Subsidiary, for signature and filing at least ten days prior to the
due date for filing such returns. Purchaser shall file all other amended Tax
Returns relating to the Business.
(i) (A) CBS shall file or cause to be filed the United States
consolidated federal Income Tax Return of CBS and, where applicable, all other
consolidated, combined or unitary state or local Income Tax Returns for the Pre-
Closing Tax Periods of each Selling Subsidiary and each U.S. Sold Subsidiary and
(B) CBS shall also file and shall cause each
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Selling Subsidiary and each Sold Subsidiary to file all other Tax Returns with
respect to the Acquired Assets or the income or operations of the Business
required to be filed (including any extensions) on or prior to the Closing Date.
CBS shall prepare or shall cause to be prepared all Income Tax Returns required
to be filed by any U.S. Sold Subsidiary on a separate return basis for Pre-
Closing Tax Periods that have not been filed by the Closing Date and (x) CBS
shall provide Purchaser with a copy of all such Tax Returns (or in the case of a
Tax Return that includes assets or businesses not included in the Acquired
Assets, those portions of such Tax Returns that relate to the Business) at least
30 days prior to the due date for filing such Tax Returns (including any
extensions) and (y) after reviewing and approving such Tax Returns (which
approval shall not be unreasonably withheld), Purchaser shall file or shall
cause such Tax Returns to be filed. All such Tax Returns that may affect the
future Tax payable by Purchaser or any Sold Subsidiary shall be prepared on a
basis consistent with law and past practice. CBS shall pay or cause to be paid
all Taxes shown as due on any such Tax Returns.
(j) (i) Purchaser shall timely prepare and file (or cause to be
prepared and filed) all Tax Returns required by Law for (A) all Taxes covering
the Acquired Assets or the Sold Subsidiaries for all Straddle Periods and (B)
all Income Taxes of the Foreign Sold Subsidiaries for all Pre-Closing Tax
Periods, except as provided in Section 5.14(i). Purchaser shall provide CBS
with a copy of such Tax Returns at least 30 days prior to the due date for
filing such Tax Returns (including extensions), and after CBS's review and
approval of such Tax Returns (which approval shall not be unreasonably
withheld), Purchaser shall file or cause such Tax Returns to be filed. Not
later than 5 days before the due date for the payment of Taxes with respect to
such Tax Returns, CBS shall pay to Purchaser an amount equal to Sellers'
Straddle Period Taxes determined in accordance with the method described in
clause (iii) below.
(ii) Purchaser shall prepare and file all Tax Returns for all
Foreign Sold Subsidiaries for all Post-Closing Tax Periods and all Tax Returns
other than Income Tax Returns for all Sold Subsidiaries for Pre-Closing Tax
Periods that have not been filed by the Closing Date.
(iii) For purposes of this Agreement, the Taxes allocable to
Sellers' Straddle Period Tax Returns shall be:
(A) In the case of any real or personal property Tax relating to the
Acquired Assets or the Subsidiary Assets, an amount equal to the
Tax for the entire Straddle Period multiplied by a fraction, the
numerator of which is
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the number of days in the Sellers' Straddle Period and the
denominator of which is the number of days in the entire Straddle
Period; and
(B) In the case of any other Tax, the amount that would be payable if
the taxable year ended on the Closing Date.
(k) CBS and Purchaser shall each provide the other with such
assistance as may be reasonably requested (including making employees reasonably
available to provide information or testimony) in connection with the
preparation of any Tax Return, any Tax Controversy (as defined in Section
5.14(l)(ii)), or the determination of liability for Taxes with respect to the
Acquired Assets or the income or operations of the Business. Purchaser shall
complete CBS's standard tax packages relating to Tax Returns that CBS is
responsible for filing pursuant to Section 5.14(i) and deliver them to CBS
within 90 days of Purchaser's receipt from CBS and shall, and shall cause its
Affiliates to, cooperate with CBS in preparing and pursuing any claims for
refunds or credits of Taxes (including refunds or credits relating to investment
tax credits, research credits and credits for prepayments of Income Taxes). At
Purchaser's request and expense, CBS shall file claims prepared by Purchaser for
refunds of Taxes (other than items described in Section 2.3(b)(ii) and (iii))
and promptly pay over the amount recovered to Purchaser (without any interest,
other than interest paid by the applicable taxing authority with respect to such
refund); provided, however, that Purchaser shall promptly reimburse CBS to the
-------- -------
extent that such refund is reclaimed by a taxing authority (without any
interest, other than interest due to the applicable taxing authority with
respect to such reclamation). CBS and Purchaser each shall, and shall cause
their Affiliates to, retain until seven years after the Closing Date all Tax
Returns, schedules, work papers and other records that are owned by such Person
immediately after the Closing and that relate to the Business or the Acquired
Assets; after the end of such period, before disposing of any such Tax Returns,
schedules, work papers or other records, each shall give notice to such effect
to the other, and shall give the other, at the other's cost and expense, a
reasonable opportunity to remove and retain all or any part of such Tax Returns,
schedules, work papers or other records as the other may select.
(l) (i) Purchaser shall, in the event that Purchaser receives
notice (whether orally or in writing) of any examination, claim, proposed
settlement, proposed adjustment or related matter with respect to any Taxes
for which Purchaser may be indemnified hereunder (the "CBS Tax
-------
Controversies") promptly notify CBS thereof, provided, however, that
------------- -------- -------
failure to give such notification shall not affect the indemnification
provided hereunder except to the extent CBS shall have been actually
prejudiced as a result of such failure (except that CBS shall not be liable
for any
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interest or other expenses incurred during the period in which the
Purchaser failed to give such notice). CBS shall be entitled at its sole
discretion and expense to handle, control and compromise or settle the CBS
Tax Controversies, and shall reasonably inform Purchaser of the progress of
the CBS Tax Controversies, provided, however, that in the event Purchaser
-------- -------
waives its rights to indemnification with respect to any CBS Tax
Controversy relating to Taxes other than Income Taxes, Purchaser may assume
at its expense, and have the sole discretion to handle, control,
compromise, or settle, such controversy.
(ii) CBS shall, in the event CBS receives notice (whether orally
or in writing) of any examination, claim, proposed settlement, proposed
adjustment or related matter with respect to Taxes attributable to the
Business (other than CBS Tax Controversies) (the "Purchaser Tax
-------------
Controversies," and together with the CBS Tax Controversies, the "Tax
------------- ---
Controversies"), promptly notify Purchaser thereof, provided, however that
------------- -------- -------
failure to give such notification shall not affect the indemnification
provided hereunder except to the extent Purchaser shall have been actually
prejudiced as a result of such failure (except that the Purchaser shall not
be liable for any interest or other expenses incurred during the period in
which CBS failed to give such notice). Purchaser shall be entitled at its
sole discretion and expense to handle, control and compromise or settle the
Purchaser Tax Controversies, and shall reasonably inform CBS of the
progress of the Purchaser Tax Controversies.
(m) Purchaser acknowledges that CBS may, in its sole discretion,
elect under Treasury Regulation (S) 301.7701-3(c) to treat one or more Selling
Subsidiaries or Sold Subsidiaries that are foreign corporations as branches of
the applicable Sellers for United States federal income tax purposes, such
elections, if made, to be effective on or before the Closing Date and, where
necessary, take reasonable actions to enable such elections to be made.
Purchaser will not take or cause to be taken any Tax reporting position with
respect to such Selling Subsidiaries or Sold Subsidiaries that is inconsistent
with such elections.
SECTION 5.15. SUPPLIES. Purchaser shall not use any signs or
--------
stationery, purchase order forms, packaging or other similar paper goods or
supplies, or advertising and promotional materials, product, training and
service literature and materials, or computer programs or like materials
(collectively, the "Supplies"), that state or otherwise indicate thereon that
--------
the Business is a division or unit of CBS, or, except in compliance with any
license agreement contemplated by Section 5.9(b), contain any trademarks,
servicemarks, trade names or corporate or business names, derived from or
including the words "Westinghouse Electric Corporation," "Westinghouse Electric
Company," "Westinghouse,"
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"WELCO" or "Circle W" (in logotype design or any other style or design) in whole
or in part; provided, that to the extent any Supplies included in the Acquired
Assets so indicate, Purchaser may, for a period of 90 days after the Closing
Date, use such Supplies after first crossing out or marking over such statement
or indication or trademark, servicemark, trade name or corporate or business
name and otherwise clearly indicating on such Supplies that the Business is no
longer a division or unit of CBS. Purchaser shall not reorder or produce any
Supplies which state or otherwise indicate thereon that the Business is a
division or unit of CBS or contain any such trademarks, servicemarks, trade
names or corporate or business names.
SECTION 5.16. TRANSFER OF ASSETS OF SOLD SUBSIDIARIES. On or prior to
---------------------------------------
the Closing Date, CBS shall cause the Sold Subsidiaries to transfer (and shall
use its reasonable efforts to inform Purchaser of each such transfer prior
thereto), without consideration, any Subsidiary Assets not relating primarily to
the Business (including the assets set forth in Schedule 5.16) to CBS or
Subsidiaries of CBS other than the Sold Subsidiaries or to any third party
designated by CBS. After the Closing, Purchaser will cooperate with CBS to
transfer without consideration at CBS's request any such Subsidiary Assets to
CBS or Subsidiaries of CBS or to any third party designated by CBS and CBS shall
reimburse Purchaser for its reasonable expenses and all Taxes incurred in
connection therewith.
SECTION 5.17. REMOVAL OF EXCLUDED ASSETS AND LIABILITIES FROM SOLD
----------------------------------------------------
SUBSIDIARIES. The parties acknowledge that the Excluded Assets and Excluded
- ------------
Liabilities are held by, or are obligations of, certain of the Sold
Subsidiaries. Sellers will at the request of Purchaser use their reasonable
best efforts either (i) to transfer the Acquired Assets held by any such
Subsidiary directly to Purchaser (in which event Sellers will retain the Sold
Subsidiary) or (ii) to transfer out of any such Subsidiary, or otherwise
appropriately protect Purchaser from, any such Excluded Assets and Excluded
Liabilities held by any such Subsidiary, and CBS shall reimburse Purchaser for
its reasonable expenses and all Taxes incurred in connection therewith.
SECTION 5.18. CREDIT SUPPORT. Purchaser acknowledges that in the
--------------
course of the conduct of the Business, CBS and its Subsidiaries have entered
into and expect to continue to enter into various arrangements (i) in which
guarantees (including guarantees of performance under contracts or agreements),
letters of credit or other credit arrangements, including surety and performance
bonds, were issued by or for the account of CBS and its Subsidiaries or (ii) in
which CBS and its Subsidiaries are the primary or secondary obligors on debt
instruments or financing or other contracts or agreements, in any such case to
support or facilitate business transactions of the Sold Subsidiaries. Such
arrangements by such parties are
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hereinafter referred to as the "Credit Support Arrangements." Schedule 5.18 sets
---------------------------
forth a list of all Credit Support Arrangements existing as of the date hereof.
Not later than the Closing, Purchaser will (i) obtain replacement Credit Support
Arrangements which will be in effect at the Closing or (ii) repay, or cause the
repayment of, all debt and other obligations to which such Credit Support
Arrangements relate (and cause the cancellation of such Credit Support
Arrangements) or arrange for itself or one of its Subsidiaries (including the
Sold Subsidiaries) to be substituted as the obligor thereon as of the Closing
Date. CBS and its Subsidiaries will cooperate with Purchaser in arranging any
such substitution, provided that neither CBS nor its Subsidiaries shall be
required to expend any material sum in connection therewith.
SECTION 5.19. NON-COMPETITION AND CONFIDENTIALITY.
-----------------------------------
(a) For a period of five years from the Closing, CBS shall not, and
shall cause each of the other Sellers and its other Affiliates not to, directly
or indirectly, engage in any business that is in competition with the Business.
Notwithstanding anything to the contrary contained in this Section 5.19,
Purchaser hereby agrees that the foregoing covenant shall not be deemed breached
as a result of (i) the ownership by CBS or any Affiliate of CBS of less than an
aggregate of 5% of any class of capital stock of a person engaged, directly or
indirectly, in a business that is in competition with the Business or less than
10% in value of any instrument of indebtedness of a person engaged, directly or
indirectly, in a business that is in competition with the Business, (ii) the
retention and conduct by CBS of the Process Control Business, the Power
Generation Business and any other business in which it is currently engaged,
(iii) any action taken by CBS or any of its Affiliates pursuant to this
Agreement or a Seller Ancillary Document, (iv) any action taken by CBS or any of
its Affiliates or by any third party at the direction of CBS in connection with
discharging its obligations under any guarantees (including guarantees of
performance under contracts or agreements), assumption of obligations, letters
of credit or other similar arrangements, including surety and performance bonds,
in effect at the Closing Date or (v) the acquisition by CBS or any Affiliate of
CBS of any person (A) which derives less than $10,000,000 in revenues from
businesses in competition with the Business or (B) the predominant business of
which is not in competition with the Business if after such acquisition CBS or
its Affiliates uses reasonable best efforts to divest the business of such
Person that is in competition with the Business within 270 days after the
acquisition of such business.
(b) For a period of ten years after the Closing, CBS agrees to, and to
cause each of the other Sellers and its other Affiliates to, maintain the
confidentiality of all confidential information with respect to the Business and
the Acquired Assets, or learned by CBS or any Seller directly or indirectly
from Purchaser, including information with respect
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to (A) prospective business activities, (B) sales figures, (C) profit or loss,
gross margin or similar information, and (D) customers, clients, suppliers,
sources of supply and customer lists (the "Confidential Information"), and shall
------------------------
not disclose any Confidential Information, except (i) in the event CBS or any of
its Affiliates is required to disclose any of such information pursuant to
applicable Law or by applicable legal process, (ii) to the extent such
information becomes generally available to the public other than as a result of
a disclosure by CBS or its Affiliates, (iii) to the extent such information was
available to CBS or its Affiliates on a non-confidential basis prior to its
disclosure to CBS or its Affiliates, or (iv) to the extent such information
becomes available to CBS or its Subsidiaries on a non-confidential basis from a
source other than CBS or its Affiliates, provided that such source is not
prohibited from disclosing such information by a contractual, legal or fiduciary
obligation. In the event CBS or any of its Subsidiaries is required to disclose
any of such information pursuant to applicable Law or by applicable legal
process, CBS or its respective Subsidiary shall, to the extent practicable under
the circumstances, inform Purchaser sufficiently in advance of such disclosure
to afford Purchaser the opportunity to resist disclosure and shall use its
reasonable commercial efforts to cooperate with Purchaser in efforts to minimize
the amount of information to be disclosed and to seek to prevent its disclosure
to third parties.
(c) For a period of five years after the Closing, neither CBS nor
Purchaser shall, directly or indirectly, knowingly solicit or encourage to leave
the employment of CBS or Purchaser, any employee of Purchaser or the WELCO
divisions of CBS, as the case may be.
(d) If CBS or any other Seller breaches, or threatens to commit a
breach of, any of the provisions of Section 5.19(a), (b) or (c) (the
"Restrictive Covenants"), Purchaser shall have the following rights and remedies
---------------------
(upon compliance with any necessary prerequisites imposed by law upon the
availability of such remedies), each of which rights and remedies shall be
independent of the other and severally enforceable and shall not be affected by
the provisions of Article VIII, and all of which rights and remedies shall be in
addition to, and not in lieu of, any other rights and remedies available to
Purchaser under Law or in equity:
(i) The right to have the Restrictive Covenants specifically enforced
(without posting any bond) by any court having equity jurisdiction,
including the right to an entry against CBS of restraining orders and
injunctions (preliminary, mandatory, temporary and permanent) against
violations, threatened or actual, and whether or not then continuing, of
such covenants, it being acknowledged and agreed that any such breach or
threatened breach may cause irreparable injury to Purchaser and that money
damages may not provide adequate remedy to Purchaser.
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(ii) The right and remedy to require CBS to account for and pay over
to Purchaser all compensation, profits, monies, accruals, increments or
other benefits derived or received by such person as a result of any
transactions constituting a breach of any of the Restrictive Covenants,
and such person shall account for and pay over such benefits to Purchaser.
(e) If any court determines that any of the Restrictive Covenants, or
any part thereof, is invalid or unenforceable, the remainder of the Restrictive
Covenants shall not thereby be affected and shall be given full effect, without
regard to the invalid portions.
(f) Notwithstanding the foregoing, nothing contained in the Agreement
shall impair, impede, prevent, inhibit, limit or restrict CBS or any of its
Affiliates (or any successor or assign of any of them) in any manner or respect
whatsoever from (i) the continuing operation of (x) the Power Generation
Business, or (y) the Process Control Business, provided the scope of each of
such businesses is primarily related to the goods and services which it has
typically provided under (x) and (y) or (ii) selling or otherwise transferring
the Power Generation Business or the Process Control Business or any portion
thereof to any Person, whether or not such Person or any of its Affiliates is
engaged in a business competitive with the Business.
(g) If any court determines that any of the Restrictive Covenants, or
any part thereof, is unenforceable because of the duration of such provision or
the area covered thereby, such court shall have the power to reduce the duration
or area of such provisions and, in its reduced form, such provision shall then
be enforceable and shall be enforced.
SECTION 5.20. RELATED AGREEMENTS. At or prior to the Closing, CBS and
------------------
Purchaser agree to enter into the following agreements:
(A) TRANSITIONAL SERVICES. CBS and Purchaser shall enter into an
---------------------
agreement in form and substance reasonably satisfactory to each of them (the
"Transitional Services Agreement"), whereby each party will provide to the other
-------------------------------
party certain transitional services which are currently provided to such party
by the other party for a period of twelve (12) to twenty-four (24) months after
the Closing Date. The Transitional Services Agreement shall cover, at a minimum,
the items set forth on Exhibit D.
(B) BUSINESS SUPPLY AGREEMENT. CBS and Purchaser shall enter into a
-------------------------
supply agreement (the "Business Supply Agreement"), substantially on the terms
-------------------------
set forth in Exhibit A hereto (with respect to the Process Control Division).
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(C) FACILITIES. Sellers and Purchaser shall enter into mutually
----------
acceptable arrangements relating to the use of (i) facilities and equipment by
Business Employees currently located in Sellers' facilities other than the
Premises and (ii) facilities and equipment by employees of CBS currently located
in the Premises and who are not Business Employees.
(D) FIELD SALES OFFICES. Sellers and Purchaser shall enter into
-------------------
mutually acceptable arrangements, including sublease arrangements and
arrangements with respect to the provision and use of personnel and property,
with respect to the conduct of the Process Control Business and Power Generation
Business at the field sales offices included in the Premises.
SECTION 5.21. BUSINESS RELATIONSHIPS WITH SELLERS. CBS and Purchaser
-----------------------------------
acknowledge that the Business has had relationships with other businesses within
Sellers, including performance obligations under Contracts, which have not been
documented by a formal written agreement. In particular, the Business has been
involved with the GESCO Businesses, the Process Control Business and the Power
Generation Business. The parties agree that, except for specific provisions in
this Agreement and the Seller Ancillary Documents which expressly provide for
any different treatment, prior to the Closing, the parties will enter into
arrangements, reasonably satisfactory to the parties, documenting any such pre-
existing relationships, including any subcontract arrangements, which shall be
maintained on such documented basis by Purchaser after the Closing.
SECTION 5.22. SCIENCE AND TECHNOLOGY CENTER. CBS operates a Science
-----------------------------
and Technology Center in Churchill, Pennsylvania ("STC"), which provides
---
research and development support to CBS's industrial businesses, including the
Business, the Power Generation Business and the GESCO Businesses. In addition,
CBS has entered into a sublease arrangement with Northrop Grumman with respect
to a portion of the STC premises and will enter into a sublease arrangement with
Siemens Power Generation Corporation with respect to the portion of the STC
premises utilized for the Power Generation Business. The Acquired Assets shall
include, subject to the provisions of Section 2.2(c), Contracts owned by Sellers
on the Closing Date and used or held for use primarily in the portion of the STC
which primarily provides research and development support to the Business or to
the performance of those programs ("STC Programs") (a) set forth in Schedule
------------
5.22 (which CBS represents reflects a list, that is true and complete in all
material respects, of programs sponsored or being performed by the Energy
Systems Business on behalf of itself or third parties as of the date hereof) or
(b) entered into or undertaken in the Ordinary Course of Business between the
date of this Agreement and the Closing Date which relate primarily to the
Business. The provisions of Section 5.5 shall be applicable to all STC
Employees to the extent provided
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therein. For purposes of this Agreement, employees who as of the Closing Date
primarily render services that provide research and development support to the
Business or on behalf of any STC Programs (and such other employees located at
STC as Seller and Purchaser may mutually agree) shall constitute the "STC
Employees."
On the Closing Date, CBS shall sublease to Purchaser a portion of the
premises and the Fixtures and Equipment at the STC necessary to the effective
operation of the Business and the STC Programs (which shall include the
facilities (known as the "hot cells") to examine irradiated material from
Nuclear Installations and all related Fixtures and Equipment), and an
appropriate interest in the common areas at such premises pursuant to a mutually
acceptable sublease containing the terms and conditions set forth in Schedule
5.22, as well as customary terms and conditions and such other terms and
conditions as are reasonably acceptable to the parties. Purchaser and CBS agree
that the terms of the sublease with respect to the premises shall not be
materially more restrictive to Purchaser than the terms of the master lease with
respect to the STC are to CBS. CBS agrees to provide Purchaser with a copy of
the master lease with respect to the STC. On the Closing Date, subject to
Section 2.2(c), Purchaser shall assume all Liabilities associated with the STC
Programs.
SECTION 5.23. U.S.-CONTROLLED ENTITY. For at least three (3) years
----------------------
after the Closing, Purchaser (i) shall (for so long as it owns the Business or
any interest therein) at all times be a U.S.-Controlled Entity, shall maintain a
presence in the United States, and shall principally administer the business in
the United States, and (ii) shall not transfer, convey, assign or sell any of
its interest in the Business to a Person which is not a U.S.-Controlled Entity.
Purchaser shall during such period take all actions necessary, as required to
obtain and maintain an acceptable Foreign Ownership Control and Influence
determination with the appropriate Governmental Authorities. Purchaser shall
during such period take all steps reasonably necessary, as required, to comply
with U.S. requirements with respect to the export of U.S. technology, and, upon
request, to provide CBS with reasonable written assurance that such steps have
been taken.
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SECTION 5.24. INSURANCE MATTERS. CBS shall place its insurers on
-----------------
notice of all liability and workers' compensation claims which are made prior to
the Closing and property losses to the Acquired Assets occurring prior to the
Closing. Purchaser's rights under Section 2.2(a)(xviii) in respect of insurance
shall be subject to any applicable policy deductibles set forth in Schedule
4.1(i) and co-payments provisions or any payment or reimbursement obligations of
CBS or any of its Affiliates in respect thereof; and Purchaser shall be
responsible for and be entitled to the benefit of any retrospective premium,
cost or benefit associated with claims that are subject of the insurance
proceeds referred to in Section 2.2(a)(xviii). Notwithstanding the above or the
provisions of Section 2.2(a)(xviii), subject to the first sentence of Section
5.1, CBS may, in its sole discretion, liquidate, commute, settle, modify or
amend any of its insurance policies in any respect. No later than thirty (30)
days prior to the Closing, Purchaser shall have the right, and be given access
to such workers compensation data, all at its expense, as may be necessary to
conduct an actuarial reserve analysis.
SECTION 5.25. GUARANTEE AGREEMENT. Concurrent with the execution of
-------------------
this Agreement, the Guarantors are executing the Guarantee Agreement in the form
of Exhibit E hereto (the "Guarantee Agreement").
-------------------
SECTION 5.26. WAIVERS. CBS shall use its commercially reasonable
-------
efforts to, and to cause its Sold Subsidiaries to, obtain from each director of
each Sold Subsidiary waivers as of the Closing Date of any claim such director
may have against Purchaser or the Sold Subsidiaries.
SECTION 5.27. THIRD PARTY AGREEMENTS. CBS has provided Purchaser with
----------------------
a true and complete copy of the forms of (or term sheets relating to) shared
technology agreements, business supply agreements and settlement support
agreements to be entered into between CBS and the purchasers of the Power
Generation Business and the Process Control Business (collectively, the "Third
Party Agreements"). It is understood and agreed that if (a) any of the Third
Party Agreements are entered into prior to the Closing substantially in the form
so provided, Purchaser shall acquire CBS' rights and assume CBS' obligations
thereunder (in each case to the extent rights and obligations relate to the
Business and the Intellectual Property and Technology) and (b) if the Closing
occurs prior to the execution of any of the Third Party Agreements, Purchaser
shall enter into any such Third Party Agreement substantially in the form
previously so provided with the purchaser of the applicable business. CBS shall
afford Purchaser a reasonable opportunity to review and comment on the final
form of the business supply agreement to be entered into with the purchaser of
the Process Control Business to confirm that it is substantially on the terms
set forth in Exhibit A hereto.
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SECTION 5.28. [Intentionally omitted].
SECTION 5.29. YEAR 2000 MATTERS. Prior to the Closing Date, the
-----------------
Sellers and the Sold Subsidiaries shall:
(i) use commercially reasonable efforts to implement the Year 2000
Plan in accordance with its terms;
(ii) provide to Purchaser copies of internal management reports on
the status of implementation of the Year 2000 Plan;
(iii) use commercially reasonable efforts to cause the PRISM payroll
system to be operational and in compliance with the Year 2000 Plan; and
(iv) notify all purchasers (not notified prior to the date hereof) of
versions of the WDPF product that are prior to the 6.01 version that
modifications are available to such product to address Year 2000 issues.
SECTION 5.30. JOINT DEFENSE AGREEMENT. Prior to the date hereof, CBS
-----------------------
and Purchaser have executed the Joint Defense Agreement attached as Exhibit F
hereto.
SECTION 5.31. WALTZ MILL SERVICE CENTER. ESBU operates a Waltz Mill
-------------------------
Service Center in Madison, Pennsylvania which provides engineering and technical
nuclear services to a variety of customers. CBS is currently implementing
certain decontamination and decommissioning actions, pursuant to NRC approved
plans, primarily in the test reactor and solid and liquid waste processing areas
at the Center. On the Closing Date, CBS shall lease to Purchaser the Waltz Mill
Service Center pursuant to a mutually acceptable "triple net" lease containing
customary terms and conditions and such other terms and conditions as are
reasonably acceptable to the parties. The Acquired Assets shall include all
Fixtures and Equipment (other than any equipment primarily used in the
decontamination and decommissioning of the test reactor) related to the Waltz
Mill Service Center.
SECTION 5.32. GUARANTEE AGREEMENT. Purchaser shall use its best
-------------------
efforts to cause the condition precedent set forth in Section 6.3(c)(ii) to be
satisfied on or prior to the date when all other conditions precedent to the
Closing set forth in Article 6 have been satisfied or waived, or are capable of
being satisfied. Purchaser shall, or shall cause its Affiliates to, pay all
expenses incident to obtaining or maintaining a letter of credit or other
financial instrument pursuant to Section 6.3(c)(ii).
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ARTICLE 6
CONDITIONS PRECEDENT
SECTION 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION. The obligation
-------------------------------------
of Purchaser to purchase the Acquired Assets and assume the Assumed Liabilities
and the obligation of CBS to (and to cause the Selling Subsidiaries to) sell,
assign, transfer, convey and deliver the Acquired Assets to Purchaser shall be
subject to the satisfaction prior to the Closing of the following conditions:
(A) CERTAIN WAITING PERIODS. Any waiting period under the HSR Act and
-----------------------
the Exon-Florio Amendment applicable to any of the transactions contemplated
hereby shall have expired or been earlier terminated.
(B) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
----------------------------
preliminary or permanent injunction or other legal restraint or prohibition
preventing the consummation of the transactions contemplated by this Agreement
shall be in effect.
(C) GOVERNMENTAL ACTION. There shall not be any material pending
-------------------
suit, action or proceeding by any Governmental Authority challenging or seeking
to restrain or prohibit the consummation of the transactions contemplated by
this Agreement in any material respect or seeking to obtain any damages from
Sellers, Purchaser or the Sold Subsidiaries.
(D) GOVERNMENTAL CONSENTS. The consents and authorizations by or of
---------------------
Governmental Authorities set forth in Schedule 6.1(d) shall have been obtained
and shall be in full force and effect.
(E) CONSUMMATION OF THE GESCO ASSET PURCHASE AGREEMENT. The
--------------------------------------------------
transactions contemplated by the GESCO Asset Purchase Agreement shall have been
consummated concurrently with the Closing on the Closing Date.
SECTION 6.2. CONDITIONS TO OBLIGATION OF PURCHASER. The obligation
-------------------------------------
of Purchaser to purchase the Acquired Assets and assume the Assumed Liabilities
is subject to the satisfaction at and as of the Closing of each of the following
conditions, any and all of which may be waived in whole or in part by Purchaser:
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(A) REPRESENTATIONS AND WARRANTIES. The representations and
------------------------------
warranties of CBS set forth in this Agreement (determined without regard to any
materiality qualification or exception in any representation or warranty) shall
be true and correct in all respects as of the date of this Agreement and, except
for those made as of a particular date, as of the Closing as though made at and
as of the Closing, except in each case for such failures of representations and
warranties to be true and correct (i) as the result of changes permitted or
contemplated by this Agreement and (ii) that would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Purchaser
shall have received a certificate signed by an authorized officer of CBS to such
effect.
(B) PERFORMANCE OF OBLIGATIONS OF CBS. CBS shall have performed or
---------------------------------
complied in all material respects with all obligations, conditions and covenants
required to be performed or complied with by it under this Agreement at or prior
to the Closing, and Purchaser shall have received a certificate signed by an
authorized officer of CBS to such effect.
(C) MATERIAL PERMITS. Purchaser and the Sold Subsidiaries shall have,
----------------
on the Closing Date, all permits, licenses, franchises and authorizations by or
of Governmental Authorities required by Law for Purchaser to conduct the
Business and to acquire and own the Acquired Assets, and such Permits shall be
in full force and effect, except (i) where (assuming compliance by CBS with the
provisions of Sections 5.3(c) and 5.4) the failure to have any such Permits or
of any such Permits to be in full force and effect would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect;
provided, however, that this condition shall be inapplicable to the extent
- -------- -------
Purchaser shall have failed to comply with its obligations under Section 5.4 to
use commercially reasonable efforts to obtain the consent of Governmental
Authorities to the assignment of any Seller's or Sold Subsidiary's Permits or
under Section 5.3(c) to secure its own permits, licenses, franchises, approvals,
consents and authorizations by or of Governmental Authorities in lieu of any
Permits held by any Seller or Sold Subsidiary.
(D) CONVEYANCING DOCUMENTS. Sellers shall have executed and delivered
----------------------
such deeds, bills of sale, assignments and other instruments, each in form and
substance reasonably satisfactory to Purchaser, as shall be necessary or
appropriate to convey the Acquired Assets in accordance with this Agreement.
(E) OPINION OF CBS'S COUNSEL. Purchaser shall have received an
------------------------
opinion or opinions dated the Closing Date of counsel to CBS, in form and
substance reasonably satisfactory to Purchaser, with respect to the matters set
forth in Schedule 6.2(e) hereto.
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SECTION 6.3. CONDITIONS TO OBLIGATION OF CBS. The obligation of CBS
-------------------------------
to (and to cause the Selling Subsidiaries to) sell, assign, transfer, convey,
and deliver the Acquired Assets is subject to the satisfaction at and as of the
Closing of each of the following conditions, any and all of which may be waived
in whole or in part by CBS:
(A) REPRESENTATIONS AND WARRANTIES. The representations and
------------------------------
warranties of Purchaser set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and as of the Closing as
though made at and as of the Closing, and CBS shall have received a certificate
signed by an authorized officer of Purchaser to such effect.
(B) PERFORMANCE OF OBLIGATIONS OF PURCHASER. Purchaser shall have
---------------------------------------
performed or complied in all material respects with all obligations, conditions
and covenants required to be performed or complied with by it under this
Agreement at or prior to the Closing, and CBS shall have received a certificate
signed by an authorized officer of Purchaser to such effect.
(C) GUARANTEE AGREEMENT.
-------------------
(i) The Guarantee Agreement shall be in full force and effect, and
the Guarantors shall have complied in all material respects with all of
their obligations thereunder.
(ii) The condition precedent set forth in Section 17 of the Guarantee
Agreement shall have been satisfied.
(D) OPINION OF PURCHASER'S COUNSEL. CBS shall have received an
------------------------------
opinion or opinions dated the Closing Date of counsel to Purchaser and the
Guarantors in form and substance reasonably satisfactory to CBS with respect to
the matters set forth in Schedule 6.3(d) hereto.
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ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. TERMINATION.
-----------
(a) Notwithstanding anything to the contrary in this Agreement, this
Agreement may be terminated and the transactions contemplated hereby abandoned
at any time prior to the Closing:
(i) by mutual written consent of CBS and Purchaser;
(ii) by CBS if any of the conditions set forth in Sections 6.1 or 6.3
shall have become incapable of fulfillment, and shall not have been waived
by CBS;
(iii) by Purchaser if any of the conditions set forth in Sections 6.1
or 6.2 shall have become incapable of fulfillment, and shall not have been
waived by Purchaser; or
(iv) by CBS or Purchaser (upon 10 days' written notice) if the
Closing does not occur on or prior to March 31, 1999 (as extended as
hereinafter provided, the "Termination Date");
provided, however, that (x) the party seeking termination pursuant to clause
- -------- -------
(ii), (iii) or (iv) is not in breach in any material respect of any of its
representations, warranties, covenants or agreements contained in this Agreement
and (y) no termination pursuant to clause (iv) shall be effective if, as of the
Termination Date, all conditions precedent to Closing set forth in Article 6
have been satisfied or waived on or before such date or are capable of being
satisfied on such date, other than the conditions precedent set forth in
Sections 6.1(a) and 6.1(d), and prior to the expiration of the ten-day period
referred to in clause (iv), the non-terminating party notifies the terminating
party in writing that it is extending the Termination Date; provided, that the
--------
Termination Date may not be extended beyond June 30, 1999.
(b) In the event of termination by CBS, on the one hand, or Purchaser,
on the other hand, pursuant to this Section 7.1, written notice thereof shall
forthwith be given to the other party and the transactions contemplated by this
Agreement shall be terminated, without further action by any party. If the
transactions contemplated by this Agreement are terminated as provided herein:
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(c) Purchaser shall return all documents and other material received
from Sellers relating to the transactions contemplated hereby, whether so
obtained before or after the execution hereof, to CBS; and
(d) all confidential information received by Purchaser with respect to
the Business and the other operations of Sellers shall be treated in accordance
with the Confidentiality Agreement, which shall remain in full force and effect
notwithstanding the termination of this Agreement.
(e) If this Agreement is terminated and the transactions contemplated
hereby are abandoned as described in this Section 7.1, this Agreement shall
become null and void and of no further force and effect, except for the
provisions of (i) Section 5.2 relating to the obligation of Purchaser to keep
confidential certain information and data obtained by it from Sellers, (ii) this
Agreement relating to expenses (including Sections 5.2(b), 5.7 and 5.14(d)),
(iii) Section 5.8 relating to finder's fees and broker's fees, (iv) this Section
7.1 and (v) Article 9. Nothing in this Section 7.1 shall be deemed to release
either party from any Liability for any breach by such party of the terms and
provisions of this Agreement or to impair the right of either party to compel
specific performance by the other party of its obligations under this Agreement.
SECTION 7.2. AMENDMENTS AND WAIVERS. This Agreement may not be
----------------------
amended except by an instrument in writing signed on behalf of each of the
parties hereto. Purchaser, on the one hand, or CBS, on the other hand, may, by
an instrument in writing, waive compliance by the other party with any term or
provision of this Agreement that such other party was or is obligated to comply
with or perform.
ARTICLE 8
INDEMNIFICATION
SECTION 8.1. INDEMNIFICATION BY CBS.
----------------------
(a) Notwithstanding anything in the Novation Agreements to the
contrary, CBS hereby agrees to indemnify Purchaser and its Affiliates and their
respective officers, directors, employees, stockholders, agents and
representatives against, and agrees to hold them harmless from, any Losses, as
incurred (payable quarterly upon written request), to the extent arising from,
relating to or otherwise in respect of:
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(i) any breach of any representation or warranty of CBS contained in
any Section of this Agreement (other than the representations and
warranties contained in Sections 4.1(j)(B) (to the extent related to
Business-Related Environmental Liabilities) and 4.1(n)) determined (except
in respect of (A) of Sections 4.1(c)(i), 4.1(c)(ii), 4.1(d)(ii),
4.1(j)(A)(xv), 4.1(j)(C), 4.1(l), 4.1(s)(ii)(A) and 4.1(t) and Section 2(a)
of Annex S and (B) representations and warranties relating to the
"material" impairment of the ability of a party to perform its obligations
under this Agreement) without regard to any materiality qualification or
exception in any representation or warranty giving rise to the claim for
indemnity hereunder;
(ii) any breach of any covenant of any of Sellers contained in this
Agreement or in any Seller Ancillary Document;
(iii) any Liability of any Seller which is not an Assumed Liability
and any Liability of any Sold Subsidiary which is an Excluded Liability;
(iv) any Indebtedness that is not included on the Statement of Net
Assets;
(v) (A) any breach of any representation or warranty contained in
Sections 4.1(j)(B) (to the extent related to Business-Related Environmental
Liabilities) or 4.1(n) and (B) any Business-Related Environmental Liability
(other than those Environmental Liabilities assumed by Purchaser pursuant
to Sections 2.3(a)(vii) and 2.3(a)(xvi));
(vi) the matters set forth in the first paragraph of Schedule
8.1(a)(vi); or
(vii) subject to Purchaser's obligations under Section 8.2(x), all
cash expenditures paid by Purchaser to third parties during the period
described in Section 8.5(e) in respect of any Decontamination and
Decommissioning Liabilities with respect to facilities or equipment located
on the Premises on the Closing Date (other than Decontamination and
Decommissioning Liabilities which arise from, relate to or are otherwise in
respect of (v) modifications after the Closing Date to facilities or
equipment, (w) the addition of new facilities or equipment constructed or
installed on the Premises after the Closing Date, (x) operations conducted
at any such facilities after the Closing Date (which were not conducted at
such facilities prior to the Closing Date), (y) any action, omission or
failure to act by Purchaser relating to the termination of service,
decommissioning or demolition of facilities or equipment on the Premises,
which, but for such action, omission or failure to act, would not have
occurred at such time and (z) the acceleration into the applicable period
described in Section 8.5(e) of
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costs, Losses, Liabilities and Environmental Liabilities which, but for
such acceleration, would have been incurred after such period (any such
Decontamination and Decommissioning Liabilities referred to in clauses (v)
through (z) being referred to herein as "Purchaser's D&D")).
provided, however, that
- -------- -------
(A) CBS shall not have any Liability under clause (i) above unless the
aggregate of all Losses relating thereto for which CBS would, but
for this clause (A), be liable under clause (i) above exceeds
$40,000,000, and then only to the extent of any such excess;
(B) CBS shall not have any obligation to pay, in respect of Losses
indemnifiable pursuant to clause (i) above, an amount in excess of
$800,000,000 in the aggregate;
(C) for purposes of calculating Losses under clauses (i) and (ii)
above and determining the aggregate of all Losses pursuant to
clause (A) of this proviso, CBS shall not have any Liability for
any Loss in respect of such breaches if the aggregate amount of
such Loss relating to a single claim (or group of claims relating
to the same facts or circumstances, event or transaction) does not
exceed $15,000;
(D) CBS shall not have any Liability under this Section 8.1 and Annex
S to the extent the Liability arises as a result of the operation
of the Business or the Acquired Assets after the Closing or any
action taken or omitted to be taken by Purchaser or any of its
Affiliates;
(E) CBS shall not have any Liability in respect of any Losses under
clause (v) above except to the extent the aggregate of all such
Losses for which CBS, but for this clause (E), would be liable
exceeds $25,000,000, in which case, (w) for aggregate Losses of
more than $25,000,000, but less than $50,000,000, CBS shall pay
50% of such Losses, (x) for aggregate Losses of $50,000,000 or
more but less than $100,000,000, CBS shall pay 75% of such Losses,
(y) for aggregate Losses of $100,000,000 or more but less than
$200,000,000, CBS shall pay 50% of such Losses and (z) for
aggregate Losses of $200,000,000 or more, CBS shall pay 100% of
all other such Losses;
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(F) for purposes of calculating Losses under clause (v) above and
determining the aggregate of all Losses pursuant to clause (E) of
this proviso, CBS shall not have any liability if the aggregate
amount of such Loss relating to a single claim (or group of claims
relating to the same facts or circumstances, event or transaction)
does not exceed $1,000,000;
(G) CBS shall not have any Liability under clause (vi) above except to
the extent the aggregate of all Losses relating thereto for which
CBS would, but for this proviso, be liable under clause (vi) above
exceeds $16,000,000 (subject to reduction as provided in Schedule
8.1(a)(vi)), and then (x) each of CBS and Purchaser shall be
liable for fifty percent (50%) of the first $20,000,000 in
aggregate Losses in excess of such amount and (y) CBS shall be
liable for one hundred percent (100%) of any such Losses in excess
of $36,000,000 (subject to reduction as provided in Schedule
8.1(a)(vi)); and
(H) CBS shall not have any Liability in respect of any Losses under
clause (vii) above except to the extent that the aggregate of all
such Losses for which CBS would, but for this clause (H), be
liable under such clause (vii) exceed $155,000,000.
With respect to Losses for which CBS has Liability pursuant to
Sections 8.1(a)(v) or (vii) and to the extent that such Liability involves the
implementation of a Remedial Action, (i) in no event shall CBS's Liability
extend to Remedial Action that seeks to meet or address cleanup criteria
applicable to real property other than criteria applicable to real property used
for purposes substantially consistent with the purposes for which the Premises
were used by the Business prior to the Closing and (ii) CBS shall have the right
at its sole cost and expense to review and provide Purchaser with written
comments in advance of (A) the Purchaser's selection of consultants and
contractors designated to perform the Remedial Action and (B) the development of
the scope of work for, and type of, the Remedial Action to be implemented.
Purchaser shall review and reasonably and in good faith consider CBS's comments.
Purchaser shall provide all plans, reports and submissions to any Governmental
Authority regarding any such Remedial Action in draft form to CBS a reasonable
time prior to transmission of such items to such Governmental Authority and
Purchaser shall review and in good faith consider any of CBS's comments on such
plans, reports and submissions. CBS and its representatives shall have the
opportunity to be present and participate at any meetings with Governmental
Authorities.
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Notwithstanding any other limitation in this Section 8.1, with respect
to the Waltz Mill Service Center, CBS shall, at its sole cost and expense,
implement all remedial measures, including removal and decontamination
activities, as may be required by and are in accordance with approvals received
or to be received from the NRC (the "Plans") (x) in those areas of the Waltz
Mill Service Center identified in the Plans as "Retired Facilities" and (y)
which are associated with the termination of the TR-2 NRC License, which Plans
are incorporated herein by reference. CBS shall have the responsibility and
sole and exclusive authority to negotiate with and respond to the NRC (and any
other Governmental Authority) with respect to any issues which may arise during
implementation of the Plans, including, but not limited to, dose assessment and
surveying issues. CBS shall continue to be obligor with respect to
responsibility and liability for implementing the Plans and shall so advise the
NRC. Purchaser shall have the right, at its sole cost and expense, to review and
provide CBS with written comments in a reasonable time prior to transmission of
plans, reports and submissions to the NRC or any other Governmental Authority
and CBS shall review and in good faith consider any of Purchaser's comments on
such plans, reports and submissions. Any dispute between CBS and Purchaser with
respect to such plans, reports and submissions shall be addressed in the manner
set forth in Section 8.8 of this Agreement (Arbitration of Certain Environmental
Liabilities). Notwithstanding any leasehold interest Purchaser may have in the
Waltz Mill Services Center Facilities, Purchaser shall afford CBS, its agents,
employees, contractors, subcontractors and other representatives reasonable
access to the Waltz Mill Service Center from and after the Closing, until such
time as the Plans have been completed and NRC has approved completion of the
Plans. Such access shall also include access to electrical, water, and other
utilities as may be required by CBS to implement the Plans. Such access shall
include, but not be limited to, the laboratory, boiler room, health physics
area, engineering and electrical room.
Notwithstanding the foregoing, from and after the time, if any, as
clause (E)(z) or (H) of the third preceding paragraph becomes applicable or
could reasonably be expected to become applicable prior to completion of any
specific Remedial Action, all determinations with respect to Remedial Actions
(including those contemplated by the first sentence of the immediately preceding
paragraph) shall be made jointly by CBS and Purchaser acting reasonably and in
good faith. All such determinations shall be made (1) with a view towards
achieving solutions that involve reasonable and customary Remedial Actions that
can be implemented efficiently and cost-effectively, (2) with due regard to
avoiding undue interference with the ongoing business operations of Purchaser
(or its successor in interest) at the Premises and (3) in accordance with
Environmental Laws. If, in such circumstances, (X) CBS and Purchaser do not
agree as to whether Remedial Action or any significant portion of a Remedial
Action is required by an Environmental Law, the parties shall submit such
dispute to
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arbitration pursuant to Section 8.8 or (Y) CBS and Purchaser do not agree with
respect to the scope of work for, and the type of, the Remedial Action to be
implemented, each of CBS and Purchaser shall submit to the other a written
proposal with respect thereto; if the parties are unable to agree how to
proceed, either party may submit such dispute to arbitration pursuant to Section
8.8.
(b) Notwithstanding anything to the contrary contained in this Article
8 or Annex S, CBS and Purchaser have agreed to allocate responsibility for
certain Assumed Liabilities pursuant to specific provisions of this Agreement.
It is the intent of the parties that such provisions be the sole and exclusive
means for recovery of amounts that otherwise might constitute Losses
indemnifiable by CBS under this Article 8. Accordingly, CBS shall not have any
Liability under clause (i) of Section 8.1(a) for any breach of representation or
warranty by CBS contained in the Agreement (other than those contained in
Section 2 of Annex S) if the claim for breach of representation or warranty
relates to any Assumed Liability (including Business-Related Environmental
Liabilities) for which CBS and Purchaser have expressly allocated responsibility
pursuant to the provisions listed in Schedule 8.1(b); provided that nothing in
--------
this Section shall eliminate, diminish or otherwise affect Purchaser's
obligations under Sections 3 and 4 of Annex S.
(c) Purchaser acknowledges and agrees that its sole and exclusive
remedy with respect to any and all claims relating to the subject matter of this
Agreement (except as provided in Section 5.14 and except as provided in Annex S
with respect to Steam Generator Liabilities) shall be pursuant to the
indemnification provisions set forth in this Section 8.1. In furtherance of the
foregoing, Purchaser hereby waives, to the fullest extent permitted under Law,
any and all rights, claims and causes of action it may have against Sellers,
their Affiliates and their respective officers, directors, employees,
stockholders, agents and representatives arising under or based upon any Law,
Environmental Law or otherwise (except pursuant to the indemnification
provisions set forth in this Article 8).
SECTION 8.2. INDEMNIFICATION BY PURCHASER. Without limiting
----------------------------
Purchaser's rights under Section 8.1 and Annex S, Purchaser hereby agrees to
indemnify Sellers, their Affiliates and their respective officers, directors,
employees, stockholders, agents and representatives against, and agrees to hold
them harmless from, any Losses, as incurred, (payable quarterly upon written
request), to the extent arising from, relating to or otherwise in respect of:
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(i) any breach of any representation or warranty of Purchaser
contained in this Agreement;
(ii) any breach of any covenant of Purchaser contained in this
Agreement or in any Purchaser Ancillary Document;
(iii) any Assumed Liabilities;
(iv) all Liabilities of the Sold Subsidiaries;
(v) all Indebtedness included in the Statement of Net Assets;
(vi) any Liability under the WARN Act or similar statute to the
extent arising from the actions of Purchaser after the Closing;
(vii) any Liability under any Credit Support Arrangement following
the Closing;
(viii) any Liability relating to the performance or failure to perform
under any Contracts, Intellectual Property or Technology assigned to
Purchaser pursuant to Sections 5.4(b) or 5.4(c) (in the case of Section
5.4(c), to the extent Purchaser is provided the benefits of any Contract,
Intellectual Property or Technology);
(ix) the operation of the Business or the Acquired Assets, or any
actions or omissions of Purchaser, its Affiliates, agents, contractors or
subcontractors in connection therewith, after the Closing, including all
Liabilities which arise from, relate to or are otherwise in respect of
Purchaser's D&D (as defined in Section 8.1(a)(vii)); or
(x) the termination, cessation, or alteration of Purchaser's
activities at the Waltz Mill Service Center site, but only to the extent
that such termination, cessation, or alteration gives rise to incremental
Decontamination and Decommission Liabilities associated with a change in
site use classification by a Governmental Authority from industrial to non-
industrial. Any dispute between CBS and Purchaser with respect to the
Losses described in this clause (x) shall be addressed in the manner set
forth in Section 8.8.
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SECTION 8.3. CHARACTERIZATION OF INDEMNIFICATION PAYMENTS. All amounts
--------------------------------------------
paid by CBS or Purchaser, as the case may be, under this Article 8 shall be
treated as adjustments to the Purchase Price for all Tax purposes.
SECTION 8.4. LOSSES NET OF INSURANCE; TAX LOSS AND BENEFITS; NO
--------------------------------------------------
CONSEQUENTIAL DAMAGES.
- ---------------------
(a) The amount of any Loss shall be:
(i) net of any amounts recovered or recoverable by the indemnified
party under insurance policies or Government Contracts (it being understood
that if any amount is recovered or recoverable by Purchaser under any
insurance policy or Government Contract, it shall not be subject to
indemnification by CBS under this Article 8) with respect to such Loss;
(ii) (A) increased to take account of any net Tax cost incurred by
the indemnified party by reason of the receipt of any indemnity payment
being treated for Tax purposes as other than an adjustment to the Purchase
Price (grossed-up for such increase) and (B) reduced to take account of any
net Tax benefit realized by the indemnified party in respect of the taxable
year in which such Loss is incurred or paid and, with respect to a Tax
benefit arising in a year subsequent to the year in which the Loss is paid
or incurred, the indemnified party shall pay to the indemnifying party the
amount of such Tax benefit at the time such Tax benefit is actually
realized, arising from the incurrence or payment of any such Loss; and
(iii) to avoid double-counting as to any matter, determined after
giving effect to any reserves on the books of the Business as of the
Closing Date in respect of such matter if and to the extent such reserve
was reflected in the Statement of Working Capital or the Balance Sheet;
provided that this clause (iii) shall not apply in determining the amount
--------
of any Loss for purposes of clause (v), (vi) or (vii) of Section 8.1(a) or
Sections 3 and 4 of Annex S.
(b) In computing the amount of any such Tax cost or Tax benefit, the
indemnified party shall be deemed to recognize all other items of income, gain,
loss, deduction or credit before recognizing any item arising from the receipt
of any indemnity payment hereunder or the incurrence or payment of any
indemnified loss, liability, claim, damage or expense. Notwithstanding anything
to the contrary contained herein, no indemnification shall
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be provided for under this Article 8 in respect of any indirect, special,
consequential or "business interruption" damages.
(c) Purchaser shall use its commercially reasonable efforts consistent
with past practice in relation to the Energy Systems Business to pursue any and
all rights to reimbursement, recovery or indemnification for Losses pursuant to
any Government Contract prior to bringing any claim against CBS under this
Article 8.
(d) Notwithstanding anything to the contrary in this Agreement and the
GESCO Asset Purchase Agreement, neither CBS nor Purchaser shall have any
Liability for Losses indemnifiable under Article 8 of either agreement to the
extent such party has previously been indemnified with respect to such Losses
pursuant to Article 8 of the other agreement.
SECTION 8.5. TERMINATION OF INDEMNIFICATION.
------------------------------
The obligations to indemnify and hold harmless any party, (a) pursuant
to clause (a)(i) of Section 8.1 and clause (a)(i) of Section 8.2, shall
terminate when the applicable representation or warranty terminates pursuant to
Section 9.3; provided, however, that such obligations to indemnify and hold
-------- -------
harmless shall not terminate with respect to any item as to which the Person to
be indemnified shall have, before the expiration of the applicable period,
previously made a claim by delivering a notice pursuant to Section 5.14(l), 8.6
or 8.7 (stating in reasonable detail the basis of such claim) to the party to be
providing the indemnification; (b) pursuant to clause (a)(v)(B) of Section 8.1,
shall terminate on the eighth anniversary of the Closing Date; (c) pursuant to
clause (a)(vi) of Section 8.1 shall terminate on the fourth anniversary of the
Closing Date; (d) pursuant to Section 3(b) of Annex S, shall terminate on the
fourth anniversary of the Closing Date; (e) pursuant to clause (a)(vii) of
Section 8.1 shall terminate as to any equipment or facility on the earliest of
(i) the tenth anniversary of the Closing Date, (ii) the expiration or voluntary
or involuntary termination of an NRC Permit or Permit issued by a foreign
Governmental Authority after the Closing Date giving rise to Decontamination and
Decommissioning Liabilities, and (iii) the discontinuance or closedown of a
facility after the Closing Date giving rise to Decontamination and
Decommissioning Liabilities; and (f) pursuant to the other clauses of Sections
8.1 and 8.2 and Annex S shall not terminate.
SECTION 8.6. PROCEDURES RELATING TO THIRD PARTY CLAIMS (OTHER THAN
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TAX CONTROVERSIES AND ENVIRONMENTAL LIABILITIES).
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(a) In order for a Person (the "indemnified party"), to be entitled to
-----------------
any indemnification provided for under this Agreement in respect of, arising out
of or involving a claim made by any Person against the indemnified party (other
than a Tax Controversy or Environmental Liability, procedures for which are
specified in Section 5.14(l) in the case of Tax Controversies and Section 8.9 in
the case of Environmental Liabilities) (a "Third Party Claim"), such indemnified
-----------------
party must notify the indemnifying party in writing, and in reasonable detail,
of the Third Party Claim within 10 business days after receipt by such
indemnified party of notice of the Third Party Claim; provided, however, that
-------- -------
failure to give such notification shall not affect the indemnification provided
hereunder except to the extent the indemnifying party shall have been actually
prejudiced as a result of such failure, including loss of any rights of
subrogation (except that the indemnifying party shall not be liable for any
expenses incurred during the period in which the indemnified party failed to
give such notice). Thereafter, the indemnified party shall deliver to the
indemnifying party, promptly after the indemnified party's receipt thereof,
copies of all notices and documents (including court papers) received by the
indemnified party relating to the Third Party Claim.
(b) If a Third Party Claim is made against an indemnified party, the
indemnifying party will be entitled to participate in the defense thereof and,
if it so chooses, to assume the defense thereof with counsel selected by the
indemnifying party. If the indemnifying party so elects to assume the defense of
a Third Party Claim, the indemnifying party will not be liable to the
indemnified party for any legal expenses subsequently incurred by the
indemnified party in connection with the defense thereof. If the indemnifying
party assumes such defense, the indemnified party shall have the right to
participate in the defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by the indemnifying party, it being
understood that the indemnifying party shall control such defense. The
indemnifying party shall be liable for the fees and expenses of counsel employed
by the indemnified party for any period during which the indemnifying party has
not assumed the defense thereof (other than during any period in which the
indemnified party shall have failed to give notice of the Third Party Claim as
provided above). If the indemnifying party chooses to defend or prosecute a
Third Party Claim, all the parties hereto shall cooperate in the defense or
prosecution thereof. Such cooperation shall include the retention and (upon the
indemnifying party's request) the provision to the indemnifying party of records
and information which are reasonably relevant to such Third Party Claim, and
making employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. If the
indemnifying party chooses to defend or prosecute any Third Party Claim, the
indemnified party will agree to any settlement, compromise or discharge of such
Third Party Claim which the indemnifying party may recommend, which involves no
order for non-monetary relief, will not result in the indemnified party being
bound
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by principles of res judicata or collateral estoppel in defending other
similar claims and which by its terms obligates the indemnifying party to pay
the full amount of the liability in connection with such Third Party Claim or,
if such settlement, compromise or discharge does not require full payment of
such liability, the indemnified party shall have the right to consent to such
settlement, compromise or discharge, which consent may not be unreasonably
withheld. Whether or not the indemnifying party shall have assumed the defense
of a Third Party Claim, the indemnified party shall not admit any liability with
respect to, or settle, compromise or discharge, such Third Party Claim without
the indemnifying party's prior written consent (which consent shall not be
unreasonably withheld).
SECTION 8.7. PROCEDURES RELATING TO NON-THIRD PARTY CLAIMS. In order
---------------------------------------------
for an indemnified party to be entitled to any indemnification provided for
under this Agreement in respect of a claim that does not involve a Third Party
Claim, Tax Controversy or Environmental Liability being asserted against or
sought to be collected from such indemnified party, the indemnified party shall
deliver notice of such claim with reasonable promptness to the indemnifying
party. The failure by any indemnified party so to notify the indemnifying party
shall not relieve the indemnifying party from any liability which it may have to
such indemnified party under this Agreement, except to the extent that the
indemnifying party shall have been actually prejudiced by such failure. If the
indemnifying party does not notify the indemnified party within 30 calendar days
following its receipt of such notice that the indemnifying party disputes its
liability to the indemnified party under this Agreement, such claim specified by
the indemnified party in such notice shall be conclusively deemed a liability of
the indemnifying party under this Agreement and the indemnifying party shall pay
the amount of such liability to the indemnified party on demand or, in the case
of any notice in which the amount of the claim (or any portion thereof) is
estimated, on such later date when the amount of such claim (or such portion
thereof) becomes finally determined. If the indemnifying party has timely
disputed its liability with respect to such claim, as provided above, the
indemnifying party and the indemnified party shall proceed in good faith to
negotiate a resolution of such dispute and, if not resolved through
negotiations, subject to Section 9.8, such dispute shall be resolved by
litigation in an appropriate court of competent jurisdiction.
SECTION 8.8. ARBITRATION OF CERTAIN ENVIRONMENTAL LIABILITIES.
------------------------------------------------
Any dispute as to the scope of work or the type of Remedial Action,
whether a cost or Loss is a Decontamination and Decommissioning Liability or the
matters concerning the Waltz Mill Service Center described in Sections 8.1(a)
and 8.2(x) shall be settled by arbitration in accordance with the Commercial
Rules of the American Arbitration Association.
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Any party may commence arbitration hereunder by delivering notice to the other
party or parties to the dispute, claim or controversy. The arbitration panel
shall consist of three arbitrators. Within 10 days after delivery of the notice
of commencement of arbitration referred to above, the Purchaser and CBS shall
each appoint one arbitrator, and the two arbitrators so appointed shall within
10 days of their appointment designate a third arbitrator within ten days of
their appointment. If the arbitrators designated by the parties to the
arbitration are unable or fail to agree upon the third arbitrator, the third
arbitrator shall be designated by the American Arbitration Association under its
rules. The arbitrators will be bound by the substantive law of the State of New
York, but will not be bound by the laws of evidence and procedure customary in
courts of law. The arbitrators shall be required to submit a written statement
of their findings and conclusions. The award of the arbitrators shall be final,
binding and conclusive on the parties; provided that, where a remedy for breach
is prescribed hereunder or limitations on remedies are prescribed, the
arbitrators shall be bound by such restrictions. Judgment upon the award may be
entered in any court having jurisdiction thereof. The arbitration proceedings
shall be conducted in New York, New York. Unless otherwise determined by the
arbitrator (which determination shall be final and binding on the Purchaser and
CBS), each party shall pay its own expenses of arbitration and the expenses of
the arbitrators shall be shared equally by the Purchaser, on the one hand, and
CBS involved in such arbitration, on the other hand.
SECTION 8.9. PROCEDURES RELATING TO CLAIMS CONSTITUTING AN
---------------------------------------------
ENVIRONMENTAL LIABILITY.
- -----------------------
(a) After the Closing, each of Purchaser and CBS shall notify (the
"Notifying Party") the other in writing, and in reasonable detail, of any claim
---------------
in respect of, arising out of or involving a claim made by any Person against
the Notifying Party constituting an Environmental Liability or a breach of the
representations and warranties contained in Section 4.1(j)(B) (to the extent
related to Business-Related Environmental Liabilities) or Section 4.1(n) (a
"Shared Claim"), within 10 business days after receipt by the Notifying Party of
------------
written notice of the Shared Claim; provided, however, that failure to give such
notification shall not affect the indemnification provided hereunder except to
the extent the other party shall have been actually prejudiced as a result of
such failure (except that the other party shall not be liable for any expenses
incurred during the period in which the Notifying Party failed to give such
notice). Thereafter, each party shall deliver to the other party, promptly after
such party's receipt thereof, copies of all notices and documents (including
court papers) received by the such party relating to the Shared Claim.
118
<PAGE>
(b) Subject to the provisions of Sections 8.1(a) with respect to
Remedial Actions, during the period from the date hereof to the Closing Date,
Purchaser and CBS shall negotiate in good faith and enter into one or more
agreements governing defense of Shared Claims, it being agreed that any such
agreement shall provide that:
(i) Purchaser and CBS will each be entitled to participate in the
defense of any Shared Claim; provided, however, that if CBS shall have one
-------- -------
hundred percent of the liability in respect thereof pursuant to Section
8.1(a)(v) such claim shall be treated as a Third Party Claim under Section
8.6;
(ii) Purchaser and CBS will each cooperate in the defense or
prosecution of any Shared Claim, including the retention and (upon request)
the provision to the requesting party of records and information which are
reasonably relevant to such Shared Claim, and making employees (including
any Business Employees familiar with such Shared Claim) available on a
mutually convenient basis to provide additional information and explanation
of any such records and information;
(iii) Purchaser and CBS will consult with each other and shall
mutually agree on any significant strategic decisions in respect of any
Shared Claim;
(iv) Purchaser and CBS will consult with each other and shall
mutually agree on any settlement, compromise or discharge of any Shared
Claim;
(v) neither Purchaser nor CBS shall admit any liability with respect
to, or settle, compromise or discharge, any Shared Claim without the other
party's prior written consent (which consent shall not be unreasonably
withheld); and
(vi) appropriate and mutually agreeable arrangements with respect to
day-to-day administration of any Shared Claim shall be provided for in such
agreements.
SECTION 8.10. STEAM GENERATOR MATTERS. Annex S is incorporated herein
-----------------------
as if fully set forth herein.
SECTION 8.11. SUBROGATION. (a) Without limiting Purchaser's
-----------
indemnification obligations pursuant to Section 8.2, in connection with any
defense in respect of, arising out of or involving a claim by any Person against
Sellers or any of their Affiliates, Sellers and their Affiliates shall be
subrogated to the rights of Purchaser under any Contracts included in the
Acquired Assets (including rights to indemnification and reimbursement).
119
<PAGE>
(b) To the extent that Purchaser has refrained from, delayed, or
abandoned pursuing any rights to reimbursement, recovery or indemnification for
Losses pursuant to any Contract with respect to any Losses subject to
indemnification by Purchaser pursuant to Section 8.2, Sellers or their
Affiliates shall have the right, at their election, to commence or assume a
claim or course of action in Purchaser's name with respect to any of Purchaser's
rights subrogated hereunder.
ARTICLE 9
GENERAL PROVISIONS
SECTION 9.1. NOTICES. All notices and other communications hereunder
-------
shall be in writing (including telecopy or similar writing) and shall be sent,
delivered or mailed, addressed or telecopied:
(a) if to Purchaser, to:
WGNH Acquisition, L.L.C.
c/o Morrison Knudsen Corporation
Attention: Corporate Secretary
720 Park Boulevard
Boise, ID 83712
Telecopy No.: (208) 386-5298
c/o British Nuclear Fuels plc
Alvin J. Shuttleworth
Company Secretary and Group Legal Director
Risley, Warrington
Cheshire WA3 6AS
England
Telecopy No.: 011-441-925-832058
120
<PAGE>
with a copy to:
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: Mark D. Herlach, Esq.
Telecopy No.: (202) 637-3593
(b) if to CBS, to:
Office of General Counsel
CBS Corporation
Westinghouse Building
11 Stanwix Street
Pittsburgh, PA 15222
Telecopy No.: (412) 642-5224
with copies to:
Office of General Counsel
CBS Inc.
51 West 52nd Street
New York, New York 10019
Telecopy No.: (212) 975-3744
and
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Howard Chatzinoff, Esq.
Telecopy No.: (212) 310-8007
Each such notice or other communication shall be given (i) by hand delivery,
(ii) by nationally recognized courier service or (iii) by telecopy, receipt
confirmed. Each such notice or communication shall be effective (i) if
delivered by hand or by nationally recognized courier service, when delivered at
the address specified in this Section 9.1 (or in accordance with the latest
unrevoked direction from such party) and (ii) if given by telecopy, when such
telecopy is
121
<PAGE>
transmitted to the telecopy number specified in this Section 9.1 (or in
accordance with the latest unrevoked direction from such party), and
confirmation is received.
SECTION 9.2. INTERPRETATION. The Exhibits, Annexes and Schedules are
--------------
part of this Agreement as if fully set forth in this Agreement. When a
reference is made in this Agreement to a Section, Exhibit, Annex or Schedule,
such reference shall be to a Section of, or an Exhibit, Annex or Schedule to,
this Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. For purposes of any
indemnification provision in this Agreement, the word "expenses" shall mean out-
--------
of-pocket expenses, and shall not include any allocations of internal salaries
and other expenses. Whenever the words "included," "includes" or "including" are
-------- -------- ---------
used in this Agreement, they shall be deemed to be followed by the words
"without limitation." Whenever the word "material" is used in this Agreement
--------
(except when used with respect to the Purchaser), it shall mean material to the
Business or financial condition of the Business, taken as a whole. Whenever
reference is made to "knowledge" with respect to any Seller, it shall mean the
---------
actual knowledge of the Persons named in Schedule 9.2. Any matter set forth in
any Schedule shall be deemed set forth in all other Schedules to the extent
relevant.
SECTION 9.3. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
-----------------------------------------------------
The representations and warranties contained in this Agreement (including the
representation and warranty contained in the penultimate sentence of Section
4.1(h)) shall survive the Closing solely for purposes of Article 8 and shall
terminate at the close of business 18 months following the Closing Date;
provided, however, that (i) the representations and warranties contained in
- -------- -------
Sections 4.1(a), 4.1(b), 4.1(f) and 4.1(g) (but only to the extent Section
4.1(g) relates to matters of title) shall survive indefinitely; (ii) the
representations and warranties contained in Section 4.1(c)(i) shall survive
until the fourth anniversary of the Closing Date; (iii) the representations and
warranties contained in Section 4.1(m) and Section 4.1(j)(B) shall survive until
the close of business 30 months following the Closing Date; and (iv) the
representations and warranties contained in Section 4.1(o), to the extent that
such representations and warranties relate to Income Taxes, shall terminate on
the Closing Date. The covenants contained in this Agreement, except as otherwise
expressly provided, shall survive the Closing indefinitely; provided, however,
-------- -------
that the covenants contained in Sections 5.1, 5.2, 5.3(a) and 5.3(b) shall
terminate on the Closing Date.
SECTION 9.4. SEVERABILITY. If any provision of this Agreement (or
------------
any portion thereof) or the application of any such provision (or any portion
thereof) to any Person or circumstance shall be held invalid, illegal or
unenforceable in any respect by a court of
122
<PAGE>
competent jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provision hereof (or the remaining portion thereof) or the
application of such provision to any other Persons or circumstances.
SECTION 9.5. COUNTERPARTS. This Agreement may be executed in two or
------------
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered (including by telecopy) to the other party.
SECTION 9.6. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. Except
----------------------------------------------
as expressly otherwise agreed in writing by the parties hereto, this Agreement,
the Guarantee Agreement, the Novation Agreements and the Confidentiality
Agreements (a) constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof and supersede all prior agreements and
understandings, negotiations and discussions, whether written and oral, among
the parties with respect to the subject matter hereof, and there are no
warranties, representations or other agreements between the parties hereto in
connection with the subject matter hereof, except as specifically set forth in
this Agreement, the Guarantee Agreements, and the Confidentiality Agreements and
(b) except as provided in Article 8, are not intended to confer upon any Person
other than the parties hereto (and the Selling Subsidiaries) and their
successors and permitted assigns any rights or remedies hereunder.
SECTION 9.7. GOVERNING LAW. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York applicable to
contracts made and to be performed entirely in the State of New York, regardless
of the laws that might otherwise govern under applicable principles of conflict
of laws.
SECTION 9.8. MEDIATION; CONSENT TO JURISDICTION.
----------------------------------
(a) Except as provided in Section 8.8, any dispute among the parties
arising out of or in connection with this Agreement or any other agreement,
instrument or other document delivered pursuant to this Agreement, or any
alleged breach hereof or thereof (other than (i) a dispute arising under or with
respect to Section 5.19 or the confidentiality obligations set forth in the
second penultimate sentence of Section 5.2(a) or (ii) a dispute in respect of
which there is a reasonable likelihood of irreparable harm (as to which a party
may seek a temporary restraining order or injunctive relief)) shall be submitted
for discussion and possible resolution by senior officers or designated
spokesperson of each such party.
123
<PAGE>
(b) If within a period of 15 days after submission of a matter in
accordance with clause (a) hereof the respective senior officers and designated
spokespersons are unable to agree upon a resolution, any party may within 15
days after the aforesaid 15-day period elect to utilize a non-binding resolution
procedure whereby each party presents its case at a hearing held in New York,
New York before a neutral advisor, who shall be selected from the CPR Institute
For Dispute Resolution. The parties shall bear their respective costs incurred
in connection with this procedure including the fees and expenses of the neutral
advisor. Prior to the hearing, the parties and the neutral advisor shall use
their reasonable best efforts to agree on a set of ground rules for the hearing.
At the closing of the hearing, the senior executive officers of the respective
parties shall meet and attempt to resolve the matter. Only after the foregoing
procedure has been exhausted shall either party resort to litigation as the
final adjudication of the dispute.
(c) Each of Purchaser and CBS irrevocably submits to the non-exclusive
jurisdiction of (i) the Supreme Court of the State of New York, New York County,
and (ii) the United States District Court for the Southern District of New York
located in the Borough of Manhattan in the City of New York, for the purposes of
any suit, action or other proceeding arising out of this Agreement or any
transaction contemplated hereby. Each of the Purchaser and CBS further agrees
that service of any process, summons, notice or document by U.S. registered mail
to such party's respective address set forth in Section 9.1 or, in the case of
Purchaser, to its agent for service of process shall be effective service of
process for any action, suit or proceeding in New York with respect to any
matters to which it has submitted to jurisdiction as set forth above. Each of
Purchaser and CBS irrevocably and unconditionally waives any objection to the
laying of venue of any action, suit or proceeding arising out of this Agreement
or the transactions contemplated hereby in (x) the Supreme Court of the State of
New York, New York County, or (y) the United States District Court for the
Southern District of New York, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
SECTION 9.9. PUBLICITY. From the date of this Agreement through the
---------
Closing, neither CBS, on the one hand, nor Purchaser, on the other hand, shall
issue or cause the publication of any press release or other public announcement
with respect to the transactions contemplated by this Agreement without the
consent of the other party, which consent shall not be unreasonably withheld.
If one party provides a copy of its proposed press release or public
announcement to the other party, and the other party does not object or comment
on the proposal within forty-eight hours of receipt, such failure to comment
will be treated as consent to publication by the recipient. If such release or
announcement is required
124
<PAGE>
by Law or the rules or regulations of a national securities exchange in the
United States, the party required to make the release or announcement shall
allow the other party reasonable time to comment on such release or announcement
in advance of its issuance. The parties will agree on an appropriate procedure
to implement the requirements of this Section 9.9.
SECTION 9.10. ASSIGNMENT. Neither this Agreement nor any of the
----------
rights, interests or obligations hereunder shall be assigned by any party hereto
without the prior written consent of the other party, except that, so long as
any such assignment would not delay or impede the consummation of the
transactions contemplated hereby, Purchaser may assign to one or more Purchaser
Affiliates the right to acquire part or all of the business and assets of the
Business hereunder, together with the other rights of Purchaser hereunder with
respect thereto; provided, however, that any such assignment shall not release
-------- -------
Purchaser from any Liability hereunder (including any Liability under Article 8)
or enlarge or enhance Purchaser's rights or affect any limitations on CBS's
Liability under Article 8. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
SECTION 9.11. WAIVER OF JURY TRIAL; TRIAL COSTS. Each of Purchaser
---------------------------------
and the Sellers, for themselves and their respective Affiliates, hereby
irrevocably waives all right to trial by jury in any action, proceeding or
counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to the actions of Purchaser and the Sellers or their respective
Affiliates pursuant to this Agreement in the negotiation, administration,
performance or enforcement thereof. The party in whose favor a final judgment is
rendered shall be entitled to reasonable costs and reasonable attorneys' fees.
125
<PAGE>
IN WITNESS WHEREOF, CBS and Purchaser have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
CBS CORPORATION
By: /s/ Fredric G. Reynolds
---------------------------------
Name: Fredric G. Reynolds
Title: Executive Vice President,
Chief Financial Officer
WGNH ACQUISITION, LLC
By: /s/ Stephen G. Hanks
----------------------------
Name: Stephen G. Hanks.
Title:
By: /s/ J. J. Taylor
---------------------------------
Name: J. J. Taylor
Title:
126
<PAGE>
EXHIBITS AND SCHEDULES
THE REGISTRANT AGREES TO PROVIDE THE SECURITIES AND EXCHANGE COMMISSION,
UPON REQUEST, WITH COPIES OF THE EXHIBITS AND SCHEDULES HERETO.
127
<PAGE>
EXHIBIT 10.11
EXECUTION COPY
GESCO
================================================================================
ASSET PURCHASE AGREEMENT
BETWEEN
CBS CORPORATION
AND
WGNH ACQUISITION, LLC
DATED AS OF JUNE 25, 1998
<PAGE>
TABLE OF CONTENTS
=================
Page
ARTICLE 1
DEFINITIONS............................... 4
SECTION 1.1. Specified Definitions........................................ 4
---------------------
SECTION 1.2. Other Terms.................................................. 16
-----------
SECTION 1.3. Other Definitional Provisions................................ 17
-----------------------------
ARTICLE 2
SALE AND PURCHASE OF ASSETS; ASSUMPTION OF LIABILITIES.......... 17
SECTION 2.1. Purchase and Sale............................................ 17
-----------------
SECTION 2.2. Acquired Assets and Excluded Assets.......................... 17
-----------------------------------
(a) Acquired Assets............................................. 17
---------------
(b) Excluded Assets............................................. 20
---------------
(c) Nonassignable Rights........................................ 22
--------------------
(d) Termination of Rights of Sold Subsidiaries.................. 23
------------------------------------------
SECTION 2.3. Assumption of Liabilities.................................... 23
-------------------------
(a) Assumed Liabilities......................................... 23
------------------
(b) Excluded Liabilities........................................ 25
--------------------
SECTION 2.4. Purchase Price............................................... 27
--------------
SECTION 2.5. Purchase Price Adjustment.................................... 28
-------------------------
ARTICLE 3
THE CLOSING.............................. 32
SECTION 3.1. Closing Date................................................. 32
------------
SECTION 3.2. Transactions to be Effected at the Closing................... 32
------------------------------------------
(a) Deliveries by Sellers....................................... 32
---------------------
(b) Deliveries by Purchaser..................................... 33
-----------------------
ARTICLE 4
REPRESENTATIONS AND WARRANTIES...................... 33
SECTION 4.1. Representations and Warranties of CBS........................ 33
-------------------------------------
(a) Organization, Standing and Power............................ 33
--------------------------------
(b) Authority................................................... 33
---------
(c) Financial Statements; Undisclosed Liabilities............... 35
---------------------------------------------
i
<PAGE>
(d) Compliance with Applicable Laws.............................. 36
-------------------------------
(e) Litigation; Decrees.......................................... 37
-------------------
(f) Title to Acquired Assets; Leasehold Interests................ 37
---------------------------------------------
(g) Real Property................................................ 38
-------------
(h) Intellectual Property and Technology......................... 40
------------------------------------
(i) Insurance.................................................... 41
---------
(j) Contracts.................................................... 42
---------
(k) Sufficiency of Acquired Assets............................... 45
------------------------------
(l) Absence of Certain Changes or Events......................... 45
------------------------------------
(m) Employee Benefits............................................ 46
-----------------
(n) Environmental Matters........................................ 49
---------------------
(o) Taxes........................................................ 51
-----
(p) Sold Subsidiaries............................................ 53
-----------------
(q) Labor Matters................................................ 54
-------------
(r) Outstanding Bids............................................. 54
----------------
(s) Major Suppliers.............................................. 54
---------------
(t) Year 2000.................................................... 55
---------
(u) Tangible Property............................................ 55
-----------------
SECTION 4.2. Representations and Warranties of Purchaser................... 56
-------------------------------------------
(a) Organization, Standing and Power............................. 56
--------------------------------
(b) Authority.................................................... 56
---------
(c) U.S.-Controlled Entity....................................... 57
----------------------
(d) U.K. Governmental Authority Approvals........................ 57
-------------------------------------
ARTICLE 5
COVENANTS................................. 58
SECTION 5.1. (a) Covenants of CBS Relating to Conduct of Business......... 58
------------------------------------------------
(b) Advice of Changes............................................ 60
-----------------
SECTION 5.2. Access to Information; Consultation........................... 61
-----------------------------------
SECTION 5.3. Governmental Approvals, Etc................................... 62
----------------------------
SECTION 5.4. Novations of Government Contracts and Third Party Consents.... 64
----------------------------------------------------------
SECTION 5.5. Employee Matters.............................................. 66
-----------------
(a) Employee Matters............................................. 66
----------------
(b) Accrued Vacation............................................. 68
----------------
(c) Pension Plan................................................. 68
------------
(d) Savings Plan................................................. 68
------------
(e) Union Representation......................................... 70
--------------------
(f) Medical and Disability Benefits; Life Insurance.............. 70
-----------------------------------------------
(g) Severance Obligations........................................ 74
---------------------
(h) Executive Compensation....................................... 74
----------------------
ii
<PAGE>
(i) Retiree Welfare Benefits..................................... 75
------------------------
(j) Retained Liabilities......................................... 75
--------------------
(k) Cooperation.................................................. 75
-----------
(l) WARN Act..................................................... 75
--------
(m) Workers Compensation......................................... 75
--------------------
(n) Free-Standing Plans.......................................... 76
-------------------
(o) Actuarial Determinations and Payments........................ 77
-------------------------------------
(p) No Right to Employment....................................... 78
----------------------
(q) Post-Closing Hiring of Employees............................. 78
--------------------------------
(r) Alternative Procedure........................................ 78
---------------------
(s) COBRA........................................................ 79
-----
SECTION 5.6. Collection of Receivables..................................... 79
-------------------------
SECTION 5.7. Expenses...................................................... 79
--------
SECTION 5.8. Brokers or Finders............................................ 79
------------------
SECTION 5.9. Shared Technology and Trademark License Agreements............ 80
--------------------------------------------------
SECTION 5.10. Certain Information.......................................... 81
-------------------
SECTION 5.11. Bulk Transfer Laws........................................... 82
------------------
SECTION 5.12. Additional Agreements........................................ 82
---------------------
SECTION 5.13. Certain Understandings....................................... 82
----------------------
SECTION 5.14. Allocation; Tax Matters...................................... 83
-----------------------
SECTION 5.15. Supplies..................................................... 87
--------
SECTION 5.16. Transfer of Assets of Sold Subsidiaries...................... 88
---------------------------------------
SECTION 5.17. Removal of Excluded Assets and Liabilities from Sold
----------------------------------------------------
Subsidiaries................................................ 88
------------
SECTION 5.18. Credit Support............................................... 88
--------------
SECTION 5.19. Non-Competition and Confidentiality.......................... 89
-----------------------------------
SECTION 5.20. Related Agreements........................................... 91
------------------
(a) Transitional Services....................................... 91
---------------------
(b) Facilities.................................................. 91
----------
SECTION 5.21. Business Relationships with Sellers.......................... 92
-----------------------------------
SECTION 5.22. U.S.-Controlled Entity....................................... 92
----------------------
SECTION 5.23. Insurance Matters............................................ 92
-----------------
SECTION 5.24. Guarantee Agreement.......................................... 93
-------------------
SECTION 5.25. Waivers...................................................... 93
-------
SECTION 5.26. Third Party Agreements....................................... 93
----------------------
SECTION 5.27. Year 2000 Matters............................................ 93
-----------------
SECTION 5.28. Joint Defense Agreement...................................... 94
-----------------------
SECTION 5.29. OCI Compliance............................................... 94
--------------
SECTION 5.30. Guarantee Agreement.......................................... 94
-------------------
ARTICLE 6
iii
<PAGE>
CONDITIONS PRECEDENT............................ 94
SECTION 6.1. Conditions to Each Party's Obligation......................... 94
-------------------------------------
(a) Certain Waiting Periods...................................... 94
-----------------------
(b) No Injunctions or Restraints................................. 95
----------------------------
(c) Governmental Action.......................................... 95
-------------------
(d) Consummation of the ESBU Asset Purchase Agreement............ 95
-------------------------------------------------
SECTION 6.2. Conditions to Obligation of Purchaser......................... 95
-------------------------------------
(a) Representations and Warranties............................... 95
------------------------------
(b) Performance of Obligations of CBS............................ 95
---------------------------------
(c) Conveyancing Documents....................................... 95
----------------------
(d) Opinion of CBS's Counsel..................................... 96
------------------------
SECTION 6.3. Conditions to Obligation of CBS............................... 96
-------------------------------
(a) Representations and Warranties............................... 96
------------------------------
(b) Performance of Obligations of Purchaser...................... 96
---------------------------------------
(c) Guarantee Agreement.......................................... 96
-------------------
(d) Opinion of Purchaser's Counsel............................... 96
------------------------------
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER..................... 97
SECTION 7.1. Termination................................................... 97
-----------
SECTION 7.2. Amendments and Waivers........................................ 98
----------------------
ARTICLE 8
INDEMNIFICATION.............................. 98
SECTION 8.1. Indemnification By CBS........................................ 98
----------------------
SECTION 8.2. Indemnification by Purchaser..................................102
----------------------------
SECTION 8.3. Characterization of Indemnification Payments..................103
--------------------------------------------
SECTION 8.4. Losses Net of Insurance; Tax Loss and Benefits;
-----------------------------------------------
No Consequential Damages.....................................103
------------------------
SECTION 8.5. Termination of Indemnification................................104
------------------------------
SECTION 8.6. Procedures Relating to Third Party Claims
-----------------------------------------
(Other than Tax Controversies and Environmental
-----------------------------------------------
Liabilities).................................................105
------------
SECTION 8.7. Procedures Relating to Non-Third Party Claims.................106
---------------------------------------------
SECTION 8.8. Arbitration of Certain Environmental Liabilities..............106
------------------------------------------------
SECTION 8.9. Procedures Relating to Claims Constituting an
---------------------------------------------
Environmental Liability......................................107
-----------------------
SECTION 8.10. Subrogation..................................................108
-----------
ARTICLE 9
iv
<PAGE>
GENERAL PROVISIONS.............................109
SECTION 9.1. Notices.......................................................109
-------
SECTION 9.2. Interpretation................................................110
--------------
SECTION 9.3. Survival of Representations, Warranties and Covenants.........111
-----------------------------------------------------
SECTION 9.4. Severability..................................................111
-------------
SECTION 9.5. Counterparts..................................................111
------------
SECTION 9.6. Entire Agreement; No Third Party Beneficiaries................112
----------------------------------------------
SECTION 9.7. Governing Law.................................................112
-------------
SECTION 9.8. Mediation; Consent to Jurisdiction............................112
----------------------------------
SECTION 9.9. Publicity.....................................................113
---------
SECTION 9.10. Assignment...................................................113
----------
SECTION 9.11. Waiver of Jury Trial; Trial Costs............................114
---------------------------------
v
<PAGE>
List of Exhibits
Exhibit A Shared Technology Agreement
Exhibit B Trademark and Trade Name License Agreement
Exhibit C Terms of Transitional Services Agreement
Exhibit D Guarantee Agreement
Exhibit E Joint Defense Agreement
List of Schedules
Schedule 1.1(a) Leased Real Property
Schedule 1.1(b) Owned Real Property
Schedule 1.1(c) Permitted Liens
Schedule 1.1(d) Selling Subsidiaries
Schedule 1.1(e) Sold Subsidiaries
Schedule 2.2(a) Acquired Assets
Schedule 2.2(b) Excluded Assets
Schedule 2.3(a)(i) Contractual Liabilities
Schedule 2.3(a)(xiv) Other Assumed Liabilities
Schedule 2.3(b) Non-excluded Liabilities
Schedule 2.5(a) Target Amount
Schedule 4.1(b)(i) Consents under Intellectual Property,
Technology and Other Contracts
Schedule 4.1(b)(ii) Governmental Consents, Approvals and Filings
Schedule 4.1(c)(i)(A) Financial Statements: Differences between the
Business and Assets and Liabilities in Financial
Statements
vi
<PAGE>
Schedule 4.1(c)(i)(B) Financial Statements
and Reconciliation
Schedule 4.1(c)(ii) Undisclosed Liabilities
Schedule 4.1(c)(iii) Accounts Receivable
Schedule 4.1(c)(v) Order Backlog Information
Schedule 4.1(d)(i) Compliance with Applicable Laws
Schedule 4.1(d)(ii) Non-Compliance with Cost Accounting
Standards
Schedule 4.1(e) Certain Lawsuits, Actions and Proceedings
Schedule 4.1(g)(iv) Subleases Affecting Leased Real Property
Schedule 4.1(h)(i) Intellectual Property and Technology
Schedule 4.1(h)(ii) Intellectual Property Subject to Security Interest
Schedule 4.1(h)(iii) Non-Sole Ownership - Intellectual Property
Schedule 4.1(h)(iv) Written Challenges to Intellectual Property
Rights
Schedule 4.1(h)(v) CBS Infringement Claims
Schedule 4.1(h)(vi) Third Party Infringement Claims
Schedule 4.1(h)(vii) Copyright or Patent Proceedings
Schedule 4.1(i) Insurance
Schedule 4.1(j)(A)(i) Employment Contracts
Schedule 4.1(j)(A)(ii) Collective Bargaining Agreements
Schedule 4.1(j)(A)(iii) Affiliated Contracts
Schedule 4.1(j)(A)(iv) Credit Agreements
Schedule 4.1(j)(A)(v) Non-Compete Covenants
Schedule 4.1(j)(A)(vi) Real Property Leases
Schedule 4.1(j)(A)(vii) Personal Property Leases
Schedule 4.1(j)(A)(viii)Purchase Contracts
Schedule Purchase Contracts
4.1(j)(A)(viii)
vii
<PAGE>
Schedule 4.1(j)(A)(ix) Products or Services Contracts
Schedule 4.1(j)(A)(x) Joint Ventures, Long-Term Alliances,
Partnerships and Material Teaming Agreements
Schedule 4.1(j)(A)(xi) Options or Franchise Agreements
Schedule 4.1(j)(A)(xii) Take-or-Pay or Requirements Agreements
Schedule 4.1(j)(A)(xiii)Sale or Disposition of Assets
Schedule 4.1(j)(A)(xiv) Contracts Outside the Ordinary Course or
Business
Schedule 4.1(j)(A)(xv) License or Development Agreements
Schedule 4.1(j)(C) Allegations of Fraud by Federal Agencies
Schedule 4.1(k) Sufficiency of Acquired Assets
Schedule 4.1(l) Non-Ordinary Course; Certain Changes or
Events
Schedule 4.1(m)(i) Employee Benefit Plans
Schedule 4.1(m)(ii) Governmental Filings; Litigation and
Termination Proceedings
Schedule 4.1(m)(iii) Compliance with ERISA
Schedule 4.1(m)(iv) Determination Letters; Qualified Plans
Schedule 4.1(m)(v) Prohibited Transactions; Reportable Events
Schedule 4.1(m)(vii) Unfunded Benefit Liabilities
Schedule 4.1(m)(viii) Multiemployee Plan Withdrawal Liabilities
Schedule 4.1(m)(ix) Bonus and Severance Payments
Schedule 4.1(m)(xi) Amendments to Benefit Plans
Schedule 4.1(m)(xii) COBRA Compliance
Schedule 4.1(n)(iii)(a) Environmental Permits
Schedule 4.1(n)(iii)(b) Material Legal or Administrative Proceedings
for Permits
Schedule 4.1(n)(iv) Governmental Consent to Transfer
viii
<PAGE>
Schedule 4.1(n)(v) Outstanding or Threatened Governmental
Authority Non-Compliance Order or Notice of
Violations
Schedule 4.1(n)(vi) Agency Action Related to Environmental
Compliance
Schedule 4.1(n)(viii) CERCLA Potentially Responsible Party (PRP)
Sites
Schedule 4.1(o)(i) Taxes: Filings
Schedule 4.1(o)(ii) Taxes: Deficiency Claims
Schedule 4.1(o)(iii) Taxes: Extensions
Schedule 4.1(o)(iv) Taxes: Statute of Limitation Waivers
Schedule 4.1(n)(v) Taxes: Assets Owned by Others and Tax
Exempt Use Property
Schedule 4.1(n)(vi) Taxes: Adjustments due to Change in
Accounting Method
Schedule 4.1(n)(vii) Taxes: Pending Audits or Proceedings
Schedule 4.1(n)(viii) Taxes: Powers of Attorney
Schedule 4.1(n)(ix) Taxes: Adverse Rulings Against Sold
Subsidiary or Acquired Assets
Schedule 4.1(n)(x) Taxes: Compliance with the Code
Schedule 4.1(n)(xi) Taxes: Covenants; Non-Deductible Payments
Schedule 4.1(q)(i) Labor Matters: Labor Strikes
Schedule 4.1(q)(ii) Labor Matters: Unfair Labor Practice Charges
Schedule 4.1(q)(iii) Labor Matters: Union Grievances
Schedule 4.1(q)(iv) Labor Matters: Collective Bargaining
Schedule 4.1(q)(v) Labor Matters: Organization Attempts
Schedule 4.1(r) Outstanding Bids
Schedule 4.1(s) Major Suppliers
Schedule 5.1(a)(ii) Ordinary Course of Business: Collective
Bargaining Agreements
ix
<PAGE>
Schedule 5.1(a)(iii) Ordinary Course of Business: Executive
Compensation Increases
Schedule 5.1(a)(xi) Claims in Excess of $2.5 Million
Schedule 5.1(a)(xiv) Severance or Termination Payments
Schedule 5.5(f)(iv) OPEB Schedule
Schedule 5.16 Subsidiary Assets not Relating Primarily to
Business
Schedule 5.18 Credit Support Arrangements
Schedule 6.2(d) Opinion of CBS Counsel
Schedule 6.3(d) Opinion of Purchaser's Counsel
Schedule 8.1(b) Certain Assumed Liabilities
Schedule 9.2 Persons with Knowledge
x
<PAGE>
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made as of June
---------
25, 1998, between CBS CORPORATION, a Pennsylvania corporation ("CBS"), and WGNH
---
ACQUISITION, LLC, a Delaware limited liability company ("Purchaser").
---------
WITNESSETH:
----------
WHEREAS, CBS is engaged,
(A) through its Government and Environmental Services Company
("GESCO"), in businesses which serve the United States government by (i)
-----
managing and operating facilities, or providing services, for the United States
Department of Energy pursuant to contracts or subcontracts, (ii) constructing,
systemizing, operating and closing facilities for the United States Government,
pursuant to contracts or subcontracts, (iii) developing, designing,
manufacturing and processing United States Navy nuclear propulsion equipment and
providing training and operations and maintenance services, (iv) developing and
manufacturing low level radioactive waste containers, (v) providing safety
management consulting services to U.S. government facilities and (vi) (through
the Electro-Mechanical Division ("EMD") (which, effective January 1, 1998, was
---
transferred to GESCO from the Energy Systems Business)) manufacturing pumps,
motors, generators and propulsion units for military applications; control rod
drive mechanisms, pumps, seals, spent fuel handling products, motors and motor
refurbishment services for Nuclear Installations, exclusively in connection with
or through, and employing intellectual property and technology owned by or
licensed to, the Energy Systems Business (the Energy Systems Business being the
exclusive owner of all such CBS-owned intellectual property and technology
relating to Nuclear Installations); and in businesses which serve other
governments (through U.S. government contracts), or commercial entities by (x)
providing advanced design deep ocean pumping systems to the oil industry, (y)
designing and manufacturing low level radioactive waste containers, and (z)
miscellaneous machining and fabrication Services which do not compete with the
Energy Systems Business (the "GESCO Businesses"), certain assets of which are
----------------
owned by Subsidiaries of CBS; and
(B) through its Energy Systems Business, in a worldwide business
which, among other things, primarily serves the electric power industry by,
among other things, (A) supplying (i) Nuclear Installation design technology,
equipment, technology licensing, construction and start-up services, (ii)
nuclear fuel, UF 6 conversion, associated materials,
1
<PAGE>
components, fuel technology, zirconium and hafnium products, and engineering
services, (iii) technical services (including field and factory equipment
refurbishment), technical information, service tools, training services and
equipment, including simulators, total plant outage and maintenance services
(including outage management, refueling services and other operating plant
services, including renewal/spare parts and equipment and component
repair/replacement services), (iv) engineering, NRC and governmental licensing,
start-up and operational support services, (v) Nuclear Installation
instrumentation and control systems, engineered safeguard and primary plant
protection systems, safety monitoring systems, plant computer, display systems,
distributed control, communicators, data acquisition systems and information
systems, monitoring and diagnostics systems, diverse actuation systems, nuclear
instrumentation systems, rod control and position indication systems, traversing
incore probe systems, flux mapping systems and control room design, (vi) nuclear
steam supply systems (including the over 100 nuclear steam supply systems sold
or licensed by the Energy Systems Business operating worldwide), reactor coolant
pumps, seals, motors, valves, control rod drive mechanisms and other controlled
mechanisms (other than for military applications), steam generators,
pressurizers, reactor vessels and internals, other nuclear primary and secondary
loop components, and auxiliary motor/generator sets, (vii) project management
for Nuclear Installation construction and upgrades, (viii) decontamination and
decommissioning equipment and services, and (ix) spent nuclear fuel management
and engineering products, including canisters and transportation systems, and
(B) maintaining and operating certain research and development facilities and
laboratories of the Science and Technology Center (the "Energy Systems
--------------
Business"), certain assets of which are owned by Subsidiaries of CBS; and
- --------
WHEREAS, CBS desires to (and to cause its appropriate Subsidiaries to)
sell, transfer and assign to Purchaser, and Purchaser desires to purchase and
assume from CBS and its appropriate Subsidiaries, substantially all of the
assets and liabilities of the GESCO Businesses together with the shares of
capital stock of certain Subsidiaries of CBS (including the Acquired Assets and
the Assumed Liabilities, but excluding the Excluded Assets and the Excluded
Liabilities (each as hereinafter defined), the "Business"), all as more
--------
specifically provided herein; and
WHEREAS, on the date hereof, concurrently with the execution of this
Agreement, the parties hereto are entering into an asset purchase agreement (the
"ESBU Asset Purchase Agreement") pursuant to which CBS, subject to the terms and
-----------------------------
conditions set forth therein, has agreed to (and to cause its appropriate
Subsidiaries to) sell, transfer and assign to Purchaser, and Purchaser has
agreed to purchase and assume from CBS and its appropriate Subsidiaries,
substantially all of the assets and liabilities of the Energy Systems Business;
and
2
<PAGE>
WHEREAS, CBS also is engaged, through its Power Generation Business
Unit, in a fossil fuel power generation business, which, among other things, (i)
designs, manufactures, sells, installs and services steam and combustion turbine
generators and components for the generation, transmission, distribution and
control of electric power, (ii) constructs turn-key fossil fuel power plants
worldwide, (iii) supplies, services and operates power plants for independent
power producers and utilities and supplies power generation equipment and
services to other non-utility customers, (iv) provides field service and factory
service on electrical apparatus and maintains repair facilities which perform
machine work on electrical apparatus (through its Electrical Systems Services
Division), and (v) sells replacement parts and components related to the
generators and components described in clause (i) above (the "Power Generation
----------------
Business"), certain assets of which are owned by Subsidiaries of CBS; and
- --------
WHEREAS, on November 14, 1997, CBS entered into an asset purchase
agreement (the "PGBU Asset Purchase Agreement") pursuant to which CBS, subject
-----------------------------
to the terms and conditions set forth therein, agreed to (and to cause its
appropriate Subsidiaries to) sell, transfer and assign to Siemens Power
Generation Corporation ("Siemens") substantially all of the assets and
-------
liabilities of the Power Generation Business; and
WHEREAS, CBS also is engaged, through its Process Control Division, in
a worldwide process control business that designs, manufactures, sells,
installs, services and supplies advanced industrial control and information
systems and systems components, software, training, servicing, support spares,
upgrade services and parts for power generation and conversion, water and
wastewater treatment, metals, mining, chemical and other process industry
applications (excluding products and services provided by the Energy Systems
Business specifically for nuclear applications) (the "Process Control
---------------
Business"), certain assets of which are owned by Subsidiaries of CBS; and
WHEREAS, CBS and Emerson Electric Co. ("Emerson") have entered into an
-------
asset purchase agreement, dated as of May 22, 1998 (the "PCD Asset Purchase
------------------
Agreement"), pursuant to which CBS, subject to the terms and conditions set
- ---------
forth therein, agreed to (and to cause its appropriate Subsidiaries to), sell,
transfer and assign to Emerson substantially all of the assets and liabilities
of the Process Control Business; and
WHEREAS, certain Subsidiaries of CBS, the capital stock of which will
be transferred to Purchaser hereunder, may hold assets utilized both in the
Business, on the one hand, and in the Power Generation Business, the Process
Control Business, the Energy Systems Business and/or other current and former
businesses of CBS, on the other hand, and
3
<PAGE>
certain assets relating to the Power Generation Business, the Process Control
Business, the Energy Systems Business and/or such other businesses will be
transferred by such Subsidiaries prior to the Closing to CBS or other
Subsidiaries of CBS or to the purchaser of the Power Generation Business, the
Process Control Business and/or the Energy Systems Business pursuant to or in
accordance with the terms hereof; and
WHEREAS, certain facilities, assets and services of CBS and its
Subsidiaries are utilized both in the Business, on the one hand, and in the
Power Generation Business, the Process Control Business, the ESBU Businesses
and/or other current and former businesses of CBS, on the other hand, and
certain of such facilities, assets and services will be shared by the owners of
the Business and the Power Generation Business, the Process Control Business,
the ESBU Businesses and/or such other businesses pursuant to the terms of
certain agreements contemplated hereby.
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties herein contained, and subject to and on the terms
and conditions herein set forth, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. SPECIFIED DEFINITIONS. As used in this Agreement, the
---------------------
following capitalized terms have the meanings specified below:
"Accounts Receivable" means all trade accounts receivable and all
-------------------
notes, bonds and other evidences of indebtedness and rights to receive payments
arising out of sales of goods, provision of services or other transactions
occurring in the conduct of the Business.
"Acquired Assets" shall have the meaning specified in Section 2.2(a).
---------------
"Affiliate" of a Person means a Person that directly or indirectly,
---------
through one or more intermediaries, controls, is controlled by or is under
common control with, such Person. Following the Closing, references to
Purchaser's Affiliates shall include the Sold Subsidiaries.
"Agency Action" means any investigation, request for information,
-------------
notice of violation, complaint, order, directive, court order, injunction,
judgment or decree, consent
4
<PAGE>
order, consent agreement, administrative judgment, decree or injunction or other
enforcement inquiry or action brought by a Governmental Authority having the
requisite authority and jurisdiction to bring such action.
"Agreement State" means each state authorized to regulate nuclear
---------------
related materials based on authority delegated by the NRC pursuant to Section
274 of the Atomic Energy Act.
"Assumed Off-Site Disposal Liabilities" shall mean the first
-------------------------------------
$5,000,000 of the aggregate amount of any Losses incurred in connection with the
conduct of the Business in respect of a Remedial Action required for any Release
of Hazardous Substances at a treatment, storage or disposal facility other than
at the Premises or any property owned or controlled by any Governmental
Authority where the Business performs or has performed Government Contracts.
"Assumed Liabilities" shall have the meaning specified in Section
-------------------
2.3(a).
"Assumed Pension Plans" shall have the meaning specified in Section
---------------------
5.5(c).
"Atomic Energy Act" means the Atomic Energy Act of 1954, as amended,
-----------------
42 U.S.C. (S) 2022.
"Balance Sheet" shall have the meaning specified in Section 4.1(c)(i).
-------------
"Benefit Plans" means "employee welfare benefit plans" (as defined in
-------------
Section 3(1) of ERISA), Pension Plans, bonus, stock option, stock purchase,
severance, employment, change-in-control, fringe benefit, incentive or deferred
compensation plans and all other employee benefit plans, agreements, programs,
policies or other arrangements, whether or not subject to ERISA, currently
maintained or contributed to by CBS or any of its Subsidiaries for the benefit
of any officers or employees or Former Employees of the Business.
"BNFL" means British Nuclear Fuels plc, an English company.
----
"Business" shall have the meaning specified in the recitals of this
--------
Agreement.
"Business Employees" shall have the meaning specified in Section 5.5.
------------------
5
<PAGE>
"Business-Related Environmental Liability" means any Environmental
----------------------------------------
Liabilities arising under Environmental Laws and any Liability under any Permit
issued pursuant to any Environmental Law in connection with the Acquired Assets,
the Sold Subsidiaries or the Business, to the extent arising from any condition
existing or any act or omission of Sellers, any Sold Subsidiary or any other
Person (including any prior owner, occupant or user of any Premises and any
Person engaged in the removal, transportation or disposition of Hazardous
Substances that were originated or at any time stored or otherwise held at any
site associated with the Sold Subsidiaries or the Business, whether or not
included in whole or in part in the Acquired Assets or the Subsidiary Assets) at
or prior to the Closing Date, but excluding in all cases (i) any liability for
fines or penalties that arise as a result of any actual criminal violation of
any Environmental Law and (ii) any Decontamination and Decommissioning
Liabilities.
"CERCLA" shall have the meaning specified in the definition of
------
"Environmental Law".
"Closing" means the closing of the purchase, assignment and sale of
-------
the Acquired Assets and the assumption of the Assumed Liabilities contemplated
hereunder.
"Closing Date" means the time and date on which the Closing takes
------------
place, as established by Section 3.1.
"Code" means the Internal Revenue Code of 1986, as amended, and all
----
Laws promulgated pursuant thereto or in connection therewith.
"Contract Modifications" shall have the meaning specified in Section
----------------------
4.1(m).
"Contracts" means all contracts (including any subcontracts), leases
---------
(including any subleases), indentures, joint venture, governmental funding or
incentive program, guarantee, indemnity (including environmental indemnity),
license (including any sublicense or any license of third-party software),
development, settlement, teaming, divestiture and other agreements, commitments
and all other legally binding arrangements, including all interworks orders and
inter-divisional orders between the Business and other businesses of CBS, in
each case whether oral or written, relating primarily to the Business to which
any of Sellers or a Sold Subsidiary is a party or bound (including Government
Contracts), except for Benefit Plans.
6
<PAGE>
"Decontamination and Decommissioning Liabilities" means all costs,
-----------------------------------------------
Losses, Liabilities and Environmental Liabilities to the extent inherent in or
incident to the termination of service, decommissioning or demolition of
facilities or equipment on the Premises or any property owned or controlled by
any Governmental Authority where the Business performs or has performed
Government Contracts required by the NRC, but excluding any such costs, Losses,
Liabilities and Environmental Liabilities which are associated with the ongoing
operations of the Business or Acquired Assets and not inherent in or incurred
incident to such termination of service, decommissioning or demolition of
facilities.
"DIS" shall have the meaning specified in Section 4.1(b).
---
"Emerson" shall have the meaning specified in the recitals.
-------
"Energy Systems Business" shall have the meaning specified in the
-----------------------
recitals of this Agreement.
"Environmental Law" means any Law (including common law), policy or
-----------------
any other legally binding requirement that governs or purports to govern the
existence of, relates to or provides a remedy for an actual or threatened
Release of Hazardous Substances, pollution or the protection of persons, natural
resources or the environment (including, without limitation, the protection of
ambient air, surface water, groundwater, land surface or subsurface strata,
endangered species or wetlands), occupational health and safety (excluding
workers' compensation), the manufacture, processing, distribution, use,
generation, handling, treatment, storage, disposal, transportation, Release or
management of solid waste or Hazardous Substances, or other activities involving
Hazardous Substances, including the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. (S) 9601 et seq., as
------ -- ----
amended by the Superfund Amendments and Reauthorization Act, the Hazardous
Materials Transportation Act, 49 U.S.C. (S) 1801 et seq., the Resource
-- ----
Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq., the Clean Water Act,
-- ----
33 U.S.C. (S) 1251 et seq., the Clean Air Act, 33 U.S.C. (S) 2601 et seq., the
-- ---- -- ----
Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq., the Federal
-- ----
Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. (S) 136 et seq., the Oil
-- ---
Pollution Act of 1990, 33 U.S.C. (S) 2701 et seq., the Nuclear Waste Policy Act
-- ----
of 1982, 42 U.S.C. (S) 10101 et seq., Atomic Energy Act of 1954, 42 U.S.C. (S)
-- ----
2011 et seq. and the Occupational Safety and Health Act, 29 U.S.C. (S) 651 et
-- --- --
seq., as such laws have been amended or supplemented, and/or any other similar
- ----
foreign, federal, state, local and/or county laws or regulations, in each case
as in effect on or prior to the Closing Date or, with respect to representations
and warranties made on the date hereof, on or prior to the date hereof.
7
<PAGE>
"Environmental Liability" means any Liability of Sellers or the Sold
-----------------------
Subsidiaries (other than any Decontamination and Decommissioning Liability and
any Liability of the type described in Section 2.3(a)(iii)) arising under the
Environmental Laws, including all direct costs and expenses associated with
Remedial Action, and including claims, demands, penalties, fines, liens, fees,
reasonable costs of environmental consultants, personal injuries, property
damages, natural resource damages, response costs of any Governmental Authority,
administrative proceedings, assessments, judgments, orders, causes of action
(including toxic tort suits), contribution actions, written notices of actual or
alleged violations or liability (including such notices, claims or any actions
arising from or regarding the disposal, transportation or Release or threatened
Release of Hazardous Substances from or upon any property), proceedings and any
associated Losses.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, and all Laws promulgated pursuant thereto or in connection therewith.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Excluded Assets" shall have the meaning specified in Section 2.2(b).
---------------
"Excluded Liabilities" shall have the meaning specified in Section
--------------------
2.3(b).
"Exon-Florio Amendment" means Section 721 of the Omnibus Trade and
---------------------
Competitiveness Act of 1988 (amending Title VII of the Defense Production Act,
50 U.S.C. App. Section 2170 (1997)).
"Financial Statements" shall have the meaning specified in Section
--------------------
4.1(c)(i).
"Fixtures and Equipment" means all furniture, fixtures, furnishings,
----------------------
machinery, vehicles, equipment and other tangible personal property owned or
leased by Sellers or any Sold Subsidiary and used or held for use primarily in
connection with the Business.
"Former Employee" shall mean any former employee or Inactive Employee
---------------
of the Business whose employment with the Business was terminated for any reason
(including retirement) prior to the Closing Date and who, as of the Closing
Date, is not employed by CBS or any of its Affiliates. Former Employee shall
not include any employee who last worked at a location listed in Section
2.2(b)(xv).
"Free Standing Plan" shall have the meaning specified in Section
------------------
4.1(m)(i).
8
<PAGE>
"GAAP" means United States generally accepted accounting principles.
----
"GESCO" shall have the meaning specified in the recitals of this
-----
Agreement.
"GESCO Businesses" shall have the meaning specified in the recitals of
----------------
this Agreement.
"Government Contract" means any Contract entered into with any
-------------------
Governmental Authority and any subcontract relating to obligations to be
performed pursuant to a Contract entered into with any Governmental Authority.
"Governmental Authority" means any agency, board, body, bureau, court,
----------------------
commission, department, instrumentality, entity established or controlled by, or
administration of any foreign government, the United States government, any
state government or any local or other governmental body in a state, territory
or possession of the United States or the District of Columbia or any political
subdivision of any of the foregoing, including any legislative, judicial or
administrative body.
"Guarantee Agreement" shall have the meaning specified in Section
-------------------
5.25.
"Guarantors" means the signatories to the Guarantee Agreement.
----------
"Hazardous Substance" means (i) any petroleum or petroleum products
-------------------
(to the extent regulated under Environmental Law), flammable explosives,
radioactive materials, asbestos or polychlorinated biphenyls (PCBs); and (ii)
any substance, material or waste that is regulated under any Environmental Law
and is defined as, or included in the definition of, or deemed by any
Environmental Law or Governmental Authority to be "hazardous," "toxic," a
"contaminant," "waste," a "pollutant," "hazardous substance," "hazardous waste,"
"restricted hazardous waste," "hazardous material," "extremely hazardous waste,"
a "toxic substance," a "toxic pollutant" or words with similar meaning.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
-------
1976, as amended.
"Inactive Employees" shall have the meaning specified in Section
------------------
5.5(a)(i).
"Income Tax" means any Tax on or determined by reference to net income
----------
and all interest, fines and penalties imposed with respect to any such Tax.
9
<PAGE>
"Indebtedness" of any Person means, without duplication, (i) the
------------
principal of and premium (if any) in respect of (A) indebtedness of such Person
for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is responsible or
liable; (ii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person and
all obligations of such Person under any title retention agreement (but
excluding trade accounts payable and other accrued current liabilities arising
in the Ordinary Course of Business); (iii) all obligations of such Person under
leases required to be capitalized in accordance with GAAP; (iv) all obligations
of such Person for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction; (v) all obligations of the
type referred to in clauses (i) through (iv) of any Persons for the payment of
which such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including guarantees of such obligations; and (vi) all
obligations of the type referred to in clauses (i) through (v) of other Persons
secured by any Lien on any property or asset of such Person (whether or not such
obligation is assumed by such Person).
"Individual Spun-Off Plans" shall have the meaning specified in
-------------------------
Section 4.1(m)(i).
"Intellectual Property" means all domestic and foreign patents,
---------------------
utility models, patent applications, trademarks, trademark registrations,
service marks, service mark registrations, tradenames, tradename registrations,
slogans, corporate names, corporate nicknames or initialisms, registered
copyrights, applications for registration of any of the foregoing, and trade
secret rights, owned by Sellers or any Sold Subsidiary that relate primarily to
the Business, except for that which relate primarily to Nuclear Installations.
"Inventory" means all raw materials, work-in-process, finished goods,
---------
merchandise, office and other supplies, parts, packaging materials and other
accessories related thereto which are held at, or are in transit from or to, the
Premises or located at other locations at which the Business is conducted, or
located at suppliers' premises, in each case, which are used or held for use by
any Seller or Sold Subsidiary primarily in the conduct of the Business,
including any of the foregoing purchased subject to any conditional sales or
title retention agreement in favor of any other Person, together with all rights
of any Seller or Sold Subsidiary against suppliers of such inventories.
"Investments" means all capital stock, partnership interests and other
-----------
equity interests owned by any Seller in any Person which are held primarily in
connection with the Business, including the capital stock, partnership interests
and other equity interests owned by
10
<PAGE>
any Seller in the Sold Subsidiaries, and all issued and outstanding capital
stock, partnership interests and other equity interests owned by any Sold
Subsidiary in any Person (except as otherwise provided by Section 5.16).
"Law" means, as to any Person, any foreign or United States federal,
---
state or local law, statute, code, ordinance, regulation, order, writ,
injunction, decision, directive, judgment or decree (or judicial or
administrative interpretations thereof having the force of law which are not
subject to appeal or challenge) applicable to such Person and to the businesses
and assets thereof.
"Leased Real Property" means all real property leased by any Seller as
--------------------
lessee or by any Sold Subsidiary as lessee and listed in Schedule 1.1(a).
"Liabilities" means, as to any Person, all debts, adverse claims,
-----------
fines, liabilities and obligations, direct, indirect, absolute or contingent,
known or unknown, of such Person, whether accrued, vested or otherwise, whether
in contract, tort, strict liability or otherwise and whether or not actually
reflected, or required by GAAP to be reflected, in such Person's financial
statements (including the notes thereto) or other books and records.
"Liens" means mortgages, liens, security interests, easements, rights
-----
of way, pledges, restrictions or encumbrances of any nature whatsoever.
"Losses" means, subject to Section 8.4, any and all demands, claims,
------
complaints, actions or causes of action, suits, proceedings, investigations,
arbitrations, assessments, losses, damages, liabilities, obligations (including
those arising out of any action, such as any settlement or compromise thereof or
judgment or award therein) and any reasonable costs and expenses, including
attorney's and other advisors' fees and disbursements.
"Material Adverse Effect" means an effect or change that is materially
-----------------------
adverse to the business, assets, financial condition or results of operations of
the Business taken as a whole.
"MK" means Morrison Knudsen Corporation, a Delaware corporation.
--
"Non-Governmental Allocation Percentage" shall mean, with respect to
--------------------------------------
each of the Residual Divisions, that percentage of the "Total Cost Input" not
reimbursed by the applicable government agencies for the year ended December 31,
1997. Such percentage shall
11
<PAGE>
be subject to a final determination upon completion of an audit by the
applicable government agency for 1997.
"Novation Agreements" shall have the meaning specified in Section
-------------------
5.4(a).
"NRC" means the United States Nuclear Regulatory Commission or any
---
successor agency or other Governmental Authority to whom jurisdiction over
radiological materials has been transferred or delegated and, for purposes of
this Agreement, shall include any Agreement State.
"Nuclear Installation" means a nuclear powered electric generating
--------------------
facility and associated support facilities, nuclear processing facility,
military nuclear instrumentation and control systems and nuclear test
facilities.
"Ordinary Course of Business" means, with respect to any Seller or
---------------------------
Sold Subsidiary, actions taken in the ordinary course of business consistent
with past practices of such Seller or Sold Subsidiary in relation to the
Business.
"Owned Real Property" means all real property owned by any Seller or
-------------------
by any Sold Subsidiary and listed on Schedule 1.1(b).
"Parent Companies" means MK and BNFL.
----------------
"Pension Plan" means an "employee pension benefit plan" (as such term
------------
is defined in Section 3(2) of ERISA) including multiemployer plans within the
meaning of Section 3(37) of ERISA, currently maintained or contributed to by CBS
or any of its Subsidiaries for the benefit of any officers or employees or
Former Employees of the Business employed in the United States.
"Permits" means all permits, licenses, registrations, filings,
-------
variances, exemptions, franchises and authorizations by or of any Governmental
Authority, or other indicia of authority necessary for the conduct of the
Business that (i) are owned or held by or otherwise have been granted to or for
the benefit of any Seller and that relate to the Business or any part thereof or
to any of the Acquired Assets or (ii) are owned or held by or otherwise have
been granted to or for the benefit of any Sold Subsidiary; provided, however,
-------- -------
that in no event shall a Government Contract constitute a Permit.
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<PAGE>
"Permitted Liens" means (i) Liens disclosed in Schedule 1.1(c),
---------------
specifically described in the notes to the Financial Statements or that secure
Indebtedness that is included in Assumed Liabilities and reflected as a
liability on the Balance Sheet, (ii) any progress payment Liens arising in the
ordinary course of business from progress payments made by the United States
Government or any agency thereof or any other Governmental Authority on
Government Contracts that are included in the Assumed Liabilities and (iii)(A)
mechanics', carriers', workmen's, repairmen's and other like Liens arising or
incurred in the Ordinary Course of Business that are included in the Assumed
Liabilities and that are not yet due and payable or that may thereafter be paid
without penalty or that are being contested in good faith by appropriate
proceedings, (B) Liens for Taxes, assessments and other governmental charges not
yet due and payable or that may thereafter be paid without penalty or that are
being contested in good faith by appropriate proceedings and (C) imperfections
of title and other Liens that do not materially affect the value of the
encumbered asset or the continued use and operation of the encumbered asset in
the Business for its intended purpose.
"Person" means any individual, corporation, partnership, limited
------
liability company, joint venture, trust, unincorporated organization, other form
of business or legal entity or Governmental Authority.
"Post-Closing Tax Period" means any taxable period commencing after
-----------------------
the Closing Date.
"Power Generation Business" shall have the meaning specified in the
-------------------------
recitals to this Agreement.
"Pre-Closing Tax Period" means any taxable period ending on or before
----------------------
the Closing Date.
"Premises" means, collectively, the Owned Real Property and the Leased
--------
Real Property, in each case to the extent included in the Acquired Assets.
"Process Control Business" shall have the meaning specified in the
------------------------
recitals of this Agreement.
"Purchase Price" shall have the meaning specified in Section 2.4.
--------------
"Purchaser Affiliate" shall mean any Person that is wholly-owned
-------------------
directly or indirectly by Purchaser or directly or indirectly by either or both
of the Parent Companies.
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"Purchaser Ancillary Documents" shall have the meaning specified in
-----------------------------
Section 4.2(b).
"Purchaser Permit" shall have the meaning specified in Section 5.3(c).
----------------
"Purchaser's Straddle Period" means any portion of a Straddle Period
---------------------------
beginning after the Closing Date.
"Release" means any releasing, spilling, leaking, discharging,
-------
disposing of, pumping, pouring, emitting, emptying, injecting, leaching, dumping
or allowing to escape into the environment (air, surface water, groundwater,
land surface, soil, substrata, sediment or rock) and includes any "release" as
defined in CERCLA.
"Remedial Action" means any action to investigate, clean up, monitor,
---------------
abate, transport, remove, treat or in any way address any Hazardous Substance
that is required by any Environmental Law, whether or not such action is taken
pursuant or in response to any Agency Action or third party claim.
"Residual Division" shall mean the Plant Apparatus Division (PAD),
-----------------
EMD, Anniston, Engineered Products (Carlsbad), Government Technical Services
Division (GTSD) and GESCO headquarters divisions of the Business.
"Residual Spun-Off Plan" shall have the meaning specified in Section
----------------------
4.1(m)(i).
"Schedules" means the disclosure schedules delivered by CBS to
---------
Purchaser in connection herewith.
"Seller Ancillary Documents" shall have the meaning specified in
--------------------------
Section 4.1(b).
"Sellers" means, collectively, CBS and the Selling Subsidiaries.
-------
"Sellers' Straddle Period" means any portion of a Straddle Period
------------------------
ending on the Closing Date.
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"Selling Subsidiary" means each of the Subsidiaries of CBS listed on
------------------
Schedule 1.1(d) and each other Subsidiary of CBS that has any right, title or
interest in, to, or under the Acquired Assets or any Liabilities included in the
Assumed Liabilities, but shall not include any Sold Subsidiary (unless retained
by Sellers pursuant to Section 5.17).
"Shared Technology Agreement" shall have the meaning specified in
---------------------------
Section 5.9.
"Siemens" shall have the meaning specified in the recitals.
-------
"Significant Real Property" means (i) any Owned Real Property having
-------------------------
improvements thereon in excess of 75,000 square feet, (ii) any Leased Real
Property of more than 25,000 square feet and (iii) any Owned or Leased Real
Property that is the site of any manufacturing, design, management, warehouse,
assembly, distribution, research, marketing or other operation that, in any
case, is material to the operation of the Business as presently conducted.
"Sold Subsidiary" means any Subsidiary of CBS listed in Schedule
---------------
1.1(e) under the caption "Sold Subsidiary".
"Statement of Net Assets" shall have the meaning specified in Section
-----------------------
2.5.
"Statement of Working Capital" shall have the meaning specified in
----------------------------
Section 2.5(a).
"Straddle Period" means any taxable period including, but not ending
---------------
on, the Closing Date.
"Subsidiary" means, as to any Person another Person of which an amount
----------
of the voting securities, other voting ownership or voting partnership interests
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests) is owned directly or indirectly by such Person.
"Subsidiary Assets" means all assets, properties, goodwill and rights
-----------------
of the Sold Subsidiaries of whatever kind or nature, real or personal, tangible
or intangible, other than as contemplated by Section 5.16.
15
<PAGE>
"Surplus Property" means all real property owned, leased or occupied
----------------
by any Seller or Sold Subsidiary that is not listed on Schedule 1.1(a) or 1.1(b)
or that is entirely or substantially vacant, "mothballed" or held principally
for remediation or other risk management purposes.
"Tax Return" means any return, report, form, supplementary or
----------
supporting schedules or other information filed with any taxing authority with
respect to Taxes.
"Taxes" means all federal, state, local, foreign or other governmental
-----
taxes, assessments, duties, fees, levies or similar charges of any kind,
including all income, profit, franchise, capital gains, transfer, excise,
property, use, intangibles, sales, value added, payroll, employment, social
security, withholding, capital and other taxes, all capital duties and all stamp
duties, and including all interest, fines and penalties imposed with respect to
such amounts, and "Tax" and "Taxation" shall have correlative meanings.
"Technology" means all trade secrets, inventions, invention
----------
disclosures under evaluation, know-how, formulae, processes, procedures,
research records, records of inventions, test information, market surveys and
marketing know-how, unregistered copyrights and software including source and
object code, and related documentation, supporting database information and
modification and enhancements thereof owned by any Seller or any Sold Subsidiary
that relate primarily to the Business, except for that which relate primarily to
Nuclear Installations.
"Transfer Taxes" shall have the meaning specified in Section 5.14.
--------------
"Transitional Services Agreement" shall have the meaning specified in
-------------------------------
Section 5.20(a).
"U.S.-Controlled Entity" shall have the meaning specified in Section
----------------------
4.2(d).
"WARN Act" means the Worker Adjustment and Retraining Notification
--------
Act, as amended.
"WELCO" means the Westinghouse Electric Company Division of CBS, which
-----
comprises certain businesses of CBS, including the GESCO Businesses, the Energy
Systems Business and the Process Control Business.
"Year 2000 Compliance" shall have the meaning specified in Section
--------------------
4.1(t)(ii).
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"Year 2000 Plan" shall have the meaning specified in Section
--------------
4.1(t)(i).
SECTION 1.2. OTHER TERMS. Other terms may be defined elsewhere in
-----------
the text of this Agreement and, unless otherwise indicated, shall have such
meaning throughout this Agreement.
SECTION 1.3. OTHER DEFINITIONAL PROVISIONS.
-----------------------------
(a) The words "hereof," "herein," and "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole
and not to any particular provision of this Agreement.
(b) The terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.
(c) The terms "dollars" and "$" shall mean United States dollars.
ARTICLE 2
SALE AND PURCHASE OF ASSETS; ASSUMPTION OF LIABILITIES
SECTION 2.1. PURCHASE AND SALE. Upon the terms and subject to the
-----------------
conditions of this Agreement, at the Closing, CBS agrees to sell, assign,
transfer, convey and deliver to Purchaser all of CBS's right, title and interest
in, to and under the Acquired Assets and to cause each Selling Subsidiary to
sell, assign, transfer, convey and deliver to Purchaser all of such Selling
Subsidiary's right, title and interest in, to and under the Acquired Assets held
by it, in each case free and clear of any Liens other than Permitted Liens, and
Purchaser agrees to purchase, acquire and accept from Sellers, all such right,
title and interest in, to and under the Acquired Assets; provided, that the
--------
transfer of the stock of each Sold Subsidiary shall be effected pursuant to a
forward taxable merger of each Sold Subsidiary with and into a Purchaser
Affiliate.
SECTION 2.2. ACQUIRED ASSETS AND EXCLUDED ASSETS.
-----------------------------------
(A) ACQUIRED ASSETS. The term "Acquired Assets" means all the
--------------- ---------------
business, properties, assets, goodwill and rights of Sellers of whatever kind
and nature, real or personal, tangible or intangible, and wherever located,
other than the Excluded Assets, primarily used or
17
<PAGE>
held for use in, or primarily relating to or arising out of the conduct of, the
GESCO Businesses and the operation of the Premises, including all Intellectual
Property and Technology of the GESCO Businesses, whether or not reflected on the
books and records of the Sellers or the Schedules hereto, as they exist on the
date hereof, with such changes, deletions or additions thereto as may occur from
the date hereof to the Closing Date consistent with the terms and conditions of
this Agreement, including subject to Section 2.2(b):
(i) all parcels of Owned Real Property listed on Schedule 1.1(b)
(and all easements and rights of way appurtenant thereto) owned by any of
the Sellers and all rights of the Sellers as lessee to the parcels of
Leased Real Property listed on Schedule 1.1(a);
(ii) all Inventory that is located on the Premises and all other
Inventory, including Inventory in transit;
(iii) all Fixtures and Equipment;
(iv) all Accounts Receivable of the Sellers and the security
agreements related thereto, including any rights of any of the Sellers with
respect to any third party collection proceedings or any other actions or
proceedings which have been commenced in connection therewith;
(v) all cash of the Sellers held in escrow or trust for
environmental response actions;
(vi) subject to Section 2.2(c) and to the licenses to be granted
pursuant to Section 5.9(a), all Intellectual Property and Technology;
(vii) subject to Section 2.2(c), all Permits;
(viii) subject to Section 2.2(c), all Contracts, including all
Government Contracts;
(ix) subject to Section 2.2(c), all bids, quotations and proposals
for Contracts, including all Government Contracts, whether oral or written,
to which any of Sellers is a party or by which any of Sellers is bound that
relate primarily to the Business and including historical proposals,
historical records of indirect costs, Cost Accounting Standards submissions
and current and historical forward pricing policies;
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<PAGE>
(x) all Investments;
(xi) subject to Section 5.3(c), all books of account, general,
financial, accounting and personnel records, policies and procedures,
files, invoices, customers' and suppliers' lists and other data, both
current and historical, owned by Sellers on the Closing Date and used or
held for use primarily by, in or for the Business, including those which
are located in Sellers' storage facilities, except (A) to the extent
relating to the Excluded Assets or the Excluded Liabilities and (B) the
materials described in Section 2.2(b)(vii);
(xii) subject to Section 2.2(c), all rights, claims and causes of
action of the Sellers to the extent relating to the Business or any of the
Assumed Liabilities or the Acquired Assets;
(xiii) all prepaid expenses of the Sellers, to the extent relating to
the Business;
(xi) all motor vehicles owned by the Sellers and all rights of the
Sellers as lessee to any leased motor vehicles, in each case that are used
or held for use primarily in the conduct of the Business;
(xv) all security deposits (A) deposited by or on behalf of any
Seller as lessee or sublessee under any of the Contracts or (B) deposited
with or paid to any Seller pursuant to any Contract;
(xvi) all site plans, surveys, soil and substratus studies,
architectural drawings, plans and specifications, engineering, electrical
and mechanical plans and studies, floor plans, landscape plans, appraisals,
feasibility studies, environmental studies, audits or assessments and other
plans and studies of any kind if existing and in the possession or subject
to the control of or used by any Seller relating to the Business;
(xvii) all rights of any Seller under or pursuant to all warranties,
representations and guarantees made by suppliers, manufacturers and
contractors in connection with products sold to or services provided to any
Seller for the Business, or affecting the Acquired Assets, the Assumed
Liabilities or the property, machinery or equipment owned by Sellers or any
Sold Subsidiary and used in the conduct of the Business;
19
<PAGE>
(xviii) subject to Section 5.23, (A) all rights to insurance proceeds
receivable after the Closing in respect of any Assumed Liabilities (x) that
reduced both the Target Amount and the Closing Date Working Capital or (y)
that did not reduce Closing Date Working Capital, in each case insured on a
"claims made" basis, or, in the case of workers' compensation losses, on an
"occurrence" basis, and (B) all insurance proceeds received subsequent to
December 31, 1997 and prior to the Closing, and all rights to insurance
proceeds receivable after the Closing, in each case in respect of any loss
or casualty occurring subsequent to December 31, 1997 and prior to the
Closing with respect to any asset that will be or would, if held by a
Seller or a Sold Subsidiary on the Closing Date, be an Acquired Asset
(except to the extent any such proceeds have been used to repair or replace
fixed assets);
(xix) all proceeds, net of any cost of disposition (including
Taxes), from the sale or other disposition after the date of this Agreement
and prior to the Closing Date of any asset that (A) is of a type permitted
or required by GAAP to be treated as a fixed asset on the books of the
Business and (B) but for such sale or other disposition prior to the
Closing would be an Acquired Asset (except to the extent any such proceeds
have been used to repair or replace fixed assets);
(xx) all transferable telephone exchange numbers used by the
Sellers in the Business;
(xxi) all assets described on Schedule 2.2(a), whether or not
related to the Business; and
(xxii) all (A) copies of Tax Returns, Tax records and Tax work papers
of the Sold Subsidiaries (other than Income Tax Returns and the records and
work papers relative thereto and other than Tax Returns that include
businesses other than the Business or the Energy Systems Business) and (B)
copies of separate company Income Tax Returns, Income Tax records, and
Income Tax work papers of the Sold Subsidiaries, provided that, in the case
--------
of the Sold Subsidiaries, such Tax Returns, Tax records, Tax work papers,
Income Tax Returns, Income Tax records, and Income Tax work papers shall be
for the six calendar years preceding the Closing Date or, if longer, the
taxable periods for which the applicable statute of limitations has not yet
run.
(B) EXCLUDED ASSETS. The term "Excluded Assets" means:
--------------- ---------------
20
<PAGE>
(i) all cash on hand or in banks and all cash equivalents, on the
books of the Business immediately prior to the Closing, except any cash or
cash equivalents (A) described in Section 2.2(a)(v), (xv)(B), (xviii) or
(xix), (B) constituting security deposits deposited with or paid to any
Sold Subsidiary pursuant to any Contract or (C) required to be held on hand
or in banks pursuant to Contracts, including joint venture Contracts;
(ii) all rights of Sellers under this Agreement and the
agreements, instruments and certificates executed in connection with this
Agreement;
(iii) all records prepared in connection with the sale of the
Business, including bids received from third persons and analyses relating
to the Business (but not the Sellers' rights under any confidentiality
agreements with such bidders, which shall be, to the extent related to the
Business, included in Acquired Assets);
(iv) except as provided in Section 2.2(a)(xviii), all rights of
Sellers under insurance policies;
(v) all rights, claims and causes of action relating to any of
the Excluded Liabilities or the Excluded Assets, including rights, claims
and causes of action under Contracts and insurance policies relating
thereto;
(vi) all rights to claims, available to or being pursued by
Sellers or any Sold Subsidiary, for refunds of or credits against Taxes
(including all investment tax credits, research credits and credits for
prepayments of Income Taxes) attributable to the Business for Pre-Closing
Tax Periods and Sellers' Straddle Periods, but only to the extent of Taxes
that are Excluded Liabilities; provided that Purchaser shall have no
--------
obligation for, and shall be indemnified by CBS against (without regard to
Article 8 hereof), any expenses or Taxes incurred in connection therewith;
(vii) any consolidated, combined or unitary Tax Return relating to
Income Taxes that includes any of Sellers or any Sold Subsidiary, and
records and work papers used in preparation thereof;
(viii) all assets (including the Intellectual Property and
Technology of the Business relating to Nuclear Installations) used
primarily in the Power Generation Business, the Process Control Business or
the Energy System Business and any other retained business of CBS
(including the business of CBS itself);
21
<PAGE>
(ix) subject to the license to be granted pursuant to Section
5.9(b), all right, title or interest in or to (i) the names and marks
"Westinghouse Electric Corporation," "Westinghouse Electric Company,"
"WESTINGHOUSE," "WELCO," "CIRCLE W" (in logo type design or any other style
or design), and (ii) "129.228.x.x Class B internet address range" and the
westinghouse.com, wec.com and westinghouseelectric.com domain names, and
any name or mark derived from or including any of the foregoing;
(x) all Surplus Property owned by any of the Sellers or the Sold
Subsidiaries;
(xi) all assets of the Sold Subsidiaries not used or held for use
primarily in the Business or which pursuant to Section 5.16 will be
transferred by the Sold Subsidiaries to CBS, to other Subsidiaries of CBS
or to third parties designated by CBS, including the purchaser of the Power
Generation Business, the Process Control Business or the Energy Systems
Business, in the manner provided by Section 5.16;
(xii) all insurance policies of Sellers, including those described
on Schedule 4.1(i), and all insurance proceeds received prior to the
Closing, or rights to insurance proceeds receivable after the Closing, in
each case in respect of any Assumed Liability recognized on the Statement
of Working Capital (except to the extent the right to receive such proceeds
is reflected on the Statement of Working Capital);
(xiii) all assets, including facilities, equipment, intellectual
property and technology, that are subject to the provisions of (A) the
Transitional Services Agreement and other arrangements described in Section
5.20 or (B) the licenses described in Sections 5.9(a)(ii) or 5.9(b);
(xiv) CBS's Gateway Center corporate headquarters located in
Pittsburgh, Pennsylvania, the Shared Service Center located in Churchill,
Pennsylvania, the Information Technology shared service operations located
in Monroeville, Pennsylvania, the Science and Technology Center located in
Churchill, Pennsylvania ("STC") and, subject to the Transitional Services
Agreement and the arrangements contemplated by Section 5.20(b), all assets
used in connection with or relating to CBS's corporate headquarters or
corporate activities that are provided to or managed for the benefit of any
of the Sellers or any of the Sold Subsidiaries;
22
<PAGE>
(xv) the Contracts (and the related Fixtures and Equipment) to
which any Seller or Sold Subsidiary is a party relating to the performance
of services at Hanford, Idaho Falls and Fernald, or relating to the
Machinery Technology Division;
(xvi) the stock of Westinghouse Hanford Company; and
(xvii) all assets identified in Schedule 2.2(b).
(C) NONASSIGNABLE RIGHTS. Notwithstanding anything to the contrary
--------------------
contained herein but without limiting the rights and obligations of the parties
under the other provisions of this Agreement (including Section 5.4), this
Agreement shall not operate to assign, and there shall not be included in the
Acquired Assets, any Intellectual Property, Technology, Permit or Contract or
any claim, right or benefit arising thereunder or resulting therefrom if an
attempted assignment thereof, without the consent of any Person (except for
consents already received), would constitute a breach, default or other
contravention thereof or a violation of Law (it being understood that the
failure to obtain such consents shall not reduce the Purchase Price or relieve
either party from its obligation to consummate at the Closing the transactions
contemplated by this Agreement). To the extent that this Section 2.2(c)
operates to exclude from the Acquired Assets any such Intellectual Property,
Technology, Permit or Contract or any claim, right or benefit arising thereunder
or resulting therefrom, the definition of "Business" in the recitals hereto
shall be modified to exclude such assets and the business, goodwill and rights
related thereto until such consents are received, and provided that such assets
shall be included in the definition of "Business" to the extent that the
benefits thereof inure to Purchaser pursuant to Section 5.4.
(D) TERMINATION OF RIGHTS OF SOLD SUBSIDIARIES. Notwithstanding
------------------------------------------
anything to the contrary in any agreement or otherwise, any rights, express or
implied, of any Sold Subsidiary to use any and all domestic and foreign patents,
patent applications, trademarks, trademark registrations, service marks, service
mark registrations, trade names, trade name registrations, slogans, corporate
names, corporate nicknames or initialisms, registered copyrights, domain names,
domain name registrations, trade secrets, inventions, know-how, formulae,
processes, procedures, research records, records of inventions, test
information, market surveys and marketing know-how, unregistered copyrights and
software, including source and object code and related documentation, supporting
database information and modifications and enhancements thereof owned by Sellers
shall terminate at the Closing, except to the extent included in the Acquired
Assets Intellectual Property, Technology or Contracts and except as otherwise
contemplated by Sections 5.9(a) and 5.9(b).
23
<PAGE>
SECTION 2.3. ASSUMPTION OF LIABILITIES.
-------------------------
(A) ASSUMED LIABILITIES. Upon the terms and subject to the conditions
-------------------
of this Agreement and notwithstanding anything to the contrary in any Novation
Agreement, Purchaser hereby agrees to assume, effective as of the Closing, and
agrees to pay, perform and discharge when due all Liabilities of Sellers (except
Excluded Liabilities) only to the extent arising out of, relating to or
otherwise incurred in respect of the Acquired Assets, the Business or the
operations of the Business before, on or after the Closing Date (collectively,
the "Assumed Liabilities"), including (except Excluded Liabilities):
-------------------
(i) all Liabilities of Sellers under Contracts, including all
Government Contracts and any related guarantees and Novation Agreements and
the Contracts set forth in Schedule 2.3(a)(i) or any other Schedule hereto;
(ii) all accounts payable owed by Sellers arising out of
operations of the Business or otherwise incurred in respect of the
Business;
(iii) all Liabilities in respect of any and all products sold or
licensed, services rendered or technology or intellectual property provided
or licensed by the Business, including Liabilities for refunds,
adjustments, allowances, repairs, exchanges, returns and warranty,
merchantability and product liability and other claims;
(iv) all Liabilities (other than Environmental Liabilities and
Decontamination and Decommissioning Liabilities) arising as a result of
being the owner or occupant of, or the operator of the activities conducted
at, (A) the Premises or (B) any other real property owned, leased or
operated at any time by any of Sellers and used or held for use primarily
in the Business, including (in the case of clause (A) only) all Liabilities
relating to personal injury and property damage;
(v) all Business-Related Environmental Liabilities but only to
the extent that (A) they arise as a result of being the owner or occupant
of, or the operator of the activities conducted at, the Premises or any
other property owned or controlled by a Governmental Authority where the
Business performs or has performed Government Contracts or (B) they relate
to the treatment, storage, transportation or disposal of Hazardous
Substances on, to or at a waste site, treatment site, disposal site or
other location after they were produced, generated, used or stored at the
Premises or any other property owned by a Governmental Authority where the
Business performs or has performed Government Contracts;
24
<PAGE>
(vi) (A) all Decontamination and Decommissioning Liabilities and
(B) all Assumed Off-Site Disposal Liabilities;
(vii) all Liabilities relating to the employment or termination of
employment of any employee or Former Employee of the Business, other than
as described in Section 2.3(a)(viii);
(viii) all Liabilities with respect to employees or Former Employees
of the Business arising under or in connection with any Benefit Plan, other
than those Liabilities retained by CBS pursuant to Section 5.5;
(ix) all Liabilities for Taxes (other than Taxes described in
Sections 2.3(b)(ii) and (iii)) attributable to the Business for all taxable
periods;
(x) all Liabilities in respect of lawsuits, actions and
proceedings, pending or threatened, and claims, whether or not presently
asserted, arising out of, relating to or otherwise in any way in respect of
the Business, including those that are set forth in Schedules 4.1(e),
4.1(m)(ii) and 4.1(q), except as specifically excluded in Sections
2.3(b)(v) and 2.3(b)(ix), but, in the case of employment related matters
involving employees of other businesses of CBS, only to the extent they
relate to employees or Former Employees of the Business;
(xi) all Liabilities of Sellers or any Sold Subsidiary with
respect to any guarantees (including guarantees of performance (including
of performance by Purchaser or its Affiliates) under Contracts), assumption
of obligations, letters of credit or other similar arrangements established
in connection with and in support of the purposes of the Business,
including surety and performance bonds, and foreign exchange contracts;
(xii) all Liabilities of Sellers or any Sold Subsidiary with
respect to the abatement of asbestos or asbestos-containing products
present at the Premises or claims with respect to exposure after the
Closing Date to asbestos or asbestos-containing products at the Premises;
(xiii) all Indebtedness reflected on the Statement of Net Assets;
and
(xiv) all Liabilities described on Schedule 2.3(a)(xiv), whether or
not related to the Business.
25
<PAGE>
(B) EXCLUDED LIABILITIES. The term "Excluded Liabilities" means:
-------------------- --------------------
(i) except as set forth on Schedule 2.3(b), any Liability of
Sellers to the extent related to the Excluded Assets (including the
Excluded Assets referred to in Section 2.2(b)(xv));
(ii) any Liability of Sellers or any Sold Subsidiary for Income
Taxes attributable to the Business or the Sold Subsidiaries or for Taxes
other than Income Taxes of the Sold Subsidiaries to the extent not related
to the Business for Pre-Closing Tax Periods or Sellers' Straddle Periods,
including (A) any Liability for Income Taxes of any of the Sellers or any
Sold Subsidiary pursuant to Treasury Regulation (S) 1.1502-6(a) or any
comparable provision of state, local or foreign law and (B) Income Taxes
resulting from the sale and transfer from any Seller to Purchaser of the
Acquired Assets, but Excluded Liabilities shall not include any Taxes for
Post-Closing Tax Periods or for Purchaser's Straddle Periods;
(iii) any Taxes attributable to the Business for Pre-Closing Tax
Periods or Sellers' Straddle Periods relating to the reclassification for
federal Tax purposes of any individual from independent contractor status
to employee status;
(iv) any Environmental Liabilities of Sellers or any Sold
Subsidiary (other than those Business-Related Environmental Liabilities
designated as Assumed Liabilities pursuant to Section 2.3(a)(v)), including
any that relate to Surplus Property; any Environmental Liabilities of
Sellers or any Sold Subsidiary relating to PCB contamination other than at
the Premises; and any Environmental Liabilities of Sellers or any Sold
Subsidiary relating to any generation, handling, transportation, treatment,
storage or disposal of any Hazardous Substance at any location other than
the Premises or any Property owned or controlled by any Governmental
Authority where the Business performs or has performed Government
Contracts, other than the Assumed Off-Site Disposal Liabilities;
(v) any Liabilities in respect of any claim, lawsuit, action or
proceeding before or after the Closing to the extent the same directly
pertain to any Excluded Asset or Excluded Liability;
(vi) any Liabilities relating to the capital stock of any Seller
or any shareholders' agreements to which any Seller is party (except for
agreements relating to the equity interests of any of the Sold
Subsidiaries);
26
<PAGE>
(vii) any Liabilities relating to amounts required to be paid by
CBS pursuant to Section 2.5;
(viii) except for any Liabilities reflected on the Statement of
Working Capital and Liabilities contemplated by the agreements and
arrangements referred to in Sections 5.20 and 5.21, any Liabilities owed to
any Seller or any Affiliate of any Seller;
(ix) any Liabilities in respect of any claim, lawsuit, action or
proceeding that is asserted or brought by any Governmental Authority (in
any criminal proceeding), before or after the Closing, based on any actual
criminal violation of Law occurring prior to the Closing;
(x) any Liabilities arising out of or in respect of (A) any
Subsidiary of CBS sold or otherwise divested prior to the Closing or (B)
any business or business unit of CBS or any of its Subsidiaries sold or
otherwise divested prior to Closing;
(xi) any Liabilities with respect to Benefit Plans to be retained
by CBS pursuant to Section 5.5;
(xii) all Liabilities of Sellers or any Sold Subsidiary with
respect to death or personal injury actually or allegedly caused directly
or indirectly by asbestos or asbestos compounds or products or any
Liabilities relating to asbestos or asbestos compounds or products which
are not Assumed Liabilities covered by Section 2.3(a)(xii);
(xiii) subject to Section 5.10(a), any Liability of Sellers or any
Sold Subsidiaries for patent infringement claims asserted in the name of
Jerome H. Lemelson alone or as co-inventor or the Lemelson Medical,
Education and Research Foundation Limited Partnership or its successors or
assigns with respect to any of Sellers' businesses, including the Business,
and for trademark or trade name infringement claims asserted in any way,
including by way of declaratory judgment action, opposition proceeding, or
infringement suit involving White Consolidated Industries, Inc.;
(xiv) Sellers' and Sold Subsidiaries' liabilities for outstanding
checks issued on or before the Closing Date which (x) are drawn on bank
accounts that are Excluded Assets and (y) have reduced Assumed Liabilities
as of the Closing; and
27
<PAGE>
(xv) any other Liabilities not assumed by Purchaser pursuant to
the provisions of Section 2.3(a).
Except for Assumed Liabilities, neither Purchaser nor any of its
Affiliates is assuming, or in any other way becoming responsible for the payment
or performance of, any Liabilities of any of the Sellers, whether known or
unknown, accrued, absolute, contingent, changing, determinable, indeterminable,
liquidated, unliquidated or otherwise and whether due or to become due or
relating to any existing or prior act, omission, condition or state of facts.
SECTION 2.4. PURCHASE PRICE. Subject to Section 2.5, the purchase
--------------
price for the Acquired Assets (the "Purchase Price") shall consist of
--------------
(a) the payment by Purchaser of $237,500,000 (the "Cash Portion"),
------------
payable as set forth in Section 3.2(b); and
(b) the assumption by Purchaser and its Affiliates of the Assumed
Liabilities.
SECTION 2.5. PURCHASE PRICE ADJUSTMENT.
-------------------------
(a) Within 90 days after the Closing Date, CBS shall at its expense
prepare and deliver to Purchaser a statement of Working Capital (the "Statement
---------
of Working Capital") and a statement of Net Assets (the "Statement of Net
- ------------------ ----------------
Assets") as of the close of business on the Closing Date setting forth Working
Capital (as defined below) and Net Assets (as defined below), respectively,
together with separate special-purpose reports of CBS's independent auditors to
the effect that the Statement of Working Capital and the Statement of Net Assets
have been prepared and audited in compliance with the requirements of this
Section 2.5. The Statement of Working Capital and Statement of Net Assets are
collectively the "Statements."
-----------
During the 60-day period following Purchaser's receipt of the
Statements, Purchaser and its independent auditors shall be permitted to review
and make copies reasonably required of the working papers of CBS and its
independent auditors relating to the Statements and shall have reasonable access
to CBS representatives and its independent auditors. The Statement of Working
Capital shall become final and binding upon the parties on the 60/th/ day
following delivery thereof, unless Purchaser gives written notice of its
disagreement with the Statement of Working Capital ("Notice of Disagreement") to
----------------------
CBS prior to such date. Any Notice of Disagreement shall (A) specify in
reasonable detail the nature of any disagreement so asserted, (B) only include
disagreements based on mathematical errors or
28
<PAGE>
based on Working Capital not being calculated in accordance with this Section
2.5, (C) only include disagreements based on the Statement of Working Capital,
(D) be accompanied by a signed written confirmation by Purchaser that it has
complied with the covenants set forth in Section 2.5(e), and (E) if Purchaser's
independent auditors are engaged by Purchaser in connection with the preparation
of the Notice of Disagreement, be accompanied by a written confirmation of
Purchaser's independent auditors that they concur with each of the positions
taken by Purchaser in the Notice of Disagreement. If a Notice of Disagreement
complying with the preceding sentence is received by CBS in the period
specified, then the Statement of Working Capital (as revised in accordance with
clause (I) and (II) below) shall become final and binding upon the parties on
the earlier of (I) the date CBS and Purchaser resolve in writing any differences
they have with respect to the matters specified in the Notice of Disagreement or
(II) the date any disputed matters are finally resolved in writing by the
Accounting Firm (as defined below).
During the 60-day period following the delivery of a Notice of
Disagreement that complies with the preceding paragraph, CBS and Purchaser shall
seek in good faith to resolve in writing any differences which they may have
with respect to the matters specified in the Notice of Disagreement. During
such period, CBS and its independent auditors shall be permitted to review and
make copies reasonably required of the working papers of Purchaser and shall
have reasonable access to its representatives and its independent auditors,
including their working papers and make copies reasonably required relating to
the preparation of the Notice of Disagreement. If, at the end of such 60-day
period, CBS and Purchaser have not so resolved such differences, CBS and
Purchaser shall submit to an independent accounting firm (the "Accounting Firm")
---------------
mutually acceptable to the parties for review and resolution any and all matters
which remain in dispute and which were properly included in the Notice of
Disagreement. CBS and Purchaser shall use reasonable efforts to cause the
Accounting Firm to render a decision resolving the matters in dispute within 30
days following the submission of such matters to the Accounting Firm. CBS and
Purchaser agree that judgment may be entered upon the determination of the
Accounting Firm in any court having jurisdiction over the party against which
such determination is to be enforced. Except as specified in the following
sentence, the cost of any arbitration (including the fees and expenses of the
Accounting Firm) pursuant to this Section 2.5 shall be borne by CBS and
Purchaser in inverse proportion as they may prevail on matters resolved by the
Accounting Firm, which proportionate allocations shall also be determined by the
Accounting Firm at the time the determination of the Accounting Firm is rendered
on the merits of the matters submitted. The fees and expenses of CBS's
independent auditors incurred in connection with the issuance of their special-
purpose reportS relating to the Statements and review of any Notice of
Disagreement shall be borne by CBS, and the fees and expenses of Purchaser's
independent
29
<PAGE>
auditors incurred in connection with their review of the Statements shall be
borne by Purchaser.
(b) The Purchase Price shall be increased by the amount by which
Working Capital exceeds the Target Amount (as defined below), and the Purchase
Price shall be decreased by the amount by which Working Capital is less than the
Target Amount (the Purchase Price as so increased or decreased shall hereinafter
be referred to as the "Adjusted Purchase Price"). The Target Amount shall be
-----------------------
$(16,263,000). If the Purchase Price is less than the Adjusted Purchase Price,
Purchaser shall, and if the Purchase Price is greater than the Adjusted Purchase
Price, CBS shall, within 10 business days after the Statement of Working Capital
becomes final and binding upon the parties, make payment to the other party by
wire transfer in immediately available funds of the amount of such difference,
together with interest thereon at the three-month treasury bill rate (as
reported by The Wall Street Journal or, if not reported thereby, by another
authoritative source) in effect on the Closing Date plus .25% (the "Rate"),
----
calculated on the basis of the actual number of days elapsed over 365, from the
Closing Date to the date of actual payment, compounded annually.
Notwithstanding the foregoing provisions of this Section 2.5, if the Statement
of Working Capital delivered by CBS pursuant to Section 2.5(a) and any Notice of
Disagreement delivered by Purchaser pursuant to Section 2.5(a) both reflect a
calculation of Working Capital that if correct would require a payment by the
same party, then within 10 days after delivery of the Notice of Disagreement
that party shall make a payment to the other, in the manner and with interest as
provided elsewhere in this Section 2.5(b), in an amount equal to the lesser of
(i) the amount payable by that party pursuant to the calculation reflected in
the Statement of Working Capital and (ii) the amount payable by that party
pursuant to the calculation reflected in the Notice of Disagreement. Any amount
paid pursuant to the preceding sentence shall be applied against, and
correspondingly reduce, the amount otherwise payable under this Section 2.5(b).
(c) The term "Working Capital" shall mean Total Current Assets minus
---------------
Total Current liabilities (in each case as defined below). The Target Amount
equals Working Capital at December 31, 1997. The terms "Total Current Assets"
--------------------
and "Total Current liabilities" shall mean the total current assets and total
-------------------------
current liabilities, respectively, of the Business (excluding amounts related to
the performance of services at Hanford, Idaho Falls, Fernald, and Machinery
Technology Division), determined in accordance with GAAP (it being understood
that (i) all Excluded Assets, (ii) all Excluded Liabilities, (iii) all pension,
postretirement, and postemployment (excluding restructuring actions) benefit
liabilities, (iv) deferred Income Taxes, and, (v) insurance proceeds receivable
classified as a current asset as of the Closing Date related to the loss of any
asset for which as of such date a replacement had not been placed in service and
(x) is of a type permitted or required by GAAP to be
30
<PAGE>
recognized as a fixed asset on the books of the Business as of the Balance Sheet
date and (y) but for such loss prior to the Closing would be an Acquired Asset
shall be excluded in determining Total Current Assets and Total Current
liabilities), using the same methodologies, practices (including GAAP as in
effect as of December 31, 1997), accounting applications and assumptions
(including discount rates and actuarial assumptions), policies, valuations and
estimation methodologies and judgments (including those relating to balance
sheet classification) as used in determining the Target Amount as set forth in
Schedule 2.5(a).
In calculating Working Capital or Net Assets, as the case may be, no
changes will be made in any valuation allowances, including but not limited to
contract estimates at completion, any inventory or accounts receivable valuation
allowances, any product warranty liabilities, environmental liabilities,
including decommissioning and decontamination liabilities, workers compensation
liabilities, or government rate and cost disallowance liabilities, except to
reflect specific identifiable events, facts and circumstances (other than any
such events relating to or arising as a result of the announcement of the
transactions contemplated by this Agreement) occurring between December 31, 1997
and the Closing Date. The parties agree that the adjustment contemplated by this
Section 2.5 is intended to show the change in Working Capital from the Target
Amount and that such change may only be measured if the calculation is done in
accordance with the preceding sentence and using the same methodologies,
practices (including GAAP as in effect as of December 31, 1997), accounting
applications and assumptions (including discount rates and actuarial
assumptions), policies, valuations and estimation methodologies and judgments
(including those relating to balance sheet classification) as used in
determining the Target Amount. The scope of the disputes to be resolved by the
Accounting Firm is limited to whether the Statement of Working Capital
calculations were done in accordance with the foregoing provisions of this
Section 2.5 and whether there were mathematical errors in the Statement of
Working Capital.
(d) The term "Net Assets" shall mean Total Assets minus Total
liabilities (in each case as defined below). The terms "Total Assets" and
------------
"Total liabilities" shall mean the total assets and total liabilities,
- ------------------
respectively, of the Business (excluding amounts related to the performance of
services at Hanford, Idaho Falls, Fernald, and Machinery Technology Division),
determined in accordance with GAAP (it being understood that (i) all Excluded
Assets, (ii) all Excluded Liabilities, (iii) all pension, postretirement, and
postemployment (excluding restructuring actions) benefit liabilities, and (iv)
deferred Income Taxes shall be excluded in determining Total Assets and Total
liabilities), using the same methodologies, practices (including GAAP as in
effect as of December 31, 1997), accounting applications and assumptions
(including discount rates and actuarial assumptions), policies, valuations and
estimation methodologies and judgments (including those relating to balance
sheet classification) as used in determining the Balance Sheet.
31
<PAGE>
(e) Without limiting anything contained in this Section 2.5, no
decision announced or event initiated by Purchaser prior to Closing with respect
to matters to take effect on or after the Closing Date shall be taken into
account in determining Closing Working Capital or Closing Net Assets. Purchaser
further agrees that following the Closing, it shall not take any actions which
would affect preparation and audit of the Statements with respect to the
accounting books and records of the Business on which the Statements are to be
based that are not consistent with past practices. Purchaser shall cause the
employees of the Business to cooperate in the preparation of the Statements,
including providing customary certifications, including management
representation letters, to CBS's independent auditors.
(f) During the period of time from and after the Closing Date through
the resolution of any adjustment to the Purchase Price contemplated by this
Section 2.5, Purchaser shall cause the employees of the Business to afford to
CBS and any accountants, counsel or financial advisers retained by CBS in
connection with any adjustment to the Purchase Price contemplated by this
Section 2.5 on-site access reasonably required at all reasonable times to all
personnel, properties, books, contracts, records, schedules, analyses and
working papers of the Business.
ARTICLE 3
THE CLOSING
SECTION 3.1. CLOSING DATE. The Closing shall take place at the
------------
offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York
10153, at 10:00 a.m. on a date specified by CBS that is not earlier than two (2)
days and not later than ten (10) days following the satisfaction or waiver of
the condition to the Closing set forth in Section 6.1(a), or, if the other
conditions to the Closing set forth in Article 6 shall not have been satisfied
or waived by such date, as soon as practicable after such conditions shall have
been satisfied or waived, and the Closing shall be deemed to take place at 10:00
a.m. on such date.
SECTION 3.2. TRANSACTIONS TO BE EFFECTED AT THE CLOSING. At the
------------------------------------------
Closing:
(A) DELIVERIES BY SELLERS. CBS shall deliver (and cause any Selling
---------------------
Subsidiaries to deliver) to Purchaser such appropriately executed deeds, bills
of sale, assignments, certificates or agreements of merger (with respect to the
Sold Subsidiaries) and other instruments of transfer providing for the sale,
assignment, transfer, conveyance and delivery of the Acquired Assets in form and
substance reasonably satisfactory to Purchaser and
32
<PAGE>
its counsel (it being understood that any such instrument shall not provide for
any representations or warranties or any Liabilities that are not otherwise
expressly provided for in this Agreement), together with resignations as
director of each director of each Sold Subsidiary (together with, to the extent
obtained pursuant to Section 5.26, waivers of any claim such director may have
against the Purchaser or the Sold Subsidiaries) if requested by Purchaser at
least 10 days prior to Closing; and
(B) DELIVERIES BY PURCHASER. Purchaser shall deliver to CBS (or, at
-----------------------
CBS's direction, one or more Selling Subsidiaries) (i) by wire transfer at the
Closing, to an account or accounts designated in writing by CBS prior to the
Closing, of immediately available funds in an amount equal to the Cash Portion,
(ii) certificates or agreements of merger (with respect to the Sold
Subsidiaries) and (iii) such appropriately executed assumption agreements and
other instruments of assumption providing for the assumption of the Assumed
Liabilities in form and substance reasonably satisfactory to CBS and its counsel
(it being understood that any such instrument in clause (ii) or (iii) shall not
provide for any representations or warranties or any Liabilities that are not
otherwise expressly provided for in this Agreement).
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. REPRESENTATIONS AND WARRANTIES OF CBS. CBS hereby
-------------------------------------
represents and warrants to Purchaser as follows:
(A) ORGANIZATION, STANDING AND POWER. CBS is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has the requisite corporate power and authority
to own the Acquired Assets owned by it and to carry on the Business as now being
conducted. Each Sold Subsidiary is a corporation or limited liability company,
as applicable, duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization, has the requisite corporate or limited
liability company power and authority to own its assets and to carry on its
business as now being conducted and is duly qualified to do business in each
jurisdiction in which the nature of its business or properties requires such
qualification, except for failures to qualify that, individually or in the
aggregate, would not have a Material Adverse Effect.
(B) AUTHORITY. CBS has the requisite corporate power and authority to
---------
execute, deliver and perform this Agreement. Sellers have the requisite
corporate power and authority to execute, deliver and perform the agreements to
be entered into by them at the
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<PAGE>
Closing pursuant hereto (the "Seller Ancillary Documents") and to consummate the
--------------------------
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Seller Ancillary Documents to which CBS is a party and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of CBS, and, in the
case of the Seller Ancillary Documents, will be authorized by all necessary
corporate action on the part of the Selling Subsidiaries prior to the Closing,
and do not and will not require the approval of the stockholders of CBS. This
Agreement has been duly executed and delivered by CBS and constitutes, and each
Seller Ancillary Document to be entered into by any of Sellers will be duly
executed and delivered at the Closing and when so executed and delivered will
constitute, a legal, valid and binding obligation of each of the Sellers party
thereto enforceable against it in accordance with its terms, subject to the
Bankruptcy Exception (as defined below). The execution and delivery of this
Agreement by CBS do not, and the execution and delivery by Sellers of the Seller
Ancillary Documents, the consummation by Sellers of the transactions
contemplated hereby and thereby and the compliance by Sellers with the terms
hereof and thereof will not, conflict with, or result in any violation of or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation
(except, to the extent provided in any such program or plan, any acceleration of
vesting under the Westinghouse Savings Program or under any Pension Plan or
long-term incentive plan) or to the loss of a material benefit under, or
result in the creation of any Lien upon any of the Acquired Assets under, any
provision of (i) the Business Corporation Law of the Commonwealth of
Pennsylvania, (ii) the certificate of incorporation or by-laws (or comparable
organizational documents) of any of Sellers or the Sold Subsidiaries, (iii)
except as disclosed on Schedule 4.1(b)(i), any Intellectual Property,
Technology, contract, lease, indenture or other agreement of any Seller or
Sold Subsidiary or (iv) subject to the filings and other matters referred to
in the following sentence, any Law applicable to Sellers, the Sold
Subsidiaries, the Acquired Assets or the Subsidiary Assets, other than, in the
case of clauses (iii) and (iv) above, any such conflicts, violations, defaults,
rights or Liens that, individually or in the aggregate, would not (A)
reasonably be expected to have a Material Adverse Effect or (B) materially
impair the ability of CBS to perform its obligations under this Agreement. No
consent, approval, license, permit, order or authorization of, or registration,
declaration or filing with, any Governmental Authority is required to be
obtained or made by or with respect to Sellers, the Sold Subsidiaries, the
Acquired Assets or the Subsidiary Assets in connection with the execution and
delivery of this Agreement or the Seller Ancillary Documents or the
consummation of the transactions contemplated hereby or thereby, except as
disclosed in Schedule 4.1(b)(ii) and for (i) compliance with and filings under
the HSR Act, (ii) voluntary notification under the Exon-Florio Amendment, (iii)
filings and approvals under foreign laws, (iv) compliance with and filings
under the Exchange Act, (v) consents or novations which may
34
<PAGE>
be required for the assignment of any Intellectual Property, Technology or
Contract as contemplated in Section 5.4, (vi) compliance with, and notices and
filings under, environmental permits, statutes and regulations, (vii) compliance
with the facilities clearance requirements of (a) the Defense Investigative
Service of the United States Department of Defense ("DIS"), as set forth in the
DIS Industrial Security Regulation and the DIS Industrial Security Manual, as
amended from time to time, and (b) the U.S. Department of Energy (viii) those
that may be required solely by reason of Purchaser's (as opposed to any other
Person's) participation in the transactions contemplated hereby and (ix) those
the failure of which to obtain or make, individually or in the aggregate, would
not (A) reasonably be expected to have a Material Adverse Effect or (B)
materially impair the ability of CBS to perform its obligations under this
Agreement.
(C) FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
---------------------------------------------
(i) CBS has previously delivered to Purchaser the audited combined
balance sheet (the "Balance Sheet") and related statements of income and
-------------
cash flows of the Business (except as set forth on Schedule 4.1(c)(i)(A))
as of and for the fiscal year ended December 31, 1997, together with the
notes to such financial statements (collectively, the "Financial
---------
Statements"). The Financial Statements have been prepared from the books
----------
and records of CBS and its Subsidiaries relating to the Business and,
except as described in the notes thereto or the independent auditors'
report thereon, or otherwise indicated in the Financial Statements, have
been prepared in accordance with GAAP consistently applied and present
fairly, in all material respects the financial position, results of
operations and cash flows of the Business (except as set forth on Schedule
4.1(c)(i)(A)) as at the dates and for the periods indicated. Schedule
4.1(c)(i)(B) sets forth a complete and correct reconciliation of the
Financial Statements to the 1997 balance sheet and income statement
contained in the information memorandum dated March 1998 provided by CBS to
potential purchasers (the "Memorandum").
(ii) Except (A) as disclosed, reflected or reserved against in the
Balance Sheet and the notes thereto, (B) for items set forth in Schedules
4.1(c)(ii) and 4.1(e) or any other Schedule hereto, (C) for Liabilities
incurred in the Ordinary Course of Business since the date of the Balance
Sheet that would not reasonably be expected to have a Material Adverse
Effect, (D) for Liabilities incurred in connection with this Agreement and
the transactions contemplated hereby, (E) for Excluded Liabilities, (F) for
Liabilities pursuant to any lawsuit, action or proceeding and (G) for
Income Taxes, as of the date hereof there is no material liability related
to the Business and
35
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none of the Sold Subsidiaries has any material liabilities, in each case of
a nature required to be reflected on a balance sheet for the Business
prepared in accordance with GAAP.
(iii) All Accounts Receivable reflected on the Balance Sheet and all
Accounts Receivable that have arisen since the date of the Balance Sheet,
(A) have arisen from bona fide sales transactions in the Ordinary Course of
Business, and (B) represent valid and binding obligations due to the
Sellers or Sold Subsidiaries, and are, and immediately following the
Closing will be, enforceable in accordance with their terms (subject to the
Bankruptcy Exception). Schedule 4.1(c)(iii) lists any obligor which
together with all of its Affiliates owed, as of May 31, 1998, amounts
billed and uncollected by Sellers and the Sold Subsidiaries in an aggregate
amount of $1,000,000 or more. Schedule 4.1(c)(iii) also sets forth a
complete and correct list in all material respects of all set-offs or
claims in respect of accounts receivable as of such date in an amount
billed and uncollected with an invoice amount in excess of $100,000.
(iv) All the Inventory held for use or sale by any Seller or Sold
Subsidiary consists of items that are of a quality and quantity usable and
salable in the Ordinary Course of Business consistent with past practice,
subject to normal and customary allowances in the industry for damage and
outdated items.
(v) The order backlog information of the Business at the date of
the Balance Sheet set forth on Schedule 4.1(c)(v) is true and correct in
all material respects. The orders comprising the backlog of the Business
reflect bona fide transactions entered into in the Ordinary Course of
Business.
(vi) The financial projections contained in the Memorandum were
prepared in good faith utilizing assumptions which management of CBS
believed to be reasonable as of the time of such preparation (it being
acknowledged by Purchaser that actual results may vary from such
projections, and that such variances may be material).
(D) COMPLIANCE WITH APPLICABLE LAWS.
-------------------------------
(i) Except as set forth on Schedule 4.1(d)(i), Sellers and the Sold
Subsidiaries have complied with all Laws which relate to the Business and
the Acquired Assets, except where the failure to so comply would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Except as set
36
<PAGE>
forth in Schedule 4.1(d)(i), since December 31, 1997, neither Sellers nor
the Sold Subsidiaries have (i) received any written notice alleging any
non-compliance with any such Laws which would reasonably be expected to
have a Material Adverse Effect or (ii) received any written notice of any
administrative, civil or criminal investigation or audit by any
Governmental Authority relating to the Business which if adversely
determined would reasonably be expected to have a Material Adverse Effect.
None of the Sellers or the Sold Subsidiaries has at any time since December
31, 1994, (a) made any illegal payments for political contributions or any
bribes, illegal kickback payments or other illegal payments except for
those that are not material or (b) been disqualified, for any reason, from
bidding on any public or private contract or project. This Section 4.1(d)
does not relate to litigation matters (to which Section 4.1(e) is
applicable), labor and employment matters (to which Section 4.1(q) is
applicable), employee benefits matters (to which Section 4.1(m) is
applicable), Environmental Laws (to which Sections 4.1(j)(B) and 4.1(n) are
applicable) or Tax matters (to which Section 4.1(o) is applicable).
(ii) Except as set forth in Schedule 4.1(d)(ii), with respect to the
Acquired Assets, all Sellers and Sold Subsidiaries are currently, and will
on the Closing Date be, in material compliance with the requirements of the
Cost Accounting Standards, the Federal Acquisition Regulations and agency
supplements, as applicable.
(E) LITIGATION; DECREES. Schedule 4.1(e) sets forth a list as of the
-------------------
date of this Agreement of all pending lawsuits, actions and proceedings to which
any of the Sold Subsidiaries is a party or to which any of the Sellers is a
party and which, if still pending on the Closing Date, would be an Assumed
Liability, provided that this Section 4.1(e) shall not require disclosure of any
lawsuit, action or proceeding (i) in which one of the Sellers or the Sold
Subsidiaries is the plaintiff and no counterclaim or cross-claim has been, or is
likely, to be made against any of the Sellers or the Sold Subsidiaries, or (ii)
in which the amount at issue is less than $1,000,000. Except for matters set
forth in Schedule 4.1(e), as of the date hereof, there is no lawsuit, action or
proceeding pending, or, to the knowledge of CBS, threatened, against any of
Sellers or the Sold Subsidiaries seeking to delay or prevent, or otherwise
challenging, the transactions contemplated hereby. Neither Sellers nor the Sold
Subsidiaries are in default in any material respect under any judgment, order,
injunction or decree of any Governmental Authority entered against any of
Sellers or the Sold Subsidiaries and relating to the Business.
37
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(F) TITLE TO ACQUIRED ASSETS; LEASEHOLD INTERESTS.
---------------------------------------------
(i) Sellers have and will convey and transfer (subject to Sections
2.2(c) and 5.4) to Purchaser at Closing, good and valid title to the
Acquired Assets, and the Sold Subsidiaries have good and valid title to all
the Subsidiary Assets, in each case free and clear of all Liens, except
Permitted Liens.
(ii) Sellers have and will convey and transfer to Purchaser at
Closing the right to possess and use all the properties held by them under
any lease, and the Sold Subsidiaries have the right to possess and use all
the properties held by them under any lease, in each case (i) free and
clear of all Liens, except Permitted Liens, and (ii) during the term, and
subject to the provisions, of the leases as being applicable to such
properties.
This Section 4.1(f) does not relate to Intellectual Property or Technology (to
which Section 4.1(h) is applicable) or the Owned Real Property and Leased Real
Property (to which Section 4.1(g) is applicable).
(G) REAL PROPERTY.
-------------
(i) Owned Real Property. Schedule 1.1(b) is in all material
-------------------
respects a true, complete and correct list, as of the date hereof, of the
street addresses and square footage of improvements on each parcel of Owned
Real Property. The Owned Real Property constitutes all real property or
interests in real property owned in fee by Sellers or the Sold Subsidiaries
(other than any Excluded Assets) and primarily used in the operation of the
Business as presently conducted. None of the Owned Real Property is Surplus
Property. Each Seller and Sold Subsidiary has good and insurable fee title
to all Owned Real Property owned by it free and clear of all Liens other
than (A) Permitted Liens, (B) easements, covenants, rights-of-way and other
encumbrances or restrictions of record, (C) zoning, building and other
similar restrictions, (D) unrecorded easements, covenants, rights- of-way
or other restrictions, (E) Liens that have been placed by any developer,
landlord or other Person (other than Sellers or the Sold Subsidiaries) on
property (other than Owned Real Property) over which any of Sellers or the
Sold Subsidiaries has easement rights, none of which items set forth in
clauses (B), (C), (D) or (E) above, individually or in the aggregate,
materially impair the ability of the Sellers or the Sold Subsidiaries to
use the property for the purposes for which it is currently being used in
connection with the Business and, with respect to any Significant Real
Property, none of which items set forth in clauses (B), (C), (D) or
38
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(E) would materially impair the continued use and operation thereof for the
same uses and operations as those conducted at the present time or grant to
any party any option or right to acquire or lease a material portion
thereof. Except as set forth in Section 5.8, no brokerage or finders
commissions shall be payable by Purchaser in connection with the conveyance
of the Owned Real Property to Purchaser. No material portion of any of the
Owned Real Property is leased by Sellers or the Sold Subsidiaries to any
Person.
(ii) Leased Real Property. Schedule 1.1(a) is in all material
--------------------
respects a true, complete and correct list of all Leased Real Property. CBS
shall provide Purchaser a list of all leases of Leased Real Property not
later than 20 business days following the date of this Agreement. The
Leased Real Property constitutes all real property leased by any Seller or
Sold Subsidiary as Lessee (other than the Excluded Assets) and primarily
used in the operation of the Business as presently conducted. None of the
Leased Real Property is Surplus Property. With respect to each lease for
Significant Real Property: (A) each such lease is valid and subsisting and
in full force and effect as against the Seller or the Sold Subsidiary
therein designated and, to the best of Sellers' knowledge, as against the
landlord, and has not been amended, modified or supplemented except as set
forth in Schedule 1.1(a) or in a manner which would not reasonably be
expected to materially reduce the benefits to Purchaser of the transactions
contemplated by this Agreement; (B) no notice of a material default has
been sent or received by any Seller or Sold Subsidiary under such lease
which remains uncured and, to the best of Sellers' knowledge, no event has
occurred and is continuing which, with notice or lapse of time or both,
would constitute a material default by any Seller or Sold Subsidiary under
such lease; and (C) the tenant is in occupancy of the space demised
thereunder.
(iii) Significant Real Property. With respect to each Significant
-------------------------
Real Property (which for purposes of this representation and warranty shall
also include any Leased Real Property that is the subject of a
sale/leaseback or similar arrangement in which any Seller or Sold
Subsidiary is the primary occupant of the property demised thereunder): (A)
CBS has no knowledge that any condemnation or eminent domain proceedings
are pending with respect to any Significant Real Property; (B) each
Significant Real Property is an independent unit that does not rely in any
material respect on any facilities located on any property not included in
such Significant Real Property to fulfill any municipal or governmental
requirement or for the furnishing to such Significant Real Property or any
essential building systems or utilities, other than facilities provided to
the Significant Real Property pursuant to one or more valid
39
<PAGE>
easements; and (C) each Significant Real Property has access to a
dedicated, public street, either by reason of such Significant Real
Property abutting a dedicated, public street or by way of good and
insurable appurtenant easement(s), and such access is adequate for the
present use and operation thereof. No real estate tax certiorari
proceedings are currently pending with respect to any Significant Real
Property.
(iv) Subleases Affecting Leased Real Property. Schedule 4.1(g)(iv)
----------------------------------------
sets forth in all material respects a true, complete and correct list of
all oral or written subleases (including all amendments and supplements
thereto) demising space on the Leased Real Property leased by any of the
Sellers or the Sold Subsidiaries under a lease (each, a "Sublease"). With
--------
respect to each Sublease for premises larger than 15,000 square feet of
rentable space (each, a "Material Sublease"): (A) each such sublease is
-----------------
valid and subsisting and in full force and effect as against the Seller or
the Sold Subsidiary therein designated and, to the best of the knowledge of
CBS, as against the subtenant, and has not been amended, modified or
supplemented expect as set forth in Schedule 4.1(g)(iv); and (B) no notice
of a material default has been sent or received by any Seller or Sold
Subsidiary under any Material Sublease which remains uncured and, to the
best of the knowledge of CBS, no event has occurred and is continuing
which, with notice or lapse of time or both, would constitute a material
default by any Seller or Sold Subsidiary under any Material Sublease.
(H) INTELLECTUAL PROPERTY AND TECHNOLOGY.
------------------------------------
Schedule 4.1(h)(i) sets forth a list, as of the date of this
Agreement, of all material patents, patent applications, registered
trademarks, trademark applications, registered service marks, service mark
applications, registered copyrights and copyright applications owned by
Sellers that relate primarily to the Business or owned by a Sold Subsidiary
(except as otherwise provided by Section 5.16 and subject (i) to rights
under development contracts under which the Intellectual Property and
Technology may have been generated, (ii) to the rights of the United States
government and (iii) to licenses granted to third parties) and included in
the Acquired Assets or the Subsidiary Assets and, to the extent indicated
on such Schedule, the Intellectual Property listed on Schedule 4.1(h)(i)
has been duly registered in, filed in or issued by the United States
Copyright Office or the United States Patent and Trademark Office, the
appropriate offices in the various states of the United States and the
appropriate offices of other jurisdictions. Except as set forth on
Schedule 4.1(h)(ii) and subject (i) to rights under development contracts
under which the Intellectual Property and Technology may have been
generated, (ii) to the rights of the United States government
40
<PAGE>
and (iii) to licenses granted to third parties, a Seller or a Sold
Subsidiary is the sole and exclusive owner of all material Intellectual
Property and material Technology (other than licenses) included in the
Acquired Assets or the Subsidiary Assets, free and clear of any security
interests. Except as set forth on Schedule 4.1(h)(iii), and subject (i) to
rights under development contracts under which the Intellectual Property
and Technology may have been generated, (ii) to the rights of the United
States government and (iii) to licenses granted to third parties, a Seller
or a Sold Subsidiary is the sole and exclusive owner of all right to sue
and keep any damage awards for any past infringements by third parties of
any material Intellectual Property or Technology (other than licenses).
Except as set forth on Schedule 4.1(h)(iv), since January 1, 1997, no
Seller or Sold Subsidiary has received any written notice from any other
Person challenging in any material respect the right of Sellers or the Sold
Subsidiaries to use any of the material Intellectual Property or material
Technology included in the Acquired Assets or the Subsidiary Assets or any
rights thereunder. Sellers have taken measures, consistent with Sellers'
corporate practice, to protect the secrecy, confidentiality and value of
the material Technology included in the Acquired Assets. Except for the
Excluded Assets (other than those described in clause (viii) of the
definition of Excluded Assets) and subject to Section 2.2(c), Seller does
not own any material intellectual property rights that it is not
transferring to Purchaser that are required for Purchaser (together with
the rights of Purchaser under the Purchaser Ancillary Documents, the
Novation Agreements and the Purchaser Permits) to operate the Business
after Closing in the manner in which it presently is operated. Except as
set forth on Schedule 4.1(h)(v), since January 1, 1997, no Seller or Sold
Subsidiary has made any claim in writing of a violation, infringement,
misuse or misappropriation by others of their rights to or in connection
with any material Intellectual Property or material Technology included in
the Acquired Assets or the Subsidiary Assets, which claim is still pending.
Except as set forth on Schedule 4.1(h)(vi), to the knowledge of CBS, as of
the date of this Agreement, there is no pending or threatened claim by any
third Person of a violation, infringement, misuse or misappropriation by
any Seller or Sold Subsidiary of any intellectual property or technology
owned by any third Person, or of the invalidity of any patent or
registration of a copyright, trademark, servicemark or trade name included
in the Acquired Assets or the Subsidiary Assets, which if adversely
determined would reasonably be expected to have a Material Adverse Effect.
Except as set forth on Schedule 4.1(h)(vii), there are no interferences or
other contested proceedings, either pending or, to the knowledge of CBS,
threatened, in the United States Copyright Office, the United States Patent
and Trademark Office or any Governmental Authority relating to any pending
application with respect to any material Intellectual Property. The use by
Purchaser and its Affiliates of such names
41
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and marks as permitted under the licenses described in Section 5.9(b) will
not infringe on the rights of third parties. Except as provided in the
immediately preceding sentence, nothing in this Agreement shall imply an
indemnity for the infringement of third party intellectual property rights
not within the knowledge of CBS.
(I) INSURANCE. Schedule 4.1(i) sets forth a list and brief
---------
description (specifying the insurer, the policy number or covering note number
with respect to binders and the amount of any deductible, and the aggregate
limit, if any, of the insurer's liability thereunder) of all property and
liability policies or binders, including fire, liability, errors and omissions,
workers' compensation, vehicular and other property and liability insurance held
by or on behalf of Sellers or the Sold Subsidiaries with respect to the Acquired
Assets, the Subsidiary Assets and the Business. Such policies and binders are
valid and enforceable in accordance with their terms in all material respects
(subject to the Bankruptcy Exception), and, as of the date hereof, are in full
force and effect. None of the Sellers or the Sold Subsidiaries is in default
with respect to any material provision contained in any such policy or binder or
has failed to give any material notice or present any material claim under any
such policy or binder. As of the date hereof, none of Sellers or the Sold
Subsidiaries has received any notice of cancellation or non-renewal of any such
policy or binder.
(J) CONTRACTS. (A) Except for Contracts listed on Schedule
---------
4.1(j)(A), none of Sellers or any of the Sold Subsidiaries is a party to or
bound by any Contract that is (all such Contracts being referred to as "Material
--------
Contracts"):
- ---------
(i) a Contract for the employment of any Person with an annual base
salary in excess of $100,000;
(ii) a collective bargaining agreement relating to the Business or
other Contract with a labor union;
(iii) a Contract with (A) CBS or any of its Subsidiaries, (except for
any Sold Subsidiaries) other than Contracts in the Ordinary Course of
Business for the purchase or sale of products or services from or to the
Business, or (B) any director or officer of CBS or any of its Subsidiaries
that will not be terminated at or prior to the Closing that involves
expenditures or receipts in excess of $60,000 in any fiscal year;
(iv) other than letters of credit, foreign exchange contracts, bonds
and similar instruments obtained in the Ordinary Course of Business and
intercompany indebtedness owed by any Seller that will not constitute
Assumed Liabilities, an
42
<PAGE>
indenture, note, loan or credit agreement or other Contract relating to (A)
the borrowing of money in an amount in excess of $1,000,000 by any of
Sellers or the Sold Subsidiaries or (B) the direct or indirect guarantee or
assumption by any of Sellers or the Sold Subsidiaries of the obligations of
any other Person (other than one of Sellers or the Sold Subsidiaries) for
borrowed money in an amount in excess of $1,000,000;
(v) a Contract containing a covenant not to compete, other than
those contained in project-related teaming, consortium or similar
agreements with respect to the project that is the subject of such
agreement, customary covenants contained in distributor agreements and
those of which the Business is the beneficiary in employee-related
agreements;
(vi) a lease or similar agreement under which (A) any of Sellers or
a Sold Subsidiary is a lessee of, or holds or operates, any real property
owned by any third Person for an annual rent in excess of $100,000 or (B)
any of Sellers or a Sold Subsidiary is a lessor of, or makes available for
use by any third Person, any real property owned or held as lessee by
Sellers or a Sold Subsidiary for an annual rent in excess of $250,000;
(vii) a lease or similar agreement under which (A) any of Sellers or
a Sold Subsidiary is lessee of, or holds or uses, any machinery, equipment,
vehicle or other tangible personal property owned by any third Person for
an annual rent in excess of $50,000 or (B) any of Sellers or a Sold
Subsidiary is a lessor of, or makes available for use by any third Person,
any tangible personal property owned (including ownership for Tax purposes)
by Sellers or a Sold Subsidiary having a fair market value in excess of
$50,000;
(viii) a Contract (including purchase orders), involving the
obligation of Sellers or a Sold Subsidiary to purchase products or services
for payment by Sellers or a Sold Subsidiary of more than $1,000,000 (unless
terminable by one of Sellers or a Sold Subsidiary without payment or
penalty of not more than $250,000 upon no more than 60 days' notice);
(ix) a Contract (including sales orders) involving the obligation of
Sellers or a Sold Subsidiary to deliver products or services with an
unfilled order balance of more than $2,000,000 (unless terminable by one of
Sellers or a Sold Subsidiary without payment or penalty of not more than
$250,000 upon no more than 60 days' notice); or
43
<PAGE>
(x) a Contract providing for the formation of any joint venture,
long-term alliance, partnership or material teaming agreement or
arrangement;
(xi) a Contract for the sale of any of the assets or properties of
any of the Sellers or the Sold Subsidiaries (other than sales orders) or
for the grant to any Person of any preferential rights to purchase any of
its assets or properties, in each case in an amount exceeding $250,000;
(xii) any take-or-pay or requirements Contract or any other
Contract requiring any Seller or Sold Subsidiary to pay regardless of
whether products or services are received;
(xiii) a Contract relating to the acquisition by any Seller or Sold
Subsidiary of any operating business or the capital stock of any other
Person;
(xiv) a Contract made outside the Ordinary Course of Business
relating to any Seller or Sold Subsidiary and involving executory
obligations of any Seller or Sold Subsidiary in an amount in excess of
$1,000,000; and
(xv) a material license or development agreement.
All of the Material Contracts are valid, subsisting, in full force and effect
and binding upon the Sellers or Sold Subsidiaries that are named as parties
thereto and, to the best knowledge of CBS, the other parties thereto in
accordance with their terms, subject to the qualifications that enforcement of
the rights and remedies created thereby is subject to: (A) bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and (B) general principles of
equity (regardless of whether such enforcement is considered in a proceeding in
equity or at law) (clauses (A) and (B) being referred to herein collectively as
the "Bankruptcy Exception"). Each of the respective Sellers or Sold
--------------------
Subsidiaries has satisfied in full or provided for all of its liabilities and
obligations thereunder requiring performance prior to the date hereof in all
material respects, is not in default in any material respect under any of them,
nor does any condition exist that with notice or lapse of time or both would
constitute such a material default. To the best knowledge of CBS, as of the date
hereof, no other party to any such Material Contract is in default in any
material respect thereunder, nor does any condition exist as of the date hereof
that with notice or lapse of time or both would constitute such a material
default. This paragraph does not relate to real estate matters (to which Section
4.1(g) is applicable).
44
<PAGE>
(B) With respect to all Government Contracts, none of the managerial
personnel (as such term is defined in the relevant Government Contract) of the
Sellers or any of the Sold Subsidiaries have engaged in any act of willful
misconduct or lack of good faith and none have failed to exercise prudent
business judgment so as to deprive any Seller or Sold Subsidiary of the right to
government reimbursement for Environmental Liabilities to third persons or to
any Governmental Authority either under the Department of Energy Acquisition
Regulations ((A) 48 C.F.R. (S) 970.5204-31 (1997), (B) 48 C.F.R. (S) 970.5204-61
(1997), or (C) 48 C.F.R. (S) 970.3101-3 (1997)) or under the insurance,
litigation and claims or similar clauses in any Government Contract. None of
such managerial personnel have engaged in any negligent, unreasonable or other
behavior so as to create any Environmental Liability in connection with the
performance of the Government Contracts so as to deprive any Seller or Sold
Subsidiary of the right to government reimbursement for liabilities to third
persons or to any Governmental Authority. For purposes of this Section
4.1(j)(B), the terms "lack of good faith," "willful misconduct," and "prudent
business judgment" shall have the meanings provided in 48 C.F.R. (S) 970.5204-31
(1997).
(C) With respect to each of the Government Contracts included in the
Acquired Assets, the Sellers and the Sold Subsidiaries have submitted to the
appropriate Administrative Contracting Officer ("ACO") forward pricing,
provisional indirect cost rate proposals and indirect cost claims on a timely
basis. Final negotiated indirect cost rate agreements closing indirect costs
years have been settled with the ACO through 1992. To the knowledge of CBS,
government audits of open years do not contain questioned costs that would
reasonably be expected to have a Material Adverse Effect. Set forth on Schedule
4.1(j)(C) is a true and correct description of all allegations, presently known
to CBS and made during the period from January 1, 1998 through the date hereof
by Federal agencies of willful misconduct or fraud as it relates to Federal
contracting activity.
(D) In connection with the pending governmental audit of the 1995
corporate general and administrative allocation by the Energy Systems Business
to EMD for Government Contracts, there are as of the date hereof no findings
that would reasonably be expected to materially change to the Energy Systems
Business indirect cost rate. There are adequate voluntary decrements available
to offset any audit findings sustained by the contracting officer in connection
with such audit or, if the voluntary decrements are inadequate to offset any
audit findings, any offsets in excess of such voluntary decrements will not be
material to the Business.
(K) SUFFICIENCY OF ACQUIRED ASSETS. Except as disclosed on Schedule
------------------------------
4.1(k) and except for the Excluded Assets (other than those described in clause
(viii) of the definition
45
<PAGE>
of Excluded Assets), and subject to Section 2.2(c), the Acquired Assets and the
Subsidiary Assets on the Closing Date will comprise all the assets owned by
Sellers or the Sold Subsidiaries that, together with the rights of Purchaser
under the Purchaser Ancillary Documents, the Novation Agreements and the
Purchaser Permits, are necessary for (i) the conduct of the Business in all
material respects as presently conducted and (ii) the discharge in all material
respects of the Assumed Liabilities in the ordinary course of business
consistent with past practice in relation to the Business.
(L) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the
------------------------------------
Schedules hereto, including Schedule 4.1(l), or as contemplated by this
Agreement, from the date of the Balance Sheet and until the date hereof Sellers
have conducted the Business in all material respects only in the Ordinary Course
of Business. Except as set forth in the Schedules hereto, including Schedule
4.1(l) or as contemplated by this Agreement, and except for changes (A) relating
to or resulting from seasonal changes or that generally affect to the same
extent all participants in the industries in which the Business operates, (B)
relating to or resulting from the public announcement of the transactions
contemplated by this Agreement or (C) relating to the identity of the Purchaser
or relating to or resulting from actions taken by Purchaser following the date
of this Agreement, from the date of the Balance Sheet there has not been any
Material Adverse Effect.
(M) EMPLOYEE BENEFITS.
-----------------
(i) Schedule 4.1(m)(i) contains a list of all written Benefit Plans.
Except as noted on Schedule 4.1(m)(i), CBS has made available to Purchaser
true, complete and correct copies of (A) each Benefit Plan, (B) the most
recent annual report on Form 5500 and attached schedules filed with the
Internal Revenue Service with respect to each Benefit Plan (if any such
report was required), (C) the most recent summary plan description for each
Benefit Plan for which such a summary plan description is required, (D)
each trust agreement and group annuity contract or other funding mechanism
(other than insurance contracts) relating to any Benefit Plan, (E) the most
recent audited financial statements and actuarial valuation reports with
respect to each Benefit Plan, to the extent available, and (F) the most
recent determination letter with respect to each Benefit Plan intended to
qualify under Section 401(a) of the Code. Schedule 4.1(m)(i) separately
identifies each Benefit Plan covering only employees or Former Employees of
the Business and four defined benefit plans that will be spun-off from the
Westinghouse Pension Plan covering (x) Bettis, West Valley and Waste
Isolation Divisions of the Business (the "Individual Spun-Off Plans"), and
-------------------------
(y) the Residual Divisions, (the "Residual Spun-Off Plan") which plans will
cover Business
46
<PAGE>
Employees and Former Employees of such divisions (each a "Free Standing
Plan"). At Purchaser's request, subject to CBS consent, not to be
unreasonably withheld, CBS shall cause the Residual Spun-off Plan to take
the form of two or more separate plans, as requested by Purchaser. In such
event, whenever Residual Spun-off Plan is described in this Agreement, it
shall refer to each of such plans, unless the context clearly contemplates
otherwise. CBS will enter into contract modifications ("Contract
--------
Modifications") with the DOE or DOD, which modifications will be
-------------
substantially in the form annexed to Schedule 4.1(m)(i) with respect to the
Individual Spun-off Plans, the Westinghouse Executive Pension Plan and the
CBS FAS 106 Plans, and will be in all material respects at least as
protective to Purchaser as the form of agreement annexed to Schedule
4.1(m)(i).
(ii) Each Benefit Plan has been administered in all material respects
in accordance with its terms and is in compliance in all material respects
with the applicable provisions of ERISA, the Code and other applicable
laws, rules and regulations. Except as set forth in Schedule 4.1(m)(ii),
all material reports, returns and similar documents with respect to the
Benefit Plans required to be filed with any Governmental Authority or
distributed to any Benefit Plan participant have been duly and timely filed
or distributed. Except as set forth in Schedule 4.1(m)(ii), there are no
suits, actions, termination proceedings or other proceedings pending, or,
to the knowledge of CBS, threatened against any Benefit Plan that relate to
any Former Employees or employees of the Business who will become Business
Employees and, to the knowledge of CBS and with respect to such employees,
there are no investigations by any Governmental Authority or other claims
(except claims for benefits payable in the normal operation of the Benefit
Plans) pending or threatened against any Benefit Plan or asserting any
rights to benefits under any Benefit Plan, which in each case is reasonably
likely to be adversely determined and which, if adversely determined, would
reasonably be expected to have an adverse effect on the Business.
(iii) Except as set forth in Schedule 4.1(m)(iii), (A) all
contributions to, and payments from, the Benefit Plans that may have been
required to be made in accordance with the Benefit Plans, collective
bargaining agreements and, when applicable, Section 302 of ERISA or Section
412 of the Code, have been timely made, (B) there has been no application
for or waiver of the minimum funding standards imposed by Section 412 of
the Code with respect to any Pension Plan, and (C) no Pension Plan has an
"accumulated funding deficiency" within the meaning of Section 412(a) of
the Code as of the most recent plan year, except in each instance as would
not reasonably be expected to have an adverse effect on the Business.
47
<PAGE>
(iv) Except as set forth in Schedule 4.1(m)(iv), all Pension Plans
have been the subject of determination letters from the Internal Revenue
Service to the effect that such Pension Plans are qualified and exempt from
Income Taxes under Sections 401(a) and 501(a), respectively, of the Code,
and no such determination letter has been revoked nor, to the knowledge of
CBS, has revocation been threatened. Except as set forth in Schedule
4.1(m)(iv), to the knowledge of CBS, (A) each such Pension Plan which is
intended to be so qualified is so qualified, and (B) nothing has occurred,
whether by action or failure to act, which would cause the loss of such
qualification, except in each instance as would not reasonably be expected
to have an adverse effect on the Business.
(v) Except as set forth in Schedule 4.1(m)(v), no "prohibited
transaction" (as defined in Section 4975 of the Code or Section 406 of
ERISA) has occurred that involves the assets of any Benefit Plan and that
is reasonably likely to subject any Sold Subsidiary or any employees of the
Business to the tax or penalty on prohibited transactions imposed by
Section 4975 of ERISA or the sanctions imposed under Title I of ERISA.
Except as set forth in Schedule 4.1(m)(v), none of the Pension Plans has
been terminated nor have there been any "reportable events" (as defined in
Section 4043 of ERISA and the regulations thereunder) with respect thereto
and no event or condition exists (other than reportable events triggered
solely by pending sales, dispositions and spin-offs by CBS of Subsidiaries,
divisions and businesses, including the sale contemplated by this
Agreement) which is likely to be deemed such a reportable event.
(vi) With respect to any Pension Plan subject to Title IV of ERISA,
CBS and its Affiliates have not incurred any Liability to the Pension
Benefit Guaranty Corporation, other than for payment of premiums, all of
which have been paid when due, and other than any Liabilities that,
individually or in the aggregate, would not be reasonably expected to have
an adverse effect on the Business.
(vii) Except as set forth in Schedule 4.1(m)(vii), as of the most
recent valuation date for each Pension Plan that is a defined benefit
pension plan, there was not any amount of "unfunded benefit liabilities"
(as defined in Section 4001(a)(18) of ERISA) under such Pension Plan.
(viii) Except as set forth in Schedule 4.1(m)(viii), at no time
within the five years preceding the Closing Date has CBS or any of its
Affiliates (including any of the Sold Subsidiaries) had any liability
(including, without limitation, any withdrawal
48
<PAGE>
liability) with respect to, or been required to contribute to, any
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) for the
benefit of any officers or employees of the Sold Subsidiaries or incurred
any withdrawal liability, within the meaning of Section 4201 of ERISA, with
respect to any such multiemployer plan, which liability has not been fully
paid as of the date hereof, or announced an intention to withdraw, but not
yet completed such withdrawal, from any such multiemployer plan.
(ix) Except as set forth in Schedule 4.1(m)(ix), no Former Employee
or employee of the Business will become entitled to any material bonus,
retirement, sever ance, job security or similar benefit or any materially
enhanced benefit or the acceleration of payment of any material benefit
contingent on the transactions contemplated hereby that, following the
consummation of the transactions contemplated hereby, will be an obligation
of (i) Purchaser or its Subsidiaries (including the Sold Subsidiaries) or
(ii) CBS or its Affiliates.
(x) No amount payable to any Business Employee in connection with
the transactions contemplated by this Agreement will fail to be deductible
by a Sold Subsidiary by reason of Code Section 280G.
(xi) Except as disclosed on Schedule 4.1(m)(xi), since December 31,
1996, there have been no Benefit Plan amendments which have resulted in a
material increase in liabilities of the Business.
(xii) Except as identified in Schedule 4.1(m)(xii), CBS and its
Affiliates and the Benefit Plans are in material compliance with the
requirements of Sections 4980B and 9801 et seq. of the Code and Sections 601 et
seq. and 701 et seq. of ERISA.
(xiii) With respect to the year ended December 31, 1997, the
applicable Sold Subsidiary employing Business Employees employed at Safe Sites
of Colorado was or will be reimbursed by the applicable governmental agency for
100% of cash outlays for benefits paid to Former Employees (and to the extent
applicable Business Employees) under nonqualified pension plans.
49
<PAGE>
(N) ENVIRONMENTAL MATTERS. Except as disclosed on Schedule 4.1(n):
---------------------
(i) For the purposes of this Section 4.1(n), "material" means any
Loss which individually or in the aggregate with respect to the same set of
facts, exceeds $2,500,000 and is not reimbursable by a Governmental
Authority, and "Sellers" and "Sold Subsidiaries" include their directors,
officers, agents, employees, representatives, consultants and shareholders;
(ii) Sellers and Sold Subsidiaries are in compliance in all material
respects with all Environmental Laws governing the operations of the
Business and the Acquired Assets, except where such failure to comply has
not resulted and will not result in an Agency Action in respect of which
the failure to comply would be material; and Sellers and Sold Subsidiaries
are not currently liable for any penalties, fines or forfeitures for
failure to comply with any of the foregoing, for which a failure to comply
would be material;
(iii) Sellers and the Sold Subsidiaries severally hold, and are in
material compliance with, all Permits required under the Environmental Laws
for Sellers and the Sold Subsidiaries to conduct the Business, except where
such failure to comply has not resulted and will not result in an Agency
Action, a list of which Permits is identified in Schedule 4.1(n)(iii)(a);
all such Permits are in full force and effect and all charges and fees
relating thereto have been paid and, to the knowledge of CBS, there is no
condition nor has any event occurred which constitutes, or with the giving
of notice would constitute, a material violation of the terms of any such
Permit; except as set forth in Schedule 4.1(n)(iii)(b), there are no
material legal or administrative proceedings pending or, to the knowledge
of CBS, threatened, which involve the validity, modification or breach of
any such Permit or the entitlement of Seller or Sold Subsidiaries for any
such Permit; and all applications for renewal of such Permits have been
timely filed;
(iv) Except as set forth on Schedule 4.1(n)(iv), no Governmental
Authority has indicated any unwillingness to grant any such consent
required for the transfer or reissuance of any Permit to Purchaser;
(v) Except as set forth on Schedule 4.1(n)(v), none of the Sellers
or Sold Subsidiaries have received nor, to the knowledge of CBS, is there
any notice of any outstanding or threatened noncompliance order or notice
of violation issued by any Governmental Authority administering the
Environmental Laws in connection with the
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operation of the Business, the Premises or the Acquired Assets by any of
the Sellers or the Sold Subsidiaries, or, to the knowledge of CBS, issued
to their predecessors in interest, which has not been resolved to the
satisfaction of the issuing Governmental Authority and which are material;
(vi) Except as set forth on Schedule 4.1(n)(vi), no Seller or Sold
Subsidiary has entered into, agreed to or is subject to any Agency Action
relating to compliance with any Environmental Law or to Remedial Action
under any Environmental Law that would be material or would materially
restrict Purchaser's operations of the Business; and Seller and Sold
Subsidiaries are not in any material respect in noncompliance with, breach
of or default under any such Agency Action;
(vii) To the knowledge of CBS, neither Sellers, in respect of the
operations of the Business and the Acquired Assets, nor any of the Sold
Subsidiaries, nor to the knowledge of CBS any predecessors in interest,
have Released, transported, or disposed of any Hazardous Substance on, to,
under or at any of the Premises, or any other property other than in a
manner that would not cause a material Loss; and none of Sellers or the
Sold Subsidiaries, nor to the knowledge of CBS, their predecessors in
interest, have received any written notice prior to the date of this
Agreement of the institution or pendency of any lawsuit, action, proceeding
or investigation by any Person arising under any Environmental Law at any
of the Premises, or any other property which is reasonably likely to be
adversely determined and which if adversely determined would cause a
material Loss, or which would require Remedial Action at any of the
Premises, the costs of which would be material;
(viii) Except as disclosed in Schedule 4.1(n)(viii), in respect of the
operations of the Business or the Acquired Assets, no Seller or Sold
Subsidiary has received any notice and CBS has no knowledge of and has no
reason to expect any enforcement order or notice of violation issued or
given by any Governmental Authority or private party in which order or
notice Sellers, Sold Subsidiaries or any of their predecessors in interest
have been named as potentially responsible parties pursuant to CERCLA;
(ix) In respect of the operations of the Business or the Acquired
Assets, Purchaser has been provided with an opportunity to review true,
correct and complete copies of all relevant environmental investigations,
studies, audits, tests, reports, reviews or other analyses conducted by or
on behalf of, and that are in the possession of, any Seller or Sold
Subsidiary in relation to any site or facility now or, in the case of any
Sold Subsidiary, previously owned, operated or leased by any of them or any
other
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property at which any Seller or Sold Subsidiary has or is alleged to have
Environmental Liabilities; and
(x) None of Sellers or any Sold Subsidiary, in respect of the
operations of the Business or the Acquired Assets, has agreed with any
Governmental Authority pursuant to any Environmental Law to the imposition
of any lien or limitation on the future use of any property that is an
Acquired Asset.
(O) TAXES. Except as set forth on Schedule 4.1(o):
-----
(i) Each of the Sellers and the Sold Subsidiaries has timely filed
or has had filed on its behalf, after giving effect to any applicable
extensions, all material Tax Returns required to be filed under applicable
law with respect to the Acquired Assets or the income or operations of the
Business, and all such Tax Returns were true, correct, and complete in all
material respects. Each of the Sellers and the Sold Subsidiaries has timely
paid or has had paid on its behalf, after giving effect to any applicable
extensions, all Taxes shown as due on such Tax Returns.
(ii) No taxing authority has asserted in writing any material Tax
deficiency that has not been paid or reserved for in accordance with GAAP
with respect to the Acquired Assets, the Subsidiary Assets or the income or
operations of the Business.
(iii) Except in connection with any consolidated, affiliated, or
combined United States federal, state, or local Income Tax Return, none of
the Sellers and none of the Sold Subsidiaries has requested any extension
of time within which to file any Tax Return with respect to the Acquired
Assets or the income or operation of the Business, which Tax Return has not
since been filed.
(iv) Except in connection with any consolidated, affiliated, or
combined United States federal, state, or local Income Tax Return, no
Seller or Sold Subsidiary has executed any outstanding waivers or
comparable consents regarding the application of the statute of limitations
with respect to any Taxes or Tax Returns with respect to the Acquired
Assets or the income or operation of the Business.
(v) None of the Acquired Assets or the Subsidiary Assets is
property that any party to this transaction is or will be required to treat
as being owned by another person pursuant to the provisions of Code Section
168(f)(8) (as in effect prior to its
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amendment by the Tax Reform Act of 1986) or is "tax-exempt use property"
within the meaning of Code Section 168(h).
(vi) No Sold Subsidiary is required to include in income any
adjustment pursuant to Code Section 481(a) by reason of a voluntary change
in accounting method initiated by such Sold Subsidiary, and the Internal
Revenue Service has not proposed in writing any such adjustment or change
in accounting method.
(vii) No material audits or other administrative proceedings or court
proceedings are presently pending with regard to any Taxes or Tax Returns
of any Seller (with respect to the Acquired Assets or the income or
operation of the Business) or Sold Subsidiary. There is no pending claim
by any authority of a jurisdiction where any of the Sellers (with respect
to the Acquired Assets or the income or operation of the Business or the
Sold Subsidiaries) has not filed Tax Returns that such Seller or Sold
Subsidiary is or may have been subject to taxation by that jurisdiction.
(viii) No power of attorney currently in force has been granted by
any Seller (with respect to the Acquired Assets or the income or operation
of the Business) or Sold Subsidiary that would be binding on Purchaser with
respect to taxable periods including, or commencing on or after, the
Closing Date.
(ix) No Seller (with respect to the Acquired Assets or the income or
operation of the Business) or Sold Subsidiary has received a tax ruling or
entered into a closing agreement with any taxing authority that would have
a continuing adverse effect upon a Sold Subsidiary, the Acquired Assets or
the Business, after the Closing Date.
(x) Each of the Sellers (with respect to the Acquired Assets or the
income and operation of the Business) and Sold Subsidiaries has complied in
all material respects with the provisions of the Code relating to the
payment and withholding of Taxes, including, without limitation, the
withholding and reporting requirements under Code Sections 1441 through
1464, 3401 through 3606, and 6041 and 6049, as well as similar provisions
under any other Laws, and within the time and in the manner prescribed by
Law, withheld and paid over to the proper governmental authorities all
material amounts required in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third
party.
(xi) No Sold Subsidiary (A) has filed a consent under Code Section
341(f), (B) is obligated to make any payments, or is party to any agreement
that could obligate
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it to make payments, not deductible under Code Section
280G, or (C) has been a U.S. real property holding company within the
meaning of Code Section 897.
(P) SOLD SUBSIDIARIES. Except as set forth on Schedule 1.1(d) (and
-----------------
except for Nominee Shares), all of the issued and outstanding shares of capital
stock of each Sold Subsidiary are owned, directly or indirectly, beneficially
and of record by one of the Sellers as set forth on Schedule 1.1(d), free and
clear of all Liens, except as set forth on Schedule 1.1(d). For purposes of this
Section 4.1(p), "beneficial ownership" of any shares of capital stock shall mean
having or sharing the power to direct or control the voting or disposition of
such shares of capital stock. All of such outstanding shares of capital stock
have been duly and validly authorized and issued and are fully paid and non-
assessable. Except (i) for any Nominee Shares and (ii) as set forth in Schedule
1.1(d), there are no shares of capital stock of or other equity interests in any
Sold Subsidiary outstanding. Except as set forth in Schedule 1.1(d), none of
the shares of capital stock of or other equity interests in any Sold Subsidiary
has been issued in violation of, or are subject to, any purchase option, call,
right of first refusal or preemptive, subscription or similar rights under any
provision of applicable law, the certificate of incorporation or by-laws (or
comparable organizational documents) of any Sold Subsidiary or any Contracts.
Except as set forth in Schedule 1.1(d), there are no outstanding warrants,
options, rights, "phantom" stock rights, convertible or exchangeable securities
or other agreements to or instruments (other than this Agreement) pursuant to
which any Seller or any Sold Subsidiary is or may become obligated to issue,
sell, purchase, return or redeem any shares of capital stock of or other equity
interests in any Sold Subsidiary.
(Q) LABOR MATTERS. Except as set forth in Schedule 4.1(q), (i) there
-------------
is no pending, and since December 31, 1997 through the date hereof there has not
been any, labor strike, work stoppage or lockout against any Seller in
connection with the Business, or any Sold Subsidiary, nor, to the knowledge of
CBS, is any such action threatened as of the date hereof, (ii) there is no
pending, and since December 31, 1997 through the date hereof there has not been
any, unfair labor practice charge or complaint against any Seller in connection
with the Business, or against any Sold Subsidiary, before the National Labor
Relations Board nor, to the knowledge of CBS, is any such charge or complaint
threatened as of the date hereof, and (iii) as of the date hereof, there are no
pending or, to the knowledge of CBS, threatened union grievances against any
Seller in connection with the Business, or any Sold Subsidiary, which, in the
case of clauses (i), (ii) and (iii), would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Except as disclosed on
Schedule 4.1(q)(iv), each of the Sellers and the Sold Subsidiaries has complied
in all material respects with its obligations related to, and is not in breach
in any material respect of or in default in any material respect under, any
collective bargaining or similar agreements to which
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any Seller (in connection with the Business) or any Sold Subsidiary is a party.
Except as set forth in Schedule 4.1(q)(v), to the knowledge of CBS, there are no
attempts presently being made to organize any employees employed by any of the
Sellers in connection with the Business or any Sold Subsidiary.
(R) OUTSTANDING BIDS. Set forth in Schedule 4.1(r) is a complete and
----------------
correct list of all bids outstanding as of the date hereof for Contracts by the
Sellers or any Sold Subsidiaries in connection with the Business, which
Contracts, if awarded to the bidding Seller or Sold Subsidiary, would involve
aggregate expenditures or receipts in excess of $5,000,000. Except as set forth
on Schedule 4.1(1), no such bid reflects a material deviation from the past
bidding practices and procedures, including profit objectives, of the Sellers
and the Sold Subsidiaries, nor would any such bid (determined solely on the
basis of the projections of the applicable Seller or Sold Subsidiary as of the
time such bid was made) result in a loss to the applicable Seller or Sold
Subsidiary.
(S) MAJOR SUPPLIERS.
----------------
(i) Schedule 4.1(s) sets forth the name of, and a brief description
of the goods or services supplied by, the twenty largest suppliers of goods
or services to the Business (based upon amounts paid by the Sellers and the
Sold Subsidiaries during the twelve-month period ending December 31, 1997);
and
(ii) Except to the extent set forth in Schedule 4.1(s),
(A) since December 31, 1997 through the date hereof, no change has
occurred in the business relationship of the Sellers or the Sold
Subsidiaries with any supplier listed on Schedule 4.1(s), the result of
which would reasonably be expected to have a Material Adverse Effect;
(B) none of the Sellers of the Sold Subsidiaries has received prior
to the date hereof notice from any supplier listed on Schedule 4.1(s), to
the effect that any such supplier intends to cease, or make a material
reduction in its supply or goods or services to, the Business; and
(C) without limiting the generality of the foregoing, none of the
Sellers or the Sold Subsidiaries has received prior to the date hereof
written notice in respect of any Government Contract that such Government
Contract is proposed to be rebid or that the Sellers or Sold Subsidiaries
will not be
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considered for any follow-on work relating to such Government
Contract.
(T) YEAR 2000.
---------
(i) The Sellers and the Sold Subsidiaries have developed and are
executing a plan with respect to Year 2000 readiness (the "Year 2000
---------
Plan"). The Sellers have provided Purchaser with a copy of the Year 2000
----
Plan and have provided a report on the status of the Year 2000 Plan through
June 13, 1998 that is accurate in all material respects.
(ii) The Year 2000 Plan address the Year 2000 issues which to the
knowledge of CBS are material to the Sellers and the Sold Subsidiaries,
including internal information systems risks, embedded circuitry risks and
third party risks. Except as provided above and in Section 5.27, CBS makes
no representations or warranties with respect to the capability of any of
the equipment, systems, software, data or databases relating to the
Business to adapt, accommodate or respond to the year 2000 and thereafter
("Year 2000 Compliance"), or with respect to the absence of Liabilities,
--------------------
contingent or otherwise, arising from or related to Year 2000 Compliance.
(U) TANGIBLE PROPERTY. All tangible personal property (other than
-----------------
Inventory), including, without limitation, equipment, furniture, leasehold
improvements, fixtures, vehicles, structures, any related capitalized items and
other similar tangible property, in each case owned or leased by any of the
Sellers or Sold Subsidiaries and material to its business is in good operating
condition (normal wear and tear excepted), subject to continued repair and
replacement in accordance with past practice.
SECTION 4.2. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
-------------------------------------------
hereby represents and warrants to CBS as follows:
(A) ORGANIZATION, STANDING AND POWER. Purchaser is a limited
--------------------------------
liability company duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is organized and has the requisite
limited liability company power and authority to carry on its business as now
being conducted.
(B) AUTHORITY. Purchaser has the requisite limited liability company
---------
power and authority to execute, deliver and perform this Agreement and the
agreements to be entered into by it at the Closing pursuant hereto (the
"Purchaser Ancillary Documents") and to
- ------------------------------
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consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Purchaser Ancillary Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary limited liability company action on the part of
Purchaser, and, in the case of the Purchaser Ancillary Documents, will be
authorized by all necessary limited liability company action on the part of
Purchaser prior to the Closing, and do not and will not require the approval of
the members of Purchaser. This Agreement has been duly executed and delivered by
Purchaser and constitutes, and each Purchaser Ancillary Document will be duly
executed and delivered by Purchaser at or prior to the Closing and when so
executed and delivered will constitute, a legal, valid and binding obligation of
Purchaser enforceable against it in accordance with its terms, subject to the
Bankruptcy Exception. The execution and delivery of this Agreement by Purchaser
do not, and the execution and delivery by Purchaser of the Purchaser Ancillary
Documents, the consummation by Purchaser of the transactions contemplated hereby
and thereby and the compliance by Purchaser with the terms hereof and thereof
will not, conflict with, or result in any violation of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation of any Lien upon any of
Purchaser's assets under, any provision of (i) the laws of the State of
Delaware, (ii) the certificate of incorporation or by-laws (or comparable
organizational documents) of Purchaser, (iii) any contract, lease, indenture or
other agreement of Purchaser or (iv) subject to the filings and other matters
referred to in the following sentence, any Law applicable to Purchaser, other
than, in the case of clause (iii) above, any such conflicts, violations,
defaults, rights or Liens that, individually or in the aggregate, would not
materially impair the ability of Purchaser to perform its obligations under this
Agreement. No consent, approval, license, permit, order or authorization of, or
registration, declaration or filing with, any Governmental Authority is required
to be obtained or made by or with respect to Purchaser in connection with the
execution and delivery of this Agreement or the Purchaser Ancillary Documents or
the consummation of the transactions contemplated hereby or thereby, except for
(i) compliance with and filings under the HSR Act, (ii) voluntary notification
under the Exon-Florio Amendment, (iii) [intentionally omitted], (iv) filings and
approvals under foreign laws, (v) consents or novations which may be required
for the assignment of any Intellectual Property, Technology or Contract as
contemplated in Section 5.4, (vi) compliance with, and notices and filings
under, environmental permits, statutes and regulations, and (vii) compliance
with the facilities clearance requirements of the DIS, as set forth in the DIS
Industrial Security Regulation and the DIS Industrial Security Manual, as
amended from time to time, and (viii) those the failure of which to obtain or
make, individually or in the aggregate, would not materially impair the ability
of Purchaser to perform its obligations under this Agreement.
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(C) U.S.-CONTROLLED ENTITY. Purchaser is an entity the majority
----------------------
ownership of which is, and the control of which is, by citizens of the United
States or corporations or other organizations incorporated or organized under
the laws of a State of the United States whose business is administered
principally in the United States and which is capable of holding any licenses
issued by the NRC that are contemplated to be transferred to Purchaser under
this Agreement (a "U.S.-Controlled Entity"). All of the equity interests in
----------------------
Purchaser are owned of record and beneficially by BNFL USA Group, Inc. (or, as
of the Closing, a wholly owned subsidiary of BNFL USA Group, Inc.) and MK.
(D) U.K. SHAREHOLDER APPROVAL. Purchaser and its Affiliates have been
-------------------------
duly authorized by its principal shareholder, the Department of Trade and
Industry, to take the necessary actions to execute and deliver this Agreement
and the Purchaser Ancillary Documents and to consummate the transactions
contemplated herein.
ARTICLE 5
COVENANTS
SECTION 5.1. (A) COVENANTS OF CBS RELATING TO CONDUCT OF BUSINESS.
------------------------------------------------
During the period from the date of this Agreement and continuing until
the Closing, except as expressly provided in this Agreement, including the
Schedules hereto, or to the extent that Purchaser shall otherwise consent (which
consent shall not be unreasonably withheld or delayed), CBS shall, and shall
cause the other Sellers and the Sold Subsidiaries to, carry on the Business in
the Ordinary Course of Business and use all reasonable efforts consistent with
past practices to keep available the services of the Business's present officers
and employees and preserve the Business's relationships with customers,
suppliers and others having business dealings with the Business. In addition,
except as contemplated by Schedule 5.1 or as otherwise provided by this
Agreement, CBS shall not, and shall not permit any other Seller (in connection
with the Business) or any Sold Subsidiary to, do any of the following without
the consent of Purchaser (which consent shall not be unreasonably withheld or
delayed):
(i) amend the certificate of incorporation or by-laws (or comparable
organizational documents) of any Sold Subsidiary in any material respect;
(ii) adopt or amend in any material respect any Benefit Plan or
collective bargaining agreement, except as required by Law or pursuant to
the terms of any
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existing collective bargaining agreement or other existing Contract and
except for changes made by CBS to any Benefit Plan which do not increase
costs by more than 5%;
(iii) grant to any executive officer of any Sold Subsidiary any
increase in compensation, benefits or loans or severance benefits, except
in the Ordinary Course of Business or as may be required under existing
contracts or agreements (as set forth in Schedule 5.1(a)(iii)) and except
for any increases or loans the liability for which a Seller shall be solely
obligated both before and after Closing;
(iv) incur or assume any liabilities, obligations, or indebtedness
for borrowed money which would constitute an Assumed Liability, or
guarantee any such liabilities, obligations or indebtedness, in each case
other than in the Ordinary Course of Business;
(v) acquire by merging or consolidating with, or by purchasing a
material portion of the assets of, or by any other manner, any business or
any corporation, partnership, joint stock company, limited liability
company, association or other business organization or division thereof;
(vi) acquire any assets which are material, individually or in the
aggregate, to the Business, taken as a whole, except in the Ordinary Course
of Business;
(vii) sell, lease or mortgage, pledge or otherwise dispose of, or
grant preferential rights to, any of its assets that are material,
individually, or in the aggregate, to the Business as a whole, except for
the sale of Inventory in the Ordinary Course of Business and except for the
sale or factoring of accounts receivable;
(viii) enter into any lease of real property for an annual rent in
excess of $150,000, except any renewals of existing leases in the Ordinary
Course of Business;
(ix) enter into any joint venture or partnership or, other than in
the Ordinary Course of Business, teaming agreement or arrangement; or
(x) enter into, amend or terminate any employment agreement;
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(xi) except as set forth in Schedule 5.1(a)(xi), knowingly waive any
right of material value to the Business or settle or compromise any claim
in excess of $2,500,000;
(xii) make any wage or salary increase or other compensation payable
or to become payable or bonus, or increase in any other direct or indirect
compensation, for or to any of its officers, employees, consultants, agents
or other representatives employed in the Business, or any accrual for or
commitment or agreement to make or pay the same, in each case other than in
the Ordinary Course of Business or as may be required under existing
contracts;
(xiii) except as described in Schedule 4.1(j)(A)(iii) or as otherwise
contemplated by this Agreement, enter into any transactions with any of its
Affiliates, officers, directors, employees, consultants, agents or other
representatives (other than employment arrangements made in the Ordinary
Course of Business), or any Affiliate, of any officer, director,
consultant, employee, agent or other representative, to the extent the
obligations arising from any such transaction would be an Assumed
Liability;
(xiv) except as set forth in Schedule 5.1(a)(xiv), make any payment
or commitment (which would in the case of any Seller constitute an Assumed
Liability) to pay any severance or termination payment to any Person or any
of its officers, directors, employees, consultants, agents or other
representatives employed in the Business, other than payments pursuant to
contractual obligations in effect on the date of this Agreement;
(xv) except in the Ordinary Course of Business, amend in any
material respect or enter into any Contract or other agreement of a type
required to be disclosed pursuant to Section 4.1(j)(A)(v), (vii), (viii),
(xi), (xiii), (xiv) and (xv);
(xvi) declare or pay any non-cash dividend other than, in the case of
CBS, dividends of property not relating to the Business;
(xvii) in the case of a Sold Subsidiary, declare any dividend that is
not paid before the Closing Date;
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(xviii) agree to settle any Tax audit or dispute that will have a
binding effect on Purchaser, the Business or any Sold Subsidiary for any
Post-Closing Tax Period or Purchaser's Straddle Period;
(xix) with respect to bids made after the date hereof which would,
if outstanding on the date hereof, be required to be set forth on Schedule
4.1(r), make any such bid if the representation set forth in Section 4.1(r)
could not be made with respect to such bid at the time such bid is made; or
(xx) agree, whether in writing or otherwise, to do any of the
foregoing.
(b) Advice of Changes. CBS shall promptly notify Purchaser of:
-----------------
(i) any actions, suits, claims or proceedings or, to the
knowledge of CBS, investigations commenced or, to its knowledge, threatened
against CBS, its Subsidiaries or the Business that, if pending on the date
of this Agreement, would have been required to have been disclosed pursuant
to Section 4.1(e); and
(ii) the damage or destruction by fire or other casualty of any
material Acquired Asset or part thereof or in the event that any material
Acquired Asset or Subsidiary Asset or part thereof becomes the subject of
any proceeding or, to the knowledge of CBS, threatened proceeding for the
taking thereof or any part thereof or of any right relating thereto by
condemnation, eminent domain or other similar governmental action;
provided, however, that CBS shall have no Liability for breach of this Section
- -------- -------
5.1(b) except to the extent Purchaser has actually been prejudiced by such
breach.
SECTION 5.2. ACCESS TO INFORMATION; CONSULTATION.
-----------------------------------
(a) CBS shall afford to Purchaser and its accountants, counsel and
other representatives reasonable access at reasonable times during the period
prior to the Closing to all the properties (including the GESCO government-owned
sites), books, Contracts, commitments, Tax Returns, pending bids and proposals
for contracts (excluding contracts for which CBS believes Purchaser or any of
its Affiliates is a competing bidder), and records of the Business (other than
to the extent such information relates to the Excluded Assets or Excluded
Liabilities), and during such period shall furnish promptly to Purchaser any
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information concerning the Business (other than to the extent such information
relates to the Excluded Assets or Excluded Liabilities) as Purchaser may
reasonably request and shall use reasonable commercial efforts on a timely basis
to obtain any counterparty or third-party consents necessary to permit Purchaser
access to such information; and shall cause its and the other Sellers' officers,
employees, consultants, agents, accountants and attorneys to cooperate
reasonably with Purchaser's representatives in connection with such review and
examination; provided, however, that CBS is under no obligation to disclose to
-------- -------
Purchaser (i) any information the disclosure of which is restricted by
applicable Law except in strict compliance with the applicable Law, (ii) any
information as to which the attorney-client privilege, the attorney work-product
doctrine or the self-evaluative privilege may be available, except to the extent
covered by the Joint Defense Agreement referred to in Section 5.28 or, if not so
covered, until a mutually satisfactory joint defense agreement has been executed
by Purchaser and CBS, (iii) the medical records pertaining to any employee or
former employee of the Business until after the Closing or (iv) any "Classified
Information" other than in compliance with the DIS Industrial Security
Regulations, the DIS Industrial Security Manual and any other applicable
government security regulations. CBS shall cooperate reasonably with Purchaser
in connection with any request to make available to Purchaser and its
representatives, customers and suppliers of the Business, and to arrange and
participate in meetings between Purchaser and its representatives and such
customers and suppliers, for the purpose, among other things, of verifying the
information furnished to Purchaser, developing transition plans and integrating
the operations of the Business with the operations of Purchaser and its
Affiliates provided that (i) such cooperation does not unnecessarily interfere
--------
with the operation of the GESCO Businesses or any other business of CBS and (ii)
Purchaser shall reimburse CBS upon request as incurred for any expenses incurred
in connection with such cooperation. All requests for information, to visit
facilities or to meet with Sellers' representatives shall be made in writing and
directed to and coordinated with the person(s) designated to Purchaser from time
to time by CBS as the GESCO Coordinator(s). Purchaser acknowledges that any
information being provided to it or its representatives by Sellers pursuant to
or in connection with this Agreement is subject to the terms of confidentiality
agreements between each of MK and BNFL and CBS dated March 19, 1998 and March
13, 1998, respectively (the "Confidentiality Agreements"), which terms are
--------------------------
incorporated herein by reference. CBS shall use its commercially reasonable
efforts to, and to cause its Affiliates to, enforce the respective terms of the
confidentiality agreements entered into with other prospective purchasers in
connection with the proposed sale of the GESCO Businesses (including requesting
that such other prospective purchasers return or destroy confidential
information to the extent required to do so as provided therein).
Notwithstanding anything to the contrary contained in paragraph 15 thereof, the
Confidentiality Agreements and the obligations not to use or disclose and to
return on request or destroy Confidential Information (as defined in the
Confidentiality Agreements)
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shall terminate on the fifth anniversary of the Closing Date. Nothing contained
herein is intended to limit or restrict Purchaser's use or disclosure of
Confidential Information concerning the Business following the Closing. No
investigation by Purchaser shall diminish or obviate any other representations,
warranties, covenants or agreements of CBS under this Agreement.
(b) During the period prior to the Closing, at the request of
Purchaser, CBS shall, and shall cause its and the other Sellers' employees to,
cooperate reasonably with Purchaser and its representatives in connection with
the preparation of such financial statements for the Business as may be required
in connection with the preparation by an applicable Affiliate of Purchaser of a
Current Report on Form 8-K relating to the transactions contemplated hereby;
provided that (i) such cooperation does not interfere with the operation of the
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GESCO Businesses or any other business of CBS and (ii) Purchaser shall reimburse
CBS upon request as incurred for any expenses incurred in connection with such
cooperation.
(c) Prior to the Closing, CBS will deliver to Purchaser a complete and
correct list of all bank accounts of each of the Sold Subsidiaries, and all
persons having signing authority with respect thereto.
SECTION 5.3. GOVERNMENTAL APPROVALS, ETC.
---------------------------
(a) Each of Purchaser and CBS shall as promptly as practicable, (i)
but in no event later than 10 business days following the execution and delivery
of this Agreement, file with the United States Federal Trade Commission and the
United States Department of Justice the notification and report form under the
HSR Act required for the transactions contemplated hereby and, thereafter, any
supplemental information requested in connection therewith pursuant to the HSR
Act and (ii) but in no event later than 20 business days following the execution
and delivery of this Agreement file with the Committee on Foreign Investment in
the United States the voluntary notification under the Exon-Florio Amendment for
the transactions contemplated hereby. Each of Purchaser and CBS shall as
promptly as practicable comply with any other Laws of any country which are
applicable to any of the transactions contemplated hereby and pursuant to which
any consent, approval, order or authorization of, or registration, declaration
or filing with, any Governmental Authority or any other Person in connection
with such transactions is necessary. Each of Purchaser and CBS shall furnish to
the other such necessary information and reasonable assistance as the other may
request in connection with its preparation of any filing, registration or
declaration which is necessary under the HSR Act or any other such Laws.
Purchaser and CBS shall keep each other apprised of the status of any
communications with, and any inquiries or requests for
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additional information from, any Governmental Authority, and shall comply
promptly with any such inquiry or request. Purchaser and CBS shall use their
best efforts and take all necessary action to obtain any clearance under the HSR
Act, the Exon-Florio Amendment or any other consent, approval, order or
authorization of any Governmental Authority, necessary in connection with the
transactions contemplated hereby or to resolve any objections which may be
asserted by any Governmental Authority with respect to the transactions
contemplated hereby.
(b) Subject to the terms and conditions of this Agreement, each party
shall use its best efforts to cause the Closing to occur as promptly as
practicable, including (i) as contemplated by Section 5.3(a) or 5.4, (ii)
defending against any lawsuits, actions or proceedings, judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to prevent the entry or
imposition of any preliminary injunction, temporary restraining order, stay or
other legal restraint or prohibition by any court or other Governmental
Authority and to appeal and seek to have vacated or reversed as promptly as
possible any such injunction, order, stay or other restraint or prohibition that
is not yet final and nonappealable, provided, however, that none of Sellers nor
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Purchaser nor their Affiliates shall be required to make any material monetary
expenditure, commence or be a plaintiff in any litigation or offer or grant any
material accommodation (financial or otherwise) to any third Person.
(c) Purchaser shall use its commercially reasonable efforts to obtain
as promptly as practicable all permits, licenses, franchises, approvals,
consents and authorizations by or of Governmental Authorities required by Law or
Contract for Purchaser to conduct the Business following the Closing and to own
the Acquired Assets (each, a "Purchaser Permit"), and CBS shall, and shall cause
----------------
the other Sellers and the Sold Subsidiaries to, cooperate with Purchaser in
connection therewith. Notwithstanding the foregoing, neither CBS nor Purchaser
shall be required to expend any material sum or agree to a material concession
to any Govern mental Authority to obtain, or, in the case of CBS, to assist
Purchaser to obtain, as the case may be, any such Purchaser Permit. Purchaser
acknowledges that certain facilities owned or serviced by the Business and
certain related documents, records and information are classified for United
States government security purposes as high as the level of "Top Secret," which
may require, in addition to any Purchaser Permits required under applicable Law
to conduct the Business at such facilities, the employment of individuals
holding United States government security clearances as high as the level of
"Top Secret." Notwithstanding anything to the contrary in this Agreement, CBS
shall not be required to provide access to such facilities or any such related
documents, records or information to any representative or employee of Purchaser
unless such individual presents evidence reasonably
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satisfactory to CBS of such individual's security clearance meeting the security
clearance level prescribed for such access.
SECTION 5.4. NOVATIONS OF GOVERNMENT CONTRACTS AND THIRD PARTY
-------------------------------------------------
CONSENTS.
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(a) As soon as practicable following the execution of this Agreement,
CBS shall prepare (with Purchaser's assistance, as necessary), in accordance
with Federal Acquisition Regulations Part 42, (P) 42.12 and any applicable
agency regulations or policies, a written request for the novation of the
Government Contracts meeting the requirements of the Federal Acquisition
Regulations Part 42, as reasonably interpreted by the Responsible Contracting
Officer (as such term is defined in Federal Acquisition Regulations Part 42, (P)
42.1202(a)). The request for novation shall be submitted by CBS to each
Responsible Contracting Officer, for the United States government (or, in the
case of Government Contracts not subject to the Federal Acquisition Regulations,
Purchaser and CBS shall cooperate in seeking to cause the applicable
Governmental Authority) to (i) recognize Purchaser as CBS's successor in
interest to the Government Contracts and all the Acquired Assets used in the
performance of the Government Contracts and (ii) enter into one or more novation
agreements (collectively, "Novation Agreements") in form and substance
-------------------
reasonably satisfactory to Purchaser and CBS and their respective counsel,
pursuant to which all of CBS's right, title and interest in and to, and all of
CBS's Liabilities under, each such Government Contract shall be validly
conveyed, transferred and assigned and novated to Purchaser by all parties
thereto. Purchaser shall provide to CBS promptly any information regarding
Purchaser required in connection with such request.
(b) CBS and Purchaser will cooperate and use their respective
commercially reasonable efforts to obtain as promptly as practicable (i) all
consents, approvals and waivers (A) required for the purpose of processing,
entering into and completing the Novation Agreements with regard to any of the
Government Contracts, including responding to any requests for information from
the United States government with regard to such Novation Agreements, or (B)
required by third Persons to transfer the Contracts, Intellectual Property,
Technology and the capital stock of the Sold Subsidiaries to Purchaser in a
manner that will avoid any default, conflict, or termination of rights under the
Contracts, Intellectual Property and Technology and (ii) without limiting the
provisions of clause (B) above, novations of all Contracts other than Government
Contracts. Notwithstanding anything to the contrary in this Agreement, nothing
in this Section 5.4 shall require Sellers or Purchaser to expend any material
sum, make a material financial commitment or grant or agree to any material
concession to any third Person to obtain any such consent, approval, waiver or
novation.
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(c) If any and all consents, approvals or waivers necessary for the
assignment, transfer or novation of any Contract, Intellectual Property or
Technology, or any claim, right or benefit arising thereunder or resulting
therefrom, or consents relating to a change in control of any Sold Subsidiary,
shall not have been obtained prior to the Closing Date, then as of the Closing,
this Agreement, if permitted by Law, shall constitute full and equitable
assignment by Sellers to Purchaser of all of Sellers' right, title and interest
in and to, and all of Sellers' obligations and liabilities under, such
Contracts, Intellectual Property and Technology, and, in the case of such
Contracts, Purchaser shall be deemed Sellers' agent for purpose of completing,
fulfilling and discharging all of Sellers' obligations and liabilities under any
such Contract. The parties shall take all necessary steps and actions to
provide Purchaser with the benefits of such Contracts, Intellectual Property and
Technology, and, in the case of such Contracts, to relieve Sellers of the
performance and other obligations and liabilities thereunder, including entry
into subcontracts for the performance thereof. Purchaser agrees to pay, perform
and discharge, and, pursuant to Section 8.2, indemnify Sellers against and hold
Sellers harmless from, all obligations and liabilities of Sellers relating to
such performance or failure to perform under such Contracts, including any
related guarantees.
(d) If Sellers shall be unable to make the equitable assignment
described in Section 5.4(b), or if such attempted assignment would adversely
affect the rights of Sellers or Purchaser under such Contract, Intellectual
Property or Technology, or would not assign all of Sellers' rights thereunder at
the Closing, Sellers and Purchaser shall continue to cooperate and use all
reasonable efforts to provide Purchaser with all such rights. To the extent
that any such consents and waivers are not obtained, or until the impediments to
such assignment are resolved, Sellers shall use all reasonable efforts (without
the expenditure, in the aggregate, of any material sum) to the extent permitted
by Law to (i) provide to Purchaser, at the request of Purchaser, the benefits of
any such Contract or of any such Intellectual Property or Technology, to the
extent related to the Business, (ii) cooperate in any lawful arrangement
designed to provide such benefits to Purchaser and (iii) enforce, at the request
of and for the account of Purchaser, any rights of Sellers arising from any such
Contract, Intellectual Property or Technology against any third Person including
the right to elect to terminate in accordance with the terms thereof upon the
advice of Purchaser. To the extent that Purchaser is provided the benefits
(including payment rights) of any Contract, Intellectual Property or Technology
referred to herein (whether from Sellers or otherwise), (i) Purchaser shall
perform for the benefit of any third Person the obligations of Sellers
thereunder or in connection therewith, and (ii) Purchaser agrees to pay, perform
and discharge, and, pursuant to Section 8.2, indemnify Sellers against and hold
Sellers harmless from, all obligations and liabilities of Sellers relating to
such performance or failure to perform, and in the event of a failure of such
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indemnity, Sellers shall cease to be obligated under this Agreement in respect
of the Contract, Intellectual Property or Technology which is the subject of
such failure.
(e) Without limiting the generality of Section 5.10, from the Closing
Date until, with respect to each Government Contract, the sixth year following
the earlier of the release date or notice of final payment for such Government
Contract, Purchaser agrees to provide CBS and its accountants, counsel and other
representatives access, during normal business hours, to such information,
personnel and assistance relating to the performance by Purchaser of the
Government Contracts and its respective obligations under the Novation
Agreements as CBS shall reasonably request from time to time.
SECTION 5.5. EMPLOYEE MATTERS.
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(A) EMPLOYEE MATTERS.
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(i) Continuation of Employment. Purchaser shall offer employment to
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(or cause a Sold Subsidiary to continue to employ) each employee of the
Business (including any individual whose principal place of employment is
on the Premises, who primarily renders services on behalf of the Business
and whose compensation cost is borne primarily by the Business) who is
actively at work, on vacation or on short-term disability (including salary
continuation and extension) leave on the Closing Date (each a "Business
--------
Employee"). "Business Employee" shall not include any employee working at
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the Closing Date at locations listed in Section 2.2(b)(xv). Each employee
or former employee who primarily rendered services on behalf of the
Business and who is not actively at work on the Closing Date due to leave
of absence, long-term disability leave, military leave or layoff, and who
in the case of an employee on long-term disability was last actively
employed within two years of the Closing Date, and in the case of an
employee on a leave of absence or layoff was last employed within five
years of the Closing Date and in each case has recall rights ("Recall
------
Rights") under the work rules of the Business, a collective bargaining
------
agreement or applicable law (collectively, "Inactive Employees"), shall be
------------------
offered active employment by Purchaser pursuant to the Recall Rights.
Inactive Employee shall not include any employee who last worked at
locations listed in Section 2.2(b)(xv). Upon such offer and acceptance and
commencement of active employment, each such Inactive Employee shall be
considered a Business Employee effective as of the first date of return to
work. CBS shall deliver a schedule to Purchaser of anticipated Business
Employees and Inactive Employees and with respect to the latter their
designated status as of the Closing Date and their entitlements, 15 days
before the Closing Date. Such schedule shall be
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updated by CBS as soon as practical after the Closing Date. Any employee of
Sellers or their Affiliates who is not otherwise a Business Employee but
who is offered and accepts employment by Purchaser, pursuant to mutual
agreement with the Sellers, during the six months following the Closing
Date shall be deemed to be a Business Employee as of the date of actual
employment with the Purchaser. Purchaser shall not offer employment to any
employee of any Seller during such six-month period without the consent of
such Seller (other than as provided for herein).
(ii) Continuation of Compensation and Benefits. Notwithstanding the
-----------------------------------------
more specific provisions set forth in this Section 5.5, Purchaser shall
provide or shall cause a Subsidiary to provide, compensation and written
benefit plans and arrangements which in the aggregate are comparable (but
in no event taking into account any equity-based compensation (including
options) and opportunity to invest in securities of CBS under the CBS Stock
Plan or the Westinghouse Savings Program, provided that with respect to
Business Employees, the match formula under the Westinghouse Savings
Program shall be considered when determining comparability) to the
compensation and written Benefit Plans (See Schedule 4.1(m)(i)) in effect
for Business Employees on the date of this Agreement ("Comparable
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Benefits") for a period of not less than one year following the Closing
--------
Date (or, in the case of Business Employees who are subject to a collective
bargaining agreement, the period required therein) (the "Benefits
--------
Maintenance Period"). Comparability for the purpose of determining
------------------
Comparable Benefits shall be assessed in terms of total dollar value (or
such other measurement utilized by the consultant) to Business Employees in
the aggregate. Notwithstanding the above, with respect to Business
Employees who are executives, the Purchaser shall provide long-term
incentives which provide benefits generally comparable in value to long-
term incentive plans of Sellers. No later than 15 days prior to the
Closing Date Purchaser shall either (1) commit to CBS in writing to provide
for Business Employees for the Benefit Maintenance Period substantially
identical compensation and benefits to that provided by CBS and Affiliates
to Business Employees (without regard to the equity-based compensation and
the form of long-term incentive benefits) with CBS to consent to the
determination of substantially identical benefits, which consent shall not
be unreasonably withheld or (2) deliver to CBS a letter from an independent
consulting firm reasonably acceptable to CBS stating that the compensation,
benefits and benefit arrangements offered by Purchaser to the Business
Employees pursuant to this Section are Comparable Benefits.
(b) Accrued Vacation. Purchaser shall credit each Business Employee
----------------
with the unused vacation days and any personal and sickness days earned in
accordance with the
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vacation and personnel policies and collective bargaining agreements of CBS or
the Sold Subsidiaries in effect as of the Closing Date, provided that an
appropriate adjustment shall be made in the event of any cash payment required
to be made by either Purchaser or Sellers as a result of the transaction
contemplated by this Agreement. CBS shall provide to Purchaser at the Closing
Date such schedules as CBS maintains and such other information as reasonably
necessary to calculate such benefits.
(C) PENSION PLAN. Effective as of the Closing Date, Purchaser or the
------------
applicable Sold Subsidiary shall assume the Individual Spun-Off Plans and the
Residual Spun-Off Plan (subject to the provisions of Sections 5.5(n) (the
"Assumed Pension Plans")). Purchaser shall continue the Assumed Pension Plans
without adverse effect to the Business Employees for the Benefits Maintenance
Period and shall credit service of Business Employees with Sellers and Sold
Subsidiaries for purposes of eligibility, vesting and retirement eligibility in
all pension plans (within the meaning of Section 3(2) of ERISA) in which such
Business Employees participate.
(D) SAVINGS PLAN. (i) Effective as of the Closing Date, Purchaser
------------
shall adopt or have in effect a defined contribution plan that includes a
qualified cash or deferred arrangement within the meaning of Section 401(k) of
the Code ("Purchaser's 401(k) Plan") which offers benefits to Business Employees
-----------------------
eligible to participate in the Westinghouse Savings Program (the "WELCO Savings
-------------
Program") as of the Closing Date and contains provisions similar to the
- -------
provisions of the WELCO Savings Program to the extent required by Section
411(d)(6) of the Code for account balances to be transferred from the CBS
Savings Program. Each Business Employee eligible to participate in the WELCO
Savings Program as of the Closing Date shall become eligible to participate in
Purchaser's 401(k) Plan as of the Closing Date. Business Employees shall
receive credit for all service with Sellers and their Affiliates for purposes of
eligibility and vesting under Purchaser's 401(k) Plan to the extent credited
under the WELCO Savings Program. Effective as of the date of transfer described
in (iii) below, CBS shall fully vest the account balances of Business Employees
under the WELCO Savings Program and make all applicable contributions under the
WELCO Savings Program otherwise provided for in the plan year in which the
Closing occurs with respect to compensation earned by Business Employees prior
to the Closing Date, without regard to any provision of the WELCO Savings
Program requiring a minimum number of hours of service, or employment on any
particular date, if the applicable Business Employees would have qualified for a
contribution if they had remained employed with Sellers.
(ii) As soon as reasonably practicable after the Closing Date,
Purchaser shall provide CBS with (A) either a copy of a favorable IRS
determination letter to the effect
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that Purchaser's 401(k) Plan is qualified under Section 401(a) of the Code
or an opinion of Purchaser's counsel, reasonably satisfactory to CBS, to
such effect and (B) an opinion of Purchaser's counsel, reasonably
satisfactory to CBS, that the Purchaser's 401(k) Plan will satisfy Section
411(d)(6) of the Code with respect to account balances to be transferred to
the Purchaser's 401(k) Plan from the WELCO Savings Program pursuant to
(iii) below.
(iii) As soon as reasonably practicable after the Closing Date and
receipt of the documentation described in (ii) above, CBS shall cause to be
transferred from the WELCO Savings Program to Purchaser's 401(k) Plan
assets having a fair market value equal to the aggregate value of the
account balances in the WELCO Savings Program as of the date of transfer
(such transfer to be in (x) shares of common stock of Seller to the extent
of shares in the CBS Common Stock Fund applicable to Business Employees,
(y) in notes evidencing loans to Business Employees from their account
balances, (z) in cash, (xx) to the extent of the account balances of the
Business Employees in the CBS Savings Program allocable to the Fixed Income
Fund, in investment instruments which approximate from a quality and
interest rate perspective assets held by the fund, but subject to the
applicable fiduciary requirements of the Purchaser's 401(k) Plan relating
to quality and interest rate considerations), (yy) all qualified domestic
relations orders (within the meaning of Section 414(p) of the Code) with
respect to Business Employees and (zz) such other assets as Purchaser and
CBS mutually agree upon and Purchaser shall cause the Purchaser's 401(k)
Plan to accept the receipt of such transfers and the liabilities relating
thereto.
(iv) Sellers represent, warrant and covenant that after the Closing
and at the time of the transfer of assets to the Purchaser's 401(k) Plan,
the WELCO Savings Program will be qualified under Section 401(a) and (k) of
the Code and, to the extent pertinent to the qualified status of the
Purchaser's 401(k) Plan as relevant to asset transfers as provided herein,
for all prior periods, and will not be disqualified retroactively to any
such time or for any such period. Sellers and Purchaser shall cooperate in
making, and shall make, all appropriate filings required under the Code and
ERISA, and the regulations thereunder, and shall further cooperate to
ensure that the transfers described in this Section 5.5(d) satisfy the
applicable requirements of Sections 401(k), 414(l), 411(d)(6) and
401(a)(12) of the Code and the regulations thereunder.
(v) Purchaser's 401(k) Plan shall maintain a CBS common stock fund,
in accordance with applicable law, for Business Employees who so elect, for
such period
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as Purchaser determines is necessary for an orderly transition. No new
investments in CBS common stock shall be required to be permitted after the
Closing Date.
(E) UNION REPRESENTATION. Purchaser agrees with respect to any
--------------------
collective bargaining agreement that relates to Business Employees, to (i)
recognize each union with an agreement listed in Schedule 4.1(j) which at the
Closing Date represents any group of Business Employees as the collective
bargaining representatives of such employees as of the Closing Date, (ii)
provide such employees with comparable wages and benefits as those in effect on
the date of this Agreement in accordance with such collective bargaining
agreements, and (iii) assume the obligations for Business Employees and Former
Employees under any such collective bargaining agreement that by its terms
requires such assumption.
(F) MEDICAL AND DISABILITY BENEFITS; LIFE INSURANCE. (i) Effective
-----------------------------------------------
as of the Closing Date, Purchaser shall establish employee welfare benefit
plans, including but not limited to medical and dental, disability, group life,
travel and accident, and accidental death and dismemberment insurance plans,
which (x) provide continuous coverage to Business Employees and their eligible
spouses and dependents, (y) credit service with Sellers or their Affiliates for
purposes of eligibility and benefit levels, and (z) for medical and dental
benefits, waive any pre-existing condition limitations and credit the amount of
any co-payments and deductibles incurred during the calendar year of the
Closing.
(ii) Effective as of the Closing Date, Purchaser shall be
responsible for all employee welfare benefit plan claims (whether for
insurance, benefits or otherwise) with respect to Business Employees and
Inactive Employees and their eligible spouses and dependents, whether
incurred prior to or after the Closing Date. Sellers shall cooperate with
Purchaser in transferring to Purchaser applicable insurance company
reserves associated with claims covering Business Employees and Inactive
Employees currently receiving benefits from the Westinghouse Long Term
Disability Plan or Management Disability Benefit Plans. Sellers shall pay
or cause to be paid medical, dental and other welfare benefit claims
incurred but not paid in the ordinary course, prior to the Closing Date
with respect to Business Employees and Inactive Employees and Purchaser
shall reimburse and indemnify the Sellers for the amount of such Payments.
(iii) As of the Closing Date Purchaser shall adopt a plan or plans
providing retiree medical and other retiree welfare benefits for Business
Employees and Former Employees and their eligible spouses and dependents
(such plans and their successors the "Purchaser FAS 106 Plans") that is
-----------------------
substantially similar to such plan or plans
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maintained by CBS or its Affiliates in the U.S. immediately prior to the
Closing Date for its Business Employees and Former Employees, their
eligible spouses and dependents (the "WELCO FAS 106 Plans") so that during
-------------------
the Benefits Maintenance Period the combination of the Purchaser FAS 106
Plans and the WELCO FAS 106 Plans (as modified as described in clause (iv)
below) provide the same benefit and the same cost sharing (with retirees)
as if such Business Employees and Former Employees continued under the
WELCO FAS 106 Plans as in effect on the Closing Date without change. The
Purchaser FAS 106 Plans will provide that the benefits payable under such
plans will be offset by the benefits provided under the WELCO FAS 106
Plans, as to be amended as described in subsection (iv) below. During the
Benefits Maintenance Period, Purchaser shall continue without adverse
change the Purchaser FAS 106 Plans.
(iv) CBS shall establish a new plan to provide FAS 106 coverage or
amend the WELCO FAS 106 Plans effective as of the Closing Date to provide
that CBS obligations under such plans with respect to Business Employees
and Former Employees of each of the Residual Divisions shall be limited in
each calendar year, commencing with the Closing Date, to the Non-
Governmental Allocation Percentage of the amounts set forth in Schedule
5.5(f)(iv) of the Disclosure Schedule applicable to each Residual Division
(the "OPEB Schedule"), as described below (e.g., if the Non-Governmental
-------------
Allocation Percentage is 30% and the OPEB Schedule payment for a given year
is $100,000, the payment obligation for such year under the WELCO FAS 106
Plan is $30,000). The OPEB Schedule shall be updated by CBS after the
Closing Date to reflect Business Employees and Former Employees of the
Residual Divisions (the "OPEB Employees") as of the Closing Date. CBS may
--------------
amend the WELCO FAS 106 Plans after the Benefits Maintenance Period to
conform to the provisions of the Purchaser FAS 106 Plans as applicable to
the Residual Divisions after the Benefits Maintenance Period. Such payment
obligations shall be cumulative so that if a scheduled payment is not made
in full in any year because the aggregate benefit payment required is less
than the scheduled payment, the balance not paid out shall be carried
forward to the next year. Such payments represent the accrued obligations
of CBS as calculated under FAS 106, for post-retirement benefit obligations
other than pensions as of the Closing Date with respect to OPEB Employees,
their eligible spouses and dependents under the WELCO FAS 106 Plans (the
"FAS 106 Obligation"). Such payments under the WELCO FAS 106 Plans, as
-------------------
adjusted as described below, shall be the only obligation of CBS to
Business Employees, their eligible spouses and dependents (or to the
Purchaser) with respect to post-retirement welfare benefits. Purchaser
shall indemnify CBS for any liability to Business Employees and Former
Employees, their eligible spouses and dependents for all post-
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retirement welfare benefits (including retiree medical and retiree life,
other than amounts paid by CBS or Sold Subsidiaries prior to the Closing
Date) other than obligations of CBS under the WELCO FAS 106 Plans as
described in this subsection (iv) and subsection (v). The payment
obligations of CBS under the OPEB Schedule shall be actuarially adjusted
downwards in the event of an "actuarial gain" (as defined below) arising
from any of the following events (a "FAS 106 Event") (whether applicable
-------------
to some or all of the Business Employees): (A) a change in the benefit
design (including but not limited to any reduction of benefit levels or
reduction or freezing of the employer portion of benefit costs) or plan
termination by the Purchaser of the Purchaser FAS 106 Plans applicable to
OPEB Employees, their eligible spouses and dependents (e.g. in the event of
a termination of the Purchaser FAS 106 Plans, the OPEB Schedule shall be
reduced to zero (0)), (B) an increase in the contribution rate paid (other
than an increase proportionate to an increase in overall plan costs or an
increase provided by plan provisions) by OPEB Employees, their eligible
spouses and dependents instituted by the Purchaser under the Purchaser FAS
106 Plans, (C) the enactment of legislation which reduces or eliminates the
requirement of the Purchaser to provide retiree benefits under the
Purchaser FAS 106 Plans, (D) a Disposition, (E) a closing of a plant or
plants by Purchaser (other than terminations announced by CBS prior to the
Closing Date), or (F) a WARN Event. Such adjustment shall be made as of the
January 1 following the calendar year in which the FAS 106 Event occurs.
Actuarial gain, for purposes of this Section 5.5(f)(iv), shall be
determined by the CBS Actuary as of the Closing Date, for the purpose of
calculating the FAS 106 Obligation. Such gain shall be determined with
respect to the WELCO FAS 106 Plans as if the FAS 106 Event applied to the
WELCO FAS 106 Plans to the same extent and as of the same date they apply
to the Purchaser FAS 106 Plans and shall be measured by the difference
between the OPEB Schedule (or as subsequently modified pursuant to this
Section 5.5(f)(iv)) (the "Existing Schedule") and the OPEB Schedule that
-----------------
would have been determined as of the Closing Date to reflect the FAS 106
liability, if the FAS 106 Event were known as of the Closing Date (the
"Revised Schedule"). To determine whether the change from the Existing
----------------
Schedule to the Revised Schedule would result in an actuarial gain, the
scheduled payments under each schedule (whether resulting in a gain or a
loss) shall be discounted back to the first day of the calendar year in
which the FAS 106 Event occurred, utilizing the discount rate utilized by
CBS as of December 31, 1997 to determine its APBO for FAS 106 purposes (the
"Discount Rate"). In no event shall any actuarial losses in connection with
-------------
the Purchaser FAS 106 Plans (other than arising as a result of a FAS 106
Event which results in a net actuarial gain) offset any actuarial gains as
calculated under this Section 5.5(g)(iv). If the result of discounting the
scheduled payments would result in the Revised Schedule
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having a lower present value obligation than the Existing Schedule, the
Revised Schedule shall be substituted for the Existing Schedule as the OPEB
Schedule. In no event shall the OPEB Schedule ever be increased, except (a)
in the event of a final determination of the Non-Governmental Allocation
Percentage applicable to a Residual Division or (b) to the extent required
by a final non-appealable court order or as otherwise agreed to by the
parties, but in any event under (b) the OPEB Schedule shall not be
increased above the amount as in effect immediately prior to the change
which triggered the reduction in question. Any payment made by CBS
hereunder that exceeds a payment obligation for any year based on a Revised
Schedule, shall be utilized to reduce a future payment obligation under the
Revised Schedule. Upon a final determination of Non-Governmental Allocation
Percentage applicable to a Residual Division, the OPEB Schedule applicable
to such Residual Division shall be adjusted upwards or downwards utilizing
the same methodology used to calculate changes for a FAS 106 Event.
(v) The Purchaser and CBS shall cooperate with each other so that,
to the maximum extent practicable, benefits shall be paid and administered
under the CBS FAS 106 Plans and the Purchaser FAS 106 Plans as applicable
to OPEB Employees, through the third-party service provider to be selected
by Purchaser, subject to consent of CBS, not to be unreasonably withheld.
Any expenses allocable to CBS under such arrangement shall reduce CBS's
payment obligation under the CBS FAS 106 Plans as reflected by the OPEB
Schedule on a dollar-for-dollar basis. Purchaser shall notify CBS within
thirty days after any FAS 106 Event and shall cooperate with CBS in
providing data to determine any adjustments in the OPEB Schedule.
(vi) Subject to the requirements of applicable law, CBS shall use
all reasonable efforts to cash out Business Employees and Former Employees
from a trust qualified under Section 501(c)(9) of the Code maintained by
CBS (the Retiree Health Care Security Fund). To the extent such trust does
not make such distributions prior to the Closing Date, CBS shall cause the
transfer to a trust established by Purchaser satisfying the requirements of
Section 501(c)(9) of the Code of the funds in such trust allocable to such
Business Employees and Former Employees. The trust to be established by
Purchaser shall have terms substantially similar to the terms of the CBS
Trust.
(G) SEVERANCE OBLIGATIONS. CBS and Purchaser agree that the
---------------------
transactions contemplated hereby shall not constitute a severance of employment
of any Business Employee prior to the consummation of the transactions
contemplated hereby, and that such employees
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will be deemed for all purposes to have continuous and uninterrupted employment
before and immediately after the Closing. Except as required by Law or an
applicable collective bargaining agreement or as otherwise agreed in writing by
CBS and Purchaser, Purchaser shall provide severance and other separation
benefits to each Business Employee terminated by Purchaser during the Benefits
Maintenance Period upon terms and conditions that are comparable to the
severance and other separation benefits provided under the Involuntary
Separation Program, the Employee Security and Protection Plan and any applicable
Free Standing Plan, which arrangements shall credit service with the Sellers and
its Affiliates prior to the Closing Date for purposes of determining the amount
of such severance and other separation benefits. Purchaser shall indemnify and
hold Sellers and their Affiliates harmless from and be responsible for any
claims made by any Business Employee or Former Employee for severance or other
benefits based on separation, for any claims based on breach of contract and for
any other claims arising out of or in connection with the employment or the
failure to offer employment to, or the termination of employment of, any
Business Employee or Former Employee, other than claims arising as a direct
result of the transactions contemplated hereby. CBS shall be responsible and
indemnify Purchaser for any claims made by any Business Employee or Former
Employee for severance or other benefits based on separation (other than
severance benefits based on separation arising from acts of Purchaser on or
after the Closing Date), for any claims based on breach of contract and for any
other claims, in each case arising as a direct result of the transactions
contemplated hereby; provided, however, that CBS shall not be responsible (and
-------- -------
Purchaser shall be responsible) for any such claim if the principal basis of
such claim is due to Purchaser's breach of any provision of this Section 5.5.
(H) EXECUTIVE COMPENSATION. Purchaser shall assume all Liabilities
----------------------
and obligations of CBS and its Affiliates relating to Business Employees and
Former Employees under the Westinghouse Executive Pension Plan (including,
without limitation, Savannah River, notwithstanding that there is no specific
government reimbursement for such expenses), except to the extent the Novation
Agreements provide that such obligations (other than attributable to the Non-
Governmental Allocation Percentage or to Savannah River) will not be reimbursed
to the same extent reimbursed prior to the Novation Agreements.
(I) RETIREE WELFARE BENEFITS. Purchaser shall assume all Liabilities
------------------------
and Obligations of CBS and its Affiliates relating to Business Employees and
Former Employees under the CBS FAS 106 Plans covering the Business, except as
set forth in Section 5.5(f) and except to the extent the Novation Agreements
provide that such obligations (other than the FAS 106 Obligation) will not be
reimbursed to the same extent reimbursed prior to the Novation Agreements.
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(J) RETAINED LIABILITIES. CBS shall retain liability and
--------------------
responsibility for all benefits payable under (x) the WELCO Pension Plan except
to the extent liabilities are transferred with respect to Business Employees and
Former Employees to the Individual Spun-Off Plans and Residual Spun-Off Plan,
(y) the WELCO Executive Pension Plan except to the extent liabilities are
assumed under Section 5.5(h), (z) the WELCO FAS 106 Plans except to the extent
liabilities are assumed under Section 5.5(i), (xx) the WELCO Savings Program
(other than assets and liabilities to be transferred to the Purchaser's 401(k)
Plan under Section 5.5(d)), (yy) the CBS Long-Term Incentive Plan, (zz) deferred
compensation obligations under the Westinghouse Annual Incentive Plan and any
other employee deferral arrangements, except to the extent attributable to Free
Standing Plans, and (xxx) retention bonuses for executives relating to this
transaction (but not severance obligations arising from acts of Purchaser).
(K) COOPERATION. The parties agree to furnish each other with such
-----------
information concerning employees and employee benefit plans, and to take all
such other action, as is necessary and appropriate to effect the transactions
contemplated by this Agreement.
(L) WARN ACT. Purchaser agrees to provide any required notice under
--------
the WARN Act and any similar statute, and otherwise to comply with any such
statute with respect to any "plant closing" or "mass layoff" (as defined in the
WARN Act) or similar event affecting Business Employees and occurring on or
after the Closing. CBS agrees to provide any notice required under such statute
prior to or arising as a result of the Closing.
(M) WORKERS COMPENSATION. CBS or its Affiliates currently sponsors a
--------------------
program that provides workers compensation benefits for eligible Business
Employees and Former Employees ("CBS's Workers Compensation Program").
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Effective as of the Closing Date, Purchaser shall take all necessary and
appropriate action to adopt a workers compensation program providing such
workers compensation benefits for the Business Employees and Former Employees
covered by such program ("Purchaser's Workers Compensation Program").
----------------------------------------
Purchaser's Worker Compensation Program shall be responsible for all claims for
workers compensation benefits which are incurred prior to, on or following the
Closing Date by Business Employees and Former Employees, including claims that
are otherwise payable under the terms and conditions of CBS's Workers
Compensation Program.
(N) FREE-STANDING PLANS. Notwithstanding the foregoing provisions of
--------------------
this Section 5.5, effective as of the Closing, Purchaser shall assume and be
responsible for all liabilities and obligations under the Free-Standing Plans,
except as set forth below in this Section 5.5(n).
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Prior to the assumption of the Individual Spun-Off Plans, CBS or its
Affiliates shall make such payments to the plans as are required pursuant to
Section 4 of the Contractual Modification, the amount of which has been
determined by the applicable government agency after audit. In addition, the
Sellers will contribute to the Individual Spun-Off Plans pursuant to the
Contractual Modifications amounts equal to the "transitional asset" attributable
to prior government reimbursements that the Sellers or the Sold Subsidiaries are
determined to hold (to be determined upon audit by the applicable government
agency pursuant to Contractual Modifications) with respect to the Westinghouse
Executive Pension Plan as applicable to Business Employees and Former Employees
of the Business covered by the Contractual Modification.
CBS shall request an audit of the Residual Spun-Off Plan by the
applicable government agencies. Any assumption of such plan by Purchaser shall
be subject to a certification by such government agency that the assets and
liabilities of the plan conform with government cost accounting standards. CBS
will make up any shortfalls determined by such audit. CBS and Purchaser shall
take all action necessary and appropriate (including, in the case of Purchaser,
establishing legal entities to serve as plan sponsor) to establish Purchaser as
successor to CBS or its Affiliates to all rights, assets, duties, liabilities
and obligations under or with respect to the Free-Standing Plans and will use
all reasonable efforts to obtain with respect to the Residual Spun-Off Plan, an
agreement similar to the Contract Modifications. CBS shall contribute or cause a
Sold Subsidiary to contribute to the Residual Spun-Off Plan, prior to assumption
by Purchaser, an amount equal to the Non-Governmental Allocation Percentage
applicable to each Residual Division of the unfunded accrued benefit obligation
(calculated using the FASB 87 assumptions utilized by CBS as of December 31,
1997) of that portion of the Residual Spun-Off Plan and the Westinghouse
Executive Pension Plan (other than with respect to Savannah River) allocable to
each Residual Division, calculated as of the Closing Date (the "True-Up
-------
Payment").
- -------
Subject to the agreement of Purchaser, not to be unreasonably
withheld, Seller may transfer to Purchaser a Free-Standing Plan prior to any
audit referred to above. In such event, the Purchaser and CBS will make
equitable adjustments among themselves to adjust for any changes required by
such audits, with interest to be added to such adjustments at the "LIBOR" rate
at the time of payment.
In the event the Non-Governmental Allocation Percentage applicable to
any Residual Division is changed based on a final determination by the
applicable governmental agency, the Purchaser or CBS, as the case may be, shall
make a payment to the other within ninety (90) days of such final determination,
of the difference between the True-Up Payment
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and the amount the True-Up Payment would have been if the final percentage were
known at the time of the True-Up Payment (the "Differential"). The paying party
------------
shall pay interest on the Differential from the date of the True-Up Payment to
the date of payment of the Differential at the "LIBOR" rate at the time of
payment of the Differential.
(O) ACTUARIAL DETERMINATIONS AND PAYMENTS. (i) The calculations of
-------------------------------------
actuarial gains under subsection (f)(iv) shall be performed by the CBS Actuary
as soon as practicable after CBS receives notice from Purchaser or CBS otherwise
becomes aware of a FAS 106 Event. Purchaser shall provide CBS with sufficient
data to enable the determination of any actuarial losses and/or actuarial gains
within the 30 days following a FAS 106 Event.
(ii) No later than 60 days after the receipt by CBS of both the
notice from Purchaser that a FAS 106 Event has occurred and sufficient data
to make a determination has been delivered, CBS will deliver to Purchaser
the results of the determination of the actuarial gain ( a
"Determination"), and all reasonably necessary supporting information in
-------------
order to permit Purchaser's actuary to verify the accuracy of the
Determination. Each Determination will be conclusive and binding on the
parties unless Purchaser, within the 30-day period after the delivery of
such results and supporting information, notifies CBS in writing that it
disputes the accuracy of the calculation, specifying the nature of the
dispute and the basis therefor (the "Notice").
------
(iii) Actuaries retained by CBS and Purchaser shall attempt in good
faith to reach agreement to resolve all of the disputes set forth in the
Notice within 30 days after the Notice is given by Purchaser to CBS. If
actuaries retained by CBS and Purchaser cannot resolve all disputes with
respect to a Determination within such 30-day period, CBS and Purchaser
shall jointly select a third, impartial actuary from a nationally
recognized actuarial firm to resolve the dispute (the same such actuary
shall resolve all concurrent Determinations). If the parties cannot
jointly select a third, impartial actuary within 15 days after the end of
such 30-day period, the President of the Conference of Consulting Actuaries
shall select an impartial actuary. The cost of the impartial actuary shall
be shared equally by CBS and Purchaser.
(iv) Promptly, but no later than 60 days after his or her selection,
an impartial actuary selected under (iii) above shall review the results of
the Determination calculation, the supporting information with respect to
the Determination and the Notice, and shall reach his or her own decision
as to the issues in dispute and the determination of the actuarial gain or
actuarial loss, as the case may be (which
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determination shall be equal to or between the respective amounts asserted
by CBS and Purchaser). Such determination shall be final and conclusive for
all purposes.
(v) Within 30 days after a final determination of any actuarial gain
under Section 5.5(f)(iv) CBS shall substitute a Revised Schedule in place
of the Existing Schedule.
(P) NO RIGHT TO EMPLOYMENT. Nothing herein expressed or implied shall
----------------------
confer upon any of the employees of CBS or Purchaser, or any of their respective
Affiliates, any additional rights or remedies, including, without limitation,
any additional right to employment, or continued employment, for any specified
period, of any nature or kind whatsoever under or by reason of this Agreement.
(Q) POST-CLOSING HIRING OF EMPLOYEES. If within the period ending one
--------------------------------
(1) year after the Closing Date, Purchaser or any of its Affiliates hires any
employee of STC (other than Business Employees), Purchaser shall reimburse CBS
for any severance and other related termination costs paid by CBS or its
Subsidiaries to or on account of such employment with CBS or any of its
Subsidiaries during such one (1) year period.
(R) ALTERNATIVE PROCEDURE. CBS and Sellers and Purchaser agree that,
---------------------
pursuant to the "Alternative Procedure" provided in section 5 of Revenue
Procedure 96-60, 1996-2 C.B. 399, (i) Purchaser will report on a
predecessor/successor basis as set forth therein, (ii) CBS and its Affiliates
will be relieved from filing a Form W-2 with respect to any Business Employee
who accepts employment with Purchaser or its Affiliates, and (iii) Purchaser
will undertake to file (or cause to be filed) a Form W-2 for each such employee
for the year that includes the Closing Date, including the portion of such year
that such employee was employed by CBS or its Affiliates (provided, however,
that any agreement between CBS and Purchaser that CBS or its Affiliates shall
furnish to Purchaser payroll and related services under the Transitional
Services Agreement provided for in Section 5.20(a) and any actions by either
party in connection with such agreement shall not alter or otherwise affect the
agreement set forth in this Section 5.5(r)). CBS agrees to provide Purchaser
with all payroll and employment-related information with respect to each
Business Employee who accepts employment with Purchaser (or an Affiliate) and to
otherwise cooperate in following the "Alternative Procedure."
(S) COBRA. Effective as of Closing Date, Purchaser shall assume all
-----
responsibility for COBRA notices and coverage for Business Employees and Former
Employees (and their eligible dependents).
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SECTION 5.6. COLLECTION OF RECEIVABLES. From and after the Closing,
-------------------------
Purchaser shall have the right and authority to collect for its own account all
Accounts Receivable and other items that are included in the Acquired Assets and
to endorse with the name of any of Sellers, any checks or drafts received with
respect to any such Accounts Receivable or other items and CBS agrees promptly
to deliver or cause to be delivered to Purchaser any cash or other property
received directly or indirectly by any of Sellers with respect to such
receivables and other items, including any amounts payable as interest.
Notwithstanding any provisions of the Novation Agreements to the contrary,
Purchaser agrees that CBS is entitled (i) to all cost improvement payments with
respect to the Government Contracts received prior to the Closing Date and (ii)
if the Closing occurs prior to November 30, 1998, to fifty percent (50%) of all
cost improvement payments with respect to the Government Contracts received
between the Closing Date and November 30, 1998, provided that, in the case of
clause (ii) such payments relate to the U.S. government fiscal year ending
September 30, 1998, and Purchaser agrees to remit such portion of any funds
received during such period to CBS within 10 days of receipt.
SECTION 5.7. EXPENSES. Whether or not the Closing takes place, and
--------
except as otherwise specifically provided in this Agreement (including with
respect to Transfer Taxes), all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs or expenses.
SECTION 5.8. BROKERS OR FINDERS. Each of Purchaser and CBS
------------------
represents, as to itself and its Affiliates, that no agent, broker, investment
banker or other Person is or will be entitled to any broker's or finder's fee or
any other commission or similar fee in connection with any of the transactions
contemplated by this Agreement, except, as to Purchaser and its Affiliates,
Batchelder & Partners, Inc. and Rothschild, Inc. whose fees and expenses will be
paid by Purchaser, and each of Purchaser and CBS respectively agrees to
indemnify and hold the other harmless from and against any and all claims,
liabilities or obligations with respect to any other fees, commissions or
expenses asserted by any Person on the basis of any act or statement alleged to
have been made by such party or its affiliate.
SECTION 5.9. SHARED TECHNOLOGY AND TRADEMARK LICENSE AGREEMENTS.
--------------------------------------------------
(a) On the Closing Date, CBS and Purchaser shall enter into a Shared
Technology Agreement in the form of Exhibit A hereto (the "Shared Technology
-----------------
Agreement"), wherein, to the extent CBS and Purchaser have rights on the Closing
- ---------
Date:
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(i) Purchaser shall grant to CBS a world-wide, royalty-free,
nonexclusive, perpetual license to use Intellectual Property and Technology
to satisfy its existing obligations, and support its current businesses
that do not compete with the Business;
(ii) CBS shall grant to Purchaser a nonexclusive, world-wide,
royalty-free, perpetual license to use intellectual property and technology
retained by CBS, that are pertinent to the Business; and
(iii) It shall be agreed that each licensed party shall have
appropriate access to the corresponding technology reasonably required for
the licensed purpose. Such right of access to technology shall be
appurtenant to the license and assignable to the same extent as the
license. The owner of the Business, upon Closing, shall have access to all
such technology, that is primarily applicable to a Nuclear Installation, in
the possession of the Business and, at the sole discretion of the owner of
the Energy Systems Business, have such technology delivered to it.
(b) On the Closing Date, CBS and Purchaser shall enter into a
Trademark and Trade Name License Agreement in the form of Exhibit B hereto,
granting certain licenses to Purchaser and its Affiliates to use the names and
marks "WESTINGHOUSE", "CIRCLE W" and "You can be sure ... if it's Westinghouse."
(c) The parties acknowledge and agree that, as between the Energy
Systems Business and the GESCO Businesses, the Energy Systems Business is the
owner of all CBS intellectual property and technology, including Intellectual
Property and Technology, that is primarily applicable to a Nuclear Installation.
SECTION 5.1. CERTAIN INFORMATION. (a) After the Closing, upon
-------------------
reasonable written notice, Purchaser and CBS shall furnish or cause to be
furnished to each other and their respective accountants, counsel and other
representatives access, during normal business hours, to such information
(including records pertinent to the Business), personnel and assistance relating
to the GESCO Businesses as is reasonably necessary for financial reporting and
accounting matters, the preparation and filing of any returns, reports or forms
or the defense of, prosecution of, or response required under, or pursuant to,
any lawsuit, action or proceeding (including any proceeding involving CBS and
any Excluded Assets, any Excluded Liabilities, any environmental matters related
to the Acquired Assets and the matters referred to in Section 2.3(b)(xiii)) or
in order to enable the parties to comply or monitor compliance (including with
respect to Purchaser's obligations in respect of the Assumed Liabilities) with
their respective obligations under this Agreement. Purchaser and CBS shall also
furnish or
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cause to be furnished to each other and their respective accountants, counsel
and other representative's access, during normal business hours, to such
information for any other reasonable business purpose. Purchaser and CBS shall,
and shall cause their Affiliates to, retain until five years after the Closing
Date all such records pertinent to the Business which are owned by such Person
immediately after the Closing (excluding any Excluded Assets); after the end of
such period, before disposing of any such records, the applicable party shall
give notice to such effect to the other, and shall give the other, at the
other's cost and expense, a reasonable opportunity to remove and retain all or
any part of such records as the other may select. Cooperation with respect to
Tax matters shall be governed by Section 5.14(j). Cooperation with respect to
Intellectual Property and Technology matters shall be governed by Section
5.10(b).
(b) After the Closing, upon reasonable written notice, CBS will
deliver at Purchaser's expense all reasonably available records regarding the
conception, reduction to practice, evaluation, and efforts to patent or
otherwise protect Intellectual Property or Technology. CBS will at all
reasonable times cooperate with Purchaser's reasonable efforts to protect any of
the Intellectual Property or Technology by supplying (i) all requested
information reasonably available to CBS about any public use or offer to sell an
invention that occurred prior to the filing of a U.S. application on the
invention, (ii) all requested information reasonably available to CBS about any
use of a trademark or service mark, or (iii) all requested information
reasonably available to CBS about any software or copyrighted work. With respect
to inventions created by inventors who remain in the employ of CBS after the
Closing, CBS promises to provide its full cooperation with any efforts by
Purchaser to patent said inventions or enforce patents on said inventions,
including instructing the employee promptly to review any draft patent
application submitted by Purchaser and advise Purchaser as to the revisions
necessary to make it a full and accurate disclosure of the invention and to
execute all truthful and lawful oaths of inventorship or assignment deeds
presented by Purchaser for purposes of patenting or protecting the invention.
With respect to inventions created by inventors who are past employees of CBS or
any of its Subsidiaries, CBS will, on request by Purchaser, use its commercially
reasonable efforts to encourage the past employee to give Purchaser full
cooperation in connection with efforts to patent said invention or enforce a
patent on said invention. After a period of two years following the Closing
Date, CBS or any of its Subsidiaries that render services under this Section
5.10(b) shall be entitled to reasonable reimbursement from Purchaser for its
time, as well as out-of-pocket expenses as provided for above, for such services
rendered after the two-year period.
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SECTION 5.11. BULK TRANSFER LAWS. Purchaser hereby waives compliance
------------------
by Sellers with the provisions of any so-called "bulk transfer law" of any
jurisdiction in connection with the sale of the Acquired Assets to Purchaser.
SECTION 5.12. ADDITIONAL AGREEMENTS. Subject to the provisions of
---------------------
Section 5.4, each of Purchaser and CBS will use all reasonable efforts to
facilitate and effect the implementation of the transfer of the Acquired Assets
to Purchaser and the assumption of the Assumed Liabilities by Purchaser and, for
such purpose but without limitation, each of Purchaser and CBS promptly will at
and after the Closing execute and deliver or cause to be executed and delivered
to the other party such assignments, deeds, bills of sale, assumption
agreements, consents and other instruments of transfer or assumption as
Purchaser or its counsel or CBS or its counsel may reasonably request as
necessary or desirable for such purpose (it being understood that any such
assignment, deed, bill of sale, assumption agreement, consent or other
instrument of transfer or assumption shall not provide for any representations
or warranties or any obligations or liabilities that are not otherwise expressly
provided for in this Agreement). At any time and from time to time after the
Closing Date at the request of Purchaser, and without further consideration, CBS
will, and will cause the other Sellers to, execute and deliver such other
instruments of sale, transfer, conveyance, assignment and confirmation and take
such other action as Purchaser may reasonably deem necessary or desirable in
order to transfer, convey and assign more effectively to Purchaser, the Acquired
Assets, to put Purchaser in actual possession and operating control of the
Business and to assist Purchaser in exercising all rights with respect thereto.
Purchaser will cooperate with CBS with respect to the matters set forth in Item
(xi) of Schedule 5.1(a), as provided therein.
SECTION 5.13. CERTAIN UNDERSTANDINGS. Purchaser acknowledges that
----------------------
none of Sellers or any other Person has made any representation or warranty,
express or implied, as to the accuracy or completeness of any information
regarding the Business, the Acquired Assets or other matters not included in
this Agreement or the Schedules hereto (including, without limitation, the
information, estimates, forecasts and projections contained in the Memorandum),
and none of Sellers or any other Person will be subject to any liability to
Purchaser or any other Person resulting from the distribution to Purchaser, or
Purchaser's use of, any such information, including any information, documents
or material made available to Purchaser in certain "data rooms" or in any other
form in expectation of the transactions contemplated hereby. Purchaser
acknowledges that, should the Closing occur, Purchaser will acquire the Acquired
Assets without any representation or warranty as to merchantability or fitness
for any particular purpose, in an "as is" condition and on a "where is" basis,
except as otherwise expressly represented or warranted herein.
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SECTION 5.14. ALLOCATION; TAX MATTERS.
-----------------------
(a) CBS and Purchaser agree to use their best efforts to enter into an
agreement (the "Allocation Agreement") as soon as practicable (but in any event
--------------------
no later than 150 days after the Closing Date) to allocate the Purchase Price,
the Assumed Liabilities, and all other capitalizable costs among (i) the
Acquired Assets and (ii) the assets held by each Sold Subsidiary for all
applicable Tax purposes, including Code Section 1060. Purchaser shall initially
prepare a statement setting forth a proposed computation and allocation of the
aggregate purchase price (the "Computation") and submit it to CBS no later than
-----------
60 days after the Closing Date. If, within 30 days of CBS's receipt of the
Computation, CBS shall not have objected in writing to such Computation, the
Computation shall become the Allocation Agreement. If 60 days after CBS's
receipt of the Computation, CBS and Purchaser have not adopted an Allocation
Agreement, any disputed aspects of the Allocation Agreement shall be resolved
within 90 days of CBS's receipt of the Computation, by a law or accounting firm
mutually acceptable to CBS and Purchaser (the "Neutral Auditors"), which shall
----------------
resolve such dispute pursuant to, first, the terms of this Agreement and,
second, the application of applicable Tax Laws to the relevant facts. The
decision of the Neutral Auditors shall be final, and the costs, expenses and
fees of the Neutral Auditors shall be borne equally by CBS and Purchaser. CBS
and Purchaser shall report the Tax consequences of the transactions contemplated
by this Agreement consistent with the terms of this Agreement and the Allocation
Agreement.
(b) After the Closing, from time to time, Purchaser and CBS shall
agree upon revisions to the Allocation Agreement to reflect any adjustments to
the consideration. Purchaser and CBS shall report the Tax consequences of the
transactions contemplated by this Agreement in a manner consistent with the
terms of this Agreement and the Allocation Agreement, as it may be revised from
time to time. Any disputes regarding such revisions shall be resolved by the
Neutral Auditors.
(c) Purchaser and CBS shall file and cause to be filed all Tax Returns
and execute such other documents as may be required by any taxing authority, in
a manner consistent with the Allocation Agreement, as it may be revised from
time to time. CBS shall prepare Internal Revenue Service Form 8594 pursuant to
Section 1060 of the Code relating to the transactions contemplated by this
Agreement based on the Allocation Agreement, as it may be revised from time to
time, and deliver such form to Purchaser. Purchaser and CBS shall file, or
cause the filing of, such form with each relevant taxing authority. Any
disputes under this provision shall be resolved by the Neutral Auditors.
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(d) Irrespective of Article 8 or any other provision hereof, Sellers
and Purchaser shall each bear and be liable for 50% of the transfer,
documentary, sales, use, registration, stamp, value-added and other similar
taxes (including all applicable real estate transfer taxes and real property
gains taxes), including any penalties, interest and additions to tax, incurred
in connection with the transactions contemplated hereby ("Transfer Taxes").
--------------
Sellers or Purchaser, as the case may be, shall pay the Transfer Taxes for which
it is liable under applicable Law. Five days before any such payment of Taxes
is due, the nonpaying party shall reimburse the paying party for 50% of such
Taxes. CBS and Purchaser shall cooperate in timely making and filing all Tax
Returns as may be required to comply with the provisions of any Transfer Tax
Laws. To the extent legally able to do so, Purchaser shall deliver to CBS
exemption certificates satisfactory in form and substance to CBS with respect to
Transfer Taxes if such delivery would reduce the amount of Transfer Taxes that
would otherwise be imposed. Any disputes under this provision shall be resolved
by the Neutral Auditors within 30 days of the submission of such dispute.
(e) CBS shall terminate and shall cause the termination by the Closing
of any agreement or practice relating to Taxes between CBS or any of its
Affiliates (other than any Investment), on the one hand, and any Investment, on
the other hand. On and after the Closing Date, neither CBS or its Affiliates
(other than any Investment), on the one hand, nor any Investment, on the other
hand, shall have any further rights, obligations, or liabilities under any such
agreement or practice, and no Investment shall have any obligation in respect of
any agreement for practice relating to Taxes for any period prior to or
including the Closing Date.
(f) At the Closing, CBS shall deliver to Purchaser duly executed
certificates certifying that the transactions contemplated hereby are exempt
from withholding under Section 1445 of the Code.
(g) [Intentionally omitted].
(h) CBS shall file any amended consolidated, combined or unitary
Income Tax Returns that include the Business or any Sold Subsidiary for Pre-
Closing Tax Periods which are required as a result of examination adjustments
made by any taxing authority as finally determined. For those jurisdictions in
which separate Income Tax Returns are filed by any Sold Subsidiary, any required
amended returns for Pre-Closing Tax Periods resulting from such examination
adjustments, as finally determined, shall be prepared by CBS and furnished to
such Sold Subsidiary, for signature and filing at least ten days prior to the
due date for
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filing such returns. Purchaser shall file all other amended Tax Returns relating
to the Business.
(i) (A) CBS shall file or cause to be filed the United States
consolidated federal Income Tax Return of CBS and, where applicable, all other
consolidated, combined or unitary state or local Income Tax Returns for the Pre-
Closing Tax Periods of each Selling Subsidiary and each Sold Subsidiary and (B)
CBS shall also file and shall cause each Selling Subsidiary and each Sold
Subsidiary to file all other Tax Returns with respect to the Acquired Assets or
the income or operations of the Business required to be filed (including any
extensions) on or prior to the Closing Date. CBS shall prepare or shall cause
to be prepared all Income Tax Returns required to be filed by any Sold
Subsidiary on a separate return basis for Pre-Closing Tax Periods that have not
been filed by the Closing Date and (x) CBS shall provide Purchaser with a copy
of all such Tax Returns (or in the case of a Tax Return that includes assets or
businesses not included in the Acquired Assets, those portions of such Tax
Returns that relate to the Business) at least 30 days prior to the due date for
filing such Tax Returns (including any extensions) and (y) after reviewing and
approving such Tax Returns (which approval shall not be unreasonably withheld),
Purchaser shall file or shall cause such Tax Returns to be filed. All such Tax
Returns that may affect the future Tax payable by Purchaser or any Sold
Subsidiary shall be prepared on a basis consistent with law and past practice.
CBS shall pay or cause to be paid all Taxes shown as due on any such Tax
Returns.
(j) (i) Purchaser shall timely prepare and file (or cause to be
prepared and filed) all Tax Returns required by Law for all Taxes covering the
Acquired Assets or the Sold Subsidiaries for all Straddle Periods. Purchaser
shall provide CBS with a copy of such Tax Returns at least 30 days prior to the
due date for filing such Tax Returns (including extensions), and after CBS's
review and approval of such Tax Returns (which approval shall not be
unreasonably withheld), Purchaser shall file or cause such Tax Returns to be
filed. Not later than 5 days before the due date for the payment of Taxes with
respect to such Tax Returns, CBS shall pay to Purchaser an amount equal to
Sellers' Straddle Period Taxes determined in accordance with the method
described in clause (iii) below.
(ii) Purchaser shall prepare and file all Tax Returns other than
Income Tax Returns for all Sold Subsidiaries that have not been filed by
the Closing Date.
(iii) For purposes of this Agreement, the Taxes allocable to Sellers'
Straddle Period Tax Returns shall be:
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(A) In the case of any real or personal property Tax relating to the
Acquired Assets or the Subsidiary Assets, an amount equal to the
Tax for the entire Straddle Period multiplied by a fraction, the
numerator of which is the number of days in the Sellers' Straddle
Period and the denominator of which is the number of days in the
entire Straddle Period; and
(B) In the case of any other Tax, the amount that would be payable if
the taxable year ended on the Closing Date.
(k) CBS and Purchaser shall each provide the other with such
assistance as may be reasonably requested (including making employees reasonably
available to provide information or testimony) in connection with the
preparation of any Tax Return, any Tax Controversy (as defined in Section
5.14(l)(ii)), or the determination of liability for Taxes with respect to the
Acquired Assets or the income or operations of the Business. Purchaser shall
complete CBS's standard tax packages relating to Tax Returns that CBS is
responsible for filing pursuant to Section 5.14(i) and deliver them to CBS
within 90 days of Purchaser's receipt from CBS and shall, and shall cause its
Affiliates to, cooperate with CBS in preparing and pursuing any claims for
refunds or credits of Taxes (including refunds or credits relating to investment
tax credits, research credits and credits for prepayments of Income Taxes). At
Purchaser's request and expense, CBS shall file claims prepared by Purchaser for
refunds of Taxes (other than items described in Section 2.3(b)(ii) and (iii))
and promptly pay over the amount recovered to Purchaser (without any interest,
other than interest paid by the applicable taxing authority with respect to such
refund); provided, however, that Purchaser shall promptly reimburse CBS to the
-------- -------
extent that such refund is reclaimed by a taxing authority (without any
interest, other than interest due to the applicable taxing authority with
respect to such reclamation). CBS and Purchaser each shall, and shall cause
their Affiliates to, retain until seven years after the Closing Date all Tax
Returns, schedules, work papers and other records that are owned by such Person
immediately after the Closing and that relate to the Business or the Acquired
Assets; after the end of such period, before disposing of any such Tax Returns,
schedules, work papers or other records, each shall give notice to such effect
to the other, and shall give the other, at the other's cost and expense, a
reasonable opportunity to remove and retain all or any part of such Tax Returns,
schedules, work papers or other records as the other may select.
(l) (i) Purchaser shall, in the event that Purchaser receives notice
(whether orally or in writing) of any examination, claim, proposed settlement,
proposed adjustment or related matter with respect to any Taxes for which
Purchaser may be indemnified hereunder (the "CBS Tax Controversies") promptly
---------------------
notify CBS thereof, provided,
--------
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however, that failure to give such notification shall not affect the
- -------
indemnification provided hereunder except to the extent CBS shall have been
actually prejudiced as a result of such failure (except that CBS shall not be
liable for any interest or other expenses incurred during the period in which
the Purchaser failed to give such notice). CBS shall be entitled at its sole
discretion and expense to handle, control and compromise or settle the CBS Tax
Controversies, and shall reasonably inform Purchaser of the progress of the CBS
Tax Controversies, provided, however, that in the event Purchaser waives its
-------- -------
rights to indemnification with respect to any CBS Tax Controversy relating to
Taxes other than Income Taxes, Purchaser may assume at its expense, and have the
sole discretion to handle, control, compromise, or settle, such controversy.
(ii) CBS shall, in the event CBS receives notice (whether orally or in
writing) of any examination, claim, proposed settlement, proposed
adjustment or related matter with respect to Taxes attributable to the
Business (other than CBS Tax Controversies) (the "Purchaser Tax
-------------
Controversies", and together with the CBS Tax Controversies, the "Tax
------------- ---
Controversies"), promptly notify Purchaser thereof, provided, however that
------------- -------- -------
failure to give such notification shall not affect the indemnification
provided hereunder except to the extent Purchaser shall have been actually
prejudiced as a result of such failure (except that the Purchaser shall not
be liable for any interest or other expenses incurred during the period in
which CBS failed to give such notice). Purchaser shall be entitled at its
sole discretion and expense to handle, control and compromise or settle the
Purchaser Tax Controversies, and shall reasonably inform CBS of the
progress of the Purchaser Tax Controversies.
SECTION 5.15. SUPPLIES. Purchaser shall not use any signs or
--------
stationery, purchase order forms, packaging or other similar paper goods or
supplies, or advertising and promotional materials, product, training and
service literature and materials, or computer programs or like materials
(collectively, the "Supplies"), that state or otherwise indicate thereon that
--------
the Business is a division or unit of CBS, or, except in compliance with any
license agreement contemplated by Section 5.9(b), contain any trademarks,
servicemarks, trade names or corporate or business names, derived from or
including the words "Westinghouse Electric Corporation", "Westinghouse Electric
Company", "Westinghouse", "WELCO" or "Circle W" (in logotype design or any other
style or design) in whole or in part; provided, that to the extent any Supplies
included in the Acquired Assets so indicate, Purchaser may, for a period of 90
days after the Closing Date, use such Supplies after first crossing out or
marking over such statement or indication or trademark, servicemark, trade name
or corporate or business name and otherwise clearly indicating on such Supplies
that the Business is no longer a division or unit of CBS. Purchaser shall not
reorder or produce any
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Supplies which state or otherwise indicate thereon that the Business is a
division or unit of CBS or contain any such trademarks, servicemarks, trade
names or corporate or business names.
SECTION 5.16. TRANSFER OF ASSETS OF SOLD SUBSIDIARIES. On or prior to
---------------------------------------
the Closing Date, CBS shall cause the Sold Subsidiaries to transfer (and shall
use its reasonable efforts to inform Purchaser of each such transfer prior
thereto), without consideration, any Subsidiary Assets not relating primarily to
the Business (including the assets set forth on Schedule 5.16) to CBS or
Subsidiaries of CBS other than the Sold Subsidiaries or to any third party
designated by CBS. After the Closing, Purchaser will cooperate with CBS to
transfer without consideration at CBS's request any such Subsidiary Assets to
CBS or Subsidiaries of CBS or to any third party designated by CBS and CBS shall
reimburse Purchaser for its reasonable expenses and all Taxes incurred in
connection therewith.
SECTION 5.17. REMOVAL OF EXCLUDED ASSETS AND LIABILITIES FROM SOLD
----------------------------------------------------
SUBSIDIARIES. The parties acknowledge that the Excluded Assets and Excluded
- ------------
Liabilities are held by, or are obligations of, certain of the Sold
Subsidiaries. Sellers will at the request of Purchaser use their reasonable
best efforts either (i) to transfer the Acquired Assets held by any such
Subsidiary directly to Purchaser (in which event Sellers will retain the Sold
Subsidiary) or (ii) to transfer out of any such Subsidiary, or otherwise
appropriately protect Purchaser from, any such Excluded Assets and Excluded
Liabilities held by any such Subsidiary, and CBS shall reimburse Purchaser for
its reasonable expenses and all Taxes incurred in connection therewith.
SECTION 5.18. CREDIT SUPPORT. Purchaser acknowledges that in the
--------------
course of the conduct of the Business, CBS and its Subsidiaries have entered
into and expect to continue to enter into various arrangements (i) in which
guarantees (including guarantees of performance under contracts or agreements),
letters of credit or other credit arrangements, including surety and performance
bonds, were issued by or for the account of CBS and its Subsidiaries or (ii) in
which CBS and its Subsidiaries are the primary or secondary obligors on debt
instruments or financing or other contracts or agreements, in any such case to
support or facilitate business transactions of the Sold Subsidiaries. Such
arrangements by such parties are hereinafter referred to as the "Credit Support
--------------
Arrangements". Schedule 5.18 sets forth a list of all Credit Support
- ------------
Arrangements existing as of the date hereof. Not later than the Closing,
Purchaser will (i) obtain replacement Credit Support Arrangements which will be
in effect at the Closing or (ii) repay, or cause the repayment of, all debt and
other obligations to which such Credit Support Arrangements relate (and cause
the cancellation of such Credit Support Arrangements) or arrange for itself or
one of its Subsidiaries (including the Sold Subsidiaries)
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to be substituted as the obligor thereon as of the Closing Date. CBS and its
Subsidiaries will cooperate with Purchaser in arranging any such substitution,
provided that neither CBS nor its Subsidiaries shall be required to expend any
material sum in connection therewith.
SECTION 5.19. NON-COMPETITION AND CONFIDENTIALITY.
-----------------------------------
(a) For a period of five years from the Closing, CBS shall not, and
shall cause each of the other Sellers and its other Affiliates not to, directly
or indirectly, engage in any business that is in competition with the Business.
Notwithstanding anything to the contrary contained in this Section 5.19,
Purchaser hereby agrees that the foregoing covenant shall not be deemed breached
as a result of (i) the ownership by CBS or any Affiliate of CBS of less than an
aggregate of 5% of any class of capital stock of a person engaged, directly or
indirectly, in a business that is in competition with the Business or less than
10% in value of any instrument of indebtedness of a person engaged, directly or
indirectly, in a business that is in competition with the Business, (ii) the
retention and conduct by CBS of the Process Control Business, the Power
Generation Business and any other business in which it is currently engaged,
(iii) any action taken by CBS or any of its Affiliates pursuant to this
Agreement or a Seller Ancillary Document, (iv) any action taken by CBS or any of
its Affiliates or by any third party at the direction of CBS in connection with
discharging its obligations under any guarantees (including guarantees of
performance under contracts or agreements), assumption of obligations, letters
of credit or other similar arrangements, including surety and performance bonds,
in effect at the Closing Date or (v) the acquisition by CBS or any Affiliate of
CBS of any person (A) which derives less than $10,000,000 in revenues from
businesses in competition with the Business or (B) the predominant business of
which is not in competition with the Business if after such acquisition CBS or
its Affiliates uses reasonable best efforts to divest the business of such
Person that is in competition with the Business within 270 days after the
acquisition of such business.
(b) For a period of ten years after the Closing, CBS agrees to, and to
cause each of the other Sellers and its other Affiliates to, maintain the
confidentiality of all confidential information with respect to the Business
and the Acquired Assets, or learned by CBS or any Seller directly or indirectly
from Purchaser, including information with respect to (A) prospective business
activities, (B) sales figures, (C) profit or loss, gross margin or similar
information, and (D) customers, clients, suppliers, sources of supply and
customer lists (the "Confidential Information"), and shall not disclose any
------------------------
Confidential Information, except (i) in the event CBS or any of its Affiliates
is required to disclose any of such information pursuant to applicable Law or by
applicable legal process, (ii) to the extent such information becomes generally
available to the public other than as a result of a disclosure by
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CBS or its Affiliates, (iii) to the extent such information was available to CBS
or its Affiliates on a non-confidential basis prior to its disclosure to CBS or
its Affiliates, or (iv) to the extent such information becomes available to CBS
or its Subsidiaries on a non-confidential basis from a source other than CBS or
its Affiliates, provided that such source is not prohibited from disclosing such
information by a contractual, legal or fiduciary obligation. In the event CBS or
any of its Subsidiaries is required to disclose any of such information pursuant
to applicable Law or by applicable legal process, CBS or its respective
Subsidiary shall, to the extent practicable under the circumstances, inform
Purchaser sufficiently in advance of such disclosure to afford Purchaser the
opportunity to resist disclosure and shall use its reasonable commercial efforts
to cooperate with Purchaser in efforts to minimize the amount of information to
be disclosed and to seek to prevent its disclosure to third parties.
(c) For a period of five years after the Closing, neither CBS nor
Purchaser shall, directly or indirectly, knowingly solicit or encourage to leave
the employment of CBS or Purchaser, any employee of Purchaser or the WELCO
divisions of CBS, as the case may be.
(d) If CBS or any other Seller breaches, or threatens to commit a
breach of, any of the provisions of Section 5.19(a), (b) or (c) (the
"Restrictive Covenants"), Purchaser shall have the following rights and remedies
- ----------------------
(upon compliance with any necessary prerequisites imposed by law upon the
availability of such remedies) , each of which rights and remedies shall be
independent of the other and severally enforceable and shall not be affected by
the provisions of Article VIII, and all of which rights and remedies shall be in
addition to, and not in lieu of, any other rights and remedies available to
Purchaser under Law or in equity:
(i) The right to have the Restrictive Covenants specifically enforced
(without posting any bond) by any court having equity jurisdiction,
including the right to an entry against CBS of restraining orders and
injunctions (preliminary, mandatory, temporary and permanent) against
violations, threatened or actual, and whether or not then continuing, of
such covenants, it being acknowledged and agreed that any such breach or
threatened breach may cause irreparable injury to Purchaser and that money
damages may not provide adequate remedy to Purchaser.
(ii) The right and remedy to require CBS to account for and pay over
to Purchaser all compensation, profits, monies, accruals, increments or
other benefits derived or received by such person as a result of any
transactions constituting a breach of any of the Restrictive Covenants,
and such person shall account for and pay over such benefits to Purchaser.
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(e) If any court determines that any of the Restrictive Covenants, or
any part thereof, is invalid or unenforceable, the remainder of the Restrictive
Covenants shall not thereby be affected and shall be given full effect, without
regard to the invalid portions.
(f) Notwithstanding the foregoing, nothing contained in the Agreement
shall impair, impede, prevent, inhibit, limit or restrict CBS or any of its
Affiliates (or any successor or assign of any of them) in any manner or respect
whatsoever from (i) the continuing operation of (x) the Power Generation
Business, or (y) the Process Control Business, provided the scope of each of
such businesses is primarily related to the goods and services which it has
typically provided under (x) and (y) or (ii) selling or otherwise transferring
the Power Generation Business or the Process Control Business or any portion
thereof to any Person, whether or not such Person or any of its Affiliates is
engaged in a business competitive with the Business.
(g) If any court determines that any of the Restrictive Covenants, or
any part thereof, is unenforceable because of the duration of such provision or
the area covered thereby, such court shall have the power to reduce the duration
or area of such provisions and, in its reduced form, such provision shall then
be enforceable and shall be enforced.
SECTION 5.20. RELATED AGREEMENTS. At or prior to the Closing, CBS and
------------------
Purchaser agree to enter into the following agreements:
(A) TRANSITIONAL SERVICES. CBS and Purchaser shall enter into an
---------------------
agreement, in form and substance reasonably satisfactory to each of them (the
"Transitional Services Agreement"), whereby each party will provide to the other
- --------------------------------
party certain transitional services which are currently provided to such party
by the other party for a period of twelve (12) to twenty-four (24) months after
the Closing Date. The Transitional Services Agreement shall cover, at a
minimum, the items set forth on Exhibit C.
(B) FACILITIES. Sellers and Purchaser shall enter into mutually
----------
acceptable arrangements relating to the use of (i) facilities and equipment by
Business Employees currently located in Sellers' facilities other than the
Premises and (ii) facilities and equipment by employees of CBS currently located
in the Premises and who are not Business Employees.
SECTION 5.21. BUSINESS RELATIONSHIPS WITH SELLERS. CBS and Purchaser
-----------------------------------
acknowledge that the Business has had relationships with other businesses within
Sellers, including performance obligations under Contracts, which have not been
documented by a formal written agreement. In particular, the Business has been
involved with the Energy
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Systems Business, the Process Control Business and the Power Generation
Business. The parties agree that, except for specific provisions in this
Agreement and the Seller Ancillary Documents which expressly provide for any
different treatment, prior to the Closing, the parties will enter into
arrangements, reasonably satisfactory to the parties, documenting any such pre-
existing relationships, including any subcontract arrangements, which shall be
maintained on such documented basis by Purchaser after the Closing.
SECTION 5.22. U.S.-CONTROLLED ENTITY. For at least three (3) years
----------------------
after the Closing, Purchaser (i) shall (for so long as it owns the Business or
any interest therein) at all times be a U.S.-Controlled Entity, shall maintain a
presence in the United States, and shall principally administer the business in
the United States, and (ii) shall not transfer, convey, assign or sell any of
its interest in the Business to a Person which is not a U.S.-Controlled Entity.
Purchaser shall during such period take all actions necessary, as required, to
obtain and maintain an acceptable Foreign Ownership Control and Influence
determination with the appropriate Governmental Authorities. Purchaser shall,
during such period, take all steps reasonably necessary, as required, to comply
with U.S. requirements with respect to the export of U.S. technology and, upon
request, to provide CBS with reasonable written assurance that such steps have
been taken.
SECTION 5.23. INSURANCE MATTERS. CBS shall place its insurers on
-----------------
notice of all liability and workers' compensation claims which are made prior to
the Closing and property losses to the Acquired Assets occurring prior to the
Closing. Purchaser's rights under Section 2.2(a)(xviii) in respect of insurance
shall be subject to any applicable policy deductibles set forth in Schedule
4.1(i) and co-payments provisions or any payment or reimbursement obligations of
CBS or any of its Affiliates in respect thereof; and Purchaser shall be
responsible for and be entitled to the benefit of any retrospective premium,
cost or benefit associated with claims that are subject of the insurance
proceeds referred to in Section 2.2(a)(xviii). Notwithstanding the above or the
provisions of Section 2.2(a)(xviii), subject to the first sentence of Section
5.1, CBS may, in its sole discretion, liquidate, commute, settle, modify or
amend any of its insurance policies in any respect. No later than thirty (30)
days prior to the Closing, Purchaser shall have the right, and be given access
to such workers compensation data, all at its expense, as may be necessary to
conduct an actuarial reserve analysis.
SECTION 5.24. GUARANTEE AGREEMENT. Concurrent with the execution of
-------------------
this Agreement, the Guarantors are executing the Guarantee Agreement in the form
of Exhibit D hereto (the "Guarantee Agreement").
-------------------
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SECTION 5.25. WAIVERS. CBS shall use its commercially reasonable
-------
efforts to, and to cause its Sold Subsidiaries to, obtain from each director of
each Sold Subsidiary waivers as of the Closing Date of any claim such director
may have against Purchaser or the Sold Subsidiaries.
SECTION 5.26. THIRD PARTY AGREEMENTS. CBS has provided Purchaser
----------------------
with a true and complete copy of the forms of (or term sheets relating to)
shared technology agreements, business supply agreements and settlement support
agreements to be entered into between CBS and the purchasers of the Power
Generation Business and the Process Control Business (collectively, the "Third
-----
Party Agreements"). It is understood and agreed that if (a) any of the Third
- ----------------
Party Agreements are entered into prior to the Closing substantially in the form
so provided, Purchaser shall acquire CBS' rights and assume CBS' obligations
thereunder (in each case to the extent rights and obligations relate to the
Business and the Intellectual Property and Technology) and (b) if the Closing
occurs prior to the execution of any of the Third Party Agreements, Purchaser
shall enter into any such Third Party Agreement substantially in the form
previously so provided with the purchaser of the applicable business.
SECTION 5.27. YEAR 2000 MATTERS. Prior to the Closing Date, the
-----------------
Sellers and the Sold Subsidiaries shall:
(i) use commercially reasonable efforts to implement the Year 2000
Plan in accordance with its terms;
(ii) provide to Purchaser copies of internal management reports on
the status of implementation of the Year 2000 Plan;
(iii) use commercially reasonable efforts to cause the PRISM payroll
system to be operational and in compliance with the Year 2000 Plan; and
(iv) notify all purchasers (not notified prior to the date hereof)
of versions of the WDPF product that are prior to the 6.01 version that
modifications are available to such product to address Year 2000 issues.
SECTION 5.28. JOINT DEFENSE AGREEMENT. Prior to the date hereof, CBS
-----------------------
and Purchaser have executed the Joint Defense Agreement attached as Exhibit E
hereto.
SECTION 5.29. OCI COMPLIANCE. Purchaser shall, and shall cause its
--------------
Affiliates to, take such actions between the date hereof and the Closing such
that Purchaser
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(and, to the extent applicable, its Affiliates) will be, immediately subsequent
to Closing, in compliance with the Laws relating to Organizational Conflicts of
Interest (as such term is defined in Federal Acquisition Regulation Subpart 9.5
and Department of Energy Acquisition Regulation Subpart 909.5) with respect to
any Government Contracts (or outstanding bids for Government Contracts) included
in the Acquired Assets.
SECTION 5.30. GUARANTEE AGREEMENT. Purchaser shall use its best
-------------------
efforts to cause the condition precedent set forth in Section 6.3(c)(ii) to be
satisfied on or prior to the date when all other conditions precedent to the
Closing set forth in Article 6 have been satisfied or waived, or are capable of
being satisfied. Purchaser shall, or shall cause its Affiliates to, pay all
expenses incident to obtaining or maintaining a letter of credit or other
financial instrument pursuant to Section 6.3(c)(ii).
ARTICLE 6
CONDITIONS PRECEDENT
SECTION 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION. The obligation
-------------------------------------
of Purchaser to purchase the Acquired Assets and assume the Assumed Liabilities
and the obligation of CBS to (and to cause the Selling Subsidiaries to) sell,
assign, transfer, convey and deliver the Acquired Assets to Purchaser shall be
subject to the satisfaction prior to the Closing of the following conditions:
(A) CERTAIN WAITING PERIODS. Any waiting period under the HSR Act and
-----------------------
the Exon-Florio Amendment applicable to any of the transactions contemplated
hereby shall have expired or been earlier terminated.
(B) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
----------------------------
preliminary or permanent injunction or other legal restraint or prohibition
preventing the consummation of the transactions contemplated by this Agreement
shall be in effect.
(C) GOVERNMENTAL ACTION. There shall not be any material pending
-------------------
suit, action or proceeding by any Governmental Authority challenging or seeking
to restrain or prohibit the consummation of the transactions contemplated by
this Agreement in any material respect or seeking to obtain any damages from
Sellers, Purchaser or the Sold Subsidiaries.
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(D) CONSUMMATION OF THE ESBU ASSET PURCHASE AGREEMENT. The
-------------------------------------------------
transactions contemplated by the ESBU Asset Purchase Agreement shall have been
consummated concurrently with the Closing on the Closing Date.
SECTION 6.2. CONDITIONS TO OBLIGATION OF PURCHASER. The obligation
-------------------------------------
of Purchaser to purchase the Acquired Assets and assume the Assumed Liabilities
is subject to the satisfaction at and as of the Closing of each of the following
conditions, any and all of which may be waived in whole or in part by Purchaser:
(A) REPRESENTATIONS AND WARRANTIES. The representations and
------------------------------
warranties of CBS set forth in this Agreement (determined without regard to any
materiality qualification or exception in any representation or warranty) shall
be true and correct in all respects as of the date of this Agreement and, except
for those made as of a particular date, as of the Closing as though made at and
as of the Closing, except in each case for such failures of representations and
warranties to be true and correct (i) as the result of changes permitted or
contemplated by this Agreement and (ii) that would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Purchaser
shall have received a certificate signed by an authorized officer of CBS to such
effect.
(B) PERFORMANCE OF OBLIGATIONS OF CBS. CBS shall have performed or
---------------------------------
complied in all material respects with all obligations, conditions and covenants
required to be performed or complied with by it under this Agreement at or prior
to the Closing, and Purchaser shall have received a certificate signed by an
authorized officer of CBS to such effect.
(C) CONVEYANCING DOCUMENTS. Sellers shall have executed and delivered
----------------------
such deeds, bills of sale, assignments and other instruments, each in form and
substance reasonably satisfactory to Purchaser, as shall be necessary or
appropriate to convey the Acquired Assets in accordance with this Agreement.
(D) OPINION OF CBS'S COUNSEL. Purchaser shall have received an
------------------------
opinion or opinions dated the Closing Date of counsel to CBS, in form and
substance reasonably satisfactory to Purchaser, with respect to the matters set
forth in Schedule 6.2(d) hereto.
SECTION 6.3. CONDITIONS TO OBLIGATION OF CBS. The obligation of CBS
-------------------------------
to (and to cause the Selling Subsidiaries to) sell, assign, transfer, convey,
and deliver the Acquired Assets is subject to the satisfaction at and as of the
Closing of each of the following conditions, any and all of which may be waived
in whole or in part by CBS:
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(A) REPRESENTATIONS AND WARRANTIES. The representations and
------------------------------
warranties of Purchaser set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and as of the Closing as
though made at and as of the Closing, and CBS shall have received a certificate
signed by an authorized officer of Purchaser to such effect.
(B) PERFORMANCE OF OBLIGATIONS OF PURCHASER. Purchaser shall have
---------------------------------------
performed or complied in all material respects with all obligations, conditions
and covenants required to be performed or complied with by it under this
Agreement at or prior to the Closing, and CBS shall have received a certificate
signed by an authorized officer of Purchaser to such effect.
(C) GUARANTEE AGREEMENT. (i) The Guarantee Agreement shall be in
-------------------
full force and effect, and the Guarantors shall have complied in all material
respects with all of their obligations thereunder.
(ii) The condition precedent set forth in Section 17 of the
Guarantee Agreement shall have been satisfied.
(D) OPINION OF PURCHASER'S COUNSEL. CBS shall have received an
------------------------------
opinion or opinions dated the Closing Date of counsel to Purchaser and the
Guarantors in form and substance reasonably satisfactory to CBS with respect to
the matters set forth on Schedule 6.3(d) hereto.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. TERMINATION.
-----------
(a) Notwithstanding anything to the contrary in this Agreement, this
Agreement may be terminated and the transactions contemplated hereby abandoned
at any time prior to the Closing:
(i) by mutual written consent of CBS and Purchaser;
(ii) by CBS if any of the conditions set forth in Sections 6.1
or 6.3 shall have become incapable of fulfillment, and shall not have been
waived by CBS;
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(iii) by Purchaser if any of the conditions set forth in Sections
6.1 or 6.2 shall have become incapable of fulfillment, and shall not have
been waived by Purchaser; or
(iv) by CBS or Purchaser (upon 10 days' written notice) if the
Closing does not occur on or prior to March 31, 1999 (as extended as
hereinafter provided, the "Termination Date");
provided, however, that (x) the party seeking termination pursuant to clause
- -------- -------
(ii), (iii) or (iv) is not in breach in any material respect of any of its
representations, warranties, covenants or agreements contained in this Agreement
and (y) no termination pursuant to clause (iv) shall be effective if, as of the
Termination Date, all conditions precedent to Closing set forth in Article 6
have been satisfied or waived on or before such date or are capable of being
satisfied on such date, other than the conditions precedent set forth in Section
6.1(a), and prior to the expiration of the ten-day period referred to in clause
(iv), the non-terminating party notifies the terminating party in writing that
it is extending the Termination Date; provided, that the Termination Date may
--------
not be extended beyond June 30, 1999.
(b) In the event of termination by CBS, on the one hand, or Purchaser,
on the other hand, pursuant to this Section 7.1, written notice thereof shall
forthwith be given to the other party and the transactions contemplated by this
Agreement shall be terminated, without further action by any party. If the
transactions contemplated by this Agreement are terminated as provided herein:
(i) Purchaser shall return all documents and other material
received from Sellers relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to CBS; and
(ii) all confidential information received by Purchaser with
respect to the Business and the other operations of Sellers shall be
treated in accordance with the Confidentiality Agreement, which shall
remain in full force and effect notwithstanding the termination of this
Agreement.
(c) If this Agreement is terminated and the transactions contemplated
hereby are abandoned as described in this Section 7.1, this Agreement shall
become null and void and of no further force and effect, except for the
provisions of (i) Section 5.2 relating to the obligation of Purchaser to keep
confidential certain information and data obtained by it from Sellers, (ii) this
Agreement relating to expenses (including Sections 5.2(b), 5.7 and 5.14(d)),
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(iii) Section 5.8 relating to finder's fees and broker's fees, (iv) this Section
7.1 and (v) Article 9. Nothing in this Section 7.1 shall be deemed to release
either party from any Liability for any breach by such party of the terms and
provisions of this Agreement or to impair the right of either party to compel
specific performance by the other party of its obligations under this Agreement.
SECTION 7.2. AMENDMENTS AND WAIVERS. This Agreement may not be
----------------------
amended except by an instrument in writing signed on behalf of each of the
parties hereto. Purchaser, on the one hand, or CBS, on the other hand, may, by
an instrument in writing, waive compliance by the other party with any term or
provision of this Agreement that such other party was or is obligated to comply
with or perform.
ARTICLE 8
INDEMNIFICATION
SECTION 8.1. INDEMNIFICATION BY CBS.
----------------------
(a) Notwithstanding anything in the Novation Agreements to the
contrary, CBS hereby agrees to indemnify Purchaser and its Affiliates and their
respective officers, directors, employees, stockholders, agents and
representatives against, and agrees to hold them harmless from, any Losses, as
incurred (payable quarterly upon written request), to the extent arising from,
relating to or otherwise in respect of:
(i) any breach of any representation or warranty of CBS contained in
any Section of this Agreement (other than the representations and
warranties contained in Sections 4.1(j)(B) (to the extent related to
Business-Related Environmental Liabilities) and 4.1(n)) determined (except
in respect of (A) of Sections 4.1(c)(i), 4.1(c)(ii), 4.1(d)(ii),
4.1(j)(A)(xv), 4.1(j)(C), 4.1(l), 4.1(s)(ii)(A) and 4.1(t) and (B)
representations and warranties relating to the "material" impairment of the
ability of a party to perform its obligations under this Agreement) without
regard to any materiality qualification or exception in any representation
or warranty giving rise to the claim for indemnity hereunder;
(ii) any breach of any covenant of any of Sellers contained in this
Agreement or in any Seller Ancillary Document;
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(iii) any Liability of any Seller which is not an Assumed Liability
and any Liability of any Sold Subsidiary which is an Excluded Liability;
(iv) any Indebtedness that is not included on the Statement of Net
Assets;
(v) (A) any breach of any representation or warranty contained in
Sections 4.1(j)(B) (to the extent related to Business-Related Environmental
Liabilities) or 4.1(n) and (B) any Business-Related Environmental Liability
(other than those Environmental Liabilities assumed by Purchaser pursuant
to Sections 2.3(a)(vi)(B) and 2.3(a)(xii));
(vi) any Liability (other than any Environmental Liability) of any
Seller arising from any defect or failure in the performance of any of the
Sellers in connection with the In Tank Precipitation Process at Savannah
River;
provided, however, that
- -------- -------
(A) CBS shall not have any Liability under clause (i) above unless the
aggregate of all Losses relating thereto for which CBS would, but
for this clause (A), be liable under clause (i) above exceeds
$8,000,000, and then only to the extent of any such excess;
(B) CBS shall not have any obligation to pay, in respect of Losses
indemnifiable pursuant to clause (i) above, an amount in excess of
$200,000,000 in the aggregate;
(C) for purposes of calculating Losses under clauses (i) and (ii)
above and determining the aggregate of all Losses pursuant to
clause (A) of this proviso, CBS shall not have any Liability for
any Loss in respect of such breaches if the aggregate amount of
such Loss relating to a single claim (or group of claims relating
to the same facts or circumstances, event or transaction) does not
exceed $15,000;
(D) CBS shall not have any Liability under this Section 8.1 to the
extent the Liability arises as a result of the operation of the
Business or the Acquired Assets after the Closing or any action
taken or omitted to be taken by Purchaser or any of its
Affiliates;
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(E) CBS shall not have any Liability in respect of any Losses under
clause (v) above except to the extent the aggregate of all such
Losses for which CBS, but for this clause (E), would be liable
exceeds $12,500,000, in which case, (w) for aggregate Losses of
more than $12,500,000 but less than $25,000,000, CBS shall pay 50%
of such Losses, (x) for aggregate Losses of $25,000,000 or more
but less than $50,000,000, CBS shall pay 75% of such Losses, (y)
for aggregate Losses of $50,000,000 or more but less than
$100,000,000, CBS shall pay 50% of such Losses and (z) for
aggregate Losses of $100,000,000 or more, CBS shall pay 100% of
all other such Losses;
(F) for purposes of calculating Losses under clause (v) above and
determining the aggregate of all Losses pursuant to clause (E) of
this proviso, CBS shall not have any liability if the aggregate
amount of such Loss relating to a single claim (or group of claims
relating to the same facts or circumstances, event or transaction)
does not exceed $1,000,000; and
(G) CBS shall not have any Liability under clause (vi) above except to
the extent the aggregate of all Losses relating thereto for which
CBS would, but for this proviso, be liable under clause (vi) above
exceeds $5,000,000.
With respect to Losses for which CBS has Liability pursuant to Section
8.1(a)(v) and to the extent that such Liability involves the implementation of a
Remedial Action, (i) in no event shall CBS's Liability extend to Remedial Action
that seeks to meet or address cleanup criteria applicable to real property other
than criteria applicable to real property used for purposes substantially
consistent with the purposes for which the Premises were used by the Business
prior to the Closing and (ii) CBS shall have the right (at its sole cost and
expense) to review and provide Purchaser with written comments in advance of (A)
the Purchaser's selection of consultants and contractors designated to perform
the Remedial Action and (B) the development of the scope of work for, and type
of, the Remedial Action to be implemented. Purchaser shall review and
reasonably and in good faith consider CBS's comments. Purchaser shall provide
all plans, reports and submissions to any Governmental Authority regarding any
such Remedial Action in draft form to CBS a reasonable time prior to
transmission of such items to such Governmental Authority and Purchaser shall
review and in good faith consider any of CBS's comments on such plans, reports
and submissions. CBS and
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its representatives shall have the opportunity to be present and participate at
any meetings with Governmental Authorities.
Notwithstanding the foregoing, from and after the time, if any, as
clause (E)(z) of the second preceding paragraph becomes applicable or could
reasonably be expected to become applicable prior to completion of any specific
Remedial Action, all determinations with respect to Remedial Actions (including
those contemplated by the first sentence of the immediately preceding paragraph)
shall be made jointly by CBS and Purchaser acting reasonably and in good faith.
All such determinations shall be made (1) with a view towards achieving
solutions that involve reasonable and customary Remedial Actions that can be
implemented efficiently and cost-effectively, (2) with due regard to avoiding
undue interference with the ongoing business operations of Purchaser (or its
successor in interest) at the Premises and (3) in accordance with Environmental
Laws. If, in such circumstances, (X) CBS and Purchaser do not agree as to
whether Remedial Action or any significant portion of a Remedial Action is
required by an Environmental Law, the parties shall submit such dispute to
arbitration pursuant to Section 8.8 or (Y) CBS and Purchaser do not agree with
respect to the scope of work for, and the type of, the Remedial Action to be
implemented, each of CBS and Purchaser shall submit to the other a written
proposal with respect thereto; if the parties are unable to agree how to
proceed, either party may submit such dispute to arbitration pursuant to Section
8.8.
(b) Notwithstanding anything to the contrary contained in this Article
8, CBS and Purchaser have agreed to allocate responsibility for certain Assumed
Liabilities pursuant to specific provisions of this Agreement. It is the intent
of the parties that such provisions be the sole and exclusive means for recovery
of amounts that otherwise might constitute Losses indemnifiable by CBS under
this Article 8. Accordingly, CBS shall not have any Liability under clause (i)
of Section 8.1(a) for any breach of representation or warranty by CBS contained
in this Agreement if the claim for breach of representation or warranty relates
to any Assumed Liability (including Business-Related Environmental Liabilities)
for which CBS and Purchaser have expressly allocated responsibility pursuant to
the provisions listed in Schedule 8.1(b).
(c) Purchaser acknowledges and agrees that its sole and exclusive
remedy with respect to any and all claims relating to the subject matter of this
Agreement (except as provided in Section 5.14) shall be pursuant to the
indemnification provisions set forth in this Section 8.1. In furtherance of the
foregoing, Purchaser hereby waives, to the fullest extent permitted under Law,
any and all rights, claims and causes of action it may have against Sellers,
their Affiliates and their respective officers, directors, employees,
stockholders, agents
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and representatives arising under or based upon any Law, Environmental Law or
otherwise (except pursuant to the indemnification provisions set forth in this
Article 8).
SECTION 8.2. INDEMNIFICATION BY PURCHASER. Without limiting
----------------------------
Purchaser's rights under Section 8.1, Purchaser hereby agrees to indemnify
Sellers, their Affiliates and their respective officers, directors, employees,
stockholders, agents and representatives against, and agrees to hold them
harmless from, any Losses, as incurred, (payable quarterly upon written
request), to the extent arising from, relating to or otherwise in respect of:
(i) any breach of any representation or warranty of Purchaser
contained in this Agreement;
(ii) any breach of any covenant of Purchaser contained in this
Agreement or in any Purchaser Ancillary Document;
(iii) any Assumed Liabilities;
(iv) all Liabilities of the Sold Subsidiaries;
(v) all Indebtedness included in the Statement of Net Assets;
(vi) any Liability under the WARN Act or similar statute to the
extent arising from the actions of Purchaser after the Closing;
(vii) any Liability under any Credit Support Arrangement following
the Closing;
(viii) any Liability relating to the performance or failure to perform
under any Contracts, Intellectual Property or Technology assigned to
Purchaser pursuant to Sections 5.4(b) or 5.4(c) (in the case of Section
5.4(c), to the extent Purchaser is provided the benefits of any Contract,
Intellectual Property or Technology); or
(ix) the operation of the Business or the Acquired Assets, or any
actions or omissions of Purchaser, its Affiliates, agents, contractors or
subcontractors in connection therewith, after the Closing.
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SECTION 8.3. CHARACTERIZATION OF INDEMNIFICATION PAYMENTS. All
--------------------------------------------
amounts paid by CBS or Purchaser, as the case may be, under this Article 8 shall
be treated as adjustments to the Purchase Price for all Tax purposes.
SECTION 8.4. LOSSES NET OF INSURANCE; TAX LOSS AND BENEFITS; NO
--------------------------------------------------
CONSEQUENTIAL DAMAGES.
- ---------------------
(a) The amount of any Loss shall be:
(i) net of any amounts recovered or recoverable by the indemnified
party under insurance policies or Government Contracts (it being understood
that if any amount is recovered or recoverable by Purchaser under any
insurance policy or Government Contract, it shall not be subject to
indemnification by CBS under this Article 8) with respect to such Loss;
(ii) (A) increased to take account of any net Tax cost incurred by
the indemnified party by reason of the receipt of any indemnity payment
being treated for Tax purposes as other than an adjustment to the Purchase
Price (grossed-up for such increase) and (B) reduced to take account of any
net Tax benefit realized by the indemnified party in respect of the taxable
year in which such Loss is incurred or paid and, with respect to a Tax
benefit arising in a year subsequent to the year in which the Loss is paid
or incurred, the indemnified party shall pay to the indemnifying party the
amount of such Tax benefit at the time such Tax benefit is actually
realized, arising from the incurrence or payment of any such Loss; and
(iii) to avoid double-counting as to any matter, determined after
giving effect to any reserves on the books of the Business as of the
Closing Date in respect of such matter if and to the extent such reserve
was reflected in the Statement of Working Capital or the Balance Sheet;
provided that this clause (iii) shall not apply in determining the amount
--------
of any Loss for purposes of clause (v) or (vi) of Section 8.1(a).
(b) In computing the amount of any such Tax cost or Tax benefit, the
indemnified party shall be deemed to recognize all other items of income, gain,
loss, deduction or credit before recognizing any item arising from the receipt
of any indemnity payment hereunder or the incurrence or payment of any
indemnified loss, liability, claim, damage or expense. Notwithstanding anything
to the contrary contained herein, no indemnification shall be provided for under
this Article 8 in respect of any indirect, special, consequential or "business
interruption" damages.
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(c) Purchaser shall use its commercially reasonable efforts consistent
with past practice in relation to the GESCO Businesses to pursue any and all
rights to reimbursement, recovery or indemnification for Losses pursuant to any
Government Contract prior to bringing any claim against CBS under this Article
8.
(d) Notwithstanding anything to the contrary in this Agreement and the
ESBU Asset Purchase Agreement, neither CBS nor Purchaser shall have any
Liability for Losses indemnifiable under Article 8 of either agreement to the
extent such party has previously been indemnified with respect to such Losses
pursuant to Article 8 of the other agreement.
SECTION 8.5. TERMINATION OF INDEMNIFICATION.
------------------------------
The obligations to indemnify and hold harmless any party, (a) pursuant
to clause (a)(i) of Section 8.1 and clause (a)(i) of Section 8.2, shall
terminate when the applicable representation or warranty terminates pursuant to
Section 9.3; provided, however, that such obligations to indemnify and hold
-------- -------
harmless shall not terminate with respect to any item as to which the Person to
be indemnified shall have, before the expiration of the applicable period,
previously made a claim by delivering a notice pursuant to Section 5.14(l), 8.6
or 8.7 (stating in reasonable detail the basis of such claim) to the party to be
providing the indemnification; (b) pursuant to clause (a)(v)(B) of Section 8.1,
shall terminate on the eighth anniversary of the Closing Date; (c) pursuant to
clause (a)(vi) of Section 8.1, shall terminate on the fourth anniversary of the
Closing Date; (d) pursuant to clause (a)(vi) of Section 8.1, shall terminate on
the fourth anniversary of the Closing Date; and (e) pursuant to the other
clauses of Sections 8.1 and 8.2 shall not terminate.
SECTION 8.6. PROCEDURES RELATING TO THIRD PARTY CLAIMS (OTHER THAN
-----------------------------------------------------
TAX CONTROVERSIES AND ENVIRONMENTAL LIABILITIES).
- ------------------------------------------------
(a) In order for a Person (the "indemnified party"), to be entitled to
-----------------
any indemnification provided for under this Agreement in respect of, arising out
of or involving a claim made by any Person against the indemnified party (other
than a Tax Controversy or Environmental Liability, procedures for which are
specified in Section 5.14(l) in the case of Tax Controversies and Section 8.9 in
the case of Environmental Liabilities) (a "Third Party Claim"), such indemnified
-----------------
party must notify the indemnifying party in writing, and in reasonable detail,
of the Third Party Claim within 10 business days after receipt by such
indemnified party of notice of the Third Party Claim; provided, however, that
-------- -------
failure to give such notification shall not affect the indemnification provided
hereunder except to the extent
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the indemnifying party shall have been actually prejudiced as a result of such
failure, including loss of any rights of subrogation (except that the
indemnifying party shall not be liable for any expenses incurred during the
period in which the indemnified party failed to give such notice). Thereafter,
the indemnified party shall deliver to the indemnifying party, promptly after
the indemnified party's receipt thereof, copies of all notices and documents
(including court papers) received by the indemnified party relating to the Third
Party Claim.
(b) If a Third Party Claim is made against an indemnified party, the
indemnifying party will be entitled to participate in the defense thereof and,
if it so chooses, to assume the defense thereof with counsel selected by the
indemnifying party. If the indemnifying party so elects to assume the defense of
a Third Party Claim, the indemnifying party will not be liable to the
indemnified party for any legal expenses subsequently incurred by the
indemnified party in connection with the defense thereof. If the indemnifying
party assumes such defense, the indemnified party shall have the right to
participate in the defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by the indemnifying party, it being
understood that the indemnifying party shall control such defense. The
indemnifying party shall be liable for the fees and expenses of counsel employed
by the indemnified party for any period during which the indemnifying party has
not assumed the defense thereof (other than during any period in which the
indemnified party shall have failed to give notice of the Third Party Claim as
provided above). If the indemnifying party chooses to defend or prosecute a
Third Party Claim, all the parties hereto shall cooperate in the defense or
prosecution thereof. Such cooperation shall include the retention and (upon the
indemnifying party's request) the provision to the indemnifying party of records
and information which are reasonably relevant to such Third Party Claim, and
making employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. If the
indemnifying party chooses to defend or prosecute any Third Party Claim, the
indemnified party will agree to any settlement, compromise or discharge of such
Third Party Claim which the indemnifying party may recommend, which involves no
order for non-monetary relief, will not result in the indemnified party being
bound by principles of res judicata or collateral estoppel in defending other
similar claims and which by its terms obligates the indemnifying party to pay
the full amount of the liability in connection with such Third Party Claim or,
if such settlement, compromise or discharge does not require full payment of
such liability, the indemnified party shall have the right to consent to such
settlement, compromise or discharge, which consent may not be unreasonably
withheld. Whether or not the indemnifying party shall have assumed the defense
of a Third Party Claim, the indemnified party shall not admit any liability with
respect to, or settle, compromise or discharge, such Third Party Claim without
the indemnifying party's prior written consent (which consent shall not be
unreasonably withheld).
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SECTION 8.7. PROCEDURES RELATING TO NON-THIRD PARTY CLAIMS. In order
---------------------------------------------
for an indemnified party to be entitled to any indemnification provided for
under this Agreement in respect of a claim that does not involve a Third Party
Claim, Tax Controversy or Environmental Liability being asserted against or
sought to be collected from such indemnified party, the indemnified party shall
deliver notice of such claim with reasonable promptness to the indemnifying
party. The failure by any indemnified party so to notify the indemnifying party
shall not relieve the indemnifying party from any liability which it may have to
such indemnified party under this Agreement, except to the extent that the
indemnifying party shall have been actually prejudiced by such failure. If the
indemnifying party does not notify the indemnified party within 30 calendar days
following its receipt of such notice that the indemnifying party disputes its
liability to the indemnified party under this Agreement, such claim specified by
the indemnified party in such notice shall be conclusively deemed a liability of
the indemnifying party under this Agreement and the indemnifying party shall pay
the amount of such liability to the indemnified party on demand or, in the case
of any notice in which the amount of the claim (or any portion thereof) is
estimated, on such later date when the amount of such claim (or such portion
thereof) becomes finally determined. If the indemnifying party has timely
disputed its liability with respect to such claim, as provided above, the
indemnifying party and the indemnified party shall proceed in good faith to
negotiate a resolution of such dispute and, if not resolved through
negotiations, subject to Section 9.8, such dispute shall be resolved by
litigation in an appropriate court of competent jurisdiction.
SECTION 8.8. ARBITRATION OF CERTAIN ENVIRONMENTAL LIABILITIES.
------------------------------------------------
Any dispute as to the scope of work or the type of Remedial Action or
whether a cost or Loss is a Decontamination and Decommissioning Liability shall
be settled by arbitration in accordance with the Commercial Rules of the
American Arbitration Association. Any party may commence arbitration hereunder
by delivering notice to the other party or parties to the dispute, claim or
controversy. The arbitration panel shall consist of three arbitrators. Within 10
days after delivery of the notice of commencement of arbitration referred to
above, the Purchaser and CBS shall each appoint one arbitrator, and the two
arbitrators so appointed shall within 10 days of their appointment designate a
third arbitrator within ten days of their appointment. If the arbitrators
designated by the parties to the arbitration are unable or fail to agree upon
the third arbitrator, the third arbitrator shall be designated by the American
Arbitration Association under its rules. The arbitrators will be bound by the
substantive law of the State of New York, but will not be bound by the laws of
evidence and procedure customary in courts of law. The arbitrators shall be
required to submit a written statement of their findings and conclusions. The
award of the arbitrators shall be
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final, binding and conclusive on the parties; provided that, where a remedy for
breach is prescribed hereunder or limitations on remedies are prescribed, the
arbitrators shall be bound by such restrictions. Judgment upon the award may be
entered in any court having jurisdiction thereof. The arbitration proceedings
shall be conducted in New York, New York. Unless otherwise determined by the
arbitrator (which determination shall be final and binding on the Purchaser and
CBS), each party shall pay its own expenses of arbitration and the expenses of
the arbitrators shall be shared equally by the Purchaser, on the one hand, and
CBS involved in such arbitration, on the other hand.
SECTION 8.9. PROCEDURES RELATING TO CLAIMS CONSTITUTING AN
---------------------------------------------
ENVIRONMENTAL LIABILITY.
- -----------------------
(a) After the Closing, each of Purchaser and CBS shall notify (the
"Notifying Party") the other in writing, and in reasonable detail, of any claim
- ----------------
in respect of, arising out of or involving a claim made by any Person against
the Notifying Party constituting an Environmental Liability or a breach of the
representations and warranties contained in Section 4.1(j)(B) (to the extent
related to Business-Related Environmental Liabilities) or Section 4.1(n) (a
"Shared Claim"), within 10 business days after receipt by the Notifying Party of
- -------------
written notice of the Shared Claim; provided, however, that failure to give such
notification shall not affect the indemnification provided hereunder except to
the extent the other party shall have been actually prejudiced as a result of
such failure (except that the other party shall not be liable for any expenses
incurred during the period in which the Notifying Party failed to give such
notice). Thereafter, each party shall deliver to the other party, promptly after
such party's receipt thereof, copies of all notices and documents (including
court papers) received by the such party relating to the Shared Claim.
(b) Subject to the provisions of Sections 8.1(a) with respect to
Remedial Actions, during the period from the date hereof to the Closing Date,
Purchaser and CBS shall negotiate in good faith and enter into one or more
agreements governing defense of Shared Claims, it being agreed that any such
agreement shall provide that:
(i) Purchaser and CBS will each be entitled to participate in the
defense of any Shared Claim; provided, however, that if CBS shall have one
-------- -------
hundred percent of the liability in respect thereof pursuant to Section
8.1(a)(v) such claim shall be treated as a Third Party Claim under Section
8.6;
(ii) Purchaser and CBS will each cooperate in the defense or
prosecution of any Shared Claim, including the retention and (upon request)
the provision to the
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requesting party of records and information which are reasonably relevant
to such Shared Claim, and making employees (including any Business
Employees familiar with such Shared Claim) available on a mutually
convenient basis to provide additional information and explanation of any
such records and information;
(iii) Purchaser and CBS will consult with each other and shall
mutually agree on any significant strategic decisions in respect of any
Shared Claim;
(iv) Purchaser and CBS will consult with each other and shall
mutually agree on any settlement, compromise or discharge of any Shared
Claim;
(v) neither Purchaser nor CBS shall admit any liability with
respect to, or settle, compromise or discharge, any Shared Claim without
the other party's prior written consent (which consent shall not be
unreasonably withheld); and
(vi) appropriate and mutually agreeable arrangements with respect to
day-to-day administration of any Shared Claim shall be provided for in such
agreements.
SECTION 8.1. SUBROGATION. (a) Without limiting Purchaser's
-----------
indemnification obligations pursuant to Section 8.2, in connection with any
defense in respect of, arising out of or involving a claim by any Person against
Sellers or any of their Affiliates, Sellers and their Affiliates shall be
subrogated to the rights of Purchaser under any Contracts included in the
Acquired Assets (including rights to indemnification and reimbursement).
(b) To the extent that Purchaser has refrained from, delayed or
abandoned pursuing any rights to reimbursement, recovery or indemnification for
Losses pursuant to any Contract with respect to any Losses subject to
indemnification by Purchaser pursuant to Section 8.2, Sellers or their
Affiliates shall have the right, at their election, to commence or assume a
claim or course of action in Purchaser's name with respect to any of Purchaser's
rights subrogated hereunder.
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ARTICLE 9
GENERAL PROVISIONS
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SECTION 9.1. NOTICES. All notices and other communications hereunder
-------
shall be in writing (including telecopy or similar writing) and shall be sent,
delivered or mailed, addressed or telecopied:
(a) if to Purchaser, to:
WGNH Acquisition, L.L.C.
c/o Morrison Knudsen Corporation
Attention: Corporate Secretary
720 Park Boulevard
Boise, ID 83712
Telecopy No.: (208) 386-5298
c/o British Nuclear Fuels plc
Alvin J. Shuttleworth
Company Secretary and Group Legal Director
Risley, Warrington
Cheshire WA3 6AS
England
Telecopy No.: 011-441-925-832058
with a copy to:
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: Mark D. Herlach, Esq.
Telecopy No.: (202) 637-3593
(b) if to CBS, to:
Office of General Counsel
CBS Corporation
Westinghouse Building
11 Stanwix Street
Pittsburgh, PA 15222
Telecopy No.: (412) 642-5224
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with copies to:
Office of General Counsel
CBS Inc.
51 West 52nd Street
New York, New York 10019
Telecopy No.: (212) 975-3744
and
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Howard Chatzinoff, Esq.
Telecopy No.: (212) 310-8007
Each such notice or other communication shall be given (i) by hand delivery,
(ii) by nationally recognized courier service or (iii) by telecopy, receipt
confirmed. Each such notice or communication shall be effective (i) if
delivered by hand or by nationally recognized courier service, when delivered at
the address specified in this Section 9.1 (or in accordance with the latest
unrevoked direction from such party) and (ii) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section 9.1 (or
in accordance with the latest unrevoked direction from such party), and
confirmation is received.
SECTION 9.2. INTERPRETATION. The Exhibits and Schedules are part of
--------------
this Agreement as if fully set forth in this Agreement. When a reference is
made in this Agreement to a Section, Schedule or Exhibit, such reference shall
be to a Section of, or a Schedule or Exhibit to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. For purposes of any indemnification provision
in this Agreement, the word "expenses" shall mean out-of-pocket expenses, and
--------
shall not include any allocations of internal salaries and other expenses.
Whenever the words "included", "includes" or "including" are used in this
-------- -------- ---------
Agreement, they shall be deemed to be followed by the words "without
limitation". Whenever the word "material" is used in this Agreement (except
--------
when used with respect to the Purchaser), it shall mean material to the Business
or financial condition of the Business, taken as a whole. Whenever reference is
made to "knowledge" with respect to any Seller, it shall mean the actual
---------
knowledge of the Persons
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<PAGE>
named on Schedule 9.2. Any matter set forth in any Schedule shall be deemed set
forth in all other Schedules to the extent relevant.
SECTION 9.3. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
-----------------------------------------------------
The representations and warranties contained in this Agreement (including the
representation and warranty contained in the penultimate sentence of Section
4.1(h)) shall survive the Closing solely for purposes of Article 8 and shall
terminate at the close of business 18 months following the Closing Date;
provided, however, that (i) the representations and warranties contained in
- -------- -------
Sections 4.1(a), 4.1(b), 4.1(f) and 4.1(g) (but only to the extent Section
4.1(g) relates to matters of title) shall survive indefinitely; (ii) the
representations and warranties contained in Section 4.1(c)(i) shall survive
until the third anniversary of the Closing Date; (iii) the representations and
warranties contained in Section 4.1(m) and Section 4.1(j)(B) shall survive until
the close of business 30 months following the Closing Date; and (iv) the
representations and warranties contained in Section 4.1(o), to the extent that
such representations and warranties relate to Income Taxes, shall terminate on
the Closing Date. The covenants contained in this Agreement, except as otherwise
expressly provided, shall survive the Closing indefinitely; provided, however,
-------- -------
that the covenants contained in Sections 5.1, 5.2, 5.3(a) and 5.3(b) shall
terminate on the Closing Date.
SECTION 9.4. SEVERABILITY. If any provision of this Agreement (or
------------
any portion thereof) or the application of any such provision (or any portion
thereof) to any Person or circumstance shall be held invalid, illegal or
unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof (or the remaining portion thereof) or the application of such provision
to any other Persons or circumstances.
SECTION 9.5. COUNTERPARTS. This Agreement may be executed in two or
------------
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered (including by telecopy) to the other party.
SECTION 9.6. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. Except
----------------------------------------------
as expressly otherwise agreed in writing by the parties hereto, this Agreement,
the Guarantee Agreement, the Novation Agreements and the Confidentiality
Agreements (a) constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof and supersede all prior agreements and
understandings, negotiations and discussions, whether written and oral, among
the parties with respect to the subject matter hereof, and there are no
warranties, representations or other agreements between the parties hereto in
connection with
113
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the subject matter hereof, except as specifically set forth in this Agreement,
the Guarantee Agreements, and the Confidentiality Agreements and (b) except as
provided in Article 8, are not intended to confer upon any Person other than the
parties hereto (and the Selling Subsidiaries) and their successors and permitted
assigns any rights or remedies hereunder.
SECTION 9.7. GOVERNING LAW. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York applicable to
contracts made and to be performed entirely in the State of New York, regardless
of the laws that might otherwise govern under applicable principles of conflict
of laws.
SECTION 9.8. MEDIATION; CONSENT TO JURISDICTION.
----------------------------------
(a) Except as provided in Section 8.8, any dispute among the parties
arising out of or in connection with this Agreement or any other agreement,
instrument or other document delivered pursuant to this Agreement, or any
alleged breach hereof or thereof (other than (i) a dispute arising under or with
respect to Section 5.19 or the confidentiality obligations set forth in the
second penultimate sentence of Section 5.2(a) or (ii) a dispute in respect of
which there is a reasonable likelihood of irreparable harm (as to which a party
may seek a temporary restraining order or injunctive relief)) shall be submitted
for discussion and possible resolution by senior officers or designated
spokesperson of each such party.
(b) If within a period of 15 days after submission of a matter in
accordance with clause (a) hereof the respective senior officers and designated
spokespersons are unable to agree upon a resolution, any party may within 15
days after the aforesaid 15-day period elect to utilize a non-binding resolution
procedure whereby each party presents its case at a hearing held in New York,
New York before a neutral advisor, who shall be selected from the CPR Institute
For Dispute Resolution. The parties shall bear their respective costs incurred
in connection with this procedure including the fees and expenses of the neutral
advisor. Prior to the hearing, the parties and the neutral advisor shall use
their reasonable best efforts to agree on a set of ground rules for the hearing.
At the closing of the hearing, the senior executive officers of the respective
parties shall meet and attempt to resolve the matter. Only after the foregoing
procedure has been exhausted shall either party resort to litigation as the
final adjudication of the dispute.
(c) Each of Purchaser and CBS irrevocably submits to the non-exclusive
jurisdiction of (i) the Supreme Court of the State of New York, New York County,
and (ii) the United States District Court for the Southern District of New York
located in the Borough of Manhattan in the City of New York, for the purposes of
any suit, action or other proceeding
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<PAGE>
arising out of this Agreement or any transaction contemplated hereby. Each of
the Purchaser and CBS further agrees that service of any process, summons,
notice or document by U.S. registered mail to such party's respective address
set forth in Section 9.1 or, in the case of Purchaser, to its agent for service
of process shall be effective service of process for any action, suit or
proceeding in New York with respect to any matters to which it has submitted to
jurisdiction as set forth above. Each of Purchaser and CBS irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (x) the Supreme Court of the State of New York, New York County, or
(y) the United States District Court for the Southern District of New York, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.
SECTION 9.9. PUBLICITY. From the date of this Agreement through the
---------
Closing, neither CBS, on the one hand, nor Purchaser, on the other hand, shall
issue or cause the publication of any press release or other public announcement
with respect to the transactions contemplated by this Agreement without the
consent of the other party, which consent shall not be unreasonably withheld.
If one party provides a copy of its proposed press release or public
announcement to the other party, and the other party does not object or comment
on the proposal within forty-eight hours of receipt, such failure to comment
will be treated as consent to publication by the recipient. If such release or
announcement is required by Law or the rules or regulations of a national
securities exchange in the United States, the party required to make the release
or announcement shall allow the other party reasonable time to comment on such
release or announcement in advance of its issuance. The parties will agree on
an appropriate procedure to implement the requirements of this Section 9.9.
SECTION 9.10. ASSIGNMENT. Neither this Agreement nor any of the
----------
rights, interests or obligations hereunder shall be assigned by any party hereto
without the prior written consent of the other party, except that, so long as
any such assignment would not delay or impede the consummation of the
transactions contemplated hereby, Purchaser may assign to one or more Purchaser
Affiliates the right to acquire part or all of the business and assets of the
Business hereunder, together with the other rights of Purchaser hereunder with
respect thereto; provided, however, that any such assignment shall not release
-------- -------
Purchaser from any Liability hereunder (including any Liability under Article 8)
or enlarge or enhance Purchaser's rights or affect any limitations on CBS's
Liability under Article 8. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
115
<PAGE>
SECTION 9.11. WAIVER OF JURY TRIAL; TRIAL COSTS. Each of Purchaser
---------------------------------
and the Sellers, for themselves and their respective Affiliates, hereby
irrevocably waives all right to trial by jury in any action, proceeding or
counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to the actions of Purchaser and the Sellers or their respective
Affiliates pursuant to this Agreement in the negotiation, administration,
performance or enforcement thereof. The party in whose favor a final judgment is
rendered shall be entitled to reasonable costs and reasonable attorneys' fees.
116
<PAGE>
EXHIBITS AND SCHEDULES
The registrant agrees to provide the Securities and Exchange Commission, upon
request, with copies of the Exhibits and Schedules hereto.
117
<PAGE>
IN WITNESS WHEREOF, CBS and Purchaser have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
CBS CORPORATION
By: /s/ Fredric G. Reynolds
--------------------------------
Name: Fredric G. Reynolds
Title: Executive Vice President,
Chief Financial Officer
WGNH ACQUISITION, LLC
By: /s/ Stephen G. Hanks
--------------------------------
Name: Stephen G. Hanks.
Title:
By: /s/ J. J. Taylor
--------------------------------
Name: J. J. Taylor
Title:
<PAGE>
EXHIBIT 10.12
CONSORTIUM AGREEMENT
THIS CONSORTIUM AGREEMENT (this "Agreement"), dated as of June 24, 1998, by
and between the following parties:
MORRISON KNUDSEN CORPORATION, an Ohio corporation ("MK"), and
BNFL USA GROUP INC., a Delaware corporation ("BNFL-USA")
WITNESSETH
WHEREAS:
1. MK and BNFL-USA wish to form a consortium for the purpose of acquiring
the Energy Systems business (the "ESBU Business") and the Government
Operations business (the "GESCO Business") of CBS Corporation ("CBS")
2. MK and BNFL-USA have entered into this Agreement for the purpose of
setting forth the basis on which they will purchase the ESBU and GESCO
Businesses, and the basis on which ownership, control and risk will be
shared after the acquisition
3. MK and BNFL-USA intend to take certain actions and enter into certain
other agreements as contemplated by this Agreement
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained in this Agreement, the parties agree as follows:
1. Formation of Additional Companies.
---------------------------------
1.1 Organization. Promptly after the date of this Agreement the parties
------------
will organize the following corporations or limited liability
companies (individually a "Company" and collectively the "Companies")
under the names set forth below (or if such names are not available
under such other names as the parties may agree):
(a) Westinghouse Government and Nuclear Holdings, LLC, a Delaware
limited liability company ("Wesco")
(b) Westinghouse Strategic Services, Inc., a Delaware corporation
("GESCO II")
(c) Westinghouse Government Services, LLC, a Delaware limited
liability company ("GESCO I")
<PAGE>
(d) Westinghouse Energy Systems, LLC, a Delaware limited liability
company ("ESBU")
(e) If a separate entity is required in order to hold the assets of
the Electro-Mechanical Division as contemplated by Section 4.4, an
additional Delaware limited liability company with a name to be
selected by the parties ("GESCO III")
(f) Such other entities as the parties deem necessary or desirable.
1.2 Operating Agreements. The ownership, management, operation, financing
--------------------
and other attributes of the Companies will be set forth in the
respective articles of incorporation, by-laws, limited liability
company agreements and related documents to be entered into with
respect to each of the Companies (the "Organizational Documents") and
other necessary documents which will be consistent with the provisions
of this Agreement.
2. Wesco.
-----
2.1 Members. MK and BNFL-USA, or their respective wholly owned
-------
subsidiaries, will be the members in Wesco and their respective
membership interests in Wesco will be:
MK -- 60%
BNFL-USA -- 40%
2.2 Management.
----------
(a) Management by Managers. Wesco will be managed by a board of
----------------------
directors or managers (the "Board") and by officers appointed by
the Board.
(b) Board. Wesco will have a Board of five directors, three of whom
-----
will be appointed by MK and two by BNFL-USA. With effect from the
GESCO Closing Date or the ESBU Closing Date (as defined in Section
7.2), whichever occurs first, the Board will consist of the chief
executive officers of MK and British Nuclear Fuels plc (the parent
company of BNFL-USA) and three US citizens who are not affiliated
with either MK or BNFL-USA, two of whom will be selected by MK
with the remaining one selected by BNFL-USA. MK and BNFL-USA will
jointly select a Chairman from the non-affiliated directors. Each
director will serve for a one-year term, and will be eligible for
re-appointment in accordance with this paragraph (b), provided
that MK and BNFL-USA shall have the right to replace their
respective appointees at any time in accordance with the
procedures set out above in this paragraph (b).
2
<PAGE>
(c) Officers. The Board will appoint a President and other officers
--------
as desired from time to time. With effect from the ESBU Closing
Date or the GESCO Closing Date, whichever occurs first, the
President initially will be Charles W. Pryor. The officers will
have the authority, responsibilities and duties as are customary
for officers holding similar positions with respect to businesses
conducted in corporate form and such additional authority,
responsibilities and duties as the Board may delegate from time to
time.
2.3 ESBU. As the sole owner of ESBU, Wesco will exercise control over
----
ESBU to the extent provided in Section 5. Among other things, the
following issues and actions will require action or review by the Wesco
Board:
(a) National Security Issues
(b) Export of technology developed using US public funds
(c) Receive reports from the Presidents of GESCO I and ESBU
(d) Approval of the ESBU Charter (attached as Exhibit A) and any
---------
changes thereto (requires unanimous action)
(e) Review actions of the ESBU Manager to ensure compliance with the
ESBU Charter.
2.4 Term. The parties will not dissolve Wesco earlier than the third
----
anniversary of the closing under the Asset Purchase Agreements
described in Section 7.
2.5 Membership Interests. The members' interests in Wesco may be divided
--------------------
into more than one series in a manner that is consistent with the
provisions of Section 11.
3. GESCO II.
--------
3.1 Organization. MK will organize GESCO II as a Delaware corporation
------------
which is a wholly-owned subsidiary of MK.
3.2 Management. The members of the board of directors and the officers of
----------
GESCO II will have appropriate security clearances and will be
selected in accordance with procedures that are satisfactory to the US
Department of Defense. BNFL-USA will have no right of any kind
whatsoever to influence or control in any manner the management or
operations of GESCO II. Notwithstanding anything to the contrary in
this Agreement, from and after the GESCO Closing Date MK will have
sole and absolute control over all assets contemplated to be acquired
by GESCO II.
3
<PAGE>
4. GESCO I.
-------
4.1 Members. The members and their membership interests in GESCO I will
-------
be:
Wesco -- 83-1/3%
BNFL-USA -- 16-2/3%
4.2 Management.
----------
(a) Management by Managers. GESCO I will be managed by a board of
----------------------
directors or managers (the "Board") selected by the members, and
by officers appointed by the Board.
(b) Board. With effect from the GESCO Closing Date, GESCO I will have
-----
a Board of six directors consisting of two individuals selected by
MK, two individuals selected by BNFL-USA, a Chairman to be
selected jointly by MK and BNFL-USA (who initially will be Charles
W. Pryor) and one individual who will be selected by the remaining
directors and who satisfies the requirements to be the chairman of
a US Government Security Committee (the "Sixth Director"). Each of
the directors shall be a US citizen. Each director will serve for
a one-year term, and will be eligible for re-appointment in
accordance with this paragraph (b), provided that MK and BNFL-USA
shall have the right to replace their respective appointees at any
time and MK and BNFL-USA, acting jointly, shall have the power to
replace the Chairman and to require the remaining directors to
replace the Sixth Director.
(c) Officers. The Board will appoint a President and other officers
--------
as desired from time to time. The officers will have the
authority, responsibilities and duties as are customary for
officers holding similar positions with respect to businesses
conducted in corporate form and such additional authority,
responsibilities and duties as the Board may delegate from time to
time.
4.3 Bidding. GESCO I will be the preferred vehicle for rebidding its
-------
existing contracts. With respect to other contracts that fall within
the scope of the GESCO I Operations, it is the objective of the
parties to maintain and grow the value of GESCO I, consistent with the
interests of MK and BNFL-USA, and to maximize the competitive
positioning of GESCO I bids. However, if MK and BNFL-USA do not agree
that it would be advantageous to bid a specific contract through GESCO
I, MK and BNFL-USA are both free to bid that contract directly or in
concert with a different partner or partners and GESCO I will not bid.
4.4 Electro-Mechanical Division. The Electro-Mechanical Division (the
---------------------------
"EMD") (which is currently included within GESCO I) may or may not be
permitted to be held in GESCO I. If the EMD is not permitted to be
held in GESCO I, then a separate entity ("GESCO III") may be organized
to hold the EMD. The
4
<PAGE>
ownership, management, operation, financing and other attributes of
the EMD shall be the same in all material respects as for GESCO I. If
ownership of the EMD in GESCO III is not acceptable to the US
government, the parties will agree on a mutually agreeable ownership
structure acceptable to the US government; provided that in any event
MK and BNFL-USA shall provide an equal portion of the purchase price
for, and shall share equally in the economic risks and rewards of, the
EMD.
5. ESBU.
----
5.1 Members. Wesco shall be the sole member of ESBU.
-------
5.2 Management.
----------
(a) Management by Managers. Subject to the provisions of paragraphs
----------------------
(d) and (e) below, ESBU will be managed by a board of directors or
managers (the "Board") appointed by Wesco as provided in paragraph
(b) and by officers appointed by the Board.
(b) Board. ESBU will have a Board of five directors consisting of
-----
three individuals selected by MK and two individuals selected by
BNFL-USA. With effect from the ESBU Closing Date, of MK's three
directors, two will be selected by MK from a list of US citizens
(including, initially, Charles W. Pryor) who have been recommended
by BNFL-USA. Each director will serve for a one-year term, and
will be eligible for re-appointment in accordance with this
paragraph (b), provided that MK and BNFL-USA shall have the right
to replace their respective appointees at any time in accordance
with the procedures set out above.
(c) Officers. The Board will appoint a President and other officers
--------
as required from time to time. With effect from the ESBU Closing
Date, the President will initially be Charles W. Pryor. Subject to
the provisions of paragraphs (d) and (e) below, the officers will
have the authority, responsibilities and duties as are customary
for officers holding similar positions with respect to businesses
conducted in corporate form and such additional authority,
responsibilities and duties as the Board may delegate from time to
time.
(d) Management Agreement. With effect from the ESBU Closing Date,
--------------------
ESBU will enter into a management agreement with BNFL-USA, or one
of its wholly-owned US subsidiaries, (the "Manager") under which
the Manager will provide overall management of ESBU as further
provided in Section 9.
(e) ESBU Charter. The parties will cause the Board to adopt the ESBU
------------
Charter in substantially the form attached as Exhibit A (the "ESBU
---------
Charter"). The operations of ESBU will be governed by the ESBU
Charter. The ESBU
5
<PAGE>
Charter provides for oversight of ESBU by the Wesco Board as
described in Section 2.3.
6. Savannah River M&O Contract.
---------------------------
MK and BNFL-USA will hold the Savannah River M&O Contract (defined in
Section 7.2(a)(iv)) in an entity acceptable to the US government, which
will have ownership and control arrangements acceptable to the US
government (which the parties currently believe will require the Savannah
River M&O Contract to be performed by an organization wholly owned by MK).
The ownership and control of such entity will also be mutually acceptable
to MK and BNFL-USA; provided that in any event MK and BNFL-USA shall
provide an equal amount of the purchase price for, and shall share equally
in the economic risks and rewards of, the Savannah River M&O Contract.
Appropriate protections will be provided to ensure that funds are not
distributed to MK via contract or any other mechanism that would frustrate
or avoid BNFL-USA's participation in the economic rewards of the Savannah
River M&O Contract.
7. Acquisition of ESBU and GESCO Businesses.
----------------------------------------
7.1 Asset Purchase Agreements. MK and BNFL-USA will cause Wesco to enter
-------------------------
into the following agreements and will each guarantee Wesco's
obligations under such agreements:
(a) ESBU Agreement. An Asset Purchase Agreement, dated on or about
--------------
the date of this Agreement, between Wesco and CBS (the "ESBU
Purchase Agreement") providing for the purchase by Wesco or one or
more of its assignees of the ESBU Business, including the purchase
of certain assets and the assumption of certain liabilities of CBS
and its affiliates all as set out in the ESBU Purchase Agreement.
(b) GESCO Agreement. An Asset Purchase Agreement, dated on or about
---------------
the date of this Agreement, between Wesco and CBS (the "GESCO
Purchase Agreement") providing for the purchase by Wesco or one or
more of its assignees of the GESCO Business, including the
purchase of certain assets and the assumption of certain
liabilities of CBS and its affiliates all as set out in the GESCO
Purchase Agreement.
7.2 Assignment of Rights under Asset Purchase Agreements.
----------------------------------------------------
(a) Division of GESCO Operations. The parties acknowledge that
----------------------------
effective as of the closing date under the GESCO Purchase
Agreement the GESCO Business is to be divided into two (or, under
certain circumstances, more) components as follows:
(i) GESCO I. All assets, properties, rights, obligations and
-------
liabilities included in the GESCO Business commonly referred
to by the parties as "GESCO I" including those that arise
from, relate to, or
6
<PAGE>
are used in connection with the Safe Sites, the EMD, WIPP,
Safety Management Solutions and West Valley contracts and
operations (the "GESCO I Operations"); provided that (A)
the Government Technical Services Division (the "GTSD")
will be transferred to ESBU, and (B) the EMD may be
transferred to GESCO III pursuant to clause (iii) below and
will in any event be held in accordance with the provisions
of Section 4.4).
(ii) GESCO II. All assets, properties, rights, obligations and
--------
liabilities included in the GESCO Business commonly
referred to by the parties as "GESCO II" including those
that arise from, relate to, or are used in connection with
the Bettis, PAD, MAO and Anniston contracts and operations
(the "GESCO II Operations").
(iii) GESCO III. Subject to the provisions of Section 4.4,
---------
if the EMD is required to be held separately from GESCO I,
all assets, rights and obligations included in the GESCO
Business that are commonly referred to by the parties as
the Electro-Mechanical Division (the "EMD Operations").
(iv) Savannah River. All assets, properties, rights,
--------------
obligations and liabilities included in the GESCO Business
commonly referred to by the parties as the Savannah River
Management and Operations Contract ("Savannah River M&O
Contract").
(b) GESCO Purchase Agreement. No later than the closing date under
------------------------
the GESCO Purchase Agreement (the "GESCO Closing Date")
(i) Wesco will assign to GESCO I all Wesco's rights and
obligations under the GESCO Purchase Agreement that relate
to the GESCO I Operations and (to the extent permitted
under the GESCO Purchase Agreement) the parties will cause
GESCO I to assume all such rights and obligations,
including the obligation to pay an appropriate portion of
the Purchase Price, to accept the assignment and transfer
to it of all the Acquired Assets, and to assume the Assumed
Liabilities (each as defined in GESCO Purchase Agreement)
that constitute part of the GESCO I Operations.
(ii) Wesco will assign to GESCO II all Wesco's rights and
obligations under the GESCO Purchase Agreement that relate
to the GESCO II Operations and (to the extent permitted
under the GESCO Purchase Agreement) the parties will cause
GESCO II to assume all such rights and obligations,
including the obligation to pay an appropriate portion of
the Purchase Price, to accept the assignment and transfer
to it of all the Acquired Assets, and to assume the Assumed
Liabilities (each as defined in GESCO Purchase Agreement )
that constitute part of the GESCO II Operations.
7
<PAGE>
(iii) If GESCO III is created (see Section 4.4) Wesco will assign
to GESCO III all Wesco's rights and obligations under the
GESCO Purchase Agreement that relate to the EMD Operations
and (to the extent permitted under the GESCO Purchase
Agreement) the parties will cause GESCO III to assume all
such rights and obligations, including the obligation to
pay an appropriate portion of the Purchase Price, to accept
the assignment and transfer to it of all the Acquired
Assets, and to assume the Assumed Liabilities (each as
defined in GESCO Purchase Agreement ) that constitute part
of the EMD Operations.
(iv) Wesco will assign to an entity acceptable to the US
government and to be agreed by MK and BNFL-USA all Wesco's
rights and obligations under the GESCO Purchase Agreement
that relate to the Savannah River M&O Contract and (to the
extent permitted under the GESCO Purchase Agreement) the
parties will cause such entity to assume all such rights
and obligations, including the obligation to pay an
appropriate portion of the Purchase Price, to accept the
assignment and transfer to it of all the Acquired Assets,
and to assume the Assumed Liabilities (each as defined in
GESCO Purchase Agreement ) that constitute part of the
Savannah River M&O Contract.
(c) ESBU Purchase Agreement. No later than the closing date under the
-----------------------
ESBU Asset Purchase Agreement (the "ESBU Closing Date") Wesco will
assign to ESBU all Wesco's rights and obligations under the ESBU
Purchase Agreement, all Wesco's rights and obligations under the
GESCO Purchase Agreement with respect to the GTSD, and all
personel being taken and all technology being acquired from the
Science and Technology Center and (to the extent permitted under
the ESBU Purchase Agreement and the GESCO Purchase Agreement) the
parties will cause ESBU to assume all such rights and obligations,
including
(i) the obligation to pay the Purchase Price and to accept the
assignment and transfer to it of all the Acquired Assets, and
to assume the Assumed Liabilities (each as defined in ESBU
Purchase Agreement) and
(ii) with respect to the GTSD, the obligation to pay an
appropriate portion of the Purchase Price, and to accept the
assignment and transfer to it of that portion of the Acquired
Assets and to assume that portion of the Assumed Liabilities
(each as defined in the GESCO Purchase Agreement) that
constitute or relate to the GTSD.
(d) Allocation of Certain Rights. All of the rights, duties and
----------------------------
obligations of Wesco under the ESBU Purchase Agreement and the
GESCO Purchase
8
<PAGE>
that are not specifically allocated in this Agreement (e.g., the
----
cap and basket on the indemnification provided by CBS) will be
shared equitably among the Companies in a manner that is
consistent with this Agreement.
(e) Closing Dates. MK and BNFL-USA anticipate that the closings under
-------------
the ESBU Purchase Agreement and the GESCO Purchase Agreement will
occur simultaneously. However, the parties may by mutual agreement
permit the closings to occur at different times.
7.3 Contribution of Purchase Price to GESCO II, GESCO I and ESBU.
------------------------------------------------------------
(a) Subject to the provisions of paragraph (b), no later than the day
before the GESCO Closing Date and the ESBU Closing Date,
respectively, MK will provide funds to GESCO II, and MK and BNFL-
USA will provide funds to Wesco, and through it to ESBU and GESCO
I, to enable them to pay the purchase price under the GESCO
Purchase Agreement and the ESBU Purchase Agreement, as described
in Exhibit B.
---------
(b) All of the contributions contemplated by paragraph (a), and all
other contributions to be made to the Companies under Section 8 or
otherwise, are expressly conditioned on the expiration of any and
all applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act relating to the formation of the
Companies and to the acquisition of the ESBU Business or the GESCO
Business.
7.4 Other Actions. The parties will take all such other actions and will
-------------
cause their respective affiliates to take such other actions to cause
GESCO II, GESCO I and ESBU (and GESCO III, if necessary) to perform
all obligations to be performed by them under the GESCO Purchase
Agreement or the ESBU Purchase Agreement, as the case may be.
8. Additional Contributions. The obligations of the parties to make
------------------------
additional contributions to any of the Companies to meet the needs of the
Companies for funding are as follows:
8.1 Wesco. Subject to the provisions of Exhibit C with respect to ESBU,
----- ---------
to the extent that funds are required for the operations of Wesco
(including contributions to be made by Wesco to GESCO I or ESBU in
accordance with Sections 8.2 and 8.4), MK and BNFL-USA will make
contributions in proportion to their respective membership interests
as set forth in Section 2.1.
8.2 GESCO I and GESCO III. Any contributions required to be made to GESCO
---------------------
I (or GESCO III, if applicable) must be unanimously approved by the
Board of GESCO I (or GESCO III, if applicable) and will be made in
proportion to the respective membership interests of Wesco and BNFL-
USA, as set forth in Section 4.1.
9
<PAGE>
8.3 GESCO II. MK shall be solely responsible for the cash and other
--------
funding requirements of GESCO II.
8.4 ESBU. Any additional contributions to ESBU will be made in accordance
----
with the provisions of Exhibit C.
---------
9. Management of ESBU Business.
---------------------------
The ESBU Business will be managed directly by BNFL-USA, or one of its
affiliates, (the "Manager") pursuant to a management agreement (the "ESBU
Management Agreement") which will embody the following principles:
(a) The Manager will have authority to manage the ESBU Business in
accordance with the ESBU Charter. Annual business plans, financial
plans and capital budgets will be prepared by the Manager and approved
by the ESBU Board.
(b) Consistent with the ESBU Charter and the provisions of Section 2.3
Wesco and the Board of ESBU will take all necessary action to ensure
that the Manager manages the ESBU Operations in accordance with
applicable laws concerning the protection of US national security and
technology.
(c) As part of its powers and duties under the ESBU Management Agreement
the Manager will
(i) subject to the provisions of Section 8.4, advance to ESBU 90% of
all ESBU's cash requirements to fund its operations and to meet
its liabilities, and
(ii) be entitled to receive as compensation for management services
and as reimbursement for such advances 90% of all cash in excess
of that currently required in the business.
(d) The powers and duties of the Manager will be structured so as to permit
the Manager to engage in ordinary cash management activities without
being required to make payments to BNFL-USA.
10. Financial Arrangements.
----------------------
10.1 Replacement of Letters of Credit etc. The parties acknowledge that
------------------------------------
CBS and certain of its affiliates are presently obligated under
certain letters of credit, performance bonds and similar obligations
issued in connection with the ESBU Business and the GESCO Business
(the "Outstanding Letters of Credit and Bonds") and that the
Purchasers are obligated under the ESBU Purchase Agreement and the
GESCO Purchase Agreement to replace the Outstanding Letters of Credit
and Bonds with substitute financial arrangements at closing. The
responsibility of the parties to accomplish this will be allocated as
follows:
10
<PAGE>
(a) ESBU. BNFL-USA will replace each of the Outstanding Letters of
----
Credit and Bonds that secure or support obligations that arise
from the ESBU Operations with substitute financial arrangements on
or before the ESBU Closing Date and will provide such credit
support, including guarantees from BNFL-USA or its affiliates, as
may be necessary to put such substitute financial arrangements
into effect.
(b) GESCO II. MK will replace each of the Outstanding Letters of
--------
Credit and Bonds that secure or support obligations that arise
from the GESCO II Business with substitute financial arrangements
on or before the GESCO Closing Date and will provide such credit
support, including guarantees from MK or its affiliates, as may be
necessary to put such substitute financial arrangements into
effect.
(c) GESCO I and GESCO III. MK and BNFL-USA will jointly replace each
---------------------
of the Outstanding Letters of Credit and Bonds that secure or
support obligations that arise from the GESCO I or the GESCO III
Business with substitute financial arrangements on or before the
GESCO Closing Date and will provide such credit support, including
guarantees from MK and BNFL-USA or their respective affiliates, as
may be necessary to put such substitute financial arrangements
into effect; provided that the costs and liabilities of such
actions and arrangements shall be shared between MK and BNFL-USA
on a 50:50 basis.
10.2 Support for Additional Financing. If any of ESBU, GESCO I, GESCO II
--------------------------------
or GESCO III wishes to incur any indebtedness from any third party and
in order to obtain such financing a guarantee or other form of credit
support is required then the responsibilities of the parties to
provide such guarantees or other support are as follows.
(a) ESBU. BNFL-USA shall be responsible for providing guarantees or
----
other credit support for ESBU.
(b) GESCO II. MK shall be responsible for providing guarantees or
--------
other credit support for GESCO II.
(c) GESCO I and GESCO III. MK and BNFL-USA shall be jointly
---------------------
responsible for providing guarantees or other credit support for
GESCO I and GESCO III and any costs and liabilities of such
actions and arrangements shall be shared between MK and BNFL-USA
on a 50:50 basis.
11. MK's Financial Interest in ESBU.
-------------------------------
11.1 Special Membership Interest in Wesco. The membership interests in
------------------------------------
Wesco are divided into two series (the Series A Interests and the
Series B Interests) each of which will be owned by MK and BNFL-USA in
the same 60:40 proportion. The
11
<PAGE>
Series A Interests will represent all assets, liabilities and rights
of Wesco that relate to or are derived from its ownership interest in
GESCO I and, if formed, GESCO III. The Series B Interests will
represent all assets, liabilities and rights of Wesco that relate to
or are derived from its ownership interest in ESBU.
11.2 Put/Call. At any time after the third anniversary of the ESBU Closing
--------
Date, MK may require BNFL-USA to purchase MK's Series B Interest, and
BNFL-USA may require MK to sell its Series B Interest. The sale price
of MK's Series B interest will be the amount necessary to provide MK
with a pre-tax 11 1/2% internal rate of return on its financial
investment in its Series B Interest (taking into account all cash
distributions and contributions).
12. BNFL-USA's Contract with GESCO II.
---------------------------------
12.1 Nature of Right. MK will own 100% of the outstanding shares of GESCO
---------------
II. BNFL-USA will have a contractual right (the "BNFL Right") to
receive payments from GESCO II in an amount such that taking the
payments to BNFL-USA together with distributions from GESCO II to MK,
BNFL-USA will receive 8% of such amounts. Such payments will continue
until terminated as provided in Section 12.2. As reflected in Section
3.2 above, BNFL-USA will have no right to influence or control the
management or operations of GESCO II in any manner.
12.2 Termination of Right. The BNFL Right may be terminated in either of
--------------------
the two following ways:
(a) At any time after the third anniversary of the GESCO Closing Date
BNFL-USA may require GESCO II to make a payment (the "Termination
Payment") to BNFL-USA or GESCO II may elect to make a Termination
Payment to BNFL-USA in accordance with the following.
(i) The Termination Payment will be an amount necessary to
provide BNFL-USA with a pre-tax 11 1/2% internal rate of
return on its Deemed Payment, after taking into account all
payments received by BNFL-USA with respect to the BNFL Right.
(ii) BNFL-USA's "Deemed Payment" shall be an amount equal to 8% of
the portion of the purchase price paid on the GESCO Closing
Date under the GESCO Purchase Agreement that MK and BNFL-USA
agree is to be allocated to the GESCO II Business.
(b) If at any time before either BNFL-USA or MK exercise its rights
under Section 12.2(a), MK sells the GESCO II Business, MK will
pay, or will cause GESCO II to pay, to BNFL-USA an amount (the
"Sale Payment") such that BNFL-USA will receive 8% of the value of
GESCO II established by such sale.
12
<PAGE>
The BNFL Right will terminate upon the payment of the Termination
Payment or the Sale Payment.
12.3 Miscellaneous.
-------------
(a) MK will guarantee payment GESCO II of its obligations under the
BNFL Right.
(b) The BNFL Right will include appropriate protections to ensure that
funds are not distributed from GESCO II to MK via any contract or
other mechanism in a manner that would frustrate or avoid BNFL-
USA's rights to receive payments with respect to the BNFL Right.
(c) The BNFL Right will be structured so as to permit MK to engage in
ordinary cash management activities without being required to make
payments to BNFL-USA.
13. Protection of National Security and US Technology.
-------------------------------------------------
13.1 The parties will take all necessary actions to comply with applicable
laws concerning the protection of US national security. Among other
things, these actions will include, where necessary, electing as
directors or appointing as managers persons with appropriate security
clearances and forming government security committees.
13.2 The parties will take all necessary actions to comply with applicable
laws concerning the protection of US technology, including procedures
to ensure that the licensing and sale of AP600 technology will be
subject to appropriate review and control by US citizens.
14. Indemnification.
---------------
14.1 Background. The parties acknowledge and agree that
----------
(a) It is their intention to segregate the ESBU Business, the GESCO I
Business, the GESCO II Business and, if necessary, the GESCO III
Business by allocating them to the Companies as outlined in
Section 7.
(b) It is their intention that MK's exposure to liabilities arising
from the ESBU Operations or the GESCO I Operations, and BNFL-USA's
exposure to liabilities arising from the GESCO I Operations or the
GESCO II Operations be limited as set forth herein.
(c) In order to preserve the allocation of liabilities reflected by
such actions, the parties agree that each of the parties and the
Companies and their respective affiliates will be entitled to
indemnification as set forth below.
13
<PAGE>
14.2 First and Second Tier Entities. For the purposes of this Section 14
------------------------------
(a) MK and BNFL-USA and, if applicable, their parent companies are
referred to as "First Tier Entities" and
(b) ESBU, GESCO I, GESCO II and, if created, GESCO III, and their
respective subsidiaries, are referred to as "Second Tier
Entities".
14.3 Indemnification. With respect to any liability or claim that arises
---------------
from the business or operations of any Second Tier Entity (or any
predecessor):
(a) GESCO II. In the case of any liability of any kind or nature
--------
whatsoever (including liabilities existing on the GESCO Closing
Date) that arises from the business or operations of GESCO II,
GESCO II will indemnify and defend British Nuclear Fuels plc
("BNFL"), BNFL-USA, their affiliates, Wesco and any other Second
Tier Entities and their affiliates and hold them harmless against
any loss or expense arising from such liability or claim
(including reasonable attorneys' fees but excluding consequential
damages) ("Losses"). If the assets of GESCO II are insufficient to
perform the required indemnification and defense, MK will
indemnify, defend and hold harmless BNFL, BNFL-USA, and their
affiliates, and Wesco and any other Second Tier Entities and their
affiliates.
(b) ESBU. In the case of any liability of any kind or nature
----
whatsoever (including liabilities existing on the ESBU Closing
Date) that arises from the business or operations of ESBU, ESBU
will indemnify and defend Morrison Knudsen Corporation, a Delaware
corporation ("MK-Delaware"), MK, their affiliates, Wesco and any
other Second Tier Entities and their affiliates and hold them
harmless against any Losses. If the assets of ESBU are
insufficient to perform the required indemnification and defense,
BNFL-USA will indemnify, defend and hold harmless MK-Delaware, MK,
and their affiliates, and Wesco and any other Second Tier Entities
and their affiliates.
(c) GESCO I and GESCO III. In the case of any liability of any kind
---------------------
or nature whatsoever (including liabilities existing on the GESCO
Closing Date) arising from the business or operations of GESCO I
or, if created, GESCO III, GESCO I or GESCO III, as the case may
be, will indemnify and defend MK-Delaware, MK, their affiliates,
BNFL, BNFL-USA and their affiliates, Wesco and each of the other
Second Tier Entities and its affiliates and hold them harmless
against any Losses; provided that there shall be excluded from
indemnification any Loss that is reflected in a reduction in the
value of any equity interest in GESCO I or GESCO III held by MK,
BNFL-USA or their affiliates. If the assets of GESCO I or GESCO
III, as the case may be, are insufficient to perform the required
indemnification and defense, BNFL-USA and MK will make appropriate
payments to each other and their respective affiliates such that
MK and its
14
<PAGE>
affiliates, on the one hand, and BNFL-USA and its affiliates, on
the other hand, (taking into account their economic participation
in the Second Tier Entities) share any Losses on a 50:50 basis.
14.4 Limitations. The provisions of this Section 14 shall be perpetual.
-----------
14.5 Notice and Cooperation. Any party that has, or believes that it may
----------------------
have, a claim for indemnification or other right to payment under this
Section 14 will give prompt written notice to the other party and
other relevant parties of the event or circumstances giving rise to
such claim. The parties will cooperate with each other and their
affiliates in the investigation and defense of any liability or claim
that may be the subject of this Section 14. Any disputes will be
resolved as provided in Section 16.
15. Technology Sharing Arrangements.
-------------------------------
15.1 The parties acknowledge that
(a) The parties and their affiliates will enter into one or more
technology sharing arrangements with CBS and certain of its
affiliates, and certain third parties, in connection with the
transactions contemplated by the Asset Purchase Agreements (the
"CBS Technology Sharing Agreements"),
(b) In order for ESBU, GESCO, GESCO II and GESCO III to obtain the
benefit of the technology that is to be transferred, licensed or
shared under the CBS Technology Sharing Agreements, it will be
necessary for them to enter into appropriate arrangements for the
further sharing or licensing of such technology through sublicense
arrangements which will require the prior approval of CBS (which
may not be unreasonably withheld).
(c) The parties and their affiliates will enter into appropriate
cross-licensing agreements with respect to intellectual property
created by GESCO I, GESCO II, GESCO III and ESBU (and any of their
subsidiaries) provided that (i) the cost of such licenses will be
the cost of producing the intellectual property, and (ii) any
GESCO II cross-licenses will be, and other cross-licenses may be,
subject to appropriate limitations to protect US national
security.
15.2 MK and BNFL-USA will, and will cause their affiliates, including the
Companies to enter appropriate agreements to carry out the purpose of
this Section 15.
16. Dispute Resolution.
------------------
16.1 All disputes with respect to any matters that are the subject of this
Agreement will, in the first instance, be referred to the Chief
Executive Officers ("CEO's") of MK-Delaware and BNFL as
representatives of their respective companies.
15
<PAGE>
16.2 If the dispute cannot be resolved by the CEO's, it will next be
referred to an independent mediator agreed to by the parties.
16.3 If the dispute remains unresolved after mediation, it will then be
subject to binding arbitration under the rules of the International
Chamber of Commerce at a mutually agreeable venue. If MK and BNFL-USA
are unable to agree on a venue, the arbitration will take place at a
neutral site other than the United States or the United Kingdom.
17. Termination. This Agreement will terminate automatically upon the
-----------
termination, for any reason, of the ESBU Purchase Agreement or the GESCO
Purchase Agreement.
18. Confidential Information.
------------------------
18.1 The parties acknowledge that in order to carry out the purposes of
this Agreement it will be necessary for them to disclose to the other
party, and to its affiliates, confidential and proprietary information
of the disclosing party or its affiliates.
18.2 Each party will take reasonable actions to identify to the other party
any information that is confidential or proprietary, which will
include marking or identifying such information (in whatever form it
may be embodied) as "Confidential". All such information is referred
to as "Confidential Information".
18.3 Each party will treat the other party's Confidential Information as
confidential, will not disclose it to any other person (other than
those of its and its affiliates' officers, directors and
representatives who need to know such information for the purpose of
carrying out the transactions contemplated by the Agreement) or use it
for any purpose other than carrying out the transactions contemplated
by this Agreement.
18.4 The restrictions imposed under this Section 18 shall remain in effect
(a) with respect to any Confidential Information that constitutes a
"trade secret" (as defined under the laws of the State of New
York) of the disclosing party so long as it remains a trade
secret.
(b) with respect to other Confidential Information, so long as the
parties jointly own interests in any of the GESCO Business or the
ESBU Business, whether through their respective investments in
Wesco or otherwise and until the third anniversary of the date on
which any such joint ownership is terminated.
18.5 The restrictions imposed under this Section 18 shall not apply to any
Confidential Information that
(a) at the time of disclosure is available in the public domain or is
known to the receiving party without breach of any obligation of
confidentiality,
16
<PAGE>
(b) is subsequently disclosed by a third party to the receiving party
without any obligation of confidentiality, or
(c) is independently developed by the receiving party without breach
of any obligation of confidentiality.
19. Miscellaneous.
-------------
19.1 Cooperation Prior to Closing. During the period between execution of
----------------------------
this Agreement and the ESBU and GESCO Closing Dates, MK and BNFL-USA
will consult regularly with respect to matters arising under the ESBU
Purchase Agreement and/or the GESCO Purchase Agreement. Initiating
formal disputes, challenges or allegations of breach against CBS under
such agreements will require the agreement of MK and BNFL-USA.
19.2 Integration. This Agreement contains the entire understanding of the
-----------
parties with respect to the subject matter hereof, and supersedes all
prior understandings and agreements between them or their affiliates
with respect to such subject matter. The parties expect that this
Agreement will be superseded in whole or in part by one or more other
written agreements between them (the "Subsequent Agreements"). Each
Subsequent Agreement shall make specific reference to this Agreement
and the provisions, if any, of this Agreement that are to be
superseded by such Subsequent Agreement.
19.3 Governing Law. This Agreement is governed by and shall be construed
-------------
in accordance with the law of the State of New York, without regard to
the principles of conflicts of laws.
19.4 Assignment. No party shall have the right to assign all or any part
----------
of its rights or obligations under this Agreement without the written
consent of the other party. This Agreement shall be binding upon and
enure to the benefit of the parties and their respective permitted
successors and assigns.
19.5 No Third Party Beneficiaries. Except for the Companies, this
----------------------------
Agreement is not intended to create any rights in any person that is
not a party to this Agreement.
19.6 No Partnership. The parties do not intend to create, and this
--------------
Agreement shall not be deemed to create, a partnership or agency
relationship or any fiduciary duties between MK and BNFL-USA.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers or agents, all as of
the day and year first above written.
MK MORRISON KNUDSEN CORPORATION
By: /s/ Stephen G. Hanks
--------------------------------
Name: Stephen G. Hanks
Title: Exec. Vice President
BNFL-USA BNFL USA GROUP INC.
By: /s/ J. J. Taylor
------------------------------------
Name: J. J. Taylor
Title:
<PAGE>
GUARANTEES
In consideration of the execution and delivery of this Agreement by MK, British
Nuclear Fuels plc, a public limited company organized under the laws of England,
hereby unconditionally and irrevocably guarantees to MK-Delaware and MK the due
and punctual payment and performance by BNFL-USA of all of its obligations under
the Consortium Agreement (including without limitation its indemnification
obligations under Section 14), the GESCO Purchase Agreement and the ESBU
Purchase Agreement.
Dated: June 24, 1998 BRITISH NUCLEAR FUELS plc
--
/s/ R.A.N. Chiese
By: __________________________
Name: R.A.N. Chiese
Title:Group Finance Director
In consideration of the execution and delivery of this Agreement by BNFL-USA,
Morrison Knudsen Corporation, a Delaware corporation, hereby unconditionally and
irrevocably guarantees to BNFL and BNFL-USA the due and punctual payment and
performance by MK of all of its obligations under the Consortium Agreement
(including without limitation its indemnification obligations under Section 14),
the GESCO Purchase Agreement and the ESBU Purchase Agreement.
Dated: June 24, 1998 MORRISON KNUDSEN CORPORATION
--
/s/ Stephen G. Hanks
By: __________________________
Name: Stephen G. Hanks
Title:Exec. Vice President
<PAGE>
EXHIBITS
The registrant agrees to provide the Securities and Exchange Commission,
upon request, with copies of the Exhibits hereto.
<PAGE>
CONFIDENTIAL
EXHIBIT 10.13
DRAFT -- 1/19/99
----------------
AMENDED AND RESTATED
CONSORTIUM AGREEMENT
THIS AMENDED AND RESTATED CONSORTIUM AGREEMENT (this "Agreement"), dated
as of January __ 1999, by and between the following parties:
*MORRISON KNUDSEN CORPORATION, an Ohio corporation ("MK"), and
*BNFL USA GROUP INC., a Delaware corporation ("BNFL-USA").
WITNESSETH
WHEREAS:
1. MK and BNFL-USA entered into a Consortium Agreement, dated as of June
24, 1998 (the "ORIGINAL AGREEMENT"), pursuant to which they formed a
consortium for the purpose of acquiring the Energy Systems business
(the "ESBU BUSINESS") and the Government Operations business (the
"GESCO BUSINESS") of CBS Corporation ("CBS").
2. The Original Agreement set forth the agreement of MK and BNFL-USA
concerning the basis on which the ESBU and GESCO Businesses would be
owned, and the basis on which ownership, control and risk would be
shared after the acquisition.
3. On June 24, 1998 MK and BNFL-USA organized WGNH Acquisition, LLC, a
Delaware limited liability company ("WGNH"), for the purpose of
entering into asset purchase agreements with CBS for the acquisition
of the ESBU and GESCO Businesses and acting as a holding company for
MK and BNFL-USA's interests in the ESBU and GESCO Businesses. WGNH is
the entity referred to as "Wesco" in the Original Agreement and the
ownership, governance and management of WGNH are currently set forth
in the Original Agreement.
<PAGE>
CONFIDENTIAL
4. WGNH entered into (i) an Asset Purchase Agreement, dated as of June
25, 1998 (as it may be amended from time to time, the "ESBU PURCHASE
AGREEMENT"), with CBS covering the acquisition by WGNH of the ESBU
Business, and (ii) an Asset Purchase Agreement, dated as of June 25,
1998 (as it may be amended from time to time, the ("GESCO PURCHASE
AGREEMENT"), with CBS covering the acquisition by WGNH of the GESCO
Business. The ESBU Purchase Agreement and the GESCO Purchase
Agreement are sometimes referred to individually as an "ASSET PURCHASE
AGREEMENT" or collectively as the "ASSET PURCHASE AGREEMENTS".
5. Since the date of the Original Agreement (i) certain changes have
occurred with respect to the scope of the GESCO Business, and (ii) MK
and BNFL-USA have had further discussions with each other and with
representatives of the United States government and CBS concerning
certain issues relating to the ownership and control of certain
aspects of the ESBU and GESCO Businesses. As a result of these
changes and discussions WGNH will no longer act as a holding company
for MK's and BNFL-USA's interests in the ESBU and GESCO Businesses and
either by novation or assignment will transfer its rights and
obligations under the Asset Purchase Agreements to other entities
organized by the parties.
6. MK and BNFL-USA wish to amend and restate the Original Agreement in
its entirety as set forth in this Agreement so as to set forth their
revised agreement concerning the basis on which the ESBU and GESCO
Businesses will be owned, and the basis on which ownership, control
and risk will be shared after the acquisition.
7. MK and BNFL-USA intend to take certain actions and enter into certain
other agreements as contemplated by this Agreement.
8. BNFL-USA has organized a new wholly-owned subsidiary, BNFL Nuclear
Services, Inc., a Delaware corporation ("BNSI"), for the purpose of
holding BNFL-USA's interests in the GESCO and ESBU Businesses.
9. Morrison Knudsen Corporation, a Delaware corporation ("MK-Delaware")
which is the parent company of MK, and British Nuclear Fuels plc, a
public limited company organized under the laws of England ("BNFL")
which is the parent company of BNFL-USA, entered into guarantees of
the obligations of MK and BNFL-USA, respectively, under the Original
Agreement (the "ORIGINAL GUARANTEES") and wish to replace the Original
Guarantees with guarantees of the obligations of MK and BNFL-USA and
BNSI, respectively, under this Agreement in the form attached
following the signature pages to this Agreement.
<PAGE>
CONFIDENTIAL
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained in this Agreement, the Original Agreement,
including the Exhibits thereto, is hereby amended and restated to read in
its entirety as follows:
1. FORMATION OF ADDITIONAL COMPANIES.
---------------------------------
1.1 Interim Companies. MK and BNSI have organized the following limited
-----------------
liability companies (sometimes referred to individually as an "INTERIM
COMPANY" and collectively as the "INTERIM COMPANIES"):
(a) MK/BNFL GESCO LLC, a Delaware limited liability company ("INTERIM
GESCO"), the membership interests in which are owned on a 60/40
basis by MK and BNSI, respectively, as set forth in greater
detail in a limited liability company agreement dated as of
October 10, 1998.
(b) MK/BNFL Commercial Nuclear Services LLC, a Delaware limited
liability company ("INTERIM CNS"), the membership interests in
which are owned on a 60/40 basis by MK and BNSI, respectively, as
set forth in greater detail in a limited liability company
agreement dated as of October 10, 1998.
1.2 Organization. Promptly after the date of this Agreement the parties
------------
will organize the following corporations or limited liability
companies (sometimes referred to individually as a "COMPANY" and
collectively as the ("COMPANIES") under the names, to take effect from
the closing of the Asset Purchase Agreements, set forth below and,
prior to closing, under such other interim names as the parties may
agree:
(a) Westinghouse Government Services Company LLC, a Delaware limited
liability company ("WGS")
(b) Westinghouse Government Environmental Services Company LLC, a
Delaware limited liability company ("WGES")
(c) Westinghouse Electric Company LLC, a Delaware limited liability
company ("WELCO")
(d) Such other entities as the parties deem necessary or desirable to
carry out the intent of this Agreement but not otherwise in
contradiction of the terms of this Agreement.
-3-
<PAGE>
CONFIDENTIAL
If appropriate, the parties may reorganize Interim GESCO as WGES and
Interim CNS as WELCO, in which case they will transfer their
membership interests and make such other changes in the organizational
documents of such companies as may be necessary to conform to the
terms of this Agreement.
1.3 Operating Agreements. The ownership, management, operation, financing
--------------------
and other attributes of the Companies will be set forth in the
respective articles of incorporation, by-laws, limited liability
company agreements and related documents to be entered into with
respect to each of the Companies and other necessary documents which
will be consistent with the provisions of this Agreement.
2. WGNH.
----
2.1 Purpose. WGNH's purpose will be to assign its rights and obligations
-------
under the Asset Purchase Agreements as contemplated by Sections 6.2
------------
and 6.3 and to execute and deliver any appropriate amendments to the
---
Asset Purchase Agreements that may be necessary prior to the date of
such assignment. Promptly after the assignment has been achieved the
parties will cause WGNH to be dissolved.
2.2 General. The parties will cooperate with each other and take all
-------
necessary action to implement this Section 2.
---------
3. WGS.
---
3.1 Purpose. The purpose of WGS will be to pursue business opportunities
-------
related to the Defense Program missions of the U.S. Department of
Energy (the "DOE") and the U.S. Department of Defense (the "DOD").
With effect from the GESCO Closing Date (as defined in Section 6.3(a))
--------------
WGS will
(a) own and operate those portions of the GESCO Business that are
included in the WGS Operations (as defined in Section 6.1(a)),
--------------
(b) submit bids to the DOE and the DOD for new classified defense
programs to be awarded by the DOE or the DOD that are consistent
with the objectives of the WGS Operations, and
(c) own 60% of the outstanding membership interests in WGES.
3.2 Organization. MK will organize WGS as a Delaware limited liability
------------
company and will hold 100% of the membership interests of WGS.
-4-
<PAGE>
CONFIDENTIAL
3.3 BNFL Passive Economic Right and Obligations. BNSI will have
-------------------------------------------
(a) a passive economic right to receive a portion of the gains,
profits and losses of WGS and the WGS Operations, and
(b) an obligation to make additional contributions to WGS's funding
requirements, and to provide financial assurances with respect to
WGS,
in each case as set forth in an agreement (the "WGS AGREEMENT") in the
form attached as Exhibit B.
---------
3.4 Management.
----------
(a) Management by Managers. WGS will be managed by a board of
----------------------
directors or managers (the "BOARD") and by officers appointed by
the Board.
(b) Board. With effect from the GESCO Closing Date, WGS will have a
-----
Board of seven directors appointed by MK, one of whom will be
nominated by BNSI (the "BNFL DIRECTOR"). One of the MK appointed
directors will serve as Chairman of the Board. With effect from
the GESCO Closing Date, Robert A. Tintsman, the chief executive
of MK, will be appointed as Chairman. The parties will develop a
mutually acceptable policy on dividends and distributions to be
adopted by the WGS Board.
(c) Officers. The Board will appoint a President and other officers
--------
as desired from time to time. With effect from the GESCO Closing
Date, James Gallagher will be appointed as President. The
officers will have the authority, responsibilities and duties as
are customary for officers holding similar positions with respect
to businesses conducted in corporate form and such additional
authority, responsibilities and duties as the Board may delegate
from time to time. The BNFL Director will have no vote with
respect to the election, appointment or tenure of any officers.
(d) FOCI and National Security Issues. FOCI shall be addressed
---------------------------------
through a FOCI Negation Plan consisting of Board resolutions, as
reviewed and approved by the DOE (and the DOD as appropriate),
copies of which are attached as Exhibit C (the "WGS FOCI NEGATION
---------
PLAN").
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(e) Approval. All actions of the Board will be taken by majority
--------
vote except that, subject to the provisions of the WGS FOCI
Negation Plan, the following actions will require the concurrence
of the BNFL Director (except, in the case of clauses (i), (iii),
(iv), and (v), to the extent such actions relate to the WGES
Operations or to the proceeds of WGS's investment in WGES):
(i) disposition or financial encumbrance of all or
substantially all of WGS's property and assets;
(ii) dissolution, merger or consolidation of WGS;
(iii) major financing, which for the purposes of this Agreement
shall mean the incurrence of indebtedness for borrowed
money of more than $_______ in any single transaction or
$_________ in the aggregate; provided that the concurrence
of the BNFL Director shall not be required for the
approval of any refinancing of any financing previously
approved under this clause (iii) so long as the amount of
the indebtedness is not increased and the terms of the
refinancing are no less favorable to WGS than the original
financing;
(iv) commencement or settlement of major litigation, which for
the purposes of this Agreement means any action or
proceeding, whether involving a court action, arbitration,
mediation or other dispute resolution process, (A) in
which the amount in damages payable by any party may
reasonably be expected to exceed $2,000,000 or (B) may
reasonably be expected to result in any order or other
binding decision that would prevent WGS from carrying on
any material part of WGS's business;
(v) material changes to the dividend and distribution policy
of WGS;
(vi) assumption of material additional liabilities or purchase
of material additional assets through the submission of
bids for new contracts or the amendment of existing
contracts;
(vii) material changes to the lines of business conducted by
WGS; or
(viii) such other matters as may be specified in the WGS
Agreement.
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Appropriate protections will be provided to ensure that funds are
not distributed to MK or its affiliates via contract or any other
mechanism that would frustrate or avoid BNSI's participation in
the gains, profits and losses of WGS and the WGS Operations as
contemplated by the WGS Agreement.
4. WGES.
----
4.1 Purpose. The purpose of WGES will be to pursue business opportunities
-------
related to environmental remediation and waste management activities,
including those of the DOE and the DOD. With effect from the GESCO
Closing Date, WGES will own and operate those portions of the GESCO
Business that are included in the WGES Operations (as defined in
Section 6.1(b)).
--------------
4.2 Members. WGES will have a single series of membership interests. The
-------
members and their membership interests in WGES will be:
WGS -- 60%
BNSI -- 40%
4.3 Management.
----------
(a) Management by Managers. WGES will be managed by a board of
----------------------
directors or managers (the "BOARD") selected by the members, and
by officers appointed by the Board.
(b) Board. With effect from the GESCO Closing Date, WGES will have a
-----
Board of five directors consisting of two individuals selected by
MK (the "MK DIRECTORS"), two individuals selected by BNSI (the
"BNFL DIRECTORS") and one individual appointed by MK (the
"OUTSIDE REPRESENTATIVE") who, absent DOE approval will have had
no prior involvement with WGES, MK, BNSI or their respective
parent, subsidiary or affiliated companies. The Outside
Representative will be appointed by MK, with the written approval
of the DOE. Each director will serve for a one-year term, and
will be eligible for re-appointment in accordance with this
subsection (b), provided that MK and BNSI shall have the right to
replace their respective appointees at any time subject to the
provisions of the Security Control Agreement referred to in
subsection (d) below. One of the MK Directors will serve as
Chairman of the Board and, with effect from the GESCO Closing
Date, Robert A. Tintsman will be selected as Chairman. The
parties will develop a mutually acceptable policy on dividends
and distributions to be adopted by the WGES Board.
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(c) Officers. The Board will appoint a President and other officers
--------
as desired from time to time. With effect from the GESCO Closing
Date, the Board will appoint James Gallagher as President. The
officers will have the authority, responsibilities and duties as
are customary for officers holding similar positions with respect
to businesses conducted in corporate form and such additional
authority, responsibilities and duties as the Board may delegate
from time to time. The BNFL Directors will have no vote with
respect to the election, appointment or tenure of any officers.
(d) FOCI and National Security Issues. FOCI shall be addressed
---------------------------------
through a FOCI Negation Plan consisting of a Security Control
Agreement, as reviewed and approved by the DOE (and the DOD as
appropriate), a copy of which is attached as Exhibit D (the "WGES
---------
SECURITY CONTROL AGREEMENT").
(e) Approval. All actions of the Board will be taken by majority
--------
vote except that, subject to the provisions of the WGS Security
Control Agreement, the following actions will require the
concurrence of the MK Directors and the BNFL Directors:
(i) disposition or financial encumbrance of all or
substantially all of WGES's property and assets;
(ii) dissolution, merger or consolidation of WGES;
(iii) major financing, which for the purposes of this Agreement
shall mean the incurrence of indebtedness of more than
$_______ in any single transaction or $_________ in the
aggregate; provided that the concurrence of the BNFL
Directors shall not be required for the approval of any
refinancing of any financing previously approved under this
clause (iii) so long as the amount of the indebtedness is
not increased and the terms of the refinancing are no less
favorable to WGES than the original financing;
(iv) commencement or settlement of major litigation, which for
the purposes of this Agreement means any action or
proceeding, whether involving a court action, arbitration,
mediation or other dispute resolution process, (A) in which
the amount in damages payable by any party may reasonably
be expected to exceed $2,000,000 or (B) may reasonably be
expected to result in any order or other
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binding decision that would prevent WGES from carrying on
any material part of the WGES Operations;
(v) capital stock transactions, which for the purposes of this
Agreement means transactions involving the issuance or
transfer of any membership interests or other equity
interests in WGES;
(vi) material changes to the dividend and distribution policy
of WGES;
(vii) material increases in WGES=s liabilities through the
submission of bids for new contracts or the amendment of
existing contracts; or
(viii) material changes to the lines of business included in the
WGES Operations.
Appropriate protections will be provided to ensure that funds are
not distributed to MK or its affiliates via contract or any other
mechanism that would frustrate or avoid BNSI's participation in
the gains, profits and losses of WGES and the WGES Operations as
contemplated by this Agreement.
5. WELCO.
-----
5.1 Purpose. The purpose of WELCO will be to acquire and operate the ESBU
-------
Business and to pursue business opportunities related to commercial
nuclear businesses and related matters. With effect from the ESBU
Closing Date (as defined in Section 6.3(b)) WELCO will
--------------
(a) own and operate all properties and assets that constitute the
ESBU Business and are acquired by it under the ESBU Purchase
Agreement, and
(b) lease and operate those portions of the Science and Technology
Center that are related to the ESBU Business (the "STC"), as
contemplated by Section 5.22 of the ESBU Purchase Agreement.
5.2 Members. BNSI will be the sole member of WELCO. If Interim ESBU is
-------
reorganized as WELCO, MK will transfer to BNSI any membership interest
held by it in Interim ESBU for nominal consideration.
5.3 Management.
----------
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(a) Management by Managers. WELCO will be managed by a board of
----------------------
directors or managers (the "BOARD") elected by BNSI and by
officers appointed by the Board.
(b) Board. The size and composition of the Board will be determined
-----
by BNSI. The initial Chairman of the Board will be John Taylor,
the Chief Executive of BNFL.
(c) Officers. The Board will appoint a President and other officers
--------
as required from time to time. With effect from the ESBU Closing
Date Charles W. Pryor will be appointed as the President. The
officers will have the authority, responsibilities and duties as
are customary for officers holding similar positions with respect
to businesses conducted in corporate form and such additional
authority, responsibilities and duties as the Board may delegate
from time to time.
(d) FOCI and National Security Issues. The following provisions will
---------------------------------
apply in order to address issues relating to national security.
(i) WELCO will take appropriate steps to mitigate any FOCI
issues that arise from existing activities included in the
ESBU Operations, including activities at the STC. If
necessary, these steps will include the novation of any
classified contracts to WGS or WGES, as appropriate.
(ii) WELCO will honor all existing commitments to the DOE with
respect to AP600 technology, including payment
commitments.
(iii) WELCO will comply with applicable U.S. Government export
regulations and will honor all commitments to the Nuclear
Regulatory Commission with respect to the nuclear
materials and other licenses currently held as part of the
ESBU Business.
(iv) There will be no common officers between WELCO and WGS.
6. ACQUISITION OF ESBU AND GESCO BUSINESSES.
----------------------------------------
6.1 Division of GESCO Operations. The parties acknowledge that effective
----------------------------
as of the GESCO Closing Date the GESCO Business is to be divided into
two components as follows:
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(a) WGS. All assets, properties, rights, obligations and liabilities
---
included in the GESCO Business (including the outstanding shares
of, or other equity interests in, any corporation or other legal
entity in which any of such assets, properties, rights,
obligations and liabilities are held) that arise from, relate to,
or are used in connection with
(i) the Savannah River Management and Operations contract (the
"SAVANNAH RIVER M&O CONTRACT"), including the outstanding
shares of, or other equity interests in, Westinghouse
Savannah River Company, Inc. or any successor entity,
(ii) the Electro-Mechanical Division, and
(iii) the Safety Management Solutions contracts and operations,
including the outstanding shares of, or other equity
interests in, Westinghouse Safety Management Solutions,
Inc. or any successor entity,
(iv) any other part of the GESCO Business described in Section
---------
6.1(b)(ii) below that would otherwise be a part of the
----------
WGES Operations (as defined in Section 6.1(b)) but only to
---------------
the extent that it involves classified defense activities
(collectively the "WGS OPERATIONS")
(b) WGES. All assets, properties, rights, obligations and
----
liabilities included in the GESCO Business (including the
outstanding shares of, or other equity interests in, any
corporation or other legal entity in which any of such assets,
properties, rights, obligations and liabilities are held) that
arise from, relate to, or are used in connection with
(i) the Safe Sites, WIPP, Anniston, Government Technical
Services Division and West Valley contracts and
operations, or
(ii) any other part of the GESCO Business that is not
specifically identified as part of the WGS Operations and
is not described in clause (i) above but only to the
extent that it does not involve classified defense
activities
(collectively the "WGES OPERATIONS").
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6.2 Novation. MK and BNFL-USA will use commercially reasonable efforts to
--------
obtain the consent of CBS to a novation of the Asset Purchase
Agreements as follows:
(a) ESBU Purchase Agreement. The parties will implement a novation
-----------------------
of the ESBU Purchase Agreement so that (i) WELCO is substituted
as a party in lieu of WGNH and succeeds to all WGNH's rights and
obligations, (ii) WGNH is released from its obligations, and
(iii) the existing guarantees issued by MK-Delaware, MK, BNFL and
BNFL-USA remain in effect in support of WELCO's obligations.
(b) GESCO Purchase Agreement. The parties will implement a novation
------------------------
of the GESCO Purchase Agreement so that (i) WGS and WGES are
substituted as parties in lieu of WGNH and succeed to all WGNH's
rights and obligations in a manner that is consistent with the
division of the GESCO Business as outlined in Section 6.1, (ii)
-----------
WGNH is released from its obligations, and (iii) the existing
guarantees issued by MK-Delaware, MK, BNFL and BNFL-USA remain in
effect in support of WGS's and WGES's obligations.
6.3 Assignment. If the parties are unable to obtain the consent of CBS to
----------
a novation of the Asset Purchase Agreements as described in Section
-------
6.2 then they will cause WGNH to assign its rights and obligations
---
under the Asset Purchase Agreements as follows:
(a) GESCO Purchase Agreement. No later than the closing date under
------------------------
the GESCO Purchase Agreement (the "GESCO CLOSING DATE")
(i) WGS Operations. WGNH will assign to WGS all WGNH's rights
--------------
and obligations under the GESCO Purchase Agreement that
relate to the WGS Operations and (to the extent permitted
under the GESCO Purchase Agreement) the parties will cause
WGS to assume all such rights and obligations, including the
obligation to pay an appropriate portion of the Purchase
Price, to accept the assignment and transfer to it of all
the Acquired Assets, and to assume the Assumed Liabilities
(each as defined in GESCO Purchase Agreement ) that
constitute part of the WGS Operations.
(ii) WGES Operations. WGNH will assign to WGES all WGNH's rights
---------------
and obligations under the GESCO Purchase Agreement that
relate to the WGES Operations and (to the extent permitted
under the GESCO
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<PAGE>
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Purchase Agreement) the parties will cause WGES to assume
all such rights and obligations, including the obligation to
pay an appropriate portion of the Purchase Price, to accept
the assignment and transfer to it of all the Acquired
Assets, and to assume the Assumed Liabilities (each as
defined in GESCO Purchase Agreement) that constitute part of
the WGES Operations.
(b) ESBU Purchase Agreement. No later than the closing date under the
-----------------------
ESBU Asset Purchase Agreement (the "ESBU CLOSING DATE") WGNH will
assign to WELCO all WGNH's rights and obligations under the ESBU
Purchase Agreement, and all personnel being taken and all
technology being acquired from the STC and (to the extent
permitted under the ESBU Purchase Agreement and the GESCO
Purchase Agreement) the parties will cause WELCO to assume all
such rights and obligations, including the obligation to pay the
Purchase Price and to accept the assignment and transfer to it of
all the Acquired Assets, and to assume the Assumed Liabilities
(each as defined in ESBU Purchase Agreement); provided that, if
necessary, the parties will enter into appropriate arrangements
in order to address FOCI and national security concerns with
respect to any classified defense contracts included in the STC
operations that form part of the Acquired Assets or the Assumed
Liabilities, which arrangements may involve the novation of those
contracts to WGS or WGES and corresponding financial arrangements
to preserve WELCO's economic interests in such contracts.
(c) Certain Rights. All of the rights, duties and obligations of
--------------
WGNH under the ESBU Purchase Agreement and the GESCO Purchase
Agreement that are not specifically addressed in this Agreement
will be shared equitably among the Companies in a manner that is
consistent with this Agreement.
(d) Closing Dates. MK and BNFL-USA anticipate that the closing under
-------------
the ESBU Purchase Agreement and the GESCO Purchase Agreement will
occur simultaneously. However, the parties may by mutual
agreement permit the closings to occur at different times.
6.4 Contribution of Purchase Price to WGS, WGES and WELCO.
-----------------------------------------------------
(a) Subject to the provisions of paragraph (b), no later than the day
before the GESCO Closing Date and the ESBU Closing Date,
respectively, MK and
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BNSI will provide funds to WGS, WGES and WELCO to enable them to
pay the purchase price under the GESCO Purchase Agreement and the
ESBU Purchase Agreement, as described in Exhibit A.
---------
(b) All of the contributions contemplated by paragraph (a), and all
other contributions to be made to the Companies under Section 7
---------
or otherwise, are expressly conditioned on the expiration of any
and all applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act relating to the formation of the
Companies and to the acquisition of the ESBU Business or the
GESCO Business.
6.5 Other Actions. The parties will take all such other actions and will
-------------
cause their respective affiliates to take such other actions to cause
WGNH, WGS, WGES and WELCO to perform all obligations to be performed
by them under the GESCO Purchase Agreement or the ESBU Purchase
Agreement, as the case may be.
7. ADDITIONAL CONTRIBUTIONS. The obligations of the parties to make
------------------------
additional contributions to any of the Companies to meet the needs of the
Companies for funding are as follows:
7.1 WGS. MK and BNSI shall be responsible for the cash and other funding
---
requirements of WGS in accordance with the terms of the WGS Agreement.
7.2 WGES. Any contributions required to be made to WGES must be approved
----
by the representatives of both MK and BNSI on the WGES Board and will
be made in proportion to the respective membership interests of WGS
and BNSI, as set forth in Section 4.2.
-----------
7.3 WELCO. BNSI shall be solely responsible for the cash and other
-----
funding requirements of WELCO.
8. FINANCIAL ARRANGEMENTS.
----------------------
8.1 Replacement of Letters of Credit etc. The parties acknowledge that
------------------------------------
CBS and certain of its affiliates are presently obligated under
certain letters of credit, performance bonds and similar obligations
issued in connection with the ESBU Business and the GESCO Business
(the "OUTSTANDING LETTERS OF CREDIT AND BONDS"), and that WGNH is
obligated under the ESBU Purchase Agreement and the GESCO Purchase
Agreement to replace the Outstanding Letters of Credit and Bonds with
substitute financial arrangements at closing. The responsibility of
the parties to accomplish this will be allocated as follows:
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(a) WGS. MK and BNSI will jointly replace each of the Outstanding
---
Letters of Credit and Bonds that secure or support obligations
that arise from the WGS Operations with substitute financial
arrangements on or before the GESCO Closing Date and will provide
such credit support, including guarantees from MK and BNSI or
their respective affiliates, as may be necessary to put such
substitute financial arrangements into effect, in accordance with
the terms of the WGS Agreement.
(b) WGES. MK and BNSI will jointly replace each of the Outstanding
----
Letters of Credit and Bonds that secure or support obligations
that arise from the WGES Operations with substitute financial
arrangements on or before the GESCO Closing Date and will provide
such credit support, including guarantees from MK and BNSI or
their respective affiliates, as may be necessary to put such
substitute financial arrangements into effect; provided that the
costs and liabilities of such actions and arrangements shall be
shared between MK and BNSI on a 60/40 basis.
(c) WELCO. BNSI will replace each of the Outstanding Letters of
-----
Credit and Bonds that secure or support obligations that arise
from the ESBU Operations with substitute financial arrangements
on or before the ESBU Closing Date and will provide such credit
support, including guarantees from BNSI or its affiliates, as may
be necessary to put such substitute financial arrangements into
effect.
8.2 Support for Additional Financing. If any of WGS, WGES or WELCO wishes
--------------------------------
to incur any indebtedness from any third party and in order to obtain
such financing a guarantee or other form of credit support is required
then the responsibilities of the parties to provide such guarantees or
other support are as follows.
(a) WGS. MK and BNSI shall be responsible for providing guarantees or
---
other credit support for WGS, and for the costs and liabilities
of such actions and arrangements, in accordance with the terms of
the WGS Agreement.
(b) WGES. MK and BNSI shall be jointly responsible for providing
----
guarantees or other credit support for WGES, and any costs and
liabilities of such actions and arrangements shall be shared
between MK and BNSI on a 60/40 basis.
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(c) WELCO. BNSI shall be responsible for providing guarantees or
-----
other credit support for WELCO.
9. TEAMING.
-------
9.1 General. The parties recognize that each of them and their affiliates
-------
as well as the Companies have complementary strengths with respect to
the performance of services for the DOE and the DOD and that is in
their mutual interest to cooperate in order to enhance the position of
the Companies in bidding on DOE and DOD contracts.
9.2 Cooperation. Subject to national security requirements, export
-----------
controls, FOCI mitigation plans and contracting requirements (the
"GOVERNMENTAL REQUIREMENTS"), the parties will cause the Companies to
cooperate in order to ensure their ability to draw upon the full
portfolio of current resources in commercial, DOE, DOD, scientific and
technical consulting and laboratory services. In recognition of the
fact that WELCO may possess personnel and technology resources which
could benefit the implementation of existing and future WGS and WGES
contracts, such cooperation will include WELCO's commercially
reasonable efforts, in accordance with this Section 9 and with Section
--------- -------
10, to make available such personnel and technology resources to
--
support WGS and WGES and their subsidiaries and divisions in the
conduct of government business. It is the intention of the parties to
share lessons learned in operational know-how and technology
applications through personnel transfers, case studies and status
seminars in a manner that is consistent with the provisions of this
Agreement.
9.3 Certain Defense and Other Programs. WGS, WGES and WELCO will
----------------------------------
cooperate, subject to Governmental Requirements and pursuant to
appropriate commercial arrangements to be negotiated in good faith, to
support WELCO's participation in Defense Program initiatives.
9.4 Bidding. Subject to Governmental Requirements and other applicable
-------
law, WGS and WGES in the areas of business respectively assigned to
them will be the preferred vehicle for bidding primary Management and
Operations and Management and Integration contracts on DOE and DOD
sites with the objective of growing the value and enhancing the
competitiveness of WGS and WGES consistent with the interests of MK
and BNFL-USA. If MK and BNFL-USA agree that it would not be
advantageous or consistent with their interests to bid a specific
contract through WGS or WGES, as the case may be, they shall agree on
the appropriate vehicle for jointly bidding such contract, subject to
the following sentence. If either MK or
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BNFL-USA believes that jointly bidding a specific contract (using any
vehicle) would potentially have a material adverse impact on MK or
BNFL-USA, then and only after MK and BNFL have attempted to resolve
and have been unable to resolve any differences of opinion regarding
the potential for material adverse impact, will MK or BNFL-USA (or
their respective affiliates) be free to bid that contract directly or
in concert with a different partner or partners, and WGS and WGES will
not bid. Any disputes with respect to this Section 9.4 will be
resolved pursuant to the procedures set forth in Section 12.
9.5 MK Preferred Provider of EPCM and Facilities O&M Services. Subject to
---------------------------------------------------------
Governmental Requirements and other applicable law, MK shall be the
preferred supplier to WELCO (and to WELCO's customers where WELCO has
the right to choose its customer=s suppliers) for planning,
constructing, demonstrating, operating, maintaining, repairing, and
upgrading nuclear power generation facilities and facilities of any
kind in connection with WELCO's commercial nuclear and/or steam
operations to the extent WELCO intends to contract with any party for
such services (hereinafter referred to as "EPCM/O&M Services").
Accordingly, WELCO will negotiate with MK in good faith (and will
recommend MK and seek to encourage its customers to so negotiate with
MK) to provide EPCM/O&M Services that MK is qualified to perform. If
WELCO desires to competitively bid EPCM/O&M Services and MK is
qualified to perform such EPCM/O&M Services, MK shall have the right
to perform such EPCM/O&M Services at the same price and subject to the
same terms and conditions as the terms and conditions of a bona fide
bid by a competitive bidder that WELCO would otherwise contract with
to perform such services. If WELCO does not believe MK is qualified
to perform such EPCM/O&M Services then the matter will be resolved
pursuant to the procedures set forth in Section 12. The foregoing
provisions of this Section 9.5 do not apply to the extent such
EPCM/O&M Services are subject to statutory and/or regulatory
requirements mandating competitive bidding and prohibiting the
exercise by MK of such right. In addition, the arrangements between
MK and BNFL-USA provided for in this Section 9.5 are subject to
arrangements, existing on the Closing Date, of WELCO or its
predecessors or affiliates.
9.6 General and Administrative Services. It is the intention of the
-----------------------------------
parties that, subject to Governmental Requirements and pursuant to
appropriate commercial arrangements to be negotiated in good faith,
WGS, WGES and WELCO should share certain general and administrative
services in order to provide such services in the most efficient and
cost-effective manner.
9.7 Employees.
---------
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(a) The parties acknowledge that they have committed to the DOE not
to make any changes to the management teams of WGS or WGES except
as provided in a Transition Agreement to be entered into between
the Companies and the DOE (the "TRANSITION AGREEMENT").
(b) In order to support the performance of all DOD and DOE contracts,
MK and BNSI will promote the free transferability of employees
between the Companies, subject in all cases to applicable
Governmental Requirements and the reasonable commercial
requirements of the Companies and after consultation with the DOD
or the DOE, as the case may be.
(c) Subject to the provisions of the Transition Agreement, if
applicable, MK and BNSI will endeavor to keep the benefit
arrangements for employees of the Companies similar to each
other, portable and competitive.
(d) Subject at all times to the Governmental Requirements, WGS, WGES
and WELCO shall establish an advisory committee made up of
representatives chosen by each of the three Companies (the "HUMAN
RESOURCES COMMITTEE") to discuss and provide non-binding
recommendations to their respective presidents concerning the
availability of WELCO personnel to assist WGS and WGES, taking
into account the Governmental Requirements and the needs of the
Companies. The Human Resources Committee shall
(i) meet at least once each quarter, and at such other times
as they may mutually agree, for the purpose of discussing
anticipated personnel requirements and the availability of
such personnel for the ensuing 12 months, or for such
other periods as they may mutually agree,
(ii) make recommendations, if any, to their respective
presidents concerning the transfer or secondment of WELCO
personnel, subject to the Governmental Requirements, and
(iii) provide reports to the presidents of the Companies on such
personnel matters on at least a quarterly basis.
The Companies shall cooperate in carrying out such
recommendations of the Human Resources Committee as may be agreed
to by each respective affected Company, subject to such changes
as the Companies may agree upon and subject to the Governmental
Requirements. Notwithstanding the
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foregoing provisions of this Section 9.7(d) the recommendations
--------------
of the Human Resources Committee shall not be binding on the
Companies, and none of the Companies shall be required to
implement the recommended actions of the Human Resources
Committee if they are on terms that are commercially unreasonable
for that Company.
(e) Any personnel seconded to WGS or WGES pursuant to this Section 9
---------
shall be seconded on a cost pass-through basis, including a
reasonable allocation of overhead.
10. TECHNOLOGY SHARING ARRANGEMENTS.
-------------------------------
10.1 General. The parties recognize that the Companies and their
-------
subsidiaries have technology (including intellectual property) that
may be useful to, or complementary of, the technology of each other.
It is the intention of the parties that the full range of such
technology be reasonably available to the Companies in providing
services to their customers, particularly the DOE and the DOD, in
accordance with this Section 10 and the Governmental Requirements,
----------
including, without limitation, consistent with the technology
transfer mission of DOE and other restrictions and conditions on
licensing and technology transfer contained in the Covered Contracts
specified in the Transition Agreement.
10.2 Cooperation. Subject to the Governmental Requirements and pursuant
-----------
to appropriate commercial arrangements to be negotiated in good
faith, the parties will cause the Companies to cooperate to share
relevant technology to best serve their client interests and goals;
provided, however, that such sharing does not result in the
disclosure of protected technology or intellectual property rights to
third parties or the disclosure of classified information, special
nuclear material, Unclassified Controlled Nuclear Information,
Official Use Only, and/or export controlled data entrusted to or held
by any Company except as permissible pursuant to the Governmental
Requirements, including but not limited to the NISD and applicable
U.S. government laws and regulations. Specific limitations on such
interactions will be addressed in a Technology Control Plan and
Security Control Agreement to be mutually agreed by the affected
Companies and approved by the DOE and (as appropriate) the DOD. To
ensure that relevant technology residing in WELCO is available to
WGES and WGS in the performance of their business and contractual
obligations, WELCO technology will be made available in accordance
with the procedures set forth in Section 10.5.
------------
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CONFIDENTIAL
10.3. CBS Shared Technology Agreements. Subject to the Governmental
--------------------------------
Requirements, the parties and their affiliates will enter into one or
more technology sharing arrangements with CBS and certain of its
affiliates, and certain third parties in connection with the
transactions contemplated by the Asset Purchase Agreements (the "CBS
SHARED TECHNOLOGY AGREEMENTS"). In order for WGS, WGES, and WELCO to
obtain the benefit of the technology that is to be licensed
thereunder, it will be necessary for them to enter into appropriate
arrangements for the further sharing or licensing of such technology
through sublicense arrangements which may require the prior approval
of CBS (which may not be unreasonably withheld).
10.4 WELCO Technology. Recognizing that WELCO will possess technology and
----------------
related resources that could benefit the delivery of goods and
services under existing and future WGS and WGES contracts, BNSI will,
and will cause WELCO to, make reasonable efforts to make available
such technology (in compliance with the Governmental Requirements,
confidentiality restrictions, and pre-existing contractual
requirements) to support WGS and WGES, their subsidiaries, divisions
and controlled affiliates, in the performance of U.S. government
business. WELCO will own the AP600 technology (to the extent such
technology is currently owned by CBS) and will abide by all
requirements of the existing contracts regarding such technology that
are assumed by WELCO pursuant to the ESBU Asset Purchase Agreement .
10.5 Procedures for Technology Exchange. Upon specific request and in
----------------------------------
compliance with the Governmental Requirements, WELCO will make
available to WGS and WGES such technology as shall be deemed
reasonably necessary to support WGS or WGES in the performance of
U.S. government business. Likewise, upon specific request and in
compliance with the Governmental Requirements, WGS and WGES will make
available to WELCO such technology as shall be deemed reasonably
necessary to support WELCO's business activities. Such requests shall
be made by the Company's representative on the Technology Exchange
Committee ("TEC"), which shall be comprised of designated
representatives from WGS, WGES, and WELCO. The TEC will meet at least
quarterly, or more frequently if requested by a designated
representative. Technology will be made available among the Companies
in accordance with arms-length commercial terms and the Governmental
Requirements. In the event technology resources requested are not
reasonably available in WELCO or WGES, the members of TEC will work
cooperatively to obtain the desired technology on acceptable
commercial terms from other sources, consistent with the business
goals of the entities represented on TEC. WELCO or WGES will not be
required to provide technology on commercially unreasonable terms or
contrary to their business interests.
-20-
<PAGE>
CONFIDENTIAL
10.6 Agreements. MK and BNFL-USA will cause their affiliates, including
----------
the Companies, to enter into appropriate agreements to carry out the
purpose of this Section 10.
----------
11. INDEMNIFICATION.
---------------
11.1 Background. The parties acknowledge and agree that
----------
(a) It is their intention to segregate the GESCO Business (which is
in turn divided into the WGS Operations and the WGES
Operations), and the ESBU Business by allocating them to the
Companies as outlined in Section 6.
---------
(b) It is their intention that the exposure of MK, MK-Delaware and
their affiliates to liabilities arising from the GESCO Business
or the ESBU Business, and the exposure of BNFL, BNFL-USA , BNSI
and their affiliates to liabilities arising from the GESCO
Business be limited as set forth herein.
(c) In order to preserve the allocation of liabilities reflected by
such actions, the parties agree that each of the parties and the
Companies and their respective affiliates will be entitled to
indemnification as set forth below.
11.2 First and Second Tier Entities. For the purposes of this Section 11
------------------------------ ----------
(a) MK, BNFL-USA, BNSI and, if applicable, their parent companies
are referred to as "FIRST TIER ENTITIES" and
(b) WGNH, WGS, WGES and WELCO, and their respective subsidiaries,
are referred to as "SECOND TIER ENTITIES".
11.3 Indemnification. With respect to any liability or claim that arises
---------------
from the business or operations of any Second Tier Entity (or any
predecessor):
(a) WGS. In the case of any liability of any kind or nature
---
whatsoever (including liabilities existing on the GESCO Closing
Date) that arises from the business or operations of WGS, WGS
will indemnify and defend MK-Delaware, MK, their affiliates,
BNFL, BNFL-USA, BNSI and their affiliates, WGNH and any other
Second Tier Entities and their affiliates and hold them harmless
against any loss or expense arising from such liability or claim
(including reasonable attorneys' fees but excluding
consequential damages) ("LOSSES"); provided that
-21-
<PAGE>
CONFIDENTIAL
(i) there shall be excluded from indemnification any Loss that
is reflected in a reduction in the value of any equity
interest in WGS held by MK or its affiliates or in the
amounts payable to BNSI under the WGS Agreement, and
(ii) the assets of WGS that are to be used to make any such
indemnification payments shall in any event exclude its
membership interest in WGES and any dividends, distributions
or other payments received by WGS, or payable to WGS, with
respect to such interest.
If the assets of WGS are insufficient to perform the required
indemnification and defense BNSI and MK will make appropriate
payments to each other and their respective affiliates such that
MK and its affiliates, on the one hand, and BNSI and its
affiliates, on the other hand, (taking into account their
economic participation in the Second Tier Entities) share any
Losses as provided in the WGS Agreement and otherwise on a 60/40
basis.
(b) WGES. In the case of any liability of any kind or nature
----
whatsoever (including liabilities existing on the GESCO Closing
Date) arising from the business or operations of WGES, WGES will
indemnify and defend MK-Delaware, MK, their affiliates, BNFL,
BNFL-USA, BNSI and their affiliates, WGNH and each of the other
Second Tier Entities and their affiliates and hold them harmless
against any Losses, provided that there shall be excluded from
indemnification any Loss that is reflected in a reduction in the
value of any equity interest in WGES held by MK or BNFL-USA, BNSI
or their affiliates. If the assets of WGES, as the case may be,
are insufficient to perform the required indemnification and
defense, BNFL-USA and MK will make appropriate payments to each
other and their respective affiliates such that MK and its
affiliates, on the one hand, and BNFL-USA and its affiliates, on
the other hand, (taking into account their economic participation
in the Second Tier Entities) share any Losses on a 60/40 basis.
(c) WELCO. In the case of any liability of any kind or nature
-----
whatsoever (including liabilities existing on the ESBU Closing
Date) that arises from the business or operations of WELCO, WELCO
will indemnify and defend MK-Delaware, MK, their affiliates, WGNH
and any other Second Tier Entities and their affiliates and hold
them harmless against any Losses. If the assets of WELCO are
insufficient to perform the required indemnification and defense,
BNFL-USA will indemnify, defend and hold harmless
-22-
<PAGE>
CONFIDENTIAL
MK-Delaware, MK, and their affiliates, and WGNH and any other
Second Tier Entities and their affiliates.
11.4 Limitations. The provisions of this Section 11 shall be perpetual.
----------- ----------
11.5 Notice and Cooperation. Any party that has, or believes that it may
----------------------
have, a claim for indemnification or other right to payment under
this Section 11 will give prompt written notice to the other party
----------
and other relevant parties of the event or circumstances giving rise
to such claim. The parties will cooperate with each other and their
affiliates in the investigation and defense of any liability or claim
that may be the subject of this Section 11. Any disputes will be
----------
resolved as provided in Section 12.
----------
12. DISPUTE RESOLUTION.
------------------
12.1 All disputes with respect to any matters that are the subject of this
Agreement will, In the first instance, be referred to the Chief
Executive Officers ("CEOS") of MK-Delaware and BNFL as
representatives of their respective companies.
12.2 If the dispute cannot be resolved by the CEO's within 60 days after
it is referred to them, then either party may initiate mediation of
the dispute in accordance with the Center for Public Resources Model
Procedure for Mediation of Business Disputes.
12.3 If the dispute has not been resolved within 60 days after the
initiation of the mediation procedure, or if either party will not
participate in a mediation, it will then be subject to binding
arbitration under the rules of the International Chamber of Commerce
at a mutually agreeable venue. If MK and BNFL-USA are unable to agree
on a venue, the arbitration will take place at a neutral site other
than the United States or the United Kingdom.
13. TERMINATION. This Agreement will terminate automatically upon the
-----------
termination, for any reason, of the ESBU Purchase Agreement or the GESCO
Purchase Agreement. In addition, this Agreement, except for the provisions
of Sections 11, 12, 14, and 15 hereof, shall terminate on the earliest date
on which either BNFL or MK, directly or through one or more of their
respective Affiliates, (i) no longer holds an interest in WGS and (ii) no
longer holds an interest in WGES.
14. CONFIDENTIAL INFORMATION.
------------------------
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<PAGE>
CONFIDENTIAL
14.1 The parties acknowledge that in order to carry out the purposes of
this Agreement it will be necessary for them to disclose to the other
party, and to its affiliates, confidential and proprietary
information of the disclosing party or its affiliates.
14.2 Each party will take reasonable actions to identify to the other
party any information that is confidential or proprietary, which will
include marking or identifying such information (in whatever form it
may be embodied) as "Confidential". All such information is referred
to as "CONFIDENTIAL INFORMATION".
14.3 Each party will treat the other party's Confidential Information as
confidential, will not disclose it to any other person (other those
of its and its affiliates' officers, directors and representatives
who need to know such information for the purpose of carrying out the
transactions contemplated by this Agreement) or use it for any
purpose other than carrying out the transactions contemplated by this
Agreement.
14.4 The restrictions imposed under this Section 14 shall remain in effect
----------
(a) with respect to any Confidential Information that constitutes a
"trade secret" (as defined under the laws of the State of New
York) of the disclosing party, so long as it remains a trade
secret,
(b) with respect to other Confidential Information, so long as the
parties jointly hold interests in any of the GESCO Business,
whether through their respective investments in any of the
Companies or otherwise and until the third anniversary of the
date on which any such joint ownership is terminated.
14.5 The restrictions imposed under this Section 14 shall not apply to any
----------
Confidential Information that
(a) at the time of disclosure is available in the public domain or
is known to the receiving party without breach of any obligation
of confidentiality,
(b) is subsequently disclosed by a third party to the receiving
party without any obligation of confidentiality, or
(c) is independently developed by the receiving party without breach
of any obligation of confidentiality.
15. MISCELLANEOUS.
-------------
-24-
<PAGE>
CONFIDENTIAL
15.1 Cooperation Prior to Closing. During the period between execution of
----------------------------
this Agreement and the ESBU and GESCO Closing Dates, MK and BNFL-USA
will consult regularly with respect to matters arising under the ESBU
Purchase Agreement and/or the GESCO Purchase Agreement. Initiating
formal disputes, challenges or allegations of breach against CBS
under such agreements will require the agreement of MK and BNFL-USA.
15.2 Integration. This Agreement contains the entire understanding of the
-----------
parties with respect to the subject matter hereof, and supersedes the
Original Agreement and all other prior understandings and agreements
between them or their affiliates with respect to such subject matter.
The parties expect that this Agreement will be superseded in whole or
in part by one or more other written agreements between them (the
"SUBSEQUENT AGREEMENTS"). Each Subsequent Agreement shall make
specific reference to this Agreement and the provisions, if any, of
this Agreement that are to be superseded by such Subsequent
Agreement.
15.3 Governing Law. This Agreement is governed by and shall be construed
-------------
in accordance with the law of the State of New York, without regard
to the principles of conflicts of laws.
15.4 Assignment. No party shall have the right to assign all or any part
----------
of its rights or obligations under this Agreement without the written
consent of the other party. This Agreement shall be binding upon and
enure to the benefit of the parties and their respective permitted
successors and assigns.
15.5 No Third Party Beneficiaries. Except for the Companies, this
----------------------------
Agreement is not intended to create any rights in any person that is
not a party to this Agreement.
15.6 No Partnership. The parties do not intend to create, and this
--------------
Agreement shall not be deemed to create, a partnership or agency
relationship or any fiduciary duties between MK and BNFL-USA or any
of their affiliates.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers or agents, all as of
the day and year first above written.
MK MORRISON KNUDSEN CORPORATION
-25-
<PAGE>
CONFIDENTIAL
By: ______________________________
Name:
Title:
BNFL-USA BNFL USA GROUP INC.
By: ______________________________
Name:
Title:
-26-
<PAGE>
CONFIDENTIAL
GUARANTEES
1. BNFL. In consideration of the execution and delivery of this
----
Agreement by MK, British Nuclear Fuels plc, a public limited company
organized under the laws of England ("BNFL"), hereby unconditionally
and irrevocably guarantees to MK-Delaware and MK the due and punctual
payment and performance by BNFL-USA of all of its obligations under
this Agreement (including without limitation its indemnification
obligations under Section 11), the GESCO Purchase Agreement and the
----------
ESBU Purchase Agreement. This guarantee replaces the Original
Guarantee executed by BNFL on June 24, 1998.
Dated: January __, 1999 BRITISH NUCLEAR FUELS plc
By: __________________________
Name:
Title:
2. MK. In consideration of the execution and delivery of this Agreement
--
by BNFL-USA, Morrison Knudsen Corporation, a Delaware corporation
("MK-DELAWARE"), hereby unconditionally and irrevocably guarantees to
BNFL and BNFL-USA the due and punctual payment and performance by MK
of all of its obligations under this Agreement (including without
limitation its indemnification obligations under Section 11), the
----------
GESCO Purchase Agreement and the ESBU Purchase Agreement. This
guarantee replaces the Original Guarantee executed by MK-Delaware on
June 24, 1998.
Dated: January __, 1999 MORRISON KNUDSEN CORPORATION
By: __________________________
Name:
Title:
-27-
<PAGE>
CONFIDENTIAL
EXHIBITS
THE REGISTRANT AGREES TO PROVIDE THE SECURITIES AND EXCHANGE
COMMISSION, UPON REQUEST, WITH COPIES OF THE EXHIBITS HERETO.
-28-
<PAGE>
EXHIBIT 10.14
AMENDMENT NO. 1 TO THE
MORRISON KNUDSEN CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN
WHEREAS, Morrison Knudsen Corporation (the "Company") is the successor
to Kasler Holding Company, which heretofore established The 1994 Stock Option
and Incentive Plan for Officers, Directors and Key Employees of Kasler Holding
Company (the "Plan"), effective January 19, 1994, for the benefit of Key
Employees and Directors;
WHEREAS, the Plan was renamed and most recently amended and restated
effective January 10, 1997, as the Morrison Knudsen Corporation Amended and
Restated Stock Option Plan; and
WHEREAS, The Company desires to amend the Plan to modify the
procedures for non-employee directors of the Company to forego cash payment of
director fees in exchange for Options under the Plan;
NOW, THEREFORE, The Plan is hereby amended as follows effective
October 15, 1998:
1.
Section 3.5, Awards to Non-Employee Director, is hereby amended to add
-------------------------------
the following language at the end of said section:
Notwithstanding the foregoing, an election pursuant to this Section
3.5 automatically shall carry over from year to year until the non-
employee director who made such election either is no longer eligible
to participate in the Plan or elects in writing to change or cease his
or her election. Any change in, or cessation of, election will be
prospective only and will be effective beginning on the December 1/st/
immediately following receipt of the written notice of change.
2.
Except as amended herein, the Plan shall continue in full force and
effect.
IN WITNESS WHEREOF, the Company has executed these presents this 30th
----
day of October, 1998.
MORRISON KNUDSEN CORPORATION
/s/ Robert A. Tinstman
By: ________________________________________
Robert A. Tinstman
President and Chief Executive Officer
<PAGE>
SCHEDULE TO EXHIBIT 10.22
MORRISON KNUDSEN CORPORATION
INDEMNIFICATION AGREEMENTS
Name Date of Agreement
---- -----------------
David H. Batchelder September 12, 1996
Douglas L. Brigham September 12, 1996
Anthony S. Cleberg May 5, 1997
Frank S. Finlayson July 29, 1997
Stephen G. Hanks September 12, 1996
Alvia L. Henderson September 12, 1996
Leonard R. Judd September 12, 1996
Roger J. Ludlam February 1, 1999
Robert S. Miller, Jr. September 12, 1996
Dorn Parkinson September 12, 1996
Richard D. Parry September 12, 1996
Terry W. Payne September 12, 1996
John D. Roach September 12, 1996
Jonathan M. Robertson September 12, 1996
Lisa H. Ross September 12, 1996
Charles W. Simpson September 12, 1996
Craig G. Taylor April 10, 1997
Robert A. Tinstman September 12, 1996
Dennis R. Washington September 12, 1996
Thomas H. Zarges September 12, 1996
<PAGE>
EXHIBIT 10.26
MORRISON KNUDSEN CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT (this "Agreement"), dated as of January 20, 1999, is made by
and between Morrison Knudsen Corporation, a Delaware corporation hereinafter
referred to as "Company," and ROBERT A. TINSTMAN, an employee of the Company or
Subsidiary of the Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (as hereinafter defined),
the terms of which are hereby incorporated herein by reference and made a part
hereof; and
WHEREAS, the execution of a Nonqualified Stock Option Agreement in the form
hereof has been duly authorized by a resolution of the Board of Directors of the
Company duly adopted on January 20, 1999, and incorporated herein by reference;
and
WHEREAS, this Option is intended to be a nonqualified stock option and
shall not be treated as an "incentive stock option" within the meaning of that
term under Section 422 of the Code;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Wherever the following terms are used in this Agreement with initial
capital letters, they shall have the meanings specified in the Plan unless the
context clearly indicates otherwise.
Section 1.1 - Beneficiary
Section 1.2 - Code
Section 1.3 - Common Stock
Section 1.4 - Company
Section 1.5 - Employee
Section 1.6 - Exchange Act
Section 1.7 - Fair Market Value
Section 1.8 - Subsidiary
Section 1.9 - Termination of Employment
1
<PAGE>
EXHIBIT 10.31
MORRISON KNUDSEN CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT (this "Agreement"), dated as of January 20, 1999, is made by
and between Morrison Knudsen Corporation, a Delaware corporation hereinafter
referred to as "Company," and STEPHEN G. HANKS, an employee of the Company or
Subsidiary of the Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (as hereinafter defined),
the terms of which are hereby incorporated herein by reference and made a part
hereof; and
WHEREAS, the execution of a Nonqualified Stock Option Agreement in the form
hereof has been duly authorized by a resolution of the Board of Directors of the
Company duly adopted on January 20, 1999, and incorporated herein by reference;
and
WHEREAS, this Option is intended to be a nonqualified stock option and
shall not be treated as an "incentive stock option" within the meaning of that
term under Section 422 of the Code;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Wherever the following terms are used in this Agreement with initial
capital letters, they shall have the meanings specified in the Plan unless the
context clearly indicates otherwise.
Section 1.1 - Beneficiary
Section 1.2 - Code
Section 1.3 - Common Stock
Section 1.4 - Company
Section 1.5 - Employee
Section 1.6 - Exchange Act
Section 1.7 - Fair Market Value
Section 1.8 - Subsidiary
Section 1.9 - Termination of Employment
1
<PAGE>
Wherever the following terms are used in this Agreement with initial
capital letters, they shall have the meanings specified below unless the context
clearly indicates otherwise. The masculine pronoun shall include the feminine
and neuter, and the singular the plural, where the context so indicates.
Section 1.10 - Board
- ------------ -----
"Board" shall mean the Board of Directors of the Company and shall include
any committee to which the Board of Directors may have delegated its authority
pursuant to Section 8.1 of the Plan.
Section 1.11 - Optionee
- ------------ --------
"Optionee" shall mean the Employee named above to whom an Option is awarded
under this Agreement and the Plan.
Section 1.12 - Plan
- ------------ ----
"Plan" shall mean the Morrison Knudsen Corporation Amended and Restated
Stock Option Plan, as amended and restated as of January 10, 1997, and as the
same may be further amended or restated.
Section 1.14 - Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.15 - Securities Act
- ------------ --------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
ARTICLE II
AWARD OF OPTION
Section 2.1 - Grant of Award
- ----------- --------------
In consideration of the Optionee's execution of this Agreement and for
other good and valuable consideration, on the date hereof the Company
irrevocably awards to the Optionee the option to purchase any part or all of an
aggregate of 50,000 shares of its $.01 par value Common Stock upon the terms and
subject to the conditions set forth in the Plan and in this Agreement.
2
<PAGE>
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of stock covered by the Option shall be
$10.50 per share without commission or other charge.
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the awarding of this Option by the Company, the
Optionee agrees to render faithful and efficient services to the Company or a
Subsidiary, with such duties and responsibilities as the Company shall from time
to time prescribe, for a period of at least one (1) year from the date this
Option is awarded. Nothing in this Agreement or in the Plan shall confer upon
the Optionee any right to continue in the employ of the Company or any
Subsidiary, or shall interfere with or restrict in any way the rights of the
Company and its Subsidiaries, which are hereby expressly reserved, to discharge
the Optionee at any time for any reason whatsoever, with or without cause.
Section 2.4 - Adjustments in Option
- ----------- ---------------------
The Board may make or provide for such adjustments in the (a) number of
shares of Common Stock covered by outstanding Options awarded hereunder, (b)
prices per share applicable to such Options, and (c) kind of shares (including
shares of another issuer) covered thereby, as the Board in its sole discretion
may in good faith determine to be equitably required in order to prevent
dilution or enlargement of the rights of Optionees, that otherwise would result
from (x) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, (y)
any merger, consolidation, spin-off, split-off, split-up, reorganization,
partial or complete liquidation or other distribution of assets, issuance of
rights or warrants to purchase securities or (z) any other corporate transaction
or event having an effect similar to any of the foregoing. In the event of any
such transaction or event, the Board may provide in substitution for any or all
outstanding awards under this Agreement such alternative consideration as it may
in good faith determine to be equitable under the circumstances and may require
in connection therewith the surrender of all awards so replaced.
ARTICLE III
PERIOD OF EXERCISABILITY
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) This Option shall become exercisable in four (4) cumulative installments as
follows:
(i) The first installment shall consist of one-fourth (1/4) of the shares
covered by the Option and shall become exercisable on the date that is
one year from the date the Option was awarded.
3
<PAGE>
(ii) The second installment shall consist of one-fourth (1/4) of the
shares covered by the Option and shall become exercisable on the date
that is two years from the date the Option was awarded.
(iii) The third installment shall consist of one-fourth (1/4) of the
shares covered by the Option and shall become exercisable on the date
that is three years from the date the Option was awarded.
(iv) The fourth installment shall consist of one-fourth (1/4) of the
shares covered by the Option and shall become exercisable on the date
that is four years from the date the Option was awarded.
(b) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
- ----------- --------------------
(a) The Option may not be exercised to any extent by anyone after the first to
occur of the following events:
(i) The expiration of ten (10) years from the date the Option was
awarded; or
(ii) Except as set forth in 3.3(a) (iii) and (iv), the expiration of three
(3) months after the Optionee's Termination of Employment; or
(iii) The expiration of twelve (12) months from the date of the Optionee's
Termination of Employment by reason of permanent and total disability
(within the meaning of Section 22(e) (3) of the Code) or by reason of
retirement at or after age 65; or
(iv) If the Optionee dies while the Option is exercisable, the expiration
of twelve (12) months from the date of the Optionee's death.
(b) This Agreement shall amend that certain Employment Agreement dated as of
January 1, 1993 between the Optionee and the Company (the "Employment
Agreement"), in that, notwithstanding Article 4 of the Employment
Agreement, no portion of this Option that is unvested as of the date the
Optionee's employment with the Company is terminated for any reason shall
be exercisable.
4
<PAGE>
ARTICLE IV
EXERCISE OF OPTION
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Optionee, only he or his guardian or legal
representative may exercise the Option or any portion thereof. After the death
of the Optionee, any exercisable portion of the Option may, prior to the time
when the Option becomes unexercisable under Section 3.3, be exercised by his
personal representative or by any person empowered to do so under the Optionee's
will or under the then applicable laws of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then wholly
exercisable, may be exercised in whole or in part at any time prior to the time
when the Option or portion thereof becomes unexercisable under Section 3.3;
provided, however, that each partial exercise shall be for not less than one
hundred (100) shares and shall be for whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option or any exercisable portion thereof, may be exercised solely by
delivery to the Secretary or his office of all of the following prior to the
time when the Option or such portion becomes unexercisable under Section 3.3:
(a) Notice in writing signed by the Optionee or the other person then entitled
to exercise the Option or portion, stating that the Option or portion is
thereby exercised, such notice complying with all applicable rules
established by the Board; and
(b) Full payment for the shares with respect to which such option or portion is
exercised, which payment shall be (i) in cash, (ii) through the delivery of
shares of Common Stock owned by the Optionee for at least six months, duly
endorsed for transfer to the Company with a Fair Market Value on the date
of delivery equal to the aggregate exercise price of the Option or
exercised portion thereof, or (iii) subject to the timing requirements of
Section 5.3 of the Plan, through any combination of the consideration
provided in the foregoing subparagraphs (i) or (ii); and
(c) Such representations and documents as the Board deems necessary or
advisable to effect compliance with all applicable provisions of the
Securities Act of 1933, as amended, and any other federal or state
securities laws or regulations. The Board may also take whatever
additional actions it deems appropriate to effect such compliance including
(without limitation) placing legends on share certificates and issuing
stop-transfer notices to agents and registrars;
5
<PAGE>
(d) Full payment to the Company (or other employer corporation) of all amounts
which under federal, state or local tax law, it is required to withhold
upon exercise of the Option; provided, however, the Company may permit the
-----------------
Optionee, upon delivery of a written election to the Secretary of the
Company (or to such other person who may be designated by the Board) to
elect to have the Company withhold shares of Common Stock otherwise
issuable upon the exercise of the Option. Shares of Common Stock so
withheld will be credited against this tax obligation at their Fair Market
Value; and
(e) In the event the Option or portion shall be exercised pursuant to Section
4.1 by any person or persons other than the Optionee, appropriate proof of
the right of such person or persons to exercise the Option.
Section 4.4 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been repurchased by the Company. Such shares
shall be fully paid and non-assessable. The Company shall not be required to
issue or deliver any certificate or certificates for shares of stock purchased
upon the exercise of the Option or portion thereof prior to fulfillment of all
of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed; and
(b) The completion of any registration or other qualification of such shares
under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory
body, which the Board shall deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state or federal
governmental agency which the Board shall determine to be necessary or
advisable; and
(d) The payment to the Company (or other employer corporation) of all amounts
which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise of the
Option as the Board may from time to time establish for reasons of
administrative convenience.
Section 4.5 - Rights as Shareholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
6
<PAGE>
ARTICLE V
OTHER PROVISIONS
Section 5.1 - Administration
- ----------- --------------
The Board shall have the power to interpret the Plan and this Agreement and
to adopt such rules for the administration, interpretation and application of
the Plan as are consistent therewith and to interpret, amend or revoke any such
rules. All actions taken and all interpretations and determinations made by the
Board in good faith shall be final and binding upon the Optionee, the Company
and all other interested persons. No member of the Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan or the Option.
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Options under the Plan may not be sold, pledged, assigned or transferred in
any manner other than by will or the laws of descent and distribution; provided,
---------
however, an Optionee may designate a Beneficiary to exercise his Option or other
- -------
rights under the Plan after his death. Neither the Option nor any interest or
right therein or part thereof shall be liable for the debts, contracts or
engagements of the Optionee or his successors in interest or shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment or
any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect; provided,
---------
however, that this Section 5.2 shall not prevent transfers by will or by the
- -------
applicable laws of descent and distribution. An Option shall be exercised
during the Optionee's lifetime only by the Optionee or his guardian or legal
representative.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary, and any notice to be
given to the Optionee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section 5.4, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Optionee shall, if the Optionee is
then deceased, be given to the Optionee's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section 5.4. Any notice shall be deemed duly given
when enclosed in a properly sealed envelope or
7
<PAGE>
wrapper addressed as aforesaid, deposited (with postage prepaid) in a post
office or branch post office regularly maintained by the United States Postal
Service.
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 5.6 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under the
internal substantive laws of the State of Delaware.
Section 5.7 - Conformity to Securities Laws
- ----------- -----------------------------
The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all applicable federal and state laws, rules and
regulations, including provisions of the Securities Act and the Exchange Act and
any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3 under the
Exchange Act. Notwithstanding anything herein to the contrary, the Plan shall
be administered, and the Option is awarded and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the Plan and this Agreement shall be deemed amended
to the extent necessary to conform to such laws, rules and regulations.
8
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
MORRISON KNUDSEN CORPORATION
By: ____________________________________
Robert A. Tinstman
President and Chief Executive Officer
OPTIONEE
___________________________________________
Stephen G. Hanks
Spousal Consent
---------------
The undersigned has read and is familiar with the preceding Agreement and
the Plan and hereby consents and agrees to be bound by all the terms of the
Agreement and the Plan. Without limiting the foregoing, the undersigned
specifically agrees that the Company may rely on any authorization, instruction
or election made under the Agreement by the Optionee alone and that all of his
or her right, title or interest, if any, in the shares of Common Stock purchased
by the Optionee under the Agreement, whether arising by operation of community
property law, by property settlement or otherwise, shall be subject to all of
such terms.
___________________________________________
___________________________________________
Printed Name
Exhibit A: Copy of the Plan
9
<PAGE>
EXHIBIT 10.35
MORRISON KNUDSEN CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT (this "Agreement"), dated as of January 20, 1999, is made by
and between Morrison Knudsen Corporation, a Delaware corporation hereinafter
referred to as "Company," and THOMAS H. ZARGES, an employee of the Company or
Subsidiary of the Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (as hereinafter defined),
the terms of which are hereby incorporated herein by reference and made a part
hereof; and
WHEREAS, the execution of a Nonqualified Stock Option Agreement in the form
hereof has been duly authorized by a resolution of the Board of Directors of the
Company duly adopted on January 20, 1999, and incorporated herein by reference;
and
WHEREAS, this Option is intended to be a nonqualified stock option and
shall not be treated as an "incentive stock option" within the meaning of that
term under Section 422 of the Code;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Wherever the following terms are used in this Agreement with initial
capital letters, they shall have the meanings specified in the Plan unless the
context clearly indicates otherwise.
Section 1.1 - Beneficiary
Section 1.2 - Code
Section 1.3 - Common Stock
Section 1.4 - Company
Section 1.5 - Employee
Section 1.6 - Exchange Act
Section 1.7 - Fair Market Value
Section 1.8 - Subsidiary
Section 1.9 - Termination of Employment
1
<PAGE>
Wherever the following terms are used in this Agreement with initial
capital letters, they shall have the meanings specified below unless the context
clearly indicates otherwise. The masculine pronoun shall include the feminine
and neuter, and the singular the plural, where the context so indicates.
Section 1.10 - Board
- ------------ -----
"Board" shall mean the Board of Directors of the Company and shall include
any committee to which the Board of Directors may have delegated its authority
pursuant to Section 8.1 of the Plan.
Section 1.11 - Optionee
- ------------ --------
"Optionee" shall mean the Employee named above to whom an Option is awarded
under this Agreement and the Plan.
Section 1.12 - Plan
- ------------ ----
"Plan" shall mean the Morrison Knudsen Corporation Amended and Restated
Stock Option Plan, as amended and restated as of January 10, 1997, and as the
same may be further amended or restated.
Section 1.14 - Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.15 - Securities Act
- ------------ --------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
ARTICLE II
AWARD OF OPTION
Section 2.1 - Grant of Award
- ----------- --------------
In consideration of the Optionee's execution of this Agreement and for
other good and valuable consideration, on the date hereof the Company
irrevocably awards to the Optionee the option to purchase any part or all of an
aggregate of 75,000 shares of its $.01 par value Common Stock upon the terms and
subject to the conditions set forth in the Plan and in this Agreement.
2
<PAGE>
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of stock covered by the Option shall be
$10.50 per share without commission or other charge.
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the awarding of this Option by the Company, the
Optionee agrees to render faithful and efficient services to the Company or a
Subsidiary, with such duties and responsibilities as the Company shall from time
to time prescribe, for a period of at least one (1) year from the date this
Option is awarded. Nothing in this Agreement or in the Plan shall confer upon
the Optionee any right to continue in the employ of the Company or any
Subsidiary, or shall interfere with or restrict in any way the rights of the
Company and its Subsidiaries, which are hereby expressly reserved, to discharge
the Optionee at any time for any reason whatsoever, with or without cause.
Section 2.4 - Adjustments in Option
- ----------- ---------------------
The Board may make or provide for such adjustments in the (a) number of
shares of Common Stock covered by outstanding Options awarded hereunder, (b)
prices per share applicable to such Options, and (c) kind of shares (including
shares of another issuer) covered thereby, as the Board in its sole discretion
may in good faith determine to be equitably required in order to prevent
dilution or enlargement of the rights of Optionees, that otherwise would result
from (x) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, (y)
any merger, consolidation, spin-off, split-off, split-up, reorganization,
partial or complete liquidation or other distribution of assets, issuance of
rights or warrants to purchase securities or (z) any other corporate transaction
or event having an effect similar to any of the foregoing. In the event of any
such transaction or event, the Board may provide in substitution for any or all
outstanding awards under this Agreement such alternative consideration as it may
in good faith determine to be equitable under the circumstances and may require
in connection therewith the surrender of all awards so replaced.
ARTICLE III
PERIOD OF EXERCISABILITY
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) This Option shall become exercisable in four (4) cumulative installments as
follows:
(i) The first installment shall consist of one-fourth (1/4) of the shares
covered by the Option and shall become exercisable on the date that is
one year from the date the Option was awarded.
3
<PAGE>
(ii) The second installment shall consist of one-fourth (1/4) of the
shares covered by the Option and shall become exercisable on the date
that is two years from the date the Option was awarded.
(iii) The third installment shall consist of one-fourth (1/4) of the
shares covered by the Option and shall become exercisable on the date
that is three years from the date the Option was awarded.
(iv) The fourth installment shall consist of one-fourth (1/4) of the
shares covered by the Option and shall become exercisable on the date
that is four years from the date the Option was awarded.
(b) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
- ----------- --------------------
(a) The Option may not be exercised to any extent by anyone after the first to
occur of the following events:
(i) The expiration of ten (10) years from the date the Option was
awarded; or
(ii) Except as set forth in 3.3(a) (iii) and (iv), the expiration of three
(3) months after the Optionee's Termination of Employment; or
(iii) The expiration of twelve (12) months from the date of the Optionee's
Termination of Employment by reason of permanent and total disability
(within the meaning of Section 22(e) (3) of the Code) or by reason of
retirement at or after age 65; or
(iv) If the Optionee dies while the Option is exercisable, the expiration
of twelve (12) months from the date of the Optionee's death.
(b) This Agreement shall amend that certain Employment Agreement dated as of
January 1, 1994 between the Optionee and the Company (the "Employment
Agreement"), in that, notwithstanding Article 4 of the Employment
Agreement, no portion of this Option that is unvested as of the date the
Optionee's employment with the Company is terminated for any reason shall
be exercisable.
4
<PAGE>
ARTICLE IV
EXERCISE OF OPTION
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Optionee, only he or his guardian or legal
representative may exercise the Option or any portion thereof. After the death
of the Optionee, any exercisable portion of the Option may, prior to the time
when the Option becomes unexercisable under Section 3.3, be exercised by his
personal representative or by any person empowered to do so under the Optionee's
will or under the then applicable laws of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then wholly
exercisable, may be exercised in whole or in part at any time prior to the time
when the Option or portion thereof becomes unexercisable under Section 3.3;
provided, however, that each partial exercise shall be for not less than one
hundred (100) shares and shall be for whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option or any exercisable portion thereof, may be exercised solely by
delivery to the Secretary or his office of all of the following prior to the
time when the Option or such portion becomes unexercisable under Section 3.3:
(a) Notice in writing signed by the Optionee or the other person then entitled
to exercise the Option or portion, stating that the Option or portion is
thereby exercised, such notice complying with all applicable rules
established by the Board; and
(b) Full payment for the shares with respect to which such option or portion is
exercised, which payment shall be (i) in cash, (ii) through the delivery of
shares of Common Stock owned by the Optionee for at least six months, duly
endorsed for transfer to the Company with a Fair Market Value on the date
of delivery equal to the aggregate exercise price of the Option or
exercised portion thereof, or (iii) subject to the timing requirements of
Section 5.3 of the Plan, through any combination of the consideration
provided in the foregoing subparagraphs (i) or (ii); and
(c) Such representations and documents as the Board deems necessary or
advisable to effect compliance with all applicable provisions of the
Securities Act of 1933, as amended, and any other federal or state
securities laws or regulations. The Board may also take whatever
additional actions it deems appropriate to effect such compliance including
(without limitation) placing legends on share certificates and issuing
stop-transfer notices to agents and registrars;
5
<PAGE>
(d) Full payment to the Company (or other employer corporation) of all amounts
which under federal, state or local tax law, it is required to withhold
upon exercise of the Option; provided, however, the Company may permit the
-----------------
Optionee, upon delivery of a written election to the Secretary of the
Company (or to such other person who may be designated by the Board) to
elect to have the Company withhold shares of Common Stock otherwise
issuable upon the exercise of the Option. Shares of Common Stock so
withheld will be credited against this tax obligation at their Fair Market
Value; and
(e) In the event the Option or portion shall be exercised pursuant to Section
4.1 by any person or persons other than the Optionee, appropriate proof of
the right of such person or persons to exercise the Option.
Section 4.4 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been repurchased by the Company. Such shares
shall be fully paid and non-assessable. The Company shall not be required to
issue or deliver any certificate or certificates for shares of stock purchased
upon the exercise of the Option or portion thereof prior to fulfillment of all
of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed; and
(b) The completion of any registration or other qualification of such shares
under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory
body, which the Board shall deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state or federal
governmental agency which the Board shall determine to be necessary or
advisable; and
(d) The payment to the Company (or other employer corporation) of all amounts
which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise of the
Option as the Board may from time to time establish for reasons of
administrative convenience.
Section 4.5 - Rights as Shareholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
6
<PAGE>
ARTICLE V
OTHER PROVISIONS
Section 5.1 - Administration
- ----------- --------------
The Board shall have the power to interpret the Plan and this Agreement and
to adopt such rules for the administration, interpretation and application of
the Plan as are consistent therewith and to interpret, amend or revoke any such
rules. All actions taken and all interpretations and determinations made by the
Board in good faith shall be final and binding upon the Optionee, the Company
and all other interested persons. No member of the Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan or the Option.
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Options under the Plan may not be sold, pledged, assigned or transferred in
any manner other than by will or the laws of descent and distribution; provided,
---------
however, an Optionee may designate a Beneficiary to exercise his Option or other
- -------
rights under the Plan after his death. Neither the Option nor any interest or
right therein or part thereof shall be liable for the debts, contracts or
engagements of the Optionee or his successors in interest or shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment or
any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect; provided,
---------
however, that this Section 5.2 shall not prevent transfers by will or by the
- -------
applicable laws of descent and distribution. An Option shall be exercised
during the Optionee's lifetime only by the Optionee or his guardian or legal
representative.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary, and any notice to be
given to the Optionee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section 5.4, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Optionee shall, if the Optionee is
then deceased, be given to the Optionee's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section 5.4. Any notice shall be deemed duly given
when enclosed in a properly sealed envelope or
7
<PAGE>
wrapper addressed as aforesaid, deposited (with postage prepaid) in a post
office or branch post office regularly maintained by the United States Postal
Service.
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 5.6 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under the
internal substantive laws of the State of Delaware.
Section 5.7 - Conformity to Securities Laws
- ----------- -----------------------------
The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all applicable federal and state laws, rules and
regulations, including provisions of the Securities Act and the Exchange Act and
any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3 under the
Exchange Act. Notwithstanding anything herein to the contrary, the Plan shall
be administered, and the Option is awarded and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the Plan and this Agreement shall be deemed amended
to the extent necessary to conform to such laws, rules and regulations.
8
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
MORRISON KNUDSEN CORPORATION
By: ____________________________________
Stephen G. Hanks
Executive Vice President
OPTIONEE
___________________________________________
Thomas H. Zarges
Spousal Consent
---------------
The undersigned has read and is familiar with the preceding Agreement and
the Plan and hereby consents and agrees to be bound by all the terms of the
Agreement and the Plan. Without limiting the foregoing, the undersigned
specifically agrees that the Company may rely on any authorization, instruction
or election made under the Agreement by the Optionee alone and that all of his
or her right, title or interest, if any, in the shares of Common Stock purchased
by the Optionee under the Agreement, whether arising by operation of community
property law, by property settlement or otherwise, shall be subject to all of
such terms.
___________________________________________
___________________________________________
Printed Name
Exhibit A: Copy of the Plan
9
<PAGE>
EXHIBIT 10.40
MORRISON KNUDSEN CORPORATION
MORRISON KNUDSEN PLAZA
P. O. BOX 73
BOISE, IDAHO U.S.A. 83729
PHONE: (208) 386-5000
ROBERT A. TINSTMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
January 11, 1999
Mr. Roger J. Ludlam
8 Bridgeton Way
Hopkinton, MA 01748
RE: OFFER OF EMPLOYMENT
Dear Roger:
There is no doubt in my mind that it would be mutually beneficial, to you and
MK, should you decide to join the company. It's clear to me, Dennis and all the
MK executives who had an opportunity to meet you, that your depth and breadth of
experience would be an important factor in the achievement of the company's
strategic and financial goals.
On behalf of Morrison Knudsen Corporation (the "Company"), I am pleased to offer
you employment pursuant to the terms and conditions set forth in this letter and
subject to Board of Director approval.
1. Position and Services to be Rendered. The Company hereby agrees to employ
------------------------------------
you as Executive Vice President and Group President/CEO of the combined
Heavy Civil Construction and Mining groups. You accept such employment and
agree to devote your full time and attention exclusively to rendering
services to the Company. You will report to the Company's Chief Executive
Officer. Your actual first date of active employment with the Company will
hereafter be referred to as the "Effective Date".
2. Salary. You will receive an annual base salary of $375,000 commencing as
------
of the Effective Date, payable in accordance with the Company's normal
payroll practice (i.e., every two weeks). Your position will be a regular
full-time position and you will be
<PAGE>
Roger J. Ludlam
01/12/99
Page 2 of 5
assigned a Grade Level of 27. The Company will review your base salary
annually to determine any increase.
3. Signing Bonus. You will be paid a signing bonus of $400,000. This payment
-------------
will be made on the first payroll period following the Effective Date.
4. Annual Cash Bonus. You will be considered for a 50% of base salary annual
-----------------
cash bonus at the end of each fiscal year as determined by the Compensation
Committee of the Board of Directors. Management retains the discretion to
pay between 50% and 150% of the target bonus amount, based on individual
and/or group-level performance. In accordance with our discussions, since
you did not develop the 1999 performance targets or budgets, your
performance will be evaluated based on both qualitative and quantitative
factors; after 1999 the measures will be based primarily on group
performance.
5. Stock Options. You will be granted options to purchase 200,000 shares of
-------------
the Company's common stock, under the Company's Stock Option Plan, at a
price equal to the per share closing price of the Company's common stock as
of the Effective Date. The options shall vest 20% each year for five
years. Such options shall be subject to the terms and conditions of the
Stock Option Plan and such additional conditions as the Compensation
Committee may impose.
6. Long-Term Incentive Plan: I have asked the Compensation Committee of the
------------------------
Board of Directors to approve a Long-Term Incentive Plan that would pay you
and four other executives a bonus equal to one years base salary, if the
Company achieves cumulative earnings per share of $2.02 for 1999 and 2000.
It is not an easy target, but it is within the range of what the Company
can do if all the operating groups (including Heavy Civil and Mining)
perform well. While the plan has not been finally approved by the
Committee and Board, it is on the agenda for such approval at the January
20 and 21 meeting.
7. Fringe Benefits. You will be entitled to the Company's standard relocation
---------------
assistance when you move from Hopkinton, Massachusetts to Boise. Should
your relocation costs exceed established maximums, these costs will be paid
by the company. You will be reimbursed for up to three trips back to
Massachusetts during the first six months of your employment. The Company
will reimburse you for all reasonable and customary living expenses until
your home in Massachusetts sells and your wife relocates to Boise.
Additionally, you will be entitled to all other group plan and other
benefits that are normally offered to regular full-time salaried employees:
<PAGE>
Roger J. Ludlam
01/12/99
Page 3 of 5
[X] 401(k) Savings Plan: The company will match every dollar you contribute to
the plan, up to 5% of your eligible compensation (maximum eligible
compensation is $160,000);
[X] group medical and dental plan and all other benefits as described in the
Handbook for Salaried Employees (a copy of which is provided under separate
cover), and all other group plans and benefits that are normally offered to
regular full-time salaried employees.
[X] Should you choose to continue your physicals at the Mayo Clinic, the
company will bear the costs, including airfare and accommodations, every
two years. The Company's standard policy is to provide an annual physical;
should you, at some point, choose to have your physicals done in Boise, you
will be provided the benefit pursuant to normal company policy.
[X] Vacation: The Company has a paid time off (PTO) policy which would provide
you with three weeks of paid time off during the first 5 years of MK
service. Consistent with our discussions, you will be granted an additional
week of paid time off on an exception basis during your first five years of
MK service. The PTO accrual will not be modified to provide for this
additional week; the time will be granted to you, outside the normal PTO,
and granted to you as leave with pay.
[X] Deferred Compensation Plan: The company has a deferred compensation plan
for certain levels of management; as a senior executive of the company you
would be eligible to participate. This plan allows for deferrals of up to
50% of base salary and up to 100% of bonuses. I have provided, as an
attachment, a calculation showing the annual payout that would result from
a one-time $100,000 deferral at the present rate of interest provided in
this plan (7.33% currently: Moody's rate plus 50 basic points, this rate is
adjusted annually).
8. Executive Life and Disability. In addition to the fringe benefits set
-----------------------------
forth in paragraph 7 herein, during your employment, you will be provided
with supplemental benefits, at no cost to you, which shall result in the
following levels of coverage, inclusive of any coverage provided by basic
Company-sponsored benefits:
a. Pre-retirement (up to age 65) life insurance, equal to three times your
annual base salary. . This is a whole life type policy funded over a
seven-year period that provides a cash value should you remain employed
beyond the seven-year period;
b. Post-retirement (age 65) life insurance, equal to one times your annual
base salary as of the date of your retirement; and
<PAGE>
Roger J. Ludlam
01/12/99
Page 4 of 5
c. Supplemental disability coverage which, when added to coverage from
other Company-sponsored and government sources, will provide long-term
disability income equal to 60% of the sum of your base salary plus your
most recent annual bonus.
9. Massachusetts Home: The company agrees to share in any loss you experience
------------------
on the sale of your home as a result of your relocation to Boise. No risk
of loss of two-thirds of any incurred costs to you, to-date, for the
Massachusetts home custom furnishings and decorating that are not covered
in the final sale price or not incorporated in an Idaho home. MK agrees to
pay two-thirds of the loss (on an audited basis, with the requisite
documentation). You will be eligible for participation in the "Buyer Value
Option" program, described in my letter of December 2, 1998.
10. Contingencies. This employment offer must be contingent upon the following
-------------
contingencies:
a. Your passing of a drug screen test, pursuant to the Company's
Substance Abuse Prevention Program, and your continued compliance with
such program. After reporting to work, you will also be required to
complete an "Employment Certification" form that complies with the
passing of the Drug-Free Workplace Act of 1988.
b. Your execution of a release authorizing the company to complete a
background investigation through the Pinkerton organization. Negative
findings with respect to personal financial management or arrests
and/or convictions could result in the withdrawal of this employment
offer.
c. Your compliance with the following laws:
[X] In accordance with Public Law 99-603, the Immigration and
Naturalization Act of 1986, this offer is made pending receipt of
verifiable documentation from you confirming your eligibility for
employment under the terms and conditions of this Act. Proof of
U.S. citizenship or adequate identification is required before
any hire can be processed. You must present acceptable documents
for employment eligibility verifications when you report for your
first day of work.
[X] In accordance with Public Law 100-679, the Office of Federal
Procurement Policy Act Amendments of 1988, the Company is
prohibited, for a period of two years, from hiring former
government officials or employees (military or civilian) who
participated personally and substantially in the conduct of
<PAGE>
Roger J. Ludlam
01/12/99
Page 5 of 5
any Federal agency procurement. Consequently, this offer is
contingent upon receipt of information from you that your
employment with the Company will not result in a violation of the
Procurement Policy Act. You will be required to complete an
employee certification form verifying your prior employment
before your employment with the Company begins.
As we discussed, a commitment from you is needed by January 18th; should you
choose to accept this offer, it would be expected that you begin work two weeks
thereafter.
By accepting this employment offer, you agree to the terms and conditions
established herein. To indicate your acceptance of this offer, please sign the
facsimile copy of this letter and return it to me. An original will be provided
for your signature at a later date. If you have any questions, please do not
hesitate to contact me.
Sincerely,
/s/ Robert A. Tinstman
Robert A. Tinstman
Attachment
AGREED AND ACCEPTED:
/s/ Roger Ludlam
- ------------------------------
Roger Ludlam
DATE:
- ------------------------------
1/14/99
<PAGE>
Exhibit 21
MORRISON KNUDSEN CORPORATION
SUBSIDIARIES OF THE REGISTRANT
Consolidated subsidiaries of the registrant,
Morrison Knudsen Corporation (Delaware)
STATE OR COUNTRY OF INCORPORATION
---------------------------------
Broadway Insurance Company, Ltd. Bermuda
Centennial Engineering, Inc. Colorado
Industrial Constructors Corporation Montana
MK Ferguson of Oak Ridge Company Tennessee
Morrison Knudsen B.V. Netherlands
Morrison Knudsen Corporation Ohio
Morrison Knudsen Corporation (Montana) Montana
Morrison Knudsen Deutschland GmbH Germany
National Projects, Inc. Nevada
The names of particular subsidiaries have been excluded because when
considered in the aggregate as a single subsidiary, as of November 30, 1998,
they would not constitute a significant subsidiary under Rule 1-02 of Regulation
S-X.
E-1
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to incorporation by reference in the registration statements of
Morrison Knudsen Corporation on Form S-8 (File No.s 033-81038, 333-32511 and
333-39351) of our report, which includes an explanatory paragraph regarding a
change in method of accounting for impairment of long-lived assets in 1996 and
an emphasis of a matter paragraph regarding an environmental contingency, dated
January 25, 1999, on our audits of the consolidated financial statements and
financial statement schedule of Morrison Knudsen Corporation as of November 30,
1998 and 1997, and for each of the three years in the period ended November 30,
1998, which report is included in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Boise, Idaho
February 4, 1999
E-2
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints R. A. Tinstman, S. G. Hanks and A. S. Cleberg, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign on his behalf as a director or officer or both, as the case
may be, of Morrison Knudsen Corporation, a Delaware corporation, Form 10-K
Annual Report for fiscal year ended November 30, 1998, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 29th day of January, 1999.
---------
/s/ Dennis R. Washington
______________________________________
Dennis R. Washington, Chairman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints R. A. Tinstman, S. G. Hanks and A. S. Cleberg, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign on his behalf as a director or officer or both, as the case
may be, of Morrison Knudsen Corporation, a Delaware corporation, Form 10-K
Annual Report for fiscal year ended November 30, 1998, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 30th day of January, 1999.
----------
/s/ David H. Batchelder
______________________________________
David H. Batchelder
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints R. A. Tinstman, S. G. Hanks and A. S. Cleberg, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign on his behalf as a director or officer or both, as the case
may be, of Morrison Knudsen Corporation, a Delaware corporation, Form 10-K
Annual Report for fiscal year ended November 30, 1998, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 1st day of February, 1999.
---------
/s/ Leonard R. Judd
______________________________________
Leonard R. Judd
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints R. A. Tinstman, S. G. Hanks and A. S. Cleberg, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign on his behalf as a director or officer or both, as the case
may be, of Morrison Knudsen Corporation, a Delaware corporation, Form 10-K
Annual Report for fiscal year ended November 30, 1998, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 28th day of January, 1999.
----------
/s/ William C. Langley
----------------------
William C. Langley
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints R. A. Tinstman, S. G. Hanks and A. S. Cleberg, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign on his behalf as a director or officer or both, as the case
may be, of Morrison Knudsen Corporation, a Delaware corporation, Form 10-K
Annual Report for fiscal year ended November 30, 1998, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 3rd day of February, 1999.
----
/s/ Robert S. Miller, Jr.
_____________________________________
Robert S. Miller, Jr.
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints R. A. Tinstman, S. G. Hanks and A. S. Cleberg, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign on his behalf as a director or officer or both, as the case
may be, of Morrison Knudsen Corporation, a Delaware corporation, Form 10-K
Annual Report for fiscal year ended November 30, 1998, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 20th day of January, 1999.
----------
/s/ Dorn Parkinson
______________________________________
Dorn Parkinson
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints R. A. Tinstman, S. G. Hanks and A. S. Cleberg, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign on his behalf as a director or officer or both, as the case
may be, of Morrison Knudsen Corporation, a Delaware corporation, Form 10-K
Annual Report for fiscal year ended November 30, 1998, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 28th day of January, 1999.
---------
/s/ Terry W. Payne
______________________________________
Terry W. Payne
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints R. A. Tinstman, S. G. Hanks and A. S. Cleberg, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign on his behalf as a director or officer or both, as the case
may be, of Morrison Knudsen Corporation, a Delaware corporation, Form 10-K
Annual Report for fiscal year ended November 30, 1998, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed below on the 29th day of January, 1999.
---------
/s/ John D. Roach
______________________________________
John D. Roach
Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying consolidated financial statements and financial statement footnotes
of Morrison Knudsen Corporation at November 30, 1998 and for the year then
ended, and is qualified in its entirety by reference to such consolidated
financial statements and financial statement footnotes:
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
<CASH> 67,054
<SECURITIES> 0
<RECEIVABLES> 183,044
<ALLOWANCES> (7,531)
<INVENTORY> 0
<CURRENT-ASSETS> 427,722
<PP&E> 256,205
<DEPRECIATION> (175,933)
<TOTAL-ASSETS> 788,151
<CURRENT-LIABILITIES> 303,024
<BONDS> 0
0
0
<COMMON> 544
<OTHER-SE> 370,359
<TOTAL-LIABILITY-AND-EQUITY> 788,151
<SALES> 0
<TOTAL-REVENUES> 1,862,174
<CGS> 0
<TOTAL-COSTS> (1,775,632)
<OTHER-EXPENSES> 3,757
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (869)
<INCOME-PRETAX> 67,405
<INCOME-TAX> (29,852)
<INCOME-CONTINUING> 37,553
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,553
<EPS-PRIMARY> .70
<EPS-DILUTED> .69
</TABLE>
